20% of a company’s spend that goes unmanaged is what is referred to as tail-end spend. This percentage is gathered from 80% of non-strategic suppliers to such a company. Tail-end spend usually cumulates through low-value transactions companies engage in with their suppliers, though they do not occur frequently.
They are usually unmanaged because they involve low amounts and would not be considered worthy of being handled by procurement.
However, this 20% can amount to a vast amount of money, especially if the company is a large one. For this, companies need to pay attention to tail-end spend management.
Is tail-end spend management necessary?
Before now, it was difficult for companies to manage the total spend efficiently. Controlling about 40 to 60% of full spend was the best some companies could do. Such is not the case right now as specific measures have been implemented to better the process.
This can be attributed to improvement in procurement visibility, and also, companies have learned to reduce cost whenever possible. These major adjustments have made it easier for companies to manage their total spend.
As a company, there are many reasons why you should be concerned about managing your tail-end spend. One of these is cost savings; you can increase cost savings by 15% if you manage your tail-end spend appropriately. It could also result in a high return on investment ratio as there will be more gains.
Properly managing tail-end spend makes it easy for a company to control its expenditure. It further improves the visibility of the procurement system. By doing this, future costs will be contained, and there would be no room for misspending.
If tail-end spend management is not done correctly, a company can lose much via the 20% unmanaged spend. This can gravely affect the health and growth of the company, so it is essential.
Tips to manage tail-end spend effectively
It is not so difficult to manage your company’s tail-end spend. If you develop a strategic spend management procedure, the whole thing will be a lot easier. You would be able to keep a record of your total spend and optimize tail-end spend.
The below tips should help you with you properly manage your tail-end spend;
To start with, you need to analyze your company’s spend. A thorough analysis of company spend should be carried out to have a clear picture of how transactions are processed. Spend data should be adequately organized and classified; this will help you fish out tail-end suppliers and their categories.
Make use of third party contractors
Making use of third party contractors is one way to manage the tail-end spend. Several companies make use of this method as a means of eliminating tail-end spend. However, the drawback here is that some suppliers might not be cool with the idea of having to deal with a third party. It could be against their policy.
Make use of technology
You can make use of a tail spend management software to enhance the process. Making use of such technology will make the management task an automatic one. You can keep track of the performance of your suppliers and their rates. It would be easy to retrieve tail spend data and analyze them using a tail spend management software.
Use Third-Party Service Providers
There are tail-end service providers online you can make use of. These services can help manage your company’s tail spend efficiency for a particular fee. Third-party service providers usually operate via a cloud-based or e-procurement system. One advantage of using these third-party service providers is that they save you time and stress. You won’t be doing any work.
Implementing these tips will help your company’s procurement manage tail-end spend in a better way. One thing to note is that you need to understand how the market works. This will make you more efficient.
Tail-end spend management helps you get a proper spend analysis of your company’s procurement system. It could be challenging to manage the tail-end spend effectively, but it is also an opportunity for you to save money.