Here is a well-known example where supplier spend is grouped into similar categories and then segmented based on value and risk to the organisation.
The tail-end of spend will generally fall across quadrants II and IV with most expected in IV.
Quadrant IV contains categories where there are many suppliers, highly competitive environments, low switching costs, substitute products and services and generally low levels of information sharing. Categories include stationery, copiers, fleet, couriers, contract labour, marketing services and equipment costs etc. Tail-spend in this quadrant will typically be managed in a tactical fashion and in ways that will minimise the attention required from Procurement whilst still generating value to the organisation.
There is a misconception that tail-spend only represents low value, high volume spend such as office supplies. However, tail-spend as a term is better defined as any addressable spend that is not currently under the management of Procurement. This could be due to not enough capacity, lack of visibility of spend etc. Therefore, you also get pockets of ‘maverick spend’ appearing in quadrant II.
Spend categories in quadrant II include limited supply markets, travel, some professional services such as legal and audit etc. The critical nature of the services, and in the case of travel the emotive issues associated with the user of the services, requires an alternative approach. Suppliers in this quadrant will be managed in a way that secures supply given the high strategic risk to the organisation. This may include long-term contracts, stock holding etc.
Once you have identified the categories or segments of tail-spend relevant to your organsiation you can then use appropriate techniques, with the aid of eProcurement technology, to tackle them and increase the range of spend under management. For example:
Reclassify spend and incorporate into existing contracts
Consolidate any fragmented spend and source centrally
Use eSourcing techniques and PCards for low price, high frequency or 'in-the-field' spend
Introduce purchase-to-pay check-points for maverick spend
PROACTIS Spend Control and eProcurement solutions
are designed to help organisations improve control and reduce the cost of all spend with all suppliers. In addition to the tools to streamline the management of your core, high value categories, PROACTIS provides everything you need to tackle tail-spend in a sustainable manner. The focus is on providing both Procurement and Finance with the tools to:
Increase the range of spend under management
Reduce the volume of suppliers, orders and invoices where possible
Much more efficiently manage the remaining volume of suppliers, orders and invoices associated with tail-spend
To learn more about Tail-Spend Management, download our brochure "How to Squeeze Savings from the Most Fragmented 20% of Spend".