The Importance of Managing Procurement Tail Spend in the Current UK Economy

Rising economic uncertainty, inflation and supply chain disruption puts large enterprises under increasing pressure to uncover hidden savings and reduce operational risks. 

While there’s little replacement for strategic decision making and embedding procurement best practices for long-term and sustainable success, in such a volatile environment it’s also important to tackle quick – but equally vital – areas for quick wins.

Tail spend, the many thousands of smaller and less frequent purchases that fall outside of strategic sourcing agreements, is one such area.

Typically, these kinds of purchases, often ad hoc, decentralised and involving a wide array of suppliers, lack visibility and control. 

However, effectively managing enterprise tail spend through a mix of specialised digital solutions and effective procurement-led tail spend management strategies can help companies to optimise costs, improve efficiency and reduce exposure to risk.

What is tail spend? 

Tail spend refers to the smaller, often overlooked purchases made by large companies. 

Usually these are low-value transactions that fall outside of core procurement processes – things like office supplies, one-off repairs or last-minute technology purchases. 

Individually, these may seem insignificant or minimal in their impact to overall business spend. 

But collectively, across large organisations with numerous departments and several global locations, they add up to a significant amount of overall spending accounting for up to 20% total spend and 80% of suppliers. 

Why is tail spend important and why is it challenging?

The disparate and enterprise-wide nature of enterprise tail spend means that it often slips through the cracks. 

Unlike larger and more strategic purchases, smaller transactions can bypass procurement teams, meaning they often lack the appropriate approval controls and are not properly linked to preferred suppleirs. 

Instead, tail spend can involve potentially thousands of suppliers and inconsistent pricing.

Six key benefits of tail spend management

• Improved cost savings and efficiency gains
• Improved compliance and risk management
• Better data visibility and spend analytics
• Stronger supplier relationships and consolidation
• Time and resource optimisation
• Alignment with ESG and sustainability goals

Further, spend spread across business departments and locations often involves staff not specifically trained in procurement, leading to greater risk exposure and poor data visibility. 

This level of inconsistency and uncertainty means that businesses end up paying different prices for the same item, dealing with too many vendors and losing out on potential savings. 

For procurement teams, tail spend is particularly challenging to track, manage and analyse effectively, not least because it’s still a largely manual process that can be time-consuming and, until recently, hasn’t been considered a priority.

Improving margins with tail spend management

By effectively managing tail spend, enterprises can uncover significant opportunities to improve their profit margins.

One key way to consolidate suppliers to mitigate fragmented purchasing and a lack of negotiating power. 

By identifying frequently purchased items and consolidating them with fewer, preferred suppliers, enterprises can leverage their overall buying volume to secure better pricing, discounts and terms.

Improving visibility into tail spend is also crucial. This can be achieved by adopting spend analysis tools and tracking mechanisms that help identify spending patterns, uncover hidden costs and pinpoint areas for optimisation. 

This increased visibility enables data-driven decision-making and allows for the implementation of targeted cost-saving measures.

Training and workforce engagement is also critical. To this end, businesses should set out clear procurement policies and procedures. 

This includes directing employees to preferred suppliers and approved purchasing channels, which reduces the risk of overspending and ensures greater compliance.

Technology is critical. To remove inefficient manual processes and decentralised purchasing companies should turn to dedicated spend management companies and solutions such as guided buying tools and automated workflows.

Five key tail spend vendors

Coupa

Coupa is a leading provider of tail spend management solutions, offering a comprehensive AI-powered platform. Its system delivers visibility and control across all spending categories, specifically addressing the challenges of tail spend. Coupa’s Business Spend Management (BSM) platform integrates procurement, invoicing and expense management, establishing a unified view of all financial transactions. To manage tail spend, the company provides functionalities such as guided buying, automated approval processes and AI-driven spend analysis. These help to identify potential savings and reduce uncontrolled spending. Coupa Advantage also gives organisations access to pre-negotiated discounts from reliable suppliers, maximising savings on tail spend.

GEP

GEP SMART is a comprehensive, AI-powered spend management platform that helps drive effective tail spend management. The solution leverages advanced analytics and machine learning to provide deep insights into spending patterns, identify savings opportunities and optimise supplier selection. GEP SMART delivers end-to-end procurement capabilities, encompassing spend analysis, sourcing, contract management and supplier relationship management. Specifically for tail spend activities, GEP SMART automates low-value purchases, enforces compliance and provides real-time visibility into all transactions. 

Ivalua

Ivalua’s source-to-pay (S2P) platform effectively addresses tail spend management. To drive adoption and compliance, the platform provides a user-friendly ‘Amazon-like’ buying experience. Ivalua’s system also enables businesses to centralise and standardise procurement, enhancing tail spend visibility and delivering substantial savings. Furthermore, the platform’s AI-powered capabilities facilitate the identification of cost-reduction opportunities and improve supplier selection.

SAP

SAP Ariba’s Spot Buy feature provides a robust approach to tail spend management. The platform utilises SAP Ariba’s broad business network, granting access to a wide selection of goods from reliable suppliers. Spot Buy enables businesses to effectively manage tail spend while offering employees an on-demand catalogue with a vast range of products.

They can select from items provided by trusted, vetted suppliers within the SAP Business Network and integrated B2B marketplaces. This allows everyone in the organisation to adhere to purchasing policies while benefiting from an intuitive, consumer-like experience when searching for and placing orders.

Amazon Business

Amazon Business offers a broad approach to tail spend management, utilising the familiar Amazon shopping experience.

The platform provides business-specific functionalities like approval workflows, spending limits and detailed analytics.

It enables organisations to consolidate tail spend into a single place, enhancing purchase visibility and shortening lead times. Amazon Business also facilitates access to competitive pricing, volume discounts and an extensive product range, making it a compelling choice for handling indirect and tail spend.

Original Article – The Importance of Managing Procurement Tail Spend (supplychaindigital.com)