Tail Spend: What is it?
We call it ‘tail spend’ but, whatever you choose to call it, the beast — and the inefficiencies it breeds — remains the same.
So what is tail spend, exactly? And why is every enterprise talking about it?
You might not even have heard of tail spend (or any of its alternative terms), but your business is undoubtedly a victim of it. Put simply, tail spend refers to the thousands of a small spending transactions that business makes. Individually, these transactions don’t seem like much and so go unmanaged and unnoticed. The cumulative value of these transaction, however, is vast.
So vast, in fact, that tail spend — or not controlling it, at least — has the potential to be the biggest mistake your business will ever make. It’s costing the global economy billions of dollars every single year, yet the number of enterprises actually doing anything about it is few.
At blur Group, we estimate that tail spend accounts for as much as 20% of a business’ entire expenditure and around 80% of all supplier relationships. To put it simply, it’s the small things (products and services) delivered by hundreds or thousands of different external suppliers. The small transactions aren’t necessarily the problem; it’s the fact that they go unmanaged and uncontrolled.
Before your business even knows it, these relatively small (but entirely uncontrolled) transactions have already accumulated to thousands or millions of dollars.
Should your business be looking at its tail spend?
Definitely. And there’s never been a better time to calculate, chase and control your tail spend. The ever-turbulent economic environment that we currently find ourselves in has formed a business landscape where every cost is heavily scrutinised. Yet, despite this shift, tail spend has managed to go under the radar, largely or completely unnoticed. Looking at your business’ tail spend is an agile, shrewd way of making savings.
Accenture conducted a significant amount of research on tail spend and found that savings somewhere in the region of 15% can be made through proper tail spend management. To put this into perspective, for an enterprise with a billion dollars in annual indirect spend, 20% ($200 million) of this will be unmanaged tail spend. A 15% saving on this cumulative tail spend would equate to a hefty $30 million.
It doesn’t matter if you’re Apple, Alibaba or Google — no enterprise in the world can ignore a potential $30 million saving in annual expenditure. No enterprise in the world can afford to needlessly waste such a sum.
Is your tail spend roaming uncontrollably throughout your business?
More than likely, yes. It’s safe to assume that the vast majority of businesses are victims of tail spend, and your business is probably no different. The small purchases that constitute tail spend often don’t fit official procurement criteria, so they go unchecked and suppliers deliver services without a binding contract.
As a general benchmark, however, you can ascertain whether you have a tail spend problem by assessing whether the number of suppliers you have is greater than the number of employees you have on your books. If, in fact, you do have more suppliers than employees, there’s every chance that your business is suffering from tail spend. Similarly, if less than 70% of corporate purchases are controlled and negotiated by your procurement department, you could well be in trouble.
What can your business actually do about tail spend?
Fear not, though — there is a cure for tail spend. Experts seem to agree that the best way to tackle tail spend is to develop your procurement, set up a dedicated project team and give them the task of bringing your business’ tail spend under control. Typically, this can involve your procurement department regaining control, rationalizing suppliers and buying more efficiently through online platforms and catalogues.
Take blur Group’s online spend and supplier management platform, for example. Our platform enables efficient and effective management of suppliers. Even the smallest of services projects can be delivered in a professional and controlled way. Using blur means every project is subject to a competitive tender which invariably creates cost reductions. Once appointed, the supplier output can be easily monitored using our bespoke project management software to ensure quality levels and timescales are met. It provides enterprises with unprecedented choice, value and control and has done for customers like Danone, Argos and GE Healthcare.
blur’s Platform really comes into its own if you need to run multiple projects across many geographic territories. Using our unique Project Space technology, each and every project can all be controlled and monitored from anywhere, on any device. It’s your business’ all-encompassing tail spend solution.
But don’t just take our word for it…
“I quickly realized that we were not getting best value from our marketing suppliers and so using blur Group to source the best solution for each project has given me efficiencies I didn’t believe possible”
- Head of Procurement, FMCG company