Hello readers! 2018 was a super busy year at Source One and Corcentric, and it shows no signs of slowing down in 2019.   The combined offering of source-to-contract (Source One) and procure-to-payment solutions (Corcentric) that we’ve developed through Corcentric’s acquisition of Source One has received such a positive market reception that we’ve been moving full steam ahead since day one.  I underestimated how much demand Procurement professionals and Finance professionals would have for a true source-to-pay solution; but its been a wonderful challenge and adventure developing and implementing these bundled spend management solutions.     This isn’t just a self-promotional intro, it has relevance to this post, as I’ll demonstrate in a second.

The busyness of business this past year has made it difficult for me to find the time for one of my favorite (work-related) pastimes, ranting. it’s been a while since I was last able to ramble on about my procurement pet peeve of the month.  But no worries, I am here to day to remedy that. 

Here’s the tie-in to the source-to-payment plug in my first paragraph.  Tail Spend Management has rapidly become one of the most talked about hot buttons in procurement this year.   And as expected, with it came a bunch of companies claiming they could manage your tail spend for you.   But most of those companies aren’t offering anything new, and aren’t actually managing anything.  I’m here to call them out.

We’ve seen two types of providers start to re-brand their services to be “tail spend management”.  The first is the traditional procurement BPO companies.   The second is the tech providers. 

I’ve got a lot to say about the business process outsourcing (BPO) companies and their approach to tail spend management, but I am going to save that for something more than blog post; we’re likely going to be publishing a white paper on the topic.  Suffice it to say, labor arbitrage and low-cost resources doesn’t automatically mean that your tail spend is magically being managed.  In fact, it can actually increase the cost of goods and services because it is so removed from the rest of the business’s spending.   In many cases, the only savings your business sees is short-term head count reduction; but you don’t see material reductions in the spend cube under the “tail” moniker.   Most BPOs may be relying on robotic process automation and other tech to streamline the source-to-procure cycle, but they lose focus on sourcing, category management, working capital improvements, and many of the other things a true spend management program requires.   And continuous improvement?  Forget about it.  You can’t improve continuously when your turnover rate is 45-50%.   But’s let’s save that for another day.  Onto the tech providers:

Every couple of years, I go on a new rant about what I call “RFP Spam” .  This year, it seems that many software (SaaS, cloud, insert other buzzword here) have embraced the entire 3-Bid-&-Buy RFP Spam mentality and packaged it together in something they call “Automated Tail Spend Management”.   These tech providers are selling nothing new, they are simply repacking old products that have been around for the better part of 2 decades.  

What’s worse is (a sign of a new tech bubble?) many of these companies have big venture capital dollars behind them because they’ve somehow convinced equity providers that they’ve invented something new.  I’m not going to name names, but it is easy to find who I am talking about.   Some of these companies have already raised tens of millions of capital, with only a tiny fraction of that number in revenue.   They’ve done so by taking e-sourcing technologies that have been around for a long time, and branding them and positioning them as the solution to Tail Spend Management.  Sure, some of them have slick interfaces, and are pretty easy to use; but running an RFP, or more properly, an RFQ is not true spend management.

Let’s see how some of the most popular “automated tail spend management solutions” work.  In many of these organizations, they provide a hybrid software/service that is really just a slightly automated RFQ process.  You kick a specification over to them, they (or you) set it up in their tool, invite a bunch of vendors, get some bids and choose one of the least expensive ones.  They then “prove savings” by taking the average price of the three bids subtract out the lowest bid, and show that to you as savings.    In other examples, the tool providers just provide the e-sourcing suite (or plug-in) itself and you do all the work, again, looking for an RFQ or even Reverse Auction result of a lower price.   Nothing new or innovative here.  Effective?  Sure, it can give you some minor savings; but it definitely doesn’t deserve to be called tail spend management.  In fact, in some cases, the process itself might have been more expensive than if you had just allowed a spot-buy.

So if making sure most major purchases go through a 3-bid process isn’t Tail Spend Management, then what is?   Well, I am saving this for a future whitepaper, but here’s a preview.  Tail spend management is the act of actually managing spend.  This means a lot more than a 3 bid and a buy:

A strategic sourcing process that engages suppliers (not a simple email asking to bid)
A category management approach that reviews all spend and determines consolidation/replacement/substitution opportunities for cost reduction
A category management approach that understands the procurement requisition, not just processes it as a line item
A program that looks to maximize working capital through extended payment terms and/or supply chain financing agreements
Resources to manage/process the work
Payment consolidation solutions so that you aren’t cutting thousands of checks or setting up hundreds of new vendors
Marketplace and GPO preferred pricing for categories where your individual spend is not attractive to suppliers
Continual review of spending and procurement pattern recognition for process improvement opportunities
Tie-ins to your ERP solution or existing technologies
Niche solutions for areas such as expense management
RPA for spot buys, but pattern recognition to identify when something is no longer spot
Compliance tools to eliminate maverick buying
Ongoing catalog management to drive the largest amount of compliance
Analytical spend diagnostics leveraging other company’s results
Comparative benchmarking pricing analysis that reviews categories/purchases from sources outside your own 3 bid RFQ process.
Process creation and enforcement of spending thresholds and routing
And much more.

So, rest assured, I’ll be back on this topic again; and will be providing a lot more detail.  Until that time, don’t be fooled by a simple e-sourcing suite that’s been re-branded to be called Tail Spend Management.   In the meanwhile, we’d be happy to discuss with you a solution that can be much more effective at reducing your tail spend.

Share To:

William Dorn

Post A Comment:

0 comments so far,add yours