Finance and procurement executives often ignore issues when it comes to tail-spend, such as poor data visibility – if there is not an effective spend control system in place that is covering all of an organisation’s expenditure there will be poor data visibility. This makes understanding what the tail looks like very challenging. Often organisations struggle with simple controls. There may be no formalised supplier approval process in place. Staff may request the creation of a new supplier almost at will, with no option for the procurement team to say there is already a supplier in place that could provide that particular product/service. Whilst items being bought may be legitimate, there may not be a centralised contract, or if there is, individuals at department level are not aware of it and ad-hoc purchases are put through.
Furthermore, for many organisations the tail is not being managed proactively, which means that finance and procurement teams are effectively firefighting by reacting to short term issues, whether that is emergency purchasing or the need to set up new suppliers very quickly. There is not always a great deal of control over the way the suppliers are being engaged and issues around procurement risk are not really being considered. The seemingly low potential savings to be made through controlling tail spend are often not seen as particularly strategic so organisations invest procurement staff in high end suppliers because that is seen as where the bigger opportunity is.
It is clear that tail spend occurs when there is lack of order and compliance on processes, whether that be the supplier creation process, the order approval process etc. All of this leads to a number of issues, including:
If any of these issues are effecting your organisation, then it is time to tackle tail spend management by building best-in-class processes. According to our spend control partner PROACTIS, “for a typical organisation 5% savings on tail-spend can be equivalent of a 10% increase in net profit.” The PROACTIS Spend Control solutions can provide new levels of interaction and collaboration, information access, process efficiencies, enforced compliance and built-in risk evaluation and assessment.
For further information, call us on +44 (0)203 866 8800 or download the tail spend whitepaper: