A lot of people have been talking about tail spend and how important it is to manage it well recently, both here and elsewhere. Most C-suite executives should have heard of tail spend management by now.
Now that we’ve shown that tail spend is a problem for any organisation, let’s examine some of the issues it causes and how to fix them.
Negligible control of tail spending poses several serious problems, including:
Lack of expertise. It is not uncommon for employees to make purchases, even if they may be very competent in their primary roles but lack expertise in making overall purchasing decisions.
Splitting up. It becomes exceedingly difficult to maintain control over the total tail expense when orders for items are modest and/or made infrequently and from suppliers that contribute a little percentage of the total spend.
Make yourself known. Purchases made using tail spend do not fall under the purview of the company’s procurement department’s strategic spend framework, making them difficult to monitor and analyse. In certain cases, they may even go against the company’s own purchasing policies.
More Expensive. Without considering whether the price is fair or relevant to market conditions, tail expenditure items may be ordered from a traditional or favourite provider
Many companies find that delegating this task to their internal procurement team helps them get better control over their tail spend purchases.
By doing this, we accomplish multiple important goals:
More stringent and thorough management controls are put in place for purchases.
Purchase policies are more easily seen and followed.
greater suppliers to choose from means greater competition, which could lead to price wars or even supplier consolidation.
Nevertheless, there are times when it is not wise to put further demands on the purchasing department, which might already be stretched thin.
Businesses also have the option of outsourcing their tail expenditure procurement, which is something they might want to think about. A procurement agency can help with this, providing services that are comparable to in-house management but maybe cheaper.
Each company must weigh its own unique set of circumstances when deciding whether to outsource tail expenditure purchasing or assign the task to its own procurement team. Considerations such as:
Cost. Compared to the fees charged by a third-party procurement agency, what is the actual cost of employing in-house procurement experts (including salary and other operating expenses)?
Pay attention. Does the emphasis on managing strategic spend risk being watered down in
