Having a sound tail spend management strategy has never been more important than it is today. It’s a key differentiator – and competitive advantage – in a down economy in which cash is king and cutting costs is a high priority. Procurement teams can no longer rely on direct materials for savings—those costs have been negotiated to death.
Managing tail spend has been a major topic of discussion among sourcing professionals for at least the past two decades. In most companies, external spending has a Pareto-like distribution – the largest 20% of suppliers (by dollar volume) typically account for about 80% of the total external spend. Tail spend is generally defined as the 20% (or so) of the total external spend that is attributable to the smallest 80% of suppliers.