Tail spend management strategy
14 April 2022
The perfect partner for industrial tail spend management
Tail spend management has become a newly established strategic focus for procurement groups across all industries globally. The top-level management, executives, and procurement heads have begun to focus on reducing the excess cost associated to manage tail spend. Lack of a dedicated tail spends management strategy reduces the spend visibility and significantly increases administrative cost and complexity in the procurement process.
Tail Spend Challenges Faced By Industries
Many organizations procure products and components from a large number of vendors that create a long tail of C components. The ad-hoc purchases from many suppliers, multiple low-value transactions and inefficient procurement systems in the organization can lead to a heavy blow to business in the long term.
The inefficient procurement process of Class C spend leads to mismanaged tail spend resulting in huge losses occurring from non-strategic processes. Any organization faces a few common challenges with tail spend management such as:
- Lost control over data record in the long tail spend
- Analyzing the market and finding the right suppliers
- The low power to negotiate with the large volume of vendors
- Complex purchase order and invoices approval system
- Time-consuming vendor on-boarding and AP process
- Lack of visibility in the tail spend management process
- Limited efforts on Supplier risk evaluation on tail spend
- Restrictions to discover vendors in the geographical limits
- Unpredictability in stock requirement
Another major issue faced by procurement teams is adhering to the standard payment terms of suppliers. The unbalanced payment terms lead to unmanaged books and lost accounts that create hurdles in the management. Hence to ensure a constant level of standards along with calculated savings measures against the vast supplier base is a major challenge for many organizations.
Business models like integrators and distributors have brought a new strategy to overcome these tail spend management challenges. These procurement partners’ new technology and service capabilities work to design an effective strategic procurement process to drive tail spend consolidation.