However, tail spend is an issue that procurement
organizations can tackle themselves. And it doesn’t have to
be costly: There are ways to gain better insights and achieve
cost savings that can be accomplished at little or no cost
without turning to outside sources.
A three-part framework — analysis, education and
communication — can help organizations improve value
while managing tail spend.
ANALYZING SPEND DATA
Analysis of spend data is nothing new. But many
organizations may not be taking full advantage of their
procurement management systems’ capabilities to sort,
segment and analyze spend. By consulting internal experts,
they can learn more about existing capabilities and how
to best conduct a “deep dive” to see how purchasing can
be broken down. Even a rudimentary analysis can enable
organizations to see such patterns as:
1) Off-contract purchases. For example, “Why are some of
our regional offices buying copy paper from local suppliers
rather than from our corporate-contract company?”
2) Rogue or maverick spending. “Why are individual sales
reps making repeated use of their corporate purchasing
cards at warehouse stores?”
3) Questionable buys. “Why do we seem to be incurring so
many charges from golf courses?”
Any analysis of an organization’s total spend could show
purchases that don’t add up to much individually but can
easily be aggregated across units — or even the entire
organization — to gain efficiencies and buying power.
After completing the analysis, develop an agenda or plan that
addresses strategies for gaining better control over tail spend
spending. Steps to take include:
• Conducting a thorough spend analysis to pinpoint how
much of the organization’s total procurement outlays fall
outside of procurement’s control
• Looking for questionable and/or fraudulent tail spend
• Considering like substitutes that could be purchased
through normal channels/contracts
• Working towards greater intradepartmental and
interdepartmental consolidation of spend of targeted items
to leverage buying power and buy more strategically
• Consolidating buys across users, locations and units
within the organization
• Scrutinizing contracts for goods/services that have not
been addressed by procurement in a reasonable time
(generally considered 2-3 years). If they have not been
recompeted, why not?
After completing the analysis, organizations need to
address the other parts of the framework — education and
communication — to further improve value.
Education. Procurement’s reach extends throughout
a company. Thus, it’s imperative to educate the entire
enterprise — not only procurement professionals — about
what tail spend is and why it is important. By educating (and
reminding) those in non-procurement areas about the correct
(and incorrect) ways to make small buys, spot purchases and
“emergency” buys, procurement organizations can make a
significant impact on increasing compliance and reducing
acquisition chaos throughout the company.
Communication. Effective communication about your tail
spend management program, including your strategic plan, is
essential to gaining buy-in throughout the organization. There
must be continual dialogue between procurement leadership
and stakeholders about how to create more value from tail
spend. Supply management organizations should also seek
participation and support from stakeholders as well.
Structure the program to incentivize communication between
all parts of the company and procurement. This should
encourage non-procurement areas to make better buys using
the organization’s procurement systems rather than finding
reasons for not doing so. Make it worthwhile to communicate
with procurement and eliminate the “gotcha” mentality that
may exist in the purchasing area.
DOING INSTEAD OF TALKING
Given a supply management organization’s need to focus
on that 20 percent of spend that provides 80 percent of the
impact, tackling tail spend may not seem like time or effort
well-spent. It’s not considered an “easy win” or viewed as
“low-hanging fruit.” Nevertheless, because most companies
have a tail spend problem, managing it can result in value-add opportunities, including more efficient use of company
resources and savings on commonly purchased items.
Tail spend shouldn’t just be talked about. Instead of being
considered nuisance spend, it should be effectively managed.
By analyzing tail spend and developing a strategic plan to
manage it — and educating non-procurement colleagues about
the best ways to make small buys — organizations can achieve
solid results while elevating the role of procurement. ISM
David C. Wyld, DBA, is the Laborde professor of management at
Southeastern Louisiana University in Hammond, Louisiana.