Adopting a New Approach to Tail Spend Management
Tail spend management is often a thorn in the side of Procurement professionals simply because tail spend is difficult to see. There are many “how to” guides, but most of them lack one of two crucial ingredients for success: technology or alignment. However, to successfully manage tail spend, you need to merge them to create a new approach to spend management. Here are four steps you can take.
See spend: start with spend visibility
If you want to manage tail spend, you need to start with a comprehensive, top-down view of organizational spend. Otherwise, there’s no way to differentiate the tail from everything else.
Achieving spend visibility is certainly a digital procurement investment, but it’s also the beginning of your alignment journey with stakeholders. Once Procurement can account for and understand spend across the business, the function can do more than simply process purchase orders (POs) and assist business units with administrative purchasing tasks. Now, the function has the power to identify and act on improvement opportunities business-wide, putting it in a uniquely strategic position. However, it’s easy to use the power of technology to the exclusion of alignment and collaboration. For Procurement to truly recognize its strategic potential, the function must take the next steps in this guide seriously.
Prioritize alignment with stakeholders
Digital transformation is a great strategic enabler, but it won’t solve the problems behind most stakeholder issues by itself. In fact, it can make them worse when used incorrectly. For example, Procurement’s search for savings can earn it a reputation for disrupting operations or blocking progress. The status quo usually needs disruption and all deals need a critical eye, but every situation will have a better outcome when both parties understand the other’s perspective.
These perspectives are often very different. Procurement sees spend from a top-down view. To your team, 20% of organizational spend is a significant amount of money. But individual business units aren’t responsible for all 20%. In fact, they probably have no idea that their fragmented buying contributes to a large, cumulative savings leakage. When Procurement addresses the issue, the process looks like yet another corporate initiative that disrupts business as usual.
However, if you use Procurement technology to show business units the effect of tail spend and how they’re contributing to it, you can expect a different response. First, you’ll experience less pushback, since the purpose behind your work is clear. You may also gain allies who have influence over the spend you want to impact. Their involvement will make your work easier, further its impact, and help you avoid negative consequences that are difficult to predict with an outside perspective.
Level-setting from the start can also reveal new areas of impact that only someone versed in the business unit’s operations would know about. Most importantly though, cultivating alignment decreases interruptions to affected business units. Helping them work unimpeded benefits the business and streamlines future tail spend management initiatives in other business units as well.
Successful tail spend management relies on joint effort
As we’ve established, successful tail spend management requires alignment with the business units that create it. But that doesn’t mean Procurement should ask questions and then undertake projects on their own. To establish any level of lasting tail spend management, teams must involve their colleagues in the execution phase. This will look different for each organization, but there are a few ways you can leverage your digital procurement solutions to cultivate collaboration and make it successful.
First, show business unit leaders why you need their help. Leverage your spend analytics solution to show them the specific behaviors or supplier relationships creating tail spend, how they’re contributing to savings leakages, and what you can do together to create a positive impact.
Then, manage the project with a tool like Procurement Performance Management’s Project Pipeline that involves stakeholders and keeps them up to date. Use it to set responsibilities, assign tasks, track dependencies, provide regular updates, and forecast results.
Finally, leverage your procurement performance management tool to create a single source of truth where leadership can view results. Doing so answers questions about Procurement’s impact, paves the way for wider collaboration in the future, and creates a self-service reporting dashboard so leadership can always find critical procurement metrics.
The benefits of visibility
It’s no secret that Procurement finds itself explaining and defending its data more than it would like. Just this year, a study we conducted with Procurious revealed that 79% of non-procurement executives distrust the function’s data!
However, if Procurement can use a solution like SpendHQ to make its impact easy to see on demand, these conversations can become brainstorming sessions that reveal new opportunities for improvement. Making results easy to see also reframes Procurement as a strategic partner instead of an administrative one.
Finally, demonstrating tail spend’s impact on the business establishes it as a serious problem that each business unit is responsible for overcoming. When they see the problem, business units may be more inclined to address it in their own operations. As the adage goes, if you teach someone to fish, they’ll eat for a lifetime. However, they must first understand the need to eat and that fish can meet that need. Then they’ll find a way to catch fish even if they haven’t mastered the fishing pole.
Never stop managing tail spend
The final step of tail spend management should be implied, but it’s easy to stop chasing a goal after accomplishing most of it. However, Procurement cannot afford to take a break in the fight against tail spend. As a result, the most important step in the tail spend management process is to do it all over again! Take your spend analytics solution, refresh it with new data monthly, find new opportunities, understand their context, work with their stakeholders to make improvements, and then report the results.
This may seem like a lot of work, but when you’re equipped with digital procurement tools that help you find opportunities and work with other teams to tackle them, it can become a standard operating procedure. If you’re ready to see how you can make tail spend management a routine, low-effort part of your procurement operations, click the button below to schedule a demo and see how our strategic procurement solution makes it possible.