Strategically Managing 80% of Procurement Spending Isn’t Good Enough
Addressing Tail Spend — the ‘last mile’ of procurement spending — can yield big benefits. Businesses worldwide are relentlessly pursuing continuous improvement — reducing costs, increasing efficiency and productivity, delivering better products and services, enhancing the customer experience and retaining employees. Capitalizing on every business improvement opportunity is a corporate imperative. Status quo is not an option.
In recent years, digital technologies — Cloud, Big Data, Mobile, Social, Artificial Intelligence, Machine Learning, Apps for Everything, SaaS — have powered massive business transformation. This trend will surely continue as companies seek to gain every available advantage over their market competitors.
Today, businesses are investing strategically in these innovative digital technologies to improve management of their procurement spending, which comprises about 50% of a company’s total annual spend and is viewed as fertile ground for cost savings, process efficiency and productivity gains.
Businesses wisely recognize the value of providing procurement professionals with real-time access to insights and analytics through artificial intelligence (AI) and user friendly online tools. They know they need new smarter ways to use internal and external data to enhance day-to-day procurement operations and decision making. They understand the importance of improving how buyers interact with suppliers and other third parties and the value in promoting new levels and types of collaboration.
As with any spend-control initiative, the low-hanging procurement spend fruit was the first to be harvested. Companies’ initial focus has been on leveraging digital technologies to help them strategically manage procurement of the large-spend items, which make up about 80% of their annual procurement spend and involve interaction with about 20% of their vendors.
Indeed, efforts to leverage technology to get large-dollar-value procurement spending under management are meeting with considerable success.
However, despite the global “continuous improvement” mantra, businesses have been much slower to address what they see as a more complex and gnarly procurement challenge: gaining control of their tail spend. This is the smaller item spend that comprises 20% of a company’s annual spend and involves interaction with 80% of its vendor community.
While it is the case that no business would be satisfied with selling a product or service that was effective only 80% of the time, or providing only 80% of its customers with good service; or effectively managing 80% or its employees, most companies today have no strategy, and no plan to develop a strategy to gain management control over their inefficient tail spend.
Procurement executives and managers in forward-looking companies are beginning to leverage available technologies to automate, streamline and simplify their tail spend processes, gaining the needed visibility and control that can deliver significant bottom-line results.
Saving 7–10% on tail spend annually can deliver millions in savings and just as importantly, measurable productivity gains.
Getting tail spend under management provides a distinct competitive advantage and is well worth the effort.
Originally published on Fairmarkit.com on August 21, 2018.