As a procurement service provider, Spot BuyCenter takes the sting out of tail spend purchases. With user-friendly softwareand wide-ranging services, the Belgian company ensures businesses are once more able to see and take control of their ad hoc purchases. But exactly what is tail spend? And why is it a nail in your purchasing coffin?
Tail spend = All your invisible, ad hoc expenses
Your tail spend includes all expenditure that is not a strategic part of your core business. In other words, it includes those purchases that are not needed for you to offer your services or produce your products. It’s anything you buy that, as a rule, is low in value and for which someone in your company has turned to a supplier that you rarely use—a so-called ‘C supplier’. Think about ad hoc purchases you make for a company event. Or small value purchases as office supplies such as whiteboards, paper, and ink cartridges for the printer. Your tail spend might include everything from the advertising banner draped across the facade of your building to the gadgets you hand out to your fellow workers.
Tail spend = The fault of online shopping
Tail spend is not a new phenomenon. But it is on the rise. And you can blame it squarely on globalisation. It’s made it extremely easy for you, while sitting at yourdesk in Belgium, to make purchases from a web shop in Germany, the United States, China and even further a field ...
The internet has opened up a world of purchasing opportunities. All ittakes is a few clicks and a smooth payment by credit card or QR code and youritem is ordered. The promise that your new gadget will be at your front doorwithin 24 or 48 hours is an extra incentive that very few people can say ‘no’to. And it’s the same for companies.
The problem: due to the speed with which something can be ordered, we tend not to think for very long about a purchase. And when these spontaneous purchases begin to pile up, it creates administrative chaos for your company.
Eight symptoms that point to tail spend syndrome
It’s possible your tail spend is out of control and you haven’t realised it. Here are eight tell-tale signs that will make it clear to you that it’s time to take a closer look at your tail spend.
- The Accounts Payable team needs to add a new supplier every week, possibly even every day.
- The Accounts Payable team receives supplier invoices from a variety of employees who have all begun placing orders.
- The Accounts Payable team needs to perform last-minute payments because the company’s usual payment terms haven’t been agreed upon.
- Different departments in your company are buying the same items from different suppliers.
- You notice 10% and less of your total expenditure is with 50% or more of your suppliers.
- You have no idea what half of your suppliers actually supply.
- You’ve noticed an increase in the use of purchases made by credit card.
- The Accounts Payable team is receiving a lot of invoices on which there are no purchase order numbers, and as such, they don’t know whether the invoice should be paid or not.
What does tail spend cost your company? Time and money!
Tail spend doesn’t sound at all efficient. But this doesn’t mean you need to start taking action, does it? Well, you can pretend that there isn’t a problem. Kind of like you might ignore a leaking tap. Or the flashing red light on the dashboard of your car. In the short term, it might not actually be a big deal. But sooner or later, your water bill will arrive with shocking news, or you’ll find yourself stranded on the freeway in a car that’s broken down.
Tail spend will eventually turn sour on you. Your Accounts Payable team is committed to doing unnecessary work. You let economies of scale pass you by. And you never get your purchase-to-pay processes completely digitalised. In short? You’re wasting time and money.
How do you fix your tail spend?
How do you set up tail spend management?
Do you recognise the symptoms of out-of-control tail spend in your organisation? Now is the time to fix it!
Example: You make sure your employees no longer have the ability to purchase things for themselves. But ... Then you’ll need to set up a huge purchasing department that takes care of all those unimportant or one-off purchases.
Another example: You could make up a variety of punch-out catalogues. This is a method where you grant access to the catalogues of a specific supplier from your own purchasing application. But … When you do this, you lose a great deal of flexibility and the chance to make the most of different sales and promotions. And you’ll never discover the benefits new players on the market are offering you.
The most efficient way to keep your purchases under control is to find a partner who:
- Helps you to implement a central approach and strategy for your tail spend. A good partner guides you in drafting policies and tells you what you need to emphasise: who can make purchases, for what amount, which guidelines they need to follow, the standards new suppliers need to fulfil, and so forth. Specifying your vision in regards to tail spend makes it clear to your employees what is and is not allowed when they want to make a purchase. A coherent and strategic approach gives you a better view of your tail spend.
- Helps you with the administrative side by taking over a number of tasks. Negotiating contracts with new suppliers, ensuring that contracts meet the requirements or guidelines for your organisation, making invoices correctly and checking them, and of course, making sure the ordered item has arrived … Your tail spend partner is someone who does all this and more for you. In this way, your bookkeeping and purchasing services are not kept busy with small, time-consuming tasks.
- Offers you a digital tool to keep an overview. This digital tool is preferably also specialised in the processing of tail spend rather than just being yet another extra feature on a system that actually has very little to do with tail spend. In recent years, a lot of ERP systems have expanded with various options. The downside of these expansions is that the different tools are often limited in what they can do and they’re often less user-friendly than they should be. The Spot Buy Center software is aimed specifically at tail spend. As a result, you have a tool in your hands that really does what it should.
Tail spend is not an either/or story. There is a full approach needed in order tobring order to the chaos. Make it easy on your employees and take care of Self Service Procurement: make sure that they can go to the correct purchasing channels with ease. With Spot Buy Center as your partner, you don’t need to spend much time on it. Instead, you’re set free to work on your real job!