Simfoni’s Stefan Dent takes the stage at ISM World to demystify the problem of tail spend.
Last week, I had the opportunity to take the stage at the ISM World Conference in Dallas, Texas, where I discussed ‘The Year of The Tail’ and the growing need for organizations to have a fit for purpose solution in place for controlling and optimizing tail spend. The response from the audience was fantastic, with a flood of follow-up inquiries on how to tackle tail spend. It truly highlighted the urgency of addressing this issue.
Until now, unmanaged tail spend may not have been a top priority for organizations, resulting in them enduring the status quo. However, things have changed in 2023, and tail spend has become a top 3 priority for Chief Procurement Officers (CPOs) due to several factors:
- Poor user experience creates a negative perception of procurement’s value
- A fundamental shift in priorities to purchase in a sustainable and socially responsible manner
- Procurement seeking additional savings due to cost pressures
Let’s delve into the context of tail spend and why it has been a notorious “problem child” for procurement teams. Traditionally, teams have used various solutions like eProcurement, BPO, shared services, P-cards, and other payment solutions, but these approaches only address part of the problem. However, there is good news. Tail spend management solutions have evolved, recognizing the need to bring more spend under management.
When we refer to “tail spend” we’re talking about the 10-20% of spend value that accounts for over 80% of suppliers and transactions. In many cases, the real tail can be even greater, exceeding 90% of suppliers and transactions. For mid-market organizations, tail spend can encompass all indirect spend, and also some direct spend. It’s crucial to note that tail spend varies across organizations, which is why Simfoni uses advanced analytics to segment spend into ‘Zones’ to inform delivery approach
Identifying Tail Spend
The simplest way to frame tail for your own organization is to determine ‘Unmanaged and Unpatrolled Spend’
Unmanaged Spend refers to purchases not actively managed by the Procurement team, delegated to the user to source. Procurement may approve the supplier and quote, but let’s be clear, this is not proactive spend management.
You then have Unpatrolled Spend where procurement has implemented a preferred supplier framework that users are expected to use, but procurement is not actively ‘patrolling’ the spend. Examples of this spend include office products, maintenance, repair, operations (MRO), print, IT consumables, and couriers. Procurement assumes that users comply with these agreements. Wrong! In our experience, when we run the analysis, compliance rates are often under 20%, which can be a shock to Procurement when presented with the facts.
Read More:- Guide to Procurement Software
Unmanaged and Unpatrolled Spend is all Tail Spend
Unmanaged and Unpatrolled spend collectively form tail spend. In some cases, procurement may be managing additional spend that shouldn’t fall under their responsibility due to its commoditized nature, so this spend is often migrated into the tail program. Focusing on strategic spend is essential, and that’s where Simfoni’s core spend expertise comes into play. With Simfoni’s tail spend management solutions, procurement teams can redirect their limited resources to strategic initiatives, leaving the management of tail spend to Simfoni, who successfully handles this for customers worldwide.
Traditional tail spend solutions, including shared services, BPO and P–Cards, have remained stagnant for the past two decades, often leaving users dissatisfied with the service. Today’s users expect a modern, B2C–type purchasing experience for everyday spend. However, they are often faced with multiple purchasing channels across various systems, leading to a frustrating user experience. It’s no surprise the average user detests procurement.
Tail spend is inherently local, while BPO personnel are often located far away and lack knowledge of local markets and providers. BPO services tend to focus on basic ‘3 bids and a buy’ and compliance checks, generating value in the first year but failing to address the core problem. Moreover, BPO providers do not offer digital tail spend solutions, tending to rely on the client’s own purchasing systems. In some cases, BPO teams resort to outdated email and Excel methods, which is quite farcical in this day and age.
While P-cards and other payment solutions play a role in addressing tail spend, they serve as band-aid solutions when used on their own. Payment providers assist users in getting what they want, alleviating the burden from procurement. However, they don’t optimize the spend. When we run the analytics we see these payment providers creeping into the top rankings based on their transaction fees. Payment providers make it easy for the user to spend rogue. Surprise! This is what we mean by solving today’s problem, but you are creating an even bigger longer-term problem as spend becomes even more fragmented with the payment providers sitting back raking in their fees!
How to Solve Tail
So, how do we solve tail spend? The solution requires a few key components:
Simfoni encompasses all these components, providing users with the necessary content and services to source their needs quickly and at the best value.
User experience is critical as it directly impacts the perception of the value of the procurement function. Designing the solution around the user experience is a game-changer. We want to create Happy Users! Users enjoy a superior experience with a platform that doesn’t resemble a traditional procurement system.
At Simfoni, we understand that managing vendors and payments is an integral part of tail spend management. That’s why our solution includes global vendor management and payment services. Simfoni becomes your ‘one vendor,’ operating as an extension of your procurement team, handling vendor onboarding and global payments. In addition to double-digit savings from competing and right-sizing tail spend, our customers benefit from over 80% reduction in accounts payable (AP) processing volumes.
How To Get Started
Getting started with Simfoni is quick and easy. We seamlessly connect to your existing systems to intercept tail spend. Within a few weeks, our customers become operational, and as their needs grow, our solution scales with them, offering global coverage.
Our mission is to democratize spend and provide organizations of any size with the tools to automate and optimize tail spend, extending all the way to strategic spend. Our PAY AS YOU SAVE (PAYS) commercial model eliminates the friction of traditional software-as-a-service (SaaS) licensing and eliminates the need for complex business cases with savings off-setting fees which can make tail spend programs self-financing.
I would love to engage with you on tail spend and all things procurement. Feel free to share your comments or reach out to me via email
