Why Should My Company Prioritize Tail Spend Management?
The smaller, non-strategic, typically unmanaged expenses that comprise your tail spend — ranging from office supplies to cleaning services — may seem unimportant in comparison to large expenses like payroll, rent and equipment. However, altering large expenses can be far more difficult and have more adverse effects than tackling tail spend.
For example, cutting payroll could decrease employee morale to the point where it hurts revenue. In contrast, finding cost efficiencies within tail spend, particularly for commoditized products and services, does not have to disrupt employees and can simply save money. In some cases, optimizing tail spend management can even be a net positive in areas like employee and customer experience, such as by increasing the diversity of your supply chain.
As such, companies of all sizes should prioritize tail spend management as relatively low-hanging fruit to improve the bottom line. Spending a little bit more time to dive deeper into unmanaged spend can also spark innovation, without harming operations. Other areas of procurement and finance can remain in focus, as optimizing tail spend management can be part of larger initiatives like digital transformation and budget overhauls, but it should no longer be considered an afterthought.
Getting Started With Tail Spend Management
To start optimizing tail spend management, companies need to get visibility into this previously unmanaged area. If you don’t know what you’re spending money on and how much you’re spending, you don’t know what to improve. Yet part of the reason why tail spend often goes unmanaged is because of the fragmented, irregular nature of the purchases, which makes it difficult to capture this spend data through manual expense reports.
Instead, companies can save time and improve accuracy by automating tail spend data capture through an e-procurement platform and digital wallets.
Through e-procurement platforms, employees can easily find the products and services they need either from catalogs that are directly integrated into the platform or by navigating to the supplier’s website through the platform to automatically capture the spend data. In cases where employees need to make one-off purchases when they aren’t connected to an e-procurement or spend management platform, digital wallets can also be used for payments so that the spend data still gets captured automatically.
For example, if an employee needs to make a one-off purchase while traveling, they could pay with a digital wallet on their phone linked to a corporate card, and that card data could then flow directly into an e-procurement or spend management platform. From there, finance and procurement teams can analyze tail spend data to find efficiencies, such as identifying duplicate or erroneous purchases, and negotiating better deals with suppliers. With clear spend data and purchasing methods through e-procurement platforms and digital wallets, procurement and finance teams can also implement more accurate budgets, set cost controls, easily approve purchases and more.
Why Employees Should Get on Board With Tail Spend Management
As important as it is to centralize and automate spend data capture and analysis, optimizing tail spend management also involves a human element, which may seem more difficult to prioritize. Adding software may be a relatively quick initiative, but getting employees to buy into using new systems, following new processes and taking on new responsibilities such as sourcing more diverse suppliers can take a bit more work.
However, prioritizing employee buy-in tends to be worth it, because tail spend management efforts can then go much further, and initial resistance to change often turns into employees realizing the benefits of improving tail spend management. For example, once employees realize that making purchases through an e-procurement platform cuts down on the pain of filling out expense reports, they may be more willing to adhere to using a new system. Similarly, if improving tail spend management frees up budgets for other initiatives that employees prefer, they may be more willing to get on board with optimizing tail spend.
Finance and procurement leaders can also get on board with improving tail spend management — and motivate other employees to do so too — once they start to how that helps them better perform their jobs. Having more purchasing controls in place, for example, can help them hit budget goals and make more of an impact on their companies’ bottom lines, rather than getting frustrated by unexpected, unpredictable tail spend purchases.
Getting to that point, however, requires a kickstart from leadership to start capturing tail spend data so that other employees can then use that information for their benefit.
Linking Tail Spend Management With Overall Corporate Improvement
To fully optimize tail spend management and justify why it should be a priority throughout employee bases, companies should make an effort to link tail spend management with other areas they’re looking to optimize.
For example, if companies are looking to improve their sustainability efforts, a significant component of that may be the sustainability of the suppliers they work with. In most areas of consumer goods, over 80% of greenhouse gas emissions come from the supply chain, finds a McKinsey analysis of Carnegie Mellon University, CDP and GreenBiz data. As such, tail spend management that includes getting a better understanding of all of a company’s suppliers can help companies figure out the sustainability of their supply chain.
Gaining a better understanding of the suppliers that comprise your tail spend can also help in other areas such as compliance, risk management and corporate diversity efforts. Using technology such as e-procurement platforms then makes it easier to quickly source new suppliers, such as through automated RFPs, who better fit what your company is looking for in these other areas.
Similarly, gaining a handle on tail spend data can be tied to other data and technology initiatives. Comparing purchases and searching for efficiencies can be a useful introduction for some employees into using data analysis to optimize other areas like marketing campaigns or recruiting efforts.
Because of these connections, prioritizing tail spend management can pay significant dividends, beyond just cost savings and control. Companies should no longer think of tail spend as an afterthought, but should instead prioritize it as a way to boost their businesses without having to significantly shake up how they run.
To learn more about how your business can benefit from improving tail spend management, get in touch with GoProcure today. You can also learn more about how our platform improves the full procurement lifecycle.