A business’s tail spend is the money that is spent on low-value purchases outside of the ongoing and large transactions that make up the bulk of the business’s purchases. Individually, these purchases are often dwarfed by the business’s usual spending and, as such, many ignore their significance.
However, collectively, tail spend typically accounts for 20% of a business’s spending and is usually left unmanaged. With that in mind, we have put together our top tail spend management strategies, so you can tackle this tail and start making some big savings.
Analyse your spending
You can’t manage your spending if you don’t know where your money is going, so the first of our tail spend management strategies is to analyse your spending. Because tail spending is often unclassified and too small to be purchased through a business’s normal procurement channels, companies will often ignore it.
Tail-end spending can hide many problems such as wasteful purchases, maverick spending and even fraud, so knowing where your money is going is essential.
Identify any risks to your supply chain
As part of your spending analysis, you should also look to see what risks there are to your supply chain. Take the past year, for example – no-one was expecting such disruption on a global scale, but it did expose weaknesses for many businesses, especially when it comes to procurement.
Having reliable backup suppliers and diversifying those suppliers means you have a chance to work around restrictions and delays that are out of your control; it also means that you are less likely to go outside of your structured procurement channels and into the tail spend in order to do so.
Streamline your internal processes
One way you could be losing money unnecessarily is through inefficient internal processes. This could be because you are using outdated systems or just because your structure or procurement processes are too convoluted when they could be consolidated.
Are your departments making small transactions to speed up their processes to meet the needs of the business? If so, this could be due to inefficiencies within your operation which, if fixed, would negate the need for these purchases.
Look to see where compliance can be improved
Noncompliance with your procurement processes is what causes tail spend, so you need to investigate why your official channels are being circumvented, and how this can be avoided. Often, noncompliance can be due to there not being official procurement channels for the types of low-value, infrequent transactions that make up your tail spend.
Make use of technology to assist
Investing in new technology that uses automation and AI can be a great tail spend management strategy. These systems can take over many of the procurement processes that are subject to human error and allow your employees to work in more strategic roles.
For example, the system can be used to automatically re-order stock as soon as it has been depleted to a predetermined level, which will arrive in plenty of time. On the other hand, a worker may leave it too late to place an order and, if time is a factor, may have to turn to a more expensive supplier in order to get the goods on time.
Use a strategic partner who can help with vendor tail management
One final tail spend management strategy is to use a strategic partner to help you. A strategic partner who specialises in supply chain solutions, such as our team here at Delta Impact, can take care of all the points outlined above so that you can focus on running your business as normal.
If you’d like to know more about how we can help with your tail spend or supply chain management in general, please get in touch.