Published on
10 December 2024
Read time
3 mins
In a fantasy land somewhere far far away, a business has strategic control over 100% of their external supplier spend, ensuring total efficiency and effectiveness.
However, in reality, despite an organisations best efforts to implement a solely strategic supply chain, on average up to 20% of external spend will remain within the “tail spend” transactional sourcing category.
Tail spend is the term used to refer to unmanaged high-volume and low-value supplier related transactions within an organisation. It is often overlooked, but can account for up to 20% of external supplier spend.
Regardless of the total value of external spend, 20% is a large chunk of transactional undetermined and untested spend.
- Who truly understands the goods and services being purchased?
- Does anyone know if best value for money is being achieved?
- Are the suppliers sustainable?
- Are there missed opportunities with strategic suppliers?
From our experience of tail spend rationalisation, we have provided some key tips on how to optimise that 20% burden that you may have.
- Can you move a portion of tail spend into the strategic addressable spend bucket? This will involve identifying the tail spend categories to be consolidated and managed more efficiently. By doing this, you can immediately reduce the number of suppliers and transactions, which can lead to cost savings and process time reductions.
- Reduce the number of transactional suppliers: Consolidating your supplier base and reducing the number of suppliers you work with will allow you to negotiate better deals and streamline the supply chain. The time associated with procurement managing the supplier relationships will also reduce.
- Enhance the tail spend visibility and implement or utilise an appropriate strategy at a category level: Analysing your tail spend data to identify patterns and trends, can help you gain better visibility into your tail spend, which will allow you to implement an appropriate strategy to deal with it at a category level.
- Create a time-bound action plan and operating model, inclusive of planned savings and outcomes: Create a programme plan that clearly outlines your goals, objectives, dependencies, and timelines to optimise your tail spend.
- Business owner engagement: It is crucial that you take your business owner on the journey. The supplier relationships may have been managed by the business owner up until this point, be sure to highlight the benefits that will be achieved via rationalisation.
If you would like to know more then please get in touch with us.
Article by Richard Fotheringham, Senior Consultant at 7 Step Solutions.
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