Spend Analytics

Why prioritise tail spend management?

When searching for hidden expenses feels like searching for a needle in a chaotic haystack, it is time to take a good look at the tail spend of your business. Generally, tail spend is defined as the business spend that makes up about 80% of the transactions but only 20% of the total spend volume. Tail spend is also defined as that part of the total spending budget that is not actively managed or tracked by businesses. Business spend management must consider tail spend management solutions to realise significant savings. Hence, prioritising tail spend management in the shadow of a global recession should become the new mantra for CPOs.

Why should tail spend management be a priority?

Ad hoc, maverick, and miscellaneous commoditised spending form a small chunk of business spends. However, it is also the most disorganised part of business expenses that are not actively managed because of the involvement of a large number of suppliers. Moreover, handling tail spend can become a nightmare for CPOs as such data is rife with poor visibility and depends on manual processes. Tail spends are usually the least important aspect for procurement departments because of the various challenges involved in actively managing it, such as:

  • Poor visibility of all suppliers is one of the biggest challenges to actively managing tail spend. Non-contracted and off-contracted spends are hard to identify and track. Poor integration between different systems can often lead to mismatches and data silos, making the process less transparent.
  • Although the spend value is low, several sub-categories, items, and suppliers make it hard to organise the data. Hence, it complicates spend analysis.
  • Much time and manual effort are involved in consolidating tail spend data, especially when done by separate groups of the same business. It creates unconnected data silos, thus making the process of integration a time-consuming activity.

Despite the challenges, tail-end spend management has become vital as it can impact the cost pressures faced by businesses due to the continuing effects of the pandemic. When implemented correctly, tail spend management solutions can drive valuable cost savings. Let’s delve into the benefits of tail-end spend management to understand its importance.

  • Finding cost efficiencies in tail spends and creating solutions to reducing it is easier than cutting costs for strategic spends such as payroll.
  • Optimising tail spend management can streamline the supply chain and increase supply chain diversity.
  • A centralised tail spend management solution can eliminate or reduce transaction costs and reduce duplicate purchases.
  • Tail spend management can increase sourcing transparency to implement saving strategies while sourcing.
  • Increasing contract coverage and compliance with a TMS (Track Management System) can reduce business risks, as well as prevent maverick spending and fraud.
  • Automated spend management and procurement solutions can save time, capture maximum data, and improve accessibility to enable spend analysis.
  • With accurate tail spend data, procurement and finance teams can also strategise better budgets, set cost controls, and streamline purchase approvals.

How to manage tail spend?

The same challenges that make tail spend management complex provide opportunities to optimise it. Every business has unique needs and requires customised tail spend management solutions. However, here are some general guidelines on how to manage tail spend.

  • Clean and classify spend data and conduct spend and frequency analysis on it. Categorising the spends based on sourcing can help businesses get better insights into the procurement process and supplier network.
  • The business must clearly define tail spend and compute the scope after classification. This helps the organisation in data management with further classification and implementing savings strategies.
  • Identify opportunities for cost savings at both transactional and spend levels. Find ways to either reduce cost or cost avoidance.
  • Develop strategies based on priorities and implement solutions such as e-procurement, automated PR/PO matching, consortium buying, and e-marketplace. The solutions streamline both sourcing and procurement processes.
  • Solutions such as spend control towers examine business spending holistically and include tail spend management to ease decision-making and approval processes.
  • Identify process and policy improvements. Monitor improvement in tail spend performance using metrics such as cost avoidance, reduction, data visibility, and transaction costs.

For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like living organisms will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.

How Infosys BPM can help?

Infosys BPM has built several models for business spend management. Our deep domain expertise can help businesses identify opportunities to streamline the sourcing and procurement processes and drive value for your business.

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