The generally accepted definition of “tail spend” is the bottom 20% of purchases made by an organization (by value, volume, or both). The Pareto rule is also usually applied to tail spend in regard to suppliers, i.e. tail spend purchases or Low Value Spend Management represent the bottom 20% or purchases, but very often 80% or so of suppliers are connected to this activity.
Because it only makes up the bottom 20% of purchases, there is a tendency to take a “who cares?” approach to tail spend, specifically in managing it better. After all, why waste often overstretched specialist purchasing resources on the bottom 20%? Most would rather focus on the top 80% — often referred to as strategic spend.
Read More – 6 Ways to Support Supplier Diversity by Increasing Supplier Spend to Minority-owned, Diverse and Small Businesses.
However, tail spend really does matter. In many businesses, improved tail spend management is the most overlooked way to reduce purchasing costs and gain even more control over all procurement activities.
This is especially the case in businesses that have already focused a lot of resources and time on streamlining their procurement operations. If the strategic spend function is about as efficient as it can get, there is not much scope for achieving further savings or gaining more control of the process.
In this case, reforming and improving tail spend / Low Value Spend Management practices within the organization is essentially the “last frontier” when it comes to procurement cost reduction.
Poorly managed tail spend can be a major area of cost and resource wastage and can expose the business to a variety of risks, so it is vital that some emphasis and management priority is placed on this area.
