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On this week's episode of the Source One Podcast, Spend Analysis lead Brian Seipel kicks off a two-part series on one of Procurement's least favorite topics: Tail spend.
"Many organizations," Seipel says, "let this spend fall through the cracks" and elect to focus on more obviously valuable initiatives. This thinking makes some sense. Seipel acknowledges that, by its very definition, tail spend is relatively small in scope and strategic significance.
He goes on to contend, however, that tail spend often deserves more attention than it gets. For many organizations, it represents an untapped opportunity to drive considerable savings. Before addressing tail spend's hidden value, Seipel backtracks slightly to define the term. "What is tail spend exactly?" The answer is complicated.
"Every organization," he remarks, "has its own way of splitting spend into the logical units of 'core' and 'tail.'" While certain organizations draw a very particular distinction, others consider use the term 'tail spend' to define all of their indirect purchases.
However organizations choose to define tail spend, Seipel suggests that just about any organization can benefit from taking a closer look. He offers several examples of how poor visibility and a hands-off approach can lead lost savings to pile up.
While tail spend is most often associated with large numbers of small-scale purchases, Seipel points out that sometimes expensive, infrequently purchased items wind up in this realm. In these instances, "scopes have a habit of creeping and costs have a habit of ballooning." With time, these facts will come to light and Procurement will be left scrambling to explain how such an insignificant spend area got so out of hand.
Check out the full episode today to hear more. Next week, Seipel returns to offer more insights and outline his five-step plan for effectively tackling tail spend.