Tail Spend – What is it?
Tail spend is a collection of transactional purchases where the spend not important enough for procurement to handle, but big enough to collectively cause a business some degree of concern.
If you liken it to your daily coffee consumption. Each day you buy a slightly overpriced coffee but don’t think too much of it. To make matters worse you might buy it from different places each day and you don’t take advantage of any loyalty schemes or discounts. On a day to day basis it doesn’t impact your piggy bank enough for you to notice, but add it up at the end of the month and you’re choking on your Macchiato, vowing to change your caffeine habits.
Tail spend is fragmented and it reaches across a vast and unchecked supplier network with everyone in business doing it. This creates an incredibly complex web of buying activity, that becomes impossible to unpick.
Fairly gloomy reading so far? Well, it gets worse, then it gets better, so keep on reading.
Grab it by the tail. The challenges of managing it.
How do you manage something so erratic and difficult to pin down? Businesses are the parents and tail spend is the headstrong toddler, doing as they please, without consequence. The difference is that tail spend doesn’t grow up. It’s unpredictable, and the main challenge is no one can see the scale of its havoc.
Visibility, or lack of it, is a big problem. Data quality can be poor and frequently there are no centralised platforms to record these transactions. Often purchases are completed outside of contract, so even when there is a paper trail of spend, systems never reconcile.
There’s no process for business buyers to follow and without process it’s difficult to track tail spend purchases, leading us right back to data quality problems. It also becomes a hassle for buyers. No process means that it’s hard work finding the right supplier and, when time is limited, it’s unlikely we can find the time to complete full and proper checks to get us there.
It’s also an administrative nightmare because invoice handling is a mess and everyone’s too busy to check that they are getting the best price, value and service for their purchases.
So far, just sounds a bit annoying right? But let’s talk about the risk.
Suddenly we are all a bit more twitchy.
Well first up, who on earth are these people- who is everyone buying from? These questions open up a cascade of sweaty-palmed possibilities and potential risks which, in case you needed reminding, we’ve listed below (as we said earlier, this does get more uplifting):
Suppliers with historic or personal connections to the buyer
At best this means that the buyer is probably not getting the best price. Using an old supplier with no renegotiation, or looking at alternatives in the marketplace is, quite frankly, lazy and probably costing more, which no-one wants.
At worst it could breach ethical business practice. For example, knowingly buying goods and services from, say, Uncle Ed’s office supply company, is not only frowned upon but is a major breach of policy. Cue embarrassing legal stuff and the word ‘fraud’ being thrown around.
Suppliers who are a CSR risk
Without a formal onboarding and due diligence process suppliers can engage with a business completely unchecked. Procurement’s role is to ensure that it has a tightly controlled supply base. All very well for their spend, but who controls the rest? Errrrrr. No one.
Do business buyers really know (or check) whether a one-time purchase is coming from a supplier who may be using child labour forces to provide their goods or services? Probably not. How about a window cleaner without the appropriate insurances? Where does that leave your business should he fall off his ladder? All of these very real possibilities open up financial risk and potential for significant reputational damage, which then leads to further financial risk and basically a whole heap of horrible, BIG businessy problems.
Supplier data breaches
‘Nuff said, really scary stuff. We don’t need to tell you the potential fallout from this, but we all know it’s nasty, scary and difficult to bounce back from.
How do we manage it, honestly?
There are lots of long (very long), whitepapers out there telling procurement how to manage tail spend. Whilst the stock image of a smiling woman looking reassuringly smug in her suit may imply she’s conquered tail spend in one pivot table, the reality is different. This is a business problem and the solution has to be something that is easy and attractive to entice all these pesky business buyers to come on board.
Tail spend is going to happen. Employees in a business need stuff. All the time. What is more, we all have a day job. Time is of the essence and the introduction of lengthy purchasing processes or lumping procurement with more admin. is just unrealistic. These tasks are done at the end of the day, on the phone, on the tube, whilst watching Netflix and eating pizza. They are an afterthought. Necessary, but unimportant.
The first step to overcoming a problem is to understand what it looks like and the full scale of it. Then at least you know the sort of beast you’re dealing with, however, terrifying it might be. Understanding this information will allow the business to identify high-risk purchasing, starting to single out any patterns which pose the greatest threat to the organisation.
Following this, businesses can introduce controls and measures to support and guide buyers with their transactional purchases. Like providing access to a preferred supplier list, or better still a catalogue.
How to get here does requires cooperation. The answer to managing tail spend does not lie in lengthy consultancy papers or procurement guides. The mention of a widespread procurement transformation project is, no offence, going to result in a resounding groan across departments and an impossible adoption program for the project team. You need to be sneaky and clever about this one.
Talk tech, not procurement
Technology is the answer. Easy, app-driven, mobile-first, cool tech. Technology that feels so intuitive you can roll it out like procurement ninjas without a single, sarcy remark from the sales team. They won’t even know.
We’re talking about technology that captures activity and helps guide buyers in the fastest way possible, with minimum fuss. A noiseless app that we all use, that we all love using, but one that we forget we have actually used because of its simplicity and speed.
For those in the know, there also needs to be something powerful that provides the data that gives you a lens into tail spend, giving you clarity around what everyone is doing. This comes back to our original problem, visibility. Technology like this solves this problem and therefore all the fallout from it because you get a nifty analytics tool to do something with all the data.
Does this technology exist? Yes, we’re building it. We have created something very cool designed to help Procurement with Tail Spend. It brings the very latest technology to the palm of your hand and puts procurement into a new generation of tech. Technology that is easy to use, can be deployed instantly and is enjoyable to engage with. It’s exciting and we’ll be talking exclusively about it in the coming weeks so keep following our content for more details.
For now, we’ll leave it here. Our advice is to look beyond whitepapers and existing procurement tools and look at technologies which can easily win over your business buyers and capture Tail spend MI. Easy technology, we feel, is the key. Add some smart analytics to tie it all together and you’re somewhere close to reigning the tail.