As the commercial business environment becomes ever more competitive, business managers and directors are increasingly reliant on business intelligence and data analysis to help them make good decisions and operate their companies at maximum efficiency.
Procurement is one of the operational areas that has seen massive benefits from the widespread adoption of technological solutions and a data-driven approach.
However, these measures have not always filtered through the entire purchasing function within a company. The focus tends to be on the high-value transactions. Granted, many companies have experienced significant efficiency improvements and cost savings by analyzing and applying best practice measures to the bulk of their purchasing spend, but this is not enough.
Based on the 80/20 rule (Pareto Principle), 20 percent of spend comes from 80 percent of suppliers. The actual numbers may vary slightly, but the principle is sound.
Unfortunately, very few companies place much emphasis on carefully managing this 20 percent of spend, often referred to among procurement professionals as Tail Spend or Tail-end spend.
Assuming that the 80 percent of spend with 20 percent of suppliers is being carefully analyzed and managed, applying best practice models and other controls to the remaining 20 percent is an excellent way for a company to achieve even greater cost and efficiency improvements.
Tail spend management is not easy, though, because there are so many suppliers, each individual purchase may be of a fairly low value, purchasing patterns relating to a given supplier are often erratic or infrequent, and purchasing decisions may be made by line managers and other staff members who are not professional buyers.
To achieve this cost effectively requires a high degree of automation and leverage of prior benchmarks and market knowledge. For this reason organizations are increasingly seeking professional help in order to effectively implement tail spend management systems and processes. Purpose-built software applications can also make the process of managing, and consolidating where possible, a large number of suppliers far simpler than if it were to be done by other means.