An organization can never succeed if it does not manage its costs. The reduction of expenses is the most important thing for the organizations and they try their best to control it in order to gain the benefits. Tail spend nowadays, is receiving popularity by the organizations and they are interested in managing and analyzing their tail end spend.
What is tail spend?
Tail spend also known as tail-end spend or Low-Value Spend is the 80% of the spend which is usually left unmanaged by the organizations. This spend is divided into multiple low-value transactions with the suppliers, though the tail end comprises 80% of all the organization’s suppliers.
The tail spend is difficult to manage because it is unclassified and invisible since the purchases are very small or infrequent to pass through an organization’s procurement system. Though the tail spend varies with the size of the organizations, the 20% of this spend sometimes contain maverick big purchases that should have analyzed by the strategic procurement processes or may be considered as procurement fraud. As the tails spend is invisible, if managed then there can be possibilities of savings. Better allocation of time and resources and improved processes can help in controlling the tail spend which will lead to cost savings and enhanced ROI for the organizations.
Tail spend KPIs:
Tail spend Key Performance Indicators let you know the extent of tail spend in your organization. Though many procurement leaders have a little or no KPIs for their tail spend. It also becomes impossible to take action if the tail spends doesn’t have structure and comes in the class of “garbage in and garbage out” for the data. Most organizations have proven through their customer’s data that tail spend is not inconsistent and can be a strong value driver if optimized and automated.
If you are searching for KPIs to add to the tail spend process then here are some of them. You should also track quarter to quarter or month to month trends to see where KPIs are taking your organization.
- Document cost savings against the open market benchmark or internal benchmark.
- Overall cost savings targets
- Period of time from requisition to dispatch
- The effort of the employees from requisition of product to dispatch
- Average lead time of product delivery
- A total number of product offering created by each buyer in each department.
- Percentage of purchases with your own policies.
- Percentage of spend on management
- Average number of bids solicited
- The average amount of quotes obtained per bids.
- Percentage of tail spend through catalogs and suppliers.
- Year to year vendor consolidation.
- Total disadvantaged business included and total product offerings given to TBD.
The tail spend KPIs can help in managing total spending.