We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • INDUSTRY PRESS ROOM
  • SUBMISSIONS
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
  • STRATEGY
  • GLOBAL
  • LOGISTICS
  • MANUFACTURING
  • PROCUREMENT
  • VIDEO
    • News & Exclusives
    • Viewer Contributed
    • CSCMP EDGE 2022 Startup Alley
    • Upload your video
  • PODCAST ETC
    • Podcast
    • White Papers
    • Webcasts
    • Events
    • Blogs
      • Reflections
      • SCQ Forum
    • Mobile Apps
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
  • STRATEGY
  • GLOBAL
  • LOGISTICS
  • MANUFACTURING
  • PROCUREMENT
  • VIDEO
    • News & Exclusives
    • Viewer Contributed
    • CSCMP EDGE 2022 Startup Alley
    • Upload your video
  • PODCAST ETC
    • Podcast
    • White Papers
    • Webcasts
    • Events
    • Blogs
      • Reflections
      • SCQ Forum
    • Mobile Apps
Home » Now's the time to manage "tail spend"
Procurement Priorities

Now's the time to manage "tail spend"

April 19, 2016
Susan Avery
No Comments

Procurement teams that strategically source 80 to 85 percent of their companies' purchases are hitting a critical metric that measures their performance: spend under influence. Now, they're turning their attention to that remaining, and sometimes neglected, 20 percent of purchases known as "tail spend."

Is it worth devoting significant procurement resources to managing these often smaller, low-dollar purchases? According to the Hackett Group, the answer is yes. The consulting firm believes that managing tail spend will help procurement address its larger strategic goals. The Hackett Group's "2016 Key Procurement Issues Study" asked procurement leaders at 180 companies with $1 billion in annual sales worldwide to list their priorities for the coming year. The great majority—85 percent—of the procurement leaders who participated in the study said that reducing and avoiding costs was among their top priorities. Another 81 percent said elevating procurement's role to trusted advisor at their companies is important. Third on their list was that critical metric, increasing spend influence, with 76 percent saying it's a priority.

Managing tail spend should help procurement tackle all three of these priorities. The Hackett Group estimates that by managing tail spend, procurement leaders can help reduce costs by 3 percent or more. It also says that managing tail spend is a way for procurement to increase its influence on, or involvement in, the company's purchasing. And, perhaps more important, tail spend management can help to streamline processes and free up category managers to work on more strategic purchases. All of these benefits should help procurement elevate its role in the company.

Two approaches

Chris Sawchuk, a principal and global procurement advisory practice leader at The Hackett Group, says procurement leaders can approach tail spend in two ways: quantitatively or qualitatively. They can add to the 80 percent of spend they influence by taking on neglected spend categories, or they can look at categories they're already involved in managing and determine whether they are extracting all the value they can from their sourcing. For example, perhaps their sourcing decisions only lead to lower costs but they could also be adding value by collaborating with suppliers on such activities as simplifying the transaction process.

Both approaches, however, require procurement to segment the company's spend, and that takes resources. Unfortunately, procurement professionals, like those in other departments, often feel strapped for time.

The good news is that the "2016 Key Procurement Issues Study" also shows that procurement's operating budgets will rise 1.1 percent in 2016—not a significant amount, but still helpful. Moreover, managing tail spend may be well worth the resources required, since doing so helps the procurement function reduce cost, elevate its role, and increase its influence. And once procurement leaders have a system in place to manage tail spend, all it should need is some regular maintenance. With resources freed up, procurement leaders can get on with addressing other priorities they say are becoming more important: improving agility, managing continuity risk, and tapping supplier innovation.

Procurement
  • Related Articles

    Procurement: It's time to automate!

    Why risk needs to be top of mind for procurement leaders

    Tackling the tactical with procurement outsourcing

Susan Avery is a business journalist with 30 years of experience covering the procurement profession.

Recent Articles by Susan Avery

Starved for resources?

The window is open for real gains in supplier diversity

As minimum wages rise, procurement must be ready to respond

You must login or register in order to post a comment.

Report Abusive Comment

Most Popular Articles

  • Forecasts call for freight rate slumps in 2023

  • Projected U.S. recession in early 2023 will soften freight market

  • Inflation drops again as interest rate hikes hit home, NRF says

  • How to avoid the next crisis: A new approach to supply chain agility

  • New Jersey truck fleet says Freightliner tractors will deliver safety as well as freight

Featured Video

20221107korber large vs

Enhancing Customer Experience with Your Supply Chain Strategy

Viewer Contributed
With the rise of e-commerce, many businesses have had to transform their warehouses to handle online orders in addition to regularly scheduled inventory shipments. This means warehouses need more information than ever before to ensure they can meet customers' needs. As a result, companies need to select warehouse...

FEATURED WHITE PAPERS

  • Guide to Pallet Rack Safety

  • 3PLs: Complete Orders Faster with Flexible Automation

  • A shipper's guide to navigating post-pandemic holiday freight

  • THE NEW WAY TO WAREHOUSE: 4 Innovations in Automation & Robotics to Boost Warehouse Productivity

View More

Subscribe to Supply Chain Quarterly

Get Your Subscription
  • SUBSCRIBE
  • E-NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2023. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing