To Maximize Value, Don't Overlook Tail Spend
A recent article in the Sourcing Interests Group Newsletter on understanding tail-spend management noted that while ROI for tail spend categories will generally be lower than for core categories, those companies that keep their eye on the efficiency/effectiveness equation and approach tail-spend intelligently can still find significant savings that make the effort worth while. So how does an organization properly approach tail spend, which:
- rarely includes direct materials
- contains a disproportionately high percentage of spend from the furthest-flung subsidiaries
- contains suppliers that no one in procurement has heard of
- contains large percentages of non-compliance and maverick spend
Intelligently. And iteratively. Data must constantly be reviewed in the light of changing business requirements to determine the best course of action using the following process:
- Spend Analysis
Focus in on the tail-spend data and figure out what is being bought, from whom, where, and for how much compared to market value.
Focus on commodities that can be reclassified into a category that will have enough spend to be worthwhile.
- Sourcing Strategy
Once the category with the biggest opportunity has been identified, determine the right sourcing approach. If a sourcing project is the right approach, accelerate it with standardized templates, RFX, and/or auctions.
- Spot Buy
If the right strategy is to spot-buy in a weak market, then aggregate demand across the organization and spot-buy through e-RFX or automated auctions.
And, regardless of the right sourcing strategy, drive as much spend onto technology platforms, like P-cards, so that it can be tracked and analyzed.
And, most importantly,
- use procurement technology
- simplify processes and increase controls
- establish resources and manage performance