This time around, we are having a look at a white paper from Accenture, titled Getting a Grip on Tail Spend, by Ralf Mägerle, Kyle Rosenthal and Christian Meyer.
This is a fairly detailed study, and we can’t discuss all aspects of it here. However, one very interesting part of the report is a section that contains some clues to help identify if you have a problem with unregulated spending and need to be making plans to better manage tail spend. The clues are:
• You have more suppliers than employees
• Two-thirds or more of your suppliers supply only 5% of your business’s spend
• Less than 70% of orders are negotiated by your procurement department
• Your supplier list grows by more than 10% per quarter
• Less than 50% of transactions are with preferred suppliers
• Less than 50% of your company’s purchases are via automated processes like electronic catalogues
If two or more of the above statements describe your current purchasing situation, then it is time to take action and work out a plan to better manage tail spend.
The report also contains an interesting concept that is not often discussed: segmenting the tail spend. Once the bottom 20% of purchases have been identified and classified as tail spend, these purchases can be further categorized and investigated. It may even be necessary to manage tail spend slightly differently, depending on the attributes of each tail spend segment and the individual business situation.
The tail spend segmentation categories suggested in the report are:
• Hidden Tail
• Head of the Tail
• Middle of the Tail
• Tail of the Tail
Do you segment the tail spend in your organization? If so, how?