Tail spend management is necessary for any firm to improve its financial performance. It is the spend made that is not included in all the categories of spend, rather few that impacts its performance in respect of the finances. Suppliers are many but to each given spend category, very small share is made.
Why is Tail Spend management necessary?
The financial performance changes due to the changes in SG&a and COGS. Tail spend management is required because the pressure on cost reduction of firms is made and there are only limited savings made through purchasing that needs a thorough look.
What does the Tail Management do?
- With the help of Tail Spend management, the sourcing firm manages and increases the spend coverage.
- Low-value spend becomes more visible when the Tail Spend Management comes into practice.
- The transaction costs are reduced to a great extent and in some cases, eliminated.
- The procurement function which gulps down a lot of money, is also lessened.
- This management leads to improvement in the quality of data and the process involved in it.
- Business risk is reduced as the contract coverage expands.
- It can easily eliminate the trivial suppliers which sometimes become reason for the rise in costs.
- End to end execution makes its way in the Tail Spend management.
- There is a reduced risk of frauds while dealing with transactions.
- The supply base which earlier comes with limited options becomes diversified.
It has a lot of pros but some cons as well.
What causes disturbance in its working?
‘Poor data quality’ comes as a hindrance in the process. Sometimes the data used is incorrect. It contains incorrect material names and suppliers’ names. There are many cases seen where the data is duplicate or there are linkages. And here the data cleansing and its classification provides some relief.
During the process…
There are few steps taken in the Tail Spend management process.
- First of all, the spend data is retrieved. Then it is analyzed and defined into a particular category.
- The computing process takes over further and the commodities of the tail spend are segmented.
- After this collecting and analyzing of data, saving opportunities are identified.
- It is decided whether the cost reduction or avoidance can be done. This step is performed at two levels- spend level and the transaction level. All the relevant and complementary procurement applications are deployed to the landscape of the technology that exists then.
- Sourcing is done and after contracts, procurement steps in.
- The whole improvement in the performance of tail spend is measured with the help of metrics. Improvements are noted in terms of cost reduction or transaction costs or changes in spend visibility.
Many organizations have made use of the Tail Spend management for assessing other than usual spend like: Maverick spend, Non-PO spend, Low-value spend, Fragmented spend, unclassified spend etc. it is a thorough process that includes every detail of change, how and when and under which circumstances. Multiple benefits are received by the firms who practiced it. They noticed increased efficiency in procure to pay process, percentage of contracted spend, SOX compliance, customer satisfaction and reduction in frauds, cost of procurement function, maverick spend etc. Tail Spend Management is a well organized management that brings tremendous results.