newsletters How to Unlock Game Changing Tail-End Spend Savings: A Look at Challenges and Best Practices for Addressing Them
Jason Evans, Vice President, Xchanging (www.xchanging.com)
Procurement teams invest heavily in their core spend areas, but the final 20% of spend, the “tail-end,” remains a largely untapped opportunity for most companies. For a large number of suppliers, smaller spend volumes and a perceived lack of economies of scale mean that knowing exactly where to focus attention in the tail-end is a daunting task.
There are a number of additional inherent characteristics of tail-end spend that make it hard to optimize. Some of those include:
High volume, low price
Low volume, low price
Despite a handful of challenges, Everest Group suggests that inclusion of tail-end spend increases the procurement outsourcing savings potential by 1.5 times. Therefore, it’s worth exploring ways to manage the common challenges.
Addressing Challenges of Tail-end Spend Management
Often-cited challenges associated with managing tail-end spend include factors like poor data quality and visibility, seemingly low savings potential and lack of a dedicated team to management it. There are effective responses to these challenges, however. Let’s take a look at them.
Ingredients for Success
To be effective in managing tail-end spend, organizations should look for a
third-party provider that addresses the following:
Spend Analytics – The service provider should perform
in-depth analysis to identify ‘maverick’ spend – non-compliant transactions
that should be directed to existing agreements – and other spend across the
agreement to encourage compliance.
Sourcing Helpdesk – A full-time sourcing helpdesk
should perform as the one-stop-shop for all sourcing and procurement
queries. Depending on pre-agreed spend parameters, each enquiry should be
directed to either the customer’s in-house sourcing department or existing
Online Supplier Marketplace – Having access to an
online supplier marketplace should be granted via a third-party provider.
This tool helps to perform sourcing initiatives for customers, where
Tactical Buying Center – For true one-off purchases,
quick turnaround benchmarking, tendering and negotiation services that
ensure all purchases are touched by procurement.
Change Management in Focus
In addition to the core ingredients outlined above for success in tail-end
spend management, effective change management is a crucial component for
addressing a set of key risks involved. Here is a list of the change risks to
consider and ways they can be addressed:
Putting the Pieces Together – A Case Study
A major global telecommunications provider needed to control its
tail-end spend so internal teams could refocus on their core business. At
the time of engagement, this spend comprised $166 million across 12
countries with as many as 1,400 suppliers.
Consolidate and centralize tail-end spend purchasing
Implement purchasing best practices and controls
Reduce the number of suppliers in the tail-end
Implemented a tactical sourcing model with comprehensive change
Centralized tail spend across 12 countries bringing purchasing
intelligence with a team of 10 third-party expert buyers
Technology roadmap was put in place to enable workflow, supplier
relationship management and a price benchmarking database
Tail-spend for this business covered items from $20 to $200,000 and
required speed of response. Reactive procurement procedures were implemented
based on lead times of three hours, three days and nine days depending on
customer requirements and the purchase amount.
By working closely with the customer team and supporting
well-established processes with innovative technology, the delivered results
An effective change management program
13% savings realized in year one
High performance in SLA time target achievement (95%)
What to Walk Away With
There is growing recognition within procurement that tail-end spend
management is of increasing importance. This doesn’t mean that common
procurement practice should be put on the back-burner to instead focus on the
tail-end, but it does mean it can yield significant savings and deserves
significant consideration. With the best practices outlined here for ways to
address the challenges commonly associated with tail-end spend management, it is
my hope that you can secure an engagement that eliminates the risks and instead,
reaps the rewards, of managing tail-end spend.
About the author: Jason Evans is Vice President at Xchanging, a business process, procurement and technology services provider. To learn more, visit