So far in this series, we have discussed the importance of tail spend and the implications of managing it badly, and what well-managed tail spend looks like. This time around, we will consider whether procurement catalogs have an important role to play in tail spend management.
As organizations tighten up their tail-spend management controls, non-strategic spend is often channeled towards procurement catalogs, with the majority of these now being found as part of an online service solution.
This buying method is popular because:
- It gives users access to a wide range of items from pre-approved suppliers.
- Fairly high levels of control and visibility can be easily achieved.
- These systems are largely self-service and generally easy to use, so personnel in various departments can find, order, and receive their requirements with little or no involvement from busy, often expensive, procurement professionals.
However, procurement catalogs do have limitations and will never contain every item required by staff members in diverse roles within a variety of companies and industries.
At Simfoni, we estimate that about 20% of the items required are not available from a procurement catalog. BUT, more interestingly, these 20% of items tend to represent 50-70% of the low-value spend group by value. Think of it this way: You order a lot of pens and paper through catalogs because they are standard, frequently purchased items and they don’t add up to a whole lot of dollars, whereas something less standard, such as a pump, industrial washing machine, or laser cutter, may only compose a single or low-volume order, but can easily be worth thousands of dollars.
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This is the real challenge with tail spend management. Staff members will struggle to find what they need and then be tempted to circumvent the system and attempt to source their requirements through their other channels, using services like eBay, Amazon, or local vendors, especially when the requirement is urgent and they are under pressure.
Once this happens, almost all control and visibility is lost, not to mention competitive price pressure. Increasingly, we see companies switching to a specialized spot-buying service that has an easy-to-use interface, supported by procurement professionals with specialist subject matter expertise to drive greater price reductions.
This kind of tail spend management service can even replace catalog buying altogether, or work in tandem with it by only procuring items that are not in the catalog, or may even take a mixed approach and contain its own catalogs, giving users a one-stop solution. At Simfoni, we offer all the above options. For self-service use, we have our own e-marketplace called Purchasing Platform, with over 1 million standards, frequently purchased items available at prices that beat most major brands. And we supplement this with our tactical buying solution, Vitesse, which handles the spend that is non-standard, custom, one-off, and so on.
Ultimately, procurement catalogs can be a useful tool to help facilitate better tail spend management, provided their limitations are recognized, the right catalogs are used and maintained, and there is a contingency plan in place to deal with cases where urgently required or unlisted items can be handled.