08 February 2017
What is tail end spend and do I need to worry about it?
Tail end spend can hide maverick purchasing, waste and even fraud, which is why many organisations are starting to realise the benefits of tackling it.
Tail end spend – also called long tail, or low value spend – is the 20% of spend that typically goes unmanaged within an organisation. This 20% tends to be spread across multiple spend categories and via a large number of low value transactions with numerous suppliers, many of which are used very infrequently. In fact, tail end often accounts for 80% of all an organisation’s suppliers.
Tail end spend tends to be unclassified, and therefore ‘invisible’, because the purchases are too small, or too infrequent to go through an organisation’s procurement system. This is one of the key factors which makes tail end spend hard to manage.
And, while the value of tail end spend will obviously vary depending on the size of an organisation, that invisible 20% often contains a few ‘maverick’ high cost purchases that should have gone through a more strategic purchasing process , or even in some cases procurement fraud.
For some, tail spend in itself isn’t always a big problem per se, but the fact that it is largely invisible and unmanaged means there are certainly opportunities for savings.
Tackling tail end spend can seem rather daunting, not least because of the sheer number of suppliers involved. And for many organisations, it’s simply not commercially viable to undertake such a project. But improved process efficiency and better allocation of time and resources for tail spend can bring in significant cost savings and increased ROI for the company as a whole.
Unlocking the value of the tail end
Working with our clients, public and private sector, we’ve found that managing your tail spend can achieve:
- cost reduction between 5% and 20%
- an increase in process efficiency of over 10%
- reduced risk across the supply chain
- an increase in the amount of strategically managed spend from the average 80% to over 90%
- increased usage of, and compliance with, procurement systems / processes
- increased visibility across the procurement process
- improved and effective contract and supplier management of all suppliers
We can provide an end-to-end management service to tackle tail end spend on your behalf, from organising quotes to contracting and payment.
We focus on driving out savings and create more efficient ways of working, allowing client's resources to focus on strategic rather than tactical activities. By using our procurement processes across all categories of low value spend, we’re able to generate significant savings throughout the supply chain.
We build on your existing operating procedures and put in place tried and tested change management processes, to start delivering results quickly.
Get more information on how to deliver value from low value spend in our guide to driving benefit from your low value spend.
The key to managing tail spend is to recognise that a 'one size fits all' approach will not deliver the best result. The real value Capita can bring is from leveraging our spend analytics capability to stratify the tail into three: spend which should be strategically managed, the 'true tail' from which there is limited value to be released, and that spend for which a light touch, tactical approach can deliver significant value for limited investment.
Client services director, Capita Procurement Solutions
We helped Southampton City Council get a grip on tail end spend
With our help, Southampton City Council now has a more robust procurement process, with a holistic view of their spend, as well as:
- savings of c.8.6% on all influenceable spend and a reduction in expenditure thanks to spend profiling and demand management
- a ‘No PO, No Pay’ policy and a reduction in retrospective POs
- greater supplier engagement and visibility of opportunities
- formalised public tendering for purchases between £25k and £100k (which previously fell in to the tail) and a standardised quotation process for lesser values.