Tail spend management: What Your Business Needs To Know?

Businesses deal with high-volume, low-cost transactions called tail spending that don’t follow procurement process standards. Without adequate tail spend management, these can become overwhelming for businesses as there are no proper records. Automated electronic procurement streamlines such spending as well for overall procurement management.

Tail spend, commonly known as maverick spend, refers to small ticket purchases made outside of contracts bypassing the procurement system. Procurement teams are usually unaware of these purchases, contributing to 80% of the company transactions. Tail spend is inherently non-compliant, and there is no data to track these transactions. We want you to manage tail spend because without proper tail spend management you are essentially leaving 20% of business expenditure unaccounted and uncared for.

Why Tail Spend Is Harmful To Businesses

Boston Consulting Group report showed that businesses could achieve cost savings of 5% to 10% with effective tail spend management . Over the years, businesses that don’t effectively manage tail spend usually find the tail stacked up with individual expenses to cost more than any contracted supplier. When the procurement process is streamlined using procurement software, the end-users will also have a good purchasing experience.

Source: https://www.claritum.com/r/infographic/tail-spend-infographic/

Businesses quite often ignore the irregular and low-value transactions, but they can be a budget killer, stealing many growth opportunities. Following are some of how tail spend affects your business:-

• Missing out on spending coverage and savings – Your procurement team often runs behind high-value purchases, but these low-value purchases result in billing inconsistencies. Tail spending doesn’t contribute to top-line business initiatives, but ignoring these will result in poor savings.

• Increased risk factors – Unchecked tail spending will increase maverick risks and fraudulent activities. It is much easier to steal a big chunk of the company’s money with frequent low-value purchases that go under the radar. It also causes procurement risks because dark spending can result in insufficient money for essential supplies in small to medium-sized businesses. Apart from procurement risks, tail spending also results in compliance risks. Any purchase that doesn’t go through the standard procurement system is bound to create compliance issues sooner rather than later.

• Inefficient budget forecasting – Profit and Loss management can only forecast when there is a predictable budget. With unmanaged tail spending, the budget remains unclear, resulting in a poor budget forecast. Without an accurate financial forecast, your business will struggle to plan for the future. Crucial financial decisions can only be taken with accurate financial information.

• Mismanaged integration of departments – Multiple departments of your businesses must come together for effective procurement management. Tail spending results in scattered departments with the authority to spend according to their whim. This can overwhelm the finance department at the time of compliance audits.

Improving Tail spend management

E-procurement software includes tools for effective tail spend management because businesses lose a lot of money on high-volume, lost-cost transactions. Effective cost savings can strengthen supplier relationships and increase business revenue.

Tail spend management is carried out by focusing on historic data. Supply exposure and business risk computation are necessary for strategic management. Every commodity should be identified to compare spending and supply exposure. By identifying procurement goals for each commodity, execution plans are finalised to meet the overall business goals. This process has to be customised for your business because strategic and tactical commodities differ with different businesses.

Following are the benefits of automated tail spend management:

• Reduced maverick spending with more control on low-cost transactions.
• Increase in ROI with cost-saving realisations in the procurement process.
• Improved contracted spend with qualified supplies
• Standardised business process through automation
• Increased compliance efficiency with data transparency
• Improved supplier relationships using procurement contracts
• Reduced procurement costs without budget leaks
• Strengthened procurement controls with visible authorization information
• Reduction in the number of transactions and transaction costs.

Innovative Procurement Solution Includes Tail Spend Management

According to a Deloitte survey, about 67% of procurement leaders don’t know what happens beyond tier one of the supply chain. This is unacceptable because a comprehensive electronic procurement platform also provides spend management. When automation can handle a company’s spend, it should be exploited to cut costs and increase ROI. With procurement software, there will be no surprises and no need for manual tracking.

Procol is an innovative procurement solution that can help you manage high-value and low-value purchases with the same finesse and efficiency. Request a demo and experience how the procurement solution can result in cost and time savings for your business.