Creating Tail Spend ROI Through an Improved Buyer Experience

by Arnaud Malardé

Lifted from their latest webinar, Jean-Baptiste Anne from Amazon Business and Vishal Patel from Ivalua offer insights into tail spend management programs and the ROI these programs can generate for procurement teams. 

To summarize, tail spend is commonly labeled as the money a company spends on purchases that accounts for roughly 80% of total transactions, making up about 20% of the company’s spend by volume. Tail spend is typically low dollar, high volume, irregular, too small to go through procurement and not typically managed or catalogued in the spend categories.

Tail Spend Challenges

Tail Spend can be wrought with legal and financial challenges; procurement teams must balance and often bend corporate policies to make room for approvals. 

• Lack of control or visibility into what is being spent and with which suppliers.
• Non-compliance with internal policies and regulation, creating legal risks for the company. 
• Extra work processing supplier invoices, creating higher costs.
• Delays in paying suppliers as they cannot be matched with an order or an initial requestor.
• Budgeting challenges as tail spend typically often not planned for 
• Poorly utilized preferred suppliers with negotiated pricing

How to analyze your Tail Spend: Understanding spend data.

First, conduct a thorough spend analysis of your global spend. Spend analysis enables automation of data cleansing, enriching and categorization. Data comes from multiple sources, such as purchasing/payment systems, purchasing card data, travel and expense systems, and often multiple ERP systems. Result is a spend cube  – an analysis, at the line-item level, of global spend, telling you:

• What was purchased; 
• Which supplier it was purchased from; and 
• Who purchased it.

Effectively Reducing and Preventing Tail Spend  

Once you have visibility into your tail spend, you can look at patterns. Are there too many suppliers for one category? Are there any recurring purchases? Is tail spend concentrated in any particular category? Spend analytics can help uncover such opportunities. Some other things that can help include: 

• Spot Bids: Promoting this as an option to employees will help ensure that Procurement gets involved but also that employees are not waiting for a long sourcing event to take place, its done in a matter of days. Get quotes from 3 suppliers and select one.
• Marketplaces: Enabling easy access to marketplaces with thousands of items that typically fall into tail spend. Allow users to search across internally hosted supplier catalogs, Amazon Business, and other supplier sites to view and compare the results on a single screen, with real-time pricing and inventory. 
• Analytics: Understand the scenarios in which users are conducting tail spend. Through this, Procurement will either learn to improve buying channels or educate the user on the right process.

What is ROI of Tail Spend Programs? 

There is value in automating processes to reduce tail spend to increase efficiency and decrease transaction costs. The value of your tail spend management is part of a broader, holistic process, where you must balance your overall strategy, scrutinize your suppliers, and improve invoicing process. We need to change the perception of procurement and create a beneficial user experience that lowers risk, reduces time and of course, cost.  

There are clear benefits in reducing and preventing tail spend, mainly around capturing higher savings from negotiated contracts, reducing supplier risk, reducing processing costs for P2P transactions and improving employee experience. Regarding savings, the opportunity is to save anywhere from 5-15% on tail spend by bringing it under management or eliminating it.

We’re here to help. Reach out to us today to discuss all of our Source-to-Pay and Procure-to-Pay solutions.