On last week's episode of the Source One Podcast, Brian Seipel addressed a wildly unpopular topic: tail spend. While it's typically ignored, Seipel suggests the spend area is often a source of surprising value for Procurement. He joins the Podcast once again to provide additional insights and outline his five-step approach for approaching tail spend more strategically.
Though the value of tail spend management will vary based on an organization's unique goals and objectives, Seipel encourages all listeners to consider carrying out the following process.
1. Conduct a Spend Analysis
"I spend enough time in the world of spend analysis," Seipel remarks, "that it is usually a go-to recommendation when tackling a procurement problem." While acknowledging this bias, he reminds listeners that there's no overstating the value of a thorough, strategic spend analysis. Even a quick clean-up can bring serious inefficiencies to light and help an organization get its tail spend under control
2. Prepare Internally
If an organization has historically taken a hands-off approach to tail spend, it's unlikely they'll have a wealth of subject matter experts ready to address it. What's more, Procurement will need to work against the misconception that tail spend is low-value if they want to encourage action. Leveraging the findings from its spend analysis, the function has to engage experts from across the organization and build a compelling business case.
3. Integrate into Core Spend Where Possible
"Is there enough aggregated spend to move the needle with bigger suppliers?" Now is the time to find out. Rather than simply consolidating spend to its largest incumbents, Procurement can use this opportunity to go to market and identify alternatives. The effort could arm the unit with both a carrot and a stick. "Incumbents," Seipel says, "can renegotiate our agreement to earn more of our business or lose it all to a hungry competitor."
4. Reduce Transaction Costs Everywhere
In addition to consolidation, Procurement should take time to identify opportunities to automate or otherwise streamline its processes. Taking these steps to minimize the resource impact of tail spend purchases will keep these agreements from growing more costly than they're worth.
5. Monitor Results
Procurement's work isn't over yet. It's entirely possible that buyers will fall back into bad habits if they're not monitored and managed. Seipel takes care to remind listeners that consistent check-ins and audits are key if an organization hopes to realize the value of better tail spend management in the long-term.
Want to learn more about tackling tail spend? Subscribe on iTunes to hear the full episode.