Efficiency and effectiveness can be achieved when the final 20 percent of tail spend is properly addressed. In most cases, organizations manage their tail spend by ranking their suppliers from smallest to largest based on their annual spend. Then, the remaining 20 percent are marked as the tail. Although doing this is an effective way to get started, there are three options organizations should consider using while managing their tail spend.
1. Simplify Your Tail Spend – An organization might simplify their tail spend by combining small spend areas, such as smaller suppliers, into larger contractors. An organization could also simplify the way they address tail spend by determining which smaller suppliers could be replaced with one preferred supplier.
2. Remove Your Tail Spend – In order to remove tail spend, organizations may want to force their smaller suppliers to work through larger prime contractors, either on a geographical or categorical basis. As a result, the buyer does not have to manage or work with any small value suppliers. When the next spend analysis is procured, in theory, there should not be any remaining small suppliers.
3. Outsource Your Tail Spend – Outsourcing tail spend simply means to turn the management of tail spend over to a third party organization. This party will then use certain strategies to manage the spend in a way that is more efficient and advantageous.
Organizations should ultimately remember that while each of these three methods can prove to be beneficial, one approach may not work well for every business. As a result, organizations should carefully analyze the risks and benefits associated with removing, simplifying, or outsourcing their tail spend before moving forward.
If you are looking for a simple, no-fuss way to better manage tail spend in your organization, the PocketBuyer™ app from Simfoni is the ideal starting point.