the tail spend ghost
Tail spend issues are quite common in almost any medium sized, large or corporate company nowadays. Most of these companies really struggle “to value” this issue and the opportunity it presents, however.
The reason for this phenomenon is fairly straight-forward: “tail spend (and often 10% – 20% of the company spend) is hard to visualise, because it’s exactly here that there is no qualitative data”:
- invoices are booked without a PO
- the booking is not characterised, or is incorrectly characterised
- invoice line descriptions are not clear (reference to offers, or too general)
- many expenses that are often poorly documented
- purchases booked on the wrong, or general cost centres
Purchasing and financial managers thereby do not succeed in getting a grip on the numbers.
As a result, tail spend projects too often end up dead or postponed.
That’s why I call this phenomenon “THE TAIL SPEND GHOST” – you know it’s there, but you can’t put a finger on it … and you postpone.
Better safe than sorry, right?
Well no! When tackling the tail spend problem, a company should really change its tactics.
Put the “I need an in-depth analysis before launching an RFP because 50% of my negotiation success lies in my preparation” tactic aside, and go for the “I know there is an issue and I believe in the potential solution, and I understand that the result will be visible after 12 months” tactic.
It’s basically the same as working on the environment or losing weight. So look at it the same way: “You know the issue, you know what needs to be done and you know that results will follow down the road”.
Success will only be achieved by changing the wrong behaviour, or by adopting an alternative way of working.
Four easy steps thereby need to be taken:
- List the kinds of purchases that are perceived as non-strategic, sporadic and, at the same time, low in value
- and yes, something that is non-strategic for one company can be strategic for the other – there are no golden rules! Be pragmatic!
- but clearly, we are very often talking about (sub-)categories such as:
- lab supplies
- office material
- on-line purchases
- Now choose your buying channel, because you need to do things differently. Even if you don’t know what SPEND these “LISTED TAIL SPEND CATEGORIES” represent, you do know it is only 2%-10% of your total spend. Nevertheless, it is creating A LOT OF administration. So just GO for IT!
The possibilities regarding buying channels are:
- leave it to the business
- decide to stop purchasing it
- supplier portals
- implement P-cards
- partner with consolidators/spot-buying partners
- activate catalogues
- a mix of the above solutions – whatever fits the DNA of your company best
- It is extremely important to communicate with the impacted users and to manage the change wisely:
- explain which buying channels the colleagues with a specific need should use
- and when and how to use these channels
- And, last but not least – measure the new way of working and adjust continuously
- PDCA: Plan Do Check Act
- the power of a good partnership (with your buying channels) lies in the flexibility
Now GET RID OF THE GHOST and take action … there is GOLD in your TAIL