Grab Your Spend by the Tail

If you need help reaching your savings target for 2016, look to your tail.

Monday, May 23, 2016
BY: Ole Nielsen, Chairman & Founder

We are a good part of the way through 2016 and you’ve now got a solid sense of where your progress stands in relation to your annual savings target. If you’re like most organizations, you’ve been competitively bidding out your categories via an eSourcing platform for a while now. The easy “low-hanging” fruit is gone and now it’s time to look elsewhere. Thankfully, there’s a part of your spend portfolio that probably hasn’t been competitively bid, probably constitutes a large portion of your spend, and probably has a wealth of savings hidden within.


We’re talking about your tail spend. 


There’s a good reason that tail spend wasn’t in your initial sourcing waves:

  • Individual procurement events do not meet your threshold for strategic sourcing (usually $100k-$500k depending on the size of the organization)
  • Procurement has limited involvement or impact and purchasing decisions are made on a decentralized basis
  • It’s not practical to aggregate spend into a catalog-compatible buckets for purchasing automation


It’s not surprising that tail spend is an area that most organizations don’t address upfront. However, savvy procurement professionals have known for years that there is immense latent value hidden in tail spend because:

  • Even if you subscribe to the “80/20 rule”, 20% is still a lot of spend
  • Savings rates are significantly higher for tail spend categories (Tail-End Spend Management Can Drive 50% More Savings)
  • Any category that has not been sourced in some time has, almost by definition, savings to be had
  • Risks to your supply chain do not come from just your strategic suppliers; you need to have line-of-sight into supplier activities, commitments and expectations across the entire supply chain


Knowing that there is value somewhere and actually capturing it are two very different things. The good news is that recent developments in technology, process automation and support have now made tail spend much easier to manage. In particular, using an eSourcing platform provides the perfect balance between local control and broader oversight that you need to make tail spend savings happen.


In order to make tail spend a true value-driver for your organization, follow these five steps:

  1. Use all your available tools, not just sourcing
  2. Remember the business needs of your stakeholders
  3. Make it easy for users
  4. Focus on benefits beyond “just” savings
  5. Enable others, support them, and share the 


1. Use all your available tools, not just sourcing

Just as strategic sourcing is not only about negotiation (Four Best-in-Class Ways to “Connect the Dots” and Improve Sourcing Results), tail spend management covers multiple processes and systems. Efficiently linking these processes through automation is the development that has made tail spend more approachable than in the past.

  • Effectively managing tail spend requires first being able to see it. Without a robust spend visibility program, your efforts to both target and track spend will be scattershot at best
  • Next is having a strong and efficient Contract Management workflow (Tackling Tail Spend and Spot Buys) to track expirations and commitments and identify opportunities early
  • Lastly, structured Supplier Management through a single repository greatly simplifies both the identification and qualification of participating suppliers. Hackett highlights “identification of suppliers that are going to comply with policy and process” and “establishment of clear objectives and expectations” as core roles for Supplier Management in the tail spend process (Tackling Tail Spend and Spot Buys)

With these in place, your sourcing and negotiation efforts through either eRFx or eAuctions will be significantly more impactful.


2. Remember the business needs of your stakeholders

There’s a good reason that stakeholders frequently “avoid” procurement teams when dealing with tail spend. It’s because they believe that procurement is just going to slow them down with bureaucracy and delays. If you can show “the business” that you’re there to help rather than hinder, you’re much more likely to get them on-board with the program. For example, show stakeholders how using RFP templates can make their supply selection efforts easier and faster rather than an “extra step”.

Depending on the scope of your tail spend efforts, you will also want to consider establishing an on-call sourcing desk to assist stakeholders in executing their tactical sourcing efforts. Keys to success for a sourcing desk are efficient workflow and fast turnaround times. At the very least, give each business unit a single contact point within procurement so that they know where to go with questions.


3. Make it easy for users

Setting up workflows, templates and support desks is a start but you’ll want to also help your stakeholders be able to quickly identify opportunities for savings and value and understand where they should be prioritized. Provide a simple framework for users, one that they can quickly refer to when making decisions (see one with which we’ve had particular success at the top next to this article).

Make sure that your technology platform is easy enough for users that they don’t need to go through training and that information is easily shared from one module to the next. A difficult to use platform is the quickest way to low adoption and results.


4. Focus on benefits beyond “just” sourcing savings

As noted above, it’s well documented that there are significant savings available within your tail spend. However, the benefits go beyond savings to include risk management, supplier rationalization and contract compliance.

Establishing and maintaining a structured set of metrics and score carding around all the different benefits will make sure that your efforts are documented, confirmed and, best of all, supported by executive sponsors both in procurement and in the business.


5. Enable others, support them, and share the credit

Unless your CFO is willing to give you unlimited resources (and she’s probably not), you won’t have the bandwidth to work tail spend yourself. Instead, you’ll need to give others in the business the tools and intelligence they need to work with tail spend. This will involve training, communication, support (like the sourcing desk noted above) and especially some internal “sales” efforts. For example, set up sourcing templates specific to the business units in your program so that stakeholders can use them “plug-and-play”.


Just as important as providing the tools and support, make sure that credit for any results stays with the business. This could take the form of savings going back to their specific P&L or softer credit such as awards and recognition.


Tail spend opportunities are everywhere. In fact, tail spend represents a significant portion of half Scanmarket’s 10 most-auctioned categories (bolded below).

1. Construction & Repair (Flooring, Damage Control, Engineering, Rebuilding etc.)
Savings from current price 13,41%

2. Ingredients for food production (Additives, Flour, Sugar, Vegetables etc.)

Savings from current prices 7,06%

3. Marketing Materials (Brochures, Advertisement printing, Promotional items)

Savings from current prices 17,02%

4. Various groceries (oil, dressings, cereals, bread, rice, pasta etc. - Supermarkets)

Savings from current prices 1,09%

5. Service agreements (Temporary Labor, Cleaning, IT & Security Services etc.)

Savings from current prices 20,92%

6. Office Supplies and furniture (Paper, Prints, Toner, USB Sticks etc.)

Savings from current prices 13,13%

7. Supermarket - Non Food (Bags, Cleaning Appliances, Propane gas etc.)

Savings from current prices 5,03%

8. Freight & Transportation (Sea, Land & Air)

Savings from current prices 9,69%

9. MRO (Tools, Spare Parts, Cables, Screws etc.)

Savings from current prices 4,39%

10. Electrical and Telecommunication Equipment

Savings from current prices 11,09%

 

Using these approaches will enable you to “go after” a large portion of your spend that has enormous savings opportunities lying within.

 

For more information on these approaches or to learn more about how Scanmarket can help you achieve your business objectives, please visit us at www.scanmarket.

Scanmarket

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