How to Work With Suppliers to Optimize Tail Spend Management

Category: Procurement

How to Work With Suppliers to Optimize Tail Spend Management

While many businesses are starting to recognize the value of focusing on operations and technology to optimize tail spend management, doing so does not need to entirely be an internal matter. Instead, companies can optimize tail spend and improve their overall procurement by working more closely with suppliers.

That means that instead of simply working with suppliers on a transactional basis — e.g. purchasing their products through an e-procurement platform without any other interaction — procurement staff can form strategic relationships with suppliers to secure better pricing, more efficient deliveries, better customer service, and ultimately better align tail spend management with overall business goals.

Forming these relationships may start with technology like e-procurement platforms that can automate data collection to share with vendors or automate invoice processing to improve supplier experience, and then procurement staff can dive deeper and prove their value, such as in the following ways: 

Leverage Spend Data to Negotiate Win-Win Contracts

Once procurement staff has greater visibility into their spend data, such as by collecting that information through an e-procurement platform, they can share that data with tail spend vendors to negotiate better contracts. Organizations often have a slew of tail spend vendors, each with small purchase amounts, which is partly why this area goes unmanaged in the first place.

Yet as procurement and finance employees analyze tail spend data, they can identify insights such as what categories they spend the most in and with whom. From there, staff may see, for example, that they can consolidate spend in certain categories with vendors who offer comparable products or services. A global survey of chief procurement officers (CPOs) by Deloitte finds that consolidating spend is the top procurement strategy CPOs plan to utilize to deliver value over the next year.

Suppose an organization spends $10,000 on office supplies annually with 20 vendors. Instead of spending an average of $500 with each, procurement teams could present this data to suppliers to then negotiate a contract with a couple of preferred vendors and receive a volume-based discount. In doing so, the company could go from spending $10,000 and having the operational burden of managing 20 vendors to spending, say, $8,000 across just two vendors. Meanwhile, the suppliers you choose to work with gain the benefit of going from $500 worth of your business to $4,000.

Secure Better Terms and Improve Efficiency 

In addition to leveraging data to consolidate spend, secure better terms, etc., procurement staff can also work with suppliers to identify operational inefficiencies and secure better terms. For example, tail spend data may indicate that payments or order processing are taking longer than expected, or a company may simply want to move away from paper-based processes to increase productivity.

Communicating with suppliers about these issues may lead both the primary company and their supplier to identify better ways of working together. For example, vendors may be willing to accept digital payments rather than checks if you can demonstrate how that leads to more accurate, faster payments, while your organization gains the operational benefit of moving to more digital processes.

Similarly, once communication starts flowing between your organization and tail spend suppliers, they may share ways they prefer to work too, such as receiving payments in batches rather than one at a time in order to minimize payment fees. As such, you may be able to work together to come up with a more efficient payment schedule that works for both parties, such as by pooling orders to process as batch payments once a month.

Promote Shared Initiatives/Values

To really get the most out of forming strategic relationships with vendors, suppliers need to go beyond costs and processes to also work with suppliers on promoting shared initiatives and values, such as a commitment to diversity or sustainability.

For example, companies can work with tail spend suppliers on marketing campaigns around how they both embrace diversity. Doing so can lead to an improvement in employee and customer experience, among other benefits. Companies can also engage suppliers on initiatives like a commitment to reduce plastic usage. Suppliers may then agree to use less plastic packaging, which could potentially reduce costs for the supplier while also helping both parties attract more customers that want to work with sustainable companies.

These are just a few of the many ways companies can work more closely with suppliers to optimize tail spend management and improve businesses overall. To learn more about how your business can leverage e-procurement tools to work more closely with suppliers, get in touch with GoProcure today. You can also learn more about how our platform improves the full procurement lifecycle.