Over the last few years, the importance of managing tail spend has become a regular talking point among business managers and owners. This issue is especially relevant to businesses in which procurement plays an important role in the company’s overall operations.
Often this has led to the in-house team of procurement professionals being tasked with finding ways to better manage tail spend. As a result, there have been several studies published recently, some of which contain valuable insights when it comes to implementing better procurement controls and cost-saving measures.
Over the next few weeks, we are going to look at some of the material published and see what we can learn from these studies in terms of ideas and strategies to better manage tail spend.
For starters, here’s an interesting quote:
“…our study found that typical companies could generate on average savings of 7.1% by taking a more segmented tail-spend approach.”
This statement was made by Chris Sawchuk from the Hackett Group in a recent article (paragraph title: Actively Managing Tail-Spend Can Offer Real Savings) on the SupplyChainDigest website.
The study to which he was referring is titled The CPO Agenda: Reduce Purchase Costs, Improve Agility, and Become a Trusted Advisor, by Patrick Connaughton and Christopher Sawchuk.
This study also contains several other interesting statements regarding the importance of measures that better manage tail spend, for example,
“30% of the respondents estimated savings of more than 10%.”
Overall, the estimated average saving achieved by all respondents was 7.1%. Estimated savings of between 7 and 10% are definitely enough of a reason for management and procurement officers in any organization to take a good hard look at their current procurement practices, especially regarding how tail-spend purchases are managed.
Another interesting comment in the study is that many of the survey respondents “suspected a significant part of their current tail spend includes high-dollar maverick buying that should have been strategically sourced.”
This is a key point. In many organizations, the chief reason for higher-than-necessary costs of tail spend purchases is buying decisions that fall outside of the business’s usual procurement guidelines and rules. As a result, these transactions are not properly regulated and scrutinized.
More on this theme and information about another interesting study next time.