Procurement has firmly entered the tail spend era, and with necessary tools now available to tackle this persistent purchasing problem, supply organizations are finally consolidating costs, cracking down on unauthorized spend and clawing back lost time to deliver real value to their businesses. At least, that’s what the picture is starting to look like at large manufacturers and corporates should leverage Tail Spend Technology.
Within the typical mid-size firm, however, addressing tail spend still eludes many procurement organizations. The issue is less a challenge of capability than finding a solution that fits their unique business needs.
Chief among those needs is a solution that matches their modest IT budgets. Many currently available
e-procurement or catalog solutions cost far more than a mid-size business can afford, or expect to generate a payback in a reasonable timeframe, even at the low end.
Software license prices from the typical large provider start at around $200,000, ballooning up to $1 million or more as organizational size and complexity grows. And that’s just the beginning. Between implementation fees and user training — because you’ll have to pay even more to make sure users can and will use the new solution — most businesses will end up spending at least $500,000 before they can actually create a purchase order.
But that’s beside the point. Even if the total cost of a new solution could be lowered to no more than $300,000, a mid-size business would struggle to allocate that kind of money to a spend management solution. In a resource constrained environment, a far better use of that budget would be to boost the top line, investing in sales and marketing growth rather than chasing cost management.
That brings up another key issue. Both available spend and employee time are even more scarce at mid-size businesses than they are at billion-dollar firms. Like prioritizing sales and marketing investment over spend management software, mid-market companies need to heavily scrutinize how much time their employees dedicate to purchasing — and whether that’s actually turning into a cost.
Consider the humble Bic pen. Ask any random employee at a mid-size company to buy a new box Bic PRO pens and he or she will likely skip over to a site like Amazon and start browsing through various offerings. A savvy employee will discover that the Bic pens aren’t the lowest-priced option and start sifting around for a better choice, maybe an alternative that costs around $5.50 (plus shipping, of course).
But here’s the catch: If that employee spent over 15 minutes searching for pens, the cost in dollars of that person’s time has already exceeded the total cost of the pens.
How to prevent this conundrum? The answer is that employees should never have to conduct such a search in the first place. Instead, a mid-market business should look to an on-demand solution for managing tail spend — or even all indirect spend — one that delivers immediate ROI and can scale to meet an organization’s needs — without excessive upfront costs.
One such provider, Simfoni, offers such a Tail Spend Technology & Tail Spend solution, with an easy-to-use, “plug-and-play” purchase-to-pay (P2p) platform that facilitates indirect purchases through both an e-procurement marketplace (for catalog items) and an On-Demand Buying Desk that users can contact directly to make a purchase request. While the platform also provides capabilities such as spend analytics, purchasing protocols and price benchmarks to help procurement professionals more efficiently manage higher-value spend, it also aims to help organizations master tactical, spot buy purchases and tail spend by creating alternative buying channels that are plainly more convenient for end users and less of a distraction for the procurement professionals.
For anyone outside of the procurement group, ease of use for requisitions and fast response times for quotes, with the ability to add workflow approvals, are paramount to ensure compliance to a purchasing process. Rather than logging into a cumbersome desktop purchasing tool or calling a local vendor that may not be commercially or ethically approved, Simfoni’s solution allows users to place requests on-demand — submitting a requisition through a dedicated mobile app or simply by phone or email — which gets the job done quickly and ensures a qualified professional is overseeing the purchase in line with corporate standards.
This principle applies to the pricing of the solution, as well. To make a spend management solution attractive for a mid-size company, the offering must be easy to sign up for and cheap enough to try when convenient. Simfoni’s solution, for example, requires no upfront license fee; instead, users pay a low-cost monthly subscription for the service, allowing businesses to quickly try the solution and decide whether they want to do more with the provider. What’s more, the provider also offers gainshare options that guarantee the corporate an immediate positive ROI from the very first purchase request.
If mid-size businesses want to gain control of their indirect spend and reduce costs by 20% or more, they need to look to a solution that satisfies their needs. Traditional high-cost systems from giant software firms rarely accomplish this, which is why they have to offer “lite” versions of their technology that don’t provide the full benefits of working with such a vendor. Specialized, on-demand offerings from providers dedicated to serving the middle market make much more compelling partners, and present the opportunity for companies of all sizes to conquer tail spend once and for all.