When it comes to managing procurement costs, large strategic purchases are often the primary target for cost-cutting initiatives. However, businesses can also achieve significant additional cost savings through the capture and management of tail spend.
The term “tail spend” refers to the portion of an organization’s purchases that fall outside the scope of its strategic procurement processes. These high-volume, low-value purchases make up the majority of transactions across departments and can include everything from low-cost office supplies to a one-time equipment purchase. When an organization takes steps to identify, manage, and optimize these types of purchases, this is known as “tail spend capture”.
Your organization’s lower-cost purchases may not always receive the same attention as major purchases, but they can add up to a substantial amount over the course of a year. According to a report by The Hackett Group, tail spend can account for up to 20% of total procurement spending! This ultimately results in businesses paying a premium for items, especially in terms of reactive purchases that have been expensed. Additionally, these types of purchases often impede Procurement Operations’ ability to forecast accurately, making it more challenging to effectively manage spend. In order to chart a path forward, it is vital to have a clear understanding of how tail spend directly influences your company’s financial performance.
Many of the procurement leaders we spoke with at this year’s ProcureCon Indirect West 2023 conference expressed a familiar relationship with tail spend: Although they may be familiar with the potential cost savings associated with tail spend capture, it can be challenging to obtain firm numbers around that spend in a straightforward and meaningful way. This is especially true in cases where buyers make frequent online purchases from web-based consumer retailers or physical stores.
Centralized tools that make it easier for your buyers to find and purchase contract items can encourage compliance and increased visibility. With a centralized procurement solution, the data associated with these purchases is maintained in a single system, which can make it easier for leadership to track purchases across multiple departments. Access to more complete data sets can also help Procurement Operations forecast more accurately, leading to reductions in both tail spend and rogue spend.
A modern, centralized purchasing solution like Varis offers tools to help organizations quickly find and purchase existing contract items, source new compliant items from new suppliers, and export historical transaction data in bulk to identify trends over time. Varis implements quickly and helps inspire faster and more enthusiastic user adoption through an intuitive interface that requires little-to-no end user training.