What is tail end spend management?

Tail end spend – also called long tail, or low value spend – is the 20% of spend that typically goes unmanaged within an organisation. This 20% tends to be spread across multiple spend categories and via a large number of low value transactions with numerous suppliers, many of which are used very infrequently.

Tail spend which can often be referred to as rogue spend or maverick spend, is usually small value purchases that are conducted by the organisations outside of a contract and often outside of the awareness of the procurement team.

The 20% of your spend is known as ‘tail spend’ or ‘long tail’. Tail-end management is the art of managing your tail spend supply chain to optimize procurement and supply chains. Why is tail-end management important to you? In every organisation, procurement has limited resources and one must set priorities.

The tail-end of a procurement department’s spend refers to the 20% of non core transactions that are left unmanaged, usually due to a high volume of suppliers and limited in-house resources.

1. Identify your tail spend. As mentioned, tail spend is different for every organization. …
2. Streamline internal processes around tail spend. …
3. Put your procurement data to work. …
4. Use a crawl, walk, run approach.

Maverick spend is defined as buying from suppliers without following the company’s pre-established procurement policy. Purchasing goods or services out of contract or from non-preferred suppliers means that your company doesn’t benefit from the preferred supplier discounts that you worked hard to negotiate.

Tail spend is often challenging to manage because it is comprised of one-off, irregular, low-value transactions that are ill-defined in procurement processes because they don’t fall under strategic spend categories. … These “small” transactions are too big to ignore.

Managed spend is defined as any spend under contract, a key performance metric that represents any transaction in which the procurement team has been involved in sourcing and negotiating the terms. … In contrast, unmanaged spend refers to any spending that occurs outside of a company’s defined procurement cycle.

A spend category is the logical grouping of similar expenditure items or services that have been clearly defined on an organizational level. For example, “information technology” may be considered a spend category covering both IT software and hardware.

Try to capture higher margins and higher price increases on the non-core items. This concept is sometimes referred to as long-tail pricing. If you create a pareto chart of your sales or your industry sales by product, you will usually see the vast majority of sales comprised of few products.

Spend analysis is the process of identifying, gathering, cleansing, grouping, categorizing and analyzing your organization’s spend data. This is done with the goal of decreasing procurement costs and improving efficiencies by increasing visibility and transparency.

Rogue, maverick and tail spend are common terms in the procurement business, and they all mean roughly the same thing – unexpected, unpredictable or unorthodox spending. This sort of spending can happen when purchases are made outside of agreed supplier contracts, often ignoring defined procurement processes.

Tail spend is generally defined as the amount of money that an organization spends on purchases that make up approximately 80% of transactions but only 20% of total spend volume.

1. Step One: Identify your Information Sources. …
2. Step Two: Gather Data in a Central Location. …
3. Step Three: Cleanse to a High Standard. …
4. Step Four: Group by Supplier. …
5. Step Five: Categorize. …
6. Step Six: Analyze. …
7. Step Seven: Repeat.

The Kraljic Matrix is a strategic tool used by procurement and supply chain professionals to identify and minimise supply risks. Using the tool to classify the importance of suppliers’ products and services can highlight supply chain weaknesses, support strategy development and minimise supply disruption.

Why is supplier performance management important for your business? Most companies rely on timely delivery, price reduction and service quality offered by their suppliers in order to gain more profit. As a result, the successful management of supplier performance directly affects the quality of the whole supply chain.

A strategic expense is any expense that will yield immediate profit for that expense, or it’s an expense that strongly protects profit in the business. A strategic expense can also be one that will in the near-term lead to future profits.

A procurement Framework is an agreement put in place with a provider or range of providers that enables buyers to place orders for services without running lengthy full tendering exercises. Frameworks are based on large volume buying.

1. Conduct a detailed spend analysis.
2. Educate your team.
3. Adopt smarter procurement systems and processes.
4. Create a process for special purchase needs.
5. Build procurement education into your HR process.

1. List the spend for the top 10 categories where you have identified maverick spend during Spend analysis exercise.
2. For each category, list the total spend and % of spending which is maverick spend.

1. Spend Visibility. The procurement function is prone to Maverick Buying when visibility is low. …
2. Technology. We have to identify why employees settle for out-of-procurement purchasing practices, which is mostly because of obsolete technology. …
3. Training. …
4. Shared Accountability. …
5. Other Measures.

What is indirect procurement? Indirect spend refers to expenses incurred for materials, services and maintenance required to operate the business. Both are equally essential to the running of a company, and one cannot exist without the other.

Category management is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of grocery categories might be: tinned fish, …

Spend management is a set of practices that ensure organizations make procurement and sourcing decisions in the interests of both the bottom line and company efficiency. Spend management is about maximizing value from company spend while decreasing costs, mitigating financial risk and improving supplier relationships.

Influenceable spend is spend that procurement has the ability to change, either through negotiation, choosing different suppliers or changing demand. … This is usually defined as spend under contract, but really it represents any transaction where procurement has been involved in the sourcing or negotiation.

Impactable spend means the spend that is within the domain of influence of the procurement function. This could mean that spend is managed in line with organization’s sourcing policy or otherwise influenced by procurement.

• Standard purchase orders. A standard purchase order is typically used for irregular, infrequent or one-off procurement. …
• Planned purchase orders. Like a standard purchase order, a planned purchase order is relatively comprehensive. …
• Blanket purchase orders. …
• Contract purchase orders.

Because spend analysis provides visibility into an organization’s procurement activities and expenditures, it allows the organization to identify areas for cost reduction and process improvement. This, in turn, could result in a lower overall cost to procure goods and services.

In the life cycle of a product, its brand equity goes up, hits a plateau and then goes into a decline depending on the nature of the product and its environment. … Before it starts going into a decline, companies often introduce a successor brand of the same product. This new brand is called the tail brand.

The term “long tail” refers to all of the products that form the basis of a catalogue (items, photographs) that are sold in small proportions, but where the sum of these sales may, when combined, exceed the total sales of the most commonly sold products.

Classic examples of Long Tail businesses include Amazon and Netflix. In addition to online retailers you will also find Long Tail businesses in micro finance and insurance to name just two industries.

Spend Analysis involves all of the common processes that you would expect – data retrieval, cleansing, classification, interpretation and presentation. … Spend Management involves an assessment of multiple key areas that impact the full Sourcing and Procurement spectrum.

Diverse supplier spend, often shortened to diverse spend, refers to the procurement dollars spent solely with small and diverse businesses, often expressed in a dollar amount or percentage of total procurement spend.

Total third-party spend is calculated based upon the total value of invoices paid per annum, excluding VAT, to all suppliers for the purchase of goods and services. Third-party spend is defined as including: Goods – tangible products such as stationery, which. are often also known as supplies.

Rogue, tail or maverick spend (sometimes referred to as dark purchasing) refers to unmanaged, uncontracted, and non-compliant expenditure. These terms are used interchangeably to describe any purchasing by employees that occurs outside of procurement mandates, contracts, or policies.

Whereas strategic sourcing involves long-term procurement commitments, spot purchasing (or spot buying) occurs when there is an immediate requirement and a purchase must be made, quite literally, “on the spot.” These purchases are usually unplanned, made up of small orders, and often paid for immediately.