In brief
Tail spend management steers the share of procurement spend spread across many small, irregular orders with numerous suppliers.
Contents
What is Tail spend management?
Tail spend refers to the long tail of the spend distribution: a large share of suppliers and orders accounts for only a small share of purchasing volume. Typical examples are one-off purchases, small orders without a contract, orders from occasional suppliers and requirements outside the established catalogues. Many of these transactions bypass strategic procurement.
The problem lies less in the volume than in the process costs and lack of transparency. Every order generates effort for the enquiry, approval, supplier creation, goods receipt and invoice verification, regardless of the order value. On top of this come compliance risks if suppliers have not been vetted.
Tail spend management relies on analysis, pooling and simplified processes: catalogues for standard requirements, framework agreements, purchasing cards, consolidation with a few partners or outsourcing to a service provider who takes over many individual requirements. Transparency is a prerequisite: only a cleansed analysis of suppliers and orders shows which requirements can be pooled and which individual cases remain.
In practice: maintenance and procurement
In manufacturing companies, a large part of tail spend consists of spare and wear parts from a wide range of manufacturers. Pooling is particularly worthwhile where maintenance technicians have so far ordered individually from many distributors themselves.
Synonyms and abbreviations: tail spend · long tail spend · low-value spend management
Frequently asked questions
How do you identify tail spend in your own company?
The starting point is an analysis of all suppliers and purchase orders by volume. If suppliers are sorted in descending order of turnover, a long tail of many suppliers with small amounts each usually emerges. Further indications are one-off suppliers, orders without a contract or catalogue, and invoices without a prior purchase order. Cleansing duplicate supplier master data makes the picture considerably more meaningful.
Why does tail spend cause high costs?
The costs arise less from the spend itself than from processing. Every small order goes through enquiry, approval, possibly supplier set-up, goods receipt and invoice verification, with similar effort to a large order. On top of this come unvetted suppliers, missing discounts and a lack of transparency. With many transactions, process costs can exceed the value of the goods.
Which measures help with tail spend management?
Proven measures are catalogues for recurring standard items, framework agreements with a few preferred suppliers and simplified ordering channels for small requirements, such as purchasing cards with clear limits. Another lever is pooling many individual requirements with a partner who also sources rare items. It is important that the new channels are simpler for requesters than the previous direct orders.