Tail Spend Management

The spend that forms relatively less proportion in total spending but the volumes and suppliers are high, is categorized as Tail spending.

In many cases the Pareto principle is applicable for Tail Spend, the lowest 20% of the spend is represented by 80% of the suppliers in an organization. As there are several small and fragmented suppliers involved, they are not always known or recognized. Such spending does not get much focus and so companies end up paying higher prices and also end up with a higher administrative workload. Managing tail-spend / spot buys might be time-consuming but if the right tail-spend management strategies are adopted, can result in significant cost savings. Tail Spend or Spot Buying is for immediate, Ad-Hoc & one-off purchases. It’s estimated that around 40% of the company’s indirect spending is from spot buying. As a result, in most companies, this spending is often under-managed as it demands more effort and the rewards are low.

Most of the time spot buying is done by the end-user and not the procurement team. These users are not trained as buyers and due to limited purchasing skills; they end up buying products/services at higher costs without understanding the supplier market dynamics.

Most of the firms do not have time or resources to focus on spot buys. They should leverage the capabilities of a procurement outsourcing services provider, a specialist service provider who can handle it in a timely manner. As a specialist service provider, EmpoweringCPO can do the job at fraction of the cost as we have the right kind of tail spend management strategies, and skills, and know how to handle such spending. To read more about EmpoweringCPO’s tail spend management services please visit: Tail Spend Management Services & Solution — EmpoweringCPO.