Future of Sourcing - Tail Spend https://futureofsourcing.com/tags/tail-spend en Reclaiming Value with Strategic Contract Lifecycle Management https://futureofsourcing.com/reclaiming-value-with-strategic-contract-lifecycle-management <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://futureofsourcing.com/sites/default/files/articles/Reclaiming%20Value%20with%20Strategic%20Contract%20Lifecycle%20Management.png"><a href="https://futureofsourcing.com/sites/default/files/articles/Reclaiming%20Value%20with%20Strategic%20Contract%20Lifecycle%20Management.png" title="Reclaiming Value with Strategic Contract Lifecycle Management" class="colorbox" rel="gallery-node-2022-njXSNVyIg6Y"><img typeof="foaf:Image" src="https://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/Reclaiming%20Value%20with%20Strategic%20Contract%20Lifecycle%20Management.png?itok=_hG5wAVb" width="624" height="325" alt="Reclaiming Value with Strategic Contract Lifecycle Management" title="" /></a></div></div></div><div class="field field-name-field-intro field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <h1>Reclaiming Value with Strategic Contract Lifecycle Management</h1> </div></div></div><div class="field field-name-field-related-news field-type-entityreference field-label-above"><div class="field-label">Related news:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/3-contract-negotiation-strategies-to-reduce-supply-chain-risk">3 Contract Negotiation Strategies to Reduce Supply Chain Risk</a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Poor contract management costs businesses <a href="https://www.mckinsey.com/business-functions/operations/our-insights/contracting-for-performance-unlocking-additional-value" target="_blank">up to 9% percent of their annual revenues.</a> &nbsp;Contracts determine the flow of an organization&rsquo;s finances and directly impact customer satisfaction, savings, risk exposure and productivity. However, organizations can have thousands of working contracts at any given time&mdash;each with their own set of set of risks, terms and expectations.</p> <p>According to <a href="https://www.worldcc.com/Resources/Content-Hub/View/ArticleId/9294/AI-Transforming-Contracts-from-Remote-History-to-Modern-Metrics" target="_blank">World Commerce &amp; Contracting</a>, 60% to 80% of business transactions are regulated with written agreements and a typical Fortune 1000 company can have on average, between 20,000 and 40,000 active contracts at one time. This reality makes contract management a time-consuming and complex process that can negatively affect businesses if not approached efficiently and strategically.&nbsp;</p> <p>While the responsibilities of modern procurement teams have grown significantly in recent years, it&rsquo;s important that your organization doesn&rsquo;t lose sight of one of the most fundamental processes within procurement. Adopting an AI-driven contract solution that integrates into the rest of your processes can optimize contract management throughout the lifecycle to boost your bottom line.</p> <h2>Three Ways Contract Lifecycle Management Drives Business Value</h2> <p>A strategic contract management system can help businesses uncover value in three major ways: driving down unnecessary spend, minimizing risk and improving supplier management. When paired with AI, contract managers can optimize these benefits even further.</p> <h3>1. Reduce Maverick Spend</h3> <p>In some cases, maverick spend, or purchases from suppliers outside your procurement policy, can amount to <a href="https://www.cips.org/en-GB/supply-management/opinion/2014/october/five-things-you-need-to-know-to-tackle-maverick-spend/" target="_blank">as much as 80% of an organization&rsquo;s total spend</a>. While it may be unintentional, this type of costly behavior neglects the discounts and benefits secured in established supplier contracts, can lead to higher acquisition costs and damage vendor relationships.</p> <p>A contract management solution can manage this type of behavior by offering a repository that promotes better monitoring, compliance and transparency into your company&rsquo;s procurement guidelines. Not everyone needs to know every detail of every contract, but a secure, central and digital repository ensures that those making purchasing decisions understand where to direct that spend.</p> <p>An AI-enabled contract management system takes this to the next level by integrating directly with spend analysis and finding additional opportunities to save. The right type of CLM solution allows teams to monitor their spending behavior against their contracts and quickly calls attention to noncompliant purchases to stop maverick spending in its tracks.</p> <p>By keeping tabs on benefits and new added value, an automated solution will automatically alert teams to needed contract improvements or when a contract simply isn&rsquo;t providing benefit anymore. In this way, organizations go beyond basic monitoring to proactively prevent unnecessary spending and boost total savings.</p> <h3>2. Minimize Risk</h3> <p>Contracts, by nature, are vehicles of risk mitigation. But without careful or proper management and tracking, these agreements can fall flat and incur consequences for both parties. Proper contract management enables teams to monitor where their contract stands at all times, keep track of important dates and eliminate the security risks of misplacing physical contracts.</p> <p>A smart contract management solution gives organizations an edge for mitigating risk more proactively throughout the lifecycle from creation to renewal. AI-enabled solutions can standardize language for more consistency and can point out risks, opportunities and even predict bottlenecks with enhanced contract data. Systems equipped with automated notifications can take the worry out of missing key contract dates, which can result in lost business, claims, warranty problems or delivery dates.</p> <p>Beyond just the contract itself, an intelligent solution can flag important supplier risks that can impact your organization&rsquo;s performance and bottom line. A smart CLM system that pulls data directly from contracts and weighs them against actual supplier performance (through KPI&rsquo;s or SLA&rsquo;s) can alert organization to changes in delivery, price or sourcing. This way, organizations are kept in the know about who&rsquo;s underperforming and can proactively communicate and manage these suppliers before issues leak into other areas of the organization&rsquo;s supply chain.</p> <h3>3. Optimize Supplier Management and Relationships</h3> <p>Contract management is critical to properly managing and maintaining strong relationships with your suppliers. However, organizations are often working with a multitude of contracts and suppliers at a given time, making it difficult for teams to focus on these relationships.</p> <p>Advanced intelligence can alleviate the burden on contract managers and help add value to your organization. Not only can contracts draw in supplier data to make the authoring process more efficient, but CLM tools can automatically incorporate negotiated pricing and prioritize contracted suppliers, driving bottom-line savings. The ability to measure vendors against agreements and flag inconsistencies automatically can prompt also contract managers to communicate or implement a supplier improvement program.</p> <p>Intelligent solutions can also ensure that your suppliers align with your organization&rsquo;s larger strategy. Beyond measuring performance, enhanced supplier data can strengthen your organization&rsquo;s initiatives and values by verifying whether a supplier is meeting your organization&rsquo;s criteria for human rights, diversity and sustainability.</p> <p>With technology automating and organizing administrative tasks, contract managers can focus on more complex agreements and build strategic partnerships with suppliers that further your organization&rsquo;s mission and top-line revenue growth.</p> <p>Contract management is the heart of the procurement process. It helps determine the effectiveness of the function and serves as the foundation for ensuring value. However<a href="https://www.gatekeeperhq.com/blog/making-a-business-case-for-contract-management" target="_blank">, less than 50% of negotiated savings</a> are realized over the life of a contract and inefficient processes and poor management can lose up to <a href="https://www.kpmgspectrum.com/content/dam/spectrum/pdf/CPMInfographic_Final%203_3_17.pdf" target="_blank">40% of a contract&rsquo;s value</a>. With a strategic and comprehensive contract lifecycle system, contract teams can cut through the administrative clutter to get the most out of their contracts over the entire lifecycle and drive their procurement strategy forward.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/tail-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Tail Spend</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/supplier-relationship-management-srm" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Supplier Relationship Management (SRM)</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/contract-lifecycle-management-clm" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Contract Lifecycle Management (CLM)</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Reclaiming Value with Strategic Contract Lifecycle Management - Future of Sourcing" addthis:url="https://futureofsourcing.com/reclaiming-value-with-strategic-contract-lifecycle-management"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Fri, 09 Jul 2021 02:00:00 +0000 Jim Bureau 2022 at https://futureofsourcing.com https://futureofsourcing.com/reclaiming-value-with-strategic-contract-lifecycle-management#comments What is Tail Spend? https://futureofsourcing.com/what-is-tail-spend <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://futureofsourcing.com/sites/default/files/articles/What%20is%20Tail%20Spend_June%202021%20%281%29.png"><a href="https://futureofsourcing.com/sites/default/files/articles/What%20is%20Tail%20Spend_June%202021%20%281%29.png" title="What is Tail Spend?" class="colorbox" rel="gallery-node-2000-njXSNVyIg6Y"><img typeof="foaf:Image" src="https://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/What%20is%20Tail%20Spend_June%202021%20%281%29.png?itok=3bPAf8a6" width="624" height="325" alt="What is Tail Spend?" title="" /></a></div></div></div><div class="field field-name-field-intro field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <h1>What is Tail Spend?</h1> </div></div></div><div class="field field-name-field-related-news field-type-entityreference field-label-above"><div class="field-label">Related news:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/why-should-i-maintain-my-data">Why Should I Maintain My Data?</a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Just like in spend data classification, the definition of tail spend is subjective. Some organisations classify tail spend at the bottom 20% of spend, while others might set a financial level such as &pound;100,000 or &pound;1 million.</p> <p>According to CIPS, tail spend &ldquo;can often be referred to as rogue spend or maverick spend, is usually small value purchases that are conducted by the organisations outside of a contract and often outside of the awareness of the procurement team.&rdquo;</p> <p>But that&rsquo;s a bit wordy for me and if you&rsquo;ve read any of my other <a href="https://futureofsourcing.com/author/Susan-Walsh" target="_blank">Future of Sourcing articles</a> you&rsquo;ll know I like to explain things in plain and simple terms. So, to put it very simply, tail spend is all those low value, fiddly suppliers that you&rsquo;ve probably only ever used once and will probably never use again.</p> <p>The best way to really explain it is to visualise it, mainly because it actually looks like a tail.</p> <p><img alt="What is tail spend?" src="https://futureofsourcing.com/sites/default/files/What%20is%20Tail%20Spend.png" style="width: 604px; height: 340px;" /></p> <h2>So, why is tail spend such a problem?</h2> <p>Well first of all, there&rsquo;s generally a lot of it. Even though it&rsquo;s only 20% of spend, it can be thousands or hundreds of thousands of rows of data. Who has time to deal with that, right? When you&rsquo;re struggling to manage the strategic 80%, how valuable is it to use your time classifying a line for &pound;1.50? However, it&rsquo;s important to manage tail spend because today&rsquo;s tail spend could be tomorrow&rsquo;s strategic spend.&nbsp;&nbsp;</p> <p>Imagine a scenario where you only classify your data every six months and you last classified your data a month or two before year-end, and you also have a new supplier who has a value of &pound;100,000.</p> <p>It falls into tail spend, but over the next six months this new supplier becomes a strategic supplier. Except no one has picked up that this spend is not being classified.</p> <p>Is it the end of the world?&nbsp;No.</p> <p>But could the wrong decisions be made because the right information wasn&rsquo;t available? Absolutely.</p> <h2>So, what&rsquo;s the solution?</h2> <p>Well, there&rsquo;s no easy or quick fix. The &ldquo;easiest&rdquo; option is to outsource it, but how is it being classified by the third party supplier? Is it automated? Is a team doing it? If so, how experienced are they? And are they classifying 100% of the data? It&rsquo;s hard to know.</p> <p>I know many suppliers will classify 90% to 95% of the value, but that can still leave hundreds or thousands of lines unclassified. And the truth is because it&rsquo;s small value items in the large scheme of things, it could be wrong but no one is checking. What if that tail spend is tomorrow&rsquo;s strategic spend?</p> <p>Another option is to manage this in-house. This requires a lot of time, patience, attention to detail and thoroughness, but the reality is most people are already overloaded with higher priority tasks.</p> <p>It&rsquo;s not a great solution.</p> <p>Then there&rsquo;s third party suppliers.&nbsp; Will it cost you? Of course it will, but it&rsquo;s and investment, and let&rsquo;s face it your team probably don&rsquo;t have the time to do it.&nbsp; Let&rsquo;s think about it this way&hellip; yes, you could wash your car yourself but wouldn&rsquo;t you rather have it hand valeted? Absolutely.</p> <p>Plus, you will more than recoup the costs of the classification through spend analytics when you have your shiny new data set back&hellip; suddenly supplier rationalisation, spend visibility and cost savings become much easier!</p> <h2>But that&rsquo;s not enough&hellip;</h2> <p>The secret to keeping your data clean and keeping track of your tail spend isn&rsquo;t really a huge secret, it&rsquo;s really a case of good housekeeping!</p> <p>You need to check and maintain it regularly. In the same way you give your carpets a regular once-over with the vacuum, regularly checking in with your data makes life easier in the long run.</p> <p>And, just like a weekly or twice weekly vacuum around the house, it&rsquo;s a good idea to check in on your data on a monthly or quarterly basis.</p> <p>This is still just as important even if you have a third-party supplier checking over your data. You should still spot-check your data once in a while to ensure your supplier is fulfilling their obligations.</p> <p>And, if your team is running the checks for you, make sure you check in with their progress once in a while to make sure everyone&rsquo;s on board with the same standards and cleaning the data in the same way. It&rsquo;s also a good opportunity for highlighting development areas for your team.</p> <h2>So, how frequently should you check your data?</h2> <p>Let&rsquo;s go back to that carpet analogy. Leaving your carpet for a week doesn&rsquo;t matter. It doesn&rsquo;t really matter if you leave it for a month (as long as you&rsquo;re okay with living with dirty carpets). But leave that once fresh and spotless carpet too long and by the time you pull out your vacuum cleaner, your carpet will be beyond saving.</p> <p>It&rsquo;s the same with your data. Data that is not maintained will slowly become unusable over time. Incorrect or conflicting information will build up. AI outputs become corrupted. And because you can&rsquo;t afford to use bad data, you end up spending significant time or money to fix the problem. Ouch.</p> <p><strong>Regular data maintenance means:</strong></p> <ul> <li>Better data accuracy for better business decisions.</li> <li>Avoiding a time-consuming and costly data clean-up operation (because your data won&rsquo;t slowly become corrupted).</li> <li>A better-trained and more responsive data team. Doing a little bit of something regularly is always easier than doing a lot of it occasionally.</li> <li>An informal opportunity to stay in touch with the work your third-party supplier is doing.</li> </ul> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/data-classification" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Data Classification</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/tail-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Tail Spend</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/artificial-intelligence-ai" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Artificial Intelligence (AI)</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="What is Tail Spend? - Future of Sourcing" addthis:url="https://futureofsourcing.com/what-is-tail-spend"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Thu, 10 Jun 2021 02:00:00 +0000 Susan Walsh 2000 at https://futureofsourcing.com https://futureofsourcing.com/what-is-tail-spend#comments Tail spend goes beyond the typical 80/20 rule https://futureofsourcing.com/tail-spend-goes-beyond-the-typical-8020-rule <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://futureofsourcing.com/sites/default/files/articles/Tail%20Spend%20Management.png"><a href="https://futureofsourcing.com/sites/default/files/articles/Tail%20Spend%20Management.png" title="When you think tail spend, don’t just think of the typical 80/20 rule." class="colorbox" rel="gallery-node-1836-njXSNVyIg6Y"><img typeof="foaf:Image" src="https://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/Tail%20Spend%20Management.png?itok=9MFWaNTC" width="624" height="325" alt="When you think tail spend, don’t just think of the typical 80/20 rule." title="" /></a></div></div></div><div class="field field-name-field-related-news field-type-entityreference field-label-above"><div class="field-label">Related news:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/why-cios-should-worry-about-tail-spend-management">Why CIOs Should Worry About Tail Spend Management</a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Having a sound tail spend management strategy has never been more important than it is today. It&rsquo;s a key differentiator &ndash; and <a href="https://www.fairmarkit.com/blog/the-significance-of-tail-spend-in-a-down-economy" target="_blank">competitive advantage</a> &ndash; 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&mdash;those costs have been negotiated to death.</p> <p>Instead, they must turn to areas of indirect spend, which have been historically unexplored and unmanaged. Tail spend is finally getting its turn in the spotlight, but why has so much <a href="https://www.fairmarkit.com/blog/could-tail-spend-be-a-gold-mine-for-cost-savings" target="_blank">money been left on the table</a> in the past?</p> <h1>The Real Definition of Tail Spend</h1> <p>Although <a href="https://www.fairmarkit.com/blog/what-is-tail-spend-and-how-can-we-manage-it" target="_blank">tail spend can have different definitions</a> (depending on how your organization defines it), a common way to define tail spend is known as the 80/20 rule or <a href="https://sig.org/search/Pareto%E2%80%99s%20principle">Pareto&rsquo;s principle</a>. Procurement departments always have more incentive to focus on large, multi-year contracts because of the larger savings realized. Yet this leads companies to basically ignore almost 20% of their spending. This unmanaged spend is a more traditional definition of tail spend and is typically considered the 80% of transactions that constitute 20% of a company&rsquo;s spend.</p> <p><img alt="Unmanaged spend is a more traditional definition of tail spend and is typically considered the 80% of transactions that constitute 20% of a company’s spend. " src="https://futureofsourcing.com/sites/default/files/Tail%20Spend%20graph%20%281%29.png" style="width: 700px; height: 287px;" /></p> <p>&nbsp;</p> <p><em>Image Source: Fairmarkit Tail Spend Management Fundamentals e-book</em></p> <p>However, this definition is misleading because it suggests that tail spend includes smaller, non-strategic purchases such as pencils, paper, small widgets&mdash;any purchases the procurement team doesn&rsquo;t have time to manage and could theoretically purchase through a system like Amazon Business.</p> <p>Yet SaaS solutions are tail spend. When you need someone to mow the lawn or wash the windows at the office campus, that is considered tail spend. In reality, tail spend includes a lot more than just small accessories.</p> <p>It can range from pencils to services, labor, IT purchases, and even Maintence, Repair and Operational supplies (MRO), which is direct spend. And these items certainly cannot be sourced through Amazon Business.</p> <p><strong>The spend that people do not have to manage is what we define as tail spend.</strong> This tail spend or noncomplex spend actually makes up about 30% to 40% of a company&rsquo;s total spend and about 90% to 95% of their total purchases, disproving the traditional 80/20 definition. So why isn&rsquo;t it being addressed and why is so much money being left on the table?</p> <h1>Why Isn&rsquo;t Tail Spend Being Addressed?</h1> <p>The reason tail spend isn&rsquo;t being addressed is simple: lack of resources. Without enough people on your procurement team, you simply don&rsquo;t have the human resources necessary to manage all of your vendors and spend. Incorporating catalogs (Amazon Business), data analytics or even outsourcing this problem with a BPO will not help to solve this problem. Why? Because it does not take the manual effort out of the process.</p> <p>To effectively optimize and manage tail spend, companies need to leverage intelligent sourcing and structured data to transform the way buyers are sourcing, purchasing and optimizing tail spend. According to <a href="https://www.bcg.com/publications/2019/taming-tail-spend.aspx" target="_blank">Boston Consulting Group</a>, companies that used digital data to manage tail spend cut annual expenditures by up to 10%.</p> <h1>COVID-19 and Its Impact on Tail Spend</h1> <p>Companies are trying to augment and automate tail spend in a low-cost way because they don&rsquo;t have the headcount to manage it. COVID-19 has constrained procurement resources even more. Procurement and supply chain leaders are under immense stress to keep their companies operational and help source vast quantities of restrained items like PPE.&nbsp; &nbsp; &nbsp;</p> <p>As a result, COVID-19 has brought procurement front and center in the organization. They are getting more budget and resources for digitization, which will have an immediate impact on the organization&rsquo;s overall bottom line. We are even seeing an<a href="https://www.fairmarkit.com/blog/there-are-4-futures-for-the-cpo" target="_blank"> increase in procurement and supply chain professionals becoming CEOs and COOs</a>.</p> <p><a href="https://www.google.com/search?rlz=1C5CHFA_enUS787US787&amp;tbm=fin&amp;sxsrf=ALeKk02hMl9eioqvJfP0zzMLR18vORTUKQ:1595340769406&amp;q=NYSE:+NOW&amp;stick=H4sIAAAAAAAAAONgecRozi3w8sc9YSm9SWtOXmPU4OIKzsgvd80rySypFJLiYoOyBKT4uHj00_UNDZPicwpzio15FrFy-kUGu1op-PmHAwDuRD3JSAAAAA&amp;sa=X&amp;ved=2ahUKEwj7p-y-w97qAhWroXIEHaz9AyIQ3ecFMAB6BAgwEBM&amp;biw=1440&amp;bih=682#scso=_h_kWX5u6Haem_QbEi62gBg1:0" target="_blank">ServiceNow</a>&nbsp;is a great example of a company that is outperforming its competitors and succeeding in the COVID-19 era by taking advantage of digitization to manage its tail spend and sourcing process. The procurement team was resource-constrained and bogged down with manual tasks. As a result, they responded by automating sourcing activities and allowed the procurement function to focus on more strategic projects or focus on sourcing PPE and other priorities.</p> <h1>The Risk of not Managing Tail Spend</h1> <p>Forward-thinking companies and CPOs are taking advantage of the opportunity tail spend presents and recognize the benefits beyond cost savings. This includes increased spend under management, reduced risk, improved data quality and reporting, improved SLA and compliance enforcement, and increased productivity per full-time employee.</p> <p>But what are the risks if tail spend is not optimized?</p> <p><strong>Price risk:</strong> Buyers have no concern over getting the best price, so they take the easy way out. This is a huge missed cost-savings opportunity and can significantly impact your company&rsquo;s bottom line.</p> <p><strong>Time risk:</strong> Without the use of technology and automation, procurement has no ability to track pricing or other important supplier data. This leads to a misuse of procurement&rsquo;s time and resources because they cannot identify strategic suppliers or consolidate them efficiently.</p> <p><strong>Operational risk: </strong>Tail spend purchases can lead to an increase in risk if buyers abuse purchasing policies and procurement has no visibility into whether or not purchases meet compliance standards. This could also pose a liability or security risk to the company.</p> <p>The time to develop a tail spend management strategy is <em>now</em>. When you think tail spend, don&rsquo;t just think of the typical 80/20 rule. Tail spend can be defined as any spend that procurement tools or human beings do not have the time to manage. Begin leveraging automation and technology to collect the money that&rsquo;s being left on the table.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/tail-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Tail Spend</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/finance" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Finance</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/procurement" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Procurement</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/covid-19" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">COVID-19</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/coronavirus" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">coronavirus</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/cost-savings" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Cost Savings</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/spend-management" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Spend Management</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Tail spend goes beyond the typical 80/20 rule - Future of Sourcing" addthis:url="https://futureofsourcing.com/tail-spend-goes-beyond-the-typical-8020-rule"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Sun, 23 Aug 2020 22:27:16 +0000 Tarek Alaruri 1836 at https://futureofsourcing.com https://futureofsourcing.com/tail-spend-goes-beyond-the-typical-8020-rule#comments How Print E-Sourcing Helps Tame the Tail https://futureofsourcing.com/how-print-e-sourcing-helps-tame-the-tail <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://futureofsourcing.com/sites/default/files/articles/Print_E-Sourcing_Tail%20Spend_0.jpg"><a href="https://futureofsourcing.com/sites/default/files/articles/Print_E-Sourcing_Tail%20Spend_0.jpg" title="How Print E-Sourcing Helps Tame the Tail " class="colorbox" rel="gallery-node-1475-njXSNVyIg6Y"><img typeof="foaf:Image" src="https://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/Print_E-Sourcing_Tail%20Spend_0.jpg?itok=mLCApR_S" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-field-intro field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <div style="clear:both;"> <p paraeid="{2bbc3a79-7984-4b7d-9305-5976a54dd772}{172}" paraid="862370996">&nbsp;</p> </div> <p>&nbsp;</p> </div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>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 &ndash; the largest 20% of suppliers (by dollar volume) typically account for about 80% of the total external spend. <a href="http://futureofsourcing.com/why-cios-should-worry-about-tail-spend-management" target="_blank">Tail spend</a> is generally defined as the 20% (or so) of the total external spend that is attributable to the smallest 80% of suppliers.</p> <div>Tail spend can involve direct goods and services, but most is associated with indirect spend categories. A 2017 study by Spend Matters highlighted several important characteristics of indirect tail spend. The typical company in this study had about $1 billion in total indirect spend and 9,374 indirect suppliers. Using the 80/20 rule, about $800 million of the indirect spend would be concentrated in 1,875 suppliers, while the remaining $200 million &ndash; the tail &ndash; would be spread across about 7,500 suppliers.</div> <div>&nbsp;</div> <div><strong>The Tail Spend Conundrum</strong></div> <div>&nbsp;</div> <div>Tail spend presents a difficult conundrum for sourcing professionals. When it&rsquo;s not professionally managed, the result is often overspending and missed opportunities for cost savings. But because tail spend typically encompasses a large volume of relatively low-value purchases, managing the tail consumes a disproportionate amount of time and effort by sourcing personnel. So while bringing tail spend under professional management can produce direct cost savings, it can also lead to higher indirect procurement costs.</div> <div>&nbsp;</div> <div>Because of this conundrum, companies have used a variety of tools and techniques to manage tail spend. These techniques have included e-procurement applications, public and private e-marketplaces, and commercial purchasing cards. None of these techniques are comprehensive and some industry experts criticize this approach as piecemeal. But in reality, tail spend encompasses such diverse goods, services and types of purchases that it&rsquo;s not realistic to expect any one tool or technique to work well across the entire tail spend spectrum.</div> <div>&nbsp;</div> <div><strong>Solving the Print Tail Spend Problem</strong></div> <div>&nbsp;</div> <div>Printed materials and many types of creative and marketing services are major components of tail spend at many companies. Most large and mid-size enterprises buy printed materials and creative/marketing services hundreds &ndash; if not thousands &ndash; of times every year. Purchases are typically made from numerous suppliers by several organizational units and business functions spread across the entire enterprise. Many of these purchases are relatively small (in terms of dollar amounts), and most involve custom products or services that are true one-off purchases.</div> <div>&nbsp;</div> <div>As a result, purchases of printed materials and creative/marketing services can be challenging for procurement leaders to manage efficiently. Fortunately, print e-sourcing technology solutions can enable companies to take control of this particular part of their tail spend. Enterprise-class print <a href="http://futureofsourcing.com/what-to-look-for-in-print-sourcing-software" target="_blank">e-sourcing solutions</a> are purpose built to support the procurement of virtually all kinds of printed materials, as well as a wide range of creative and marketing services.</div> <div>&nbsp;</div> <div>A capable print e-sourcing solution will deliver several financial and operational benefits, but in our work with dozens of clients, we&rsquo;ve identified three financial benefits that sourcing leaders routinely say are particularly valuable.</div> <div>&nbsp;</div> <div><em><strong>Direct Cost Savings</strong></em> &ndash; The use of a print e-sourcing solution will reduce the direct costs of printed materials and creative/marketing services by 14% to 22% in most companies. Print e-sourcing solutions drive direct cost savings primarily by making it easy for companies to use competitive bidding on a widespread basis. Competitive bidding is particularly valuable when purchasing printed materials because excess capacity in the printing industry motivates suppliers to offer attractive pricing when competition exists. When companies initially implement a print e-sourcing solution and expand their use of competitive bidding, the direct cost savings can be considerably higher than 14% to 22%. In our work with clients, we often see pro forma cost savings of 30% to 50% based on an analysis of previous purchases that were made without competitive bidding.</div> <div>&nbsp;</div> <div><em><strong>Indirect Cost Savings</strong></em> &ndash; As noted earlier, one of the key challenges in managing tail spend is dealing with a large volume of small purchases without significantly increasing <a href="http://futureofsourcing.com/leaving-indirect-spend-unmanaged-means-dollars-left-on-the-table" target="_blank">indirect procurement costs</a>. A print e-sourcing solution reduces indirect costs by streamlining the work activities and processes required to manage and execute purchases of printed materials and creative/marketing services. In effect, a print e-sourcing solution increases the number of purchases that a buyer can effectively manage. Evidence indicates that a buyer using a print e-sourcing solution can manage up to six times more purchases than a buyer using manual methods.</div> <div>&nbsp;</div> <div><em><strong>Improved Spend Visibility</strong></em> &ndash; Because printed materials and creative/marketing services are often purchased by numerous departments and business functions, many companies don&rsquo;t have accurate or comprehensive information about how much they are actually spending on such products and services. Poor spend visibility is an important issue because it often contributes to overspending. A print e-sourcing solution centralizes the data regarding spending on printed materials and creative/marketing services, and provides company leaders complete visibility regarding the amount and nature of that spending.</div> <div>&nbsp;</div> <div>Tail spend will always be part of the sourcing landscape. To improve the management of tail spend, sourcing professionals will need to use a variety of techniques and technology tools. Print e-sourcing solutions provide an effective way to reduce the costs of printed materials and creative/marketing services, and can enable companies to tame this unruly component of their tail spend. <p>&nbsp;</p> </div> <p>&nbsp;</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/tail-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Tail Spend</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/indirect-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Indirect Spend</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/e-sourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">E-Sourcing</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/strategy" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Strategy</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/print-material" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Print Material</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="How Print E-Sourcing Helps Tame the Tail - Future of Sourcing" addthis:url="https://futureofsourcing.com/how-print-e-sourcing-helps-tame-the-tail"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Tue, 18 Jun 2019 23:16:42 +0000 Sarah Scudder 1475 at https://futureofsourcing.com https://futureofsourcing.com/how-print-e-sourcing-helps-tame-the-tail#comments What Makes a Spend Analysis Valuable? https://futureofsourcing.com/what-makes-a-spend-analysis-valuable <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://futureofsourcing.com/sites/default/files/articles/Spend_Analysis624x325.jpg"><a href="https://futureofsourcing.com/sites/default/files/articles/Spend_Analysis624x325.jpg" title="What Makes a Spend Analysis Valuable? " class="colorbox" rel="gallery-node-1283-njXSNVyIg6Y"><img typeof="foaf:Image" src="https://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/Spend_Analysis624x325.jpg?itok=arL7EySS" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <div>Talking about the return on investment of a spend analysis can be a tricky subject. &nbsp;</div> <div>&nbsp;</div> <div>On one hand, procurement professionals typically see the value of a spend analysis right away. &ldquo;We don&rsquo;t know what we don&rsquo;t know&rdquo; is a quick and dirty assessment of why a spend analysis is important &ndash; it provides the foundation to identify paths forward in strategic sourcing initiatives and, therefore, helps produce savings. While procurement may have a beat on which specific market initiatives to pursue based on apparent pain points, many more will be hidden in their spend data. A spend analysis draws this out.&nbsp;</div> <div>&nbsp;</div> <div>On the other hand, it can be difficult to convince upper management of this value without assigning a specific ROI to the analysis. Upper management doesn&rsquo;t have the visibility into the sourcing process and shouldn&rsquo;t be expected to &ndash; that&rsquo;s what they trust you for. Because of this, tagging an ROI figure to the process seems like a good idea. It is a quick, easy number to track against for decision makers. But does this really make sense?&nbsp;</div> <div>&nbsp;</div> <div><strong>Where ROI Doesn&rsquo;t Make Sense&nbsp;</strong></div> <div>&nbsp;</div> <div>The goal of assigning ROI to a spend analysis seems like a good idea until you look under the hood. As luck would have it, I typically use a car example to explain what I mean by this.&nbsp;</div> <div>&nbsp;</div> <div>Consider the idea that you&rsquo;re in the market for a new vehicle. You consider switching to an electric vehicle because gas prices are getting pretty high. Is this a good idea? One way to find out at a glance is to calculate an ROI on this purchase. Namely, you can find out at what point your new green car starts to save you money: &nbsp;</div> <div>&nbsp;</div> <ul> <li>First, find some price points of electric vehicles in the market.&nbsp;</li> <li>Determine how much you can sell your current car for.&nbsp;</li> <li>Subtract the old car&rsquo;s sales value from the new car&rsquo;s price to develop a baseline target.&nbsp;</li> <li>Figure out your monthly fuel expense for the old vehicle to arrive at a break-even cost.&nbsp;</li> </ul> <div>Simple enough. However, this <a href="http://futureofsourcing.com/bridging-the-strategy-to-execution-gap" target="_blank">ROI calculation</a> considers the vehicle as a whole &ndash; what it can&rsquo;t do is tell you the ROI on the steering wheel, leather seats, sun roof or any other individual component. Spend analysis is similar in that it is a component of an overarching strategic sourcing initiative. You can&rsquo;t easily determine a true dollar ROI because those dollars are made within the sourcing projects that result from the analysis; finding a differential in savings due to spend analysis is murky at best. &nbsp;</div> <div>&nbsp;</div> <div>I don&rsquo;t want to suggest that spend analyses should be conducted without a care for costs. It can be all too easy to get lost in the weeds, especially if you&rsquo;re looking at a large set of data points. When this happens, the amount of time (and therefore money) that goes into an analysis can explode if left unchecked. Procurement needs to ensure that a spend analysis has as much bang for the buck as possible. To do that, you must consider what your goals are and how you can best achieve them.&nbsp;</div> <div>&nbsp;</div> <div><strong>Targeting Analysis Efforts&nbsp;</strong></div> <div>&nbsp;</div> <div>Take, for example, travel and entertainment (T&amp;E) spend. T&amp;E may represent a scant few percentage points of your overall spend. However, it may make up the bulk of individual line items in your analysis. As an example, one of my current clients has over 7,000 line items annually for Starbucks purchases alone, not to mention the thousands of other restaurants, pubs and burger joints on the list. You could spend hours collecting, consolidating and scrubbing these line items to come up with a clear view of per diem expenses like these. Before you do, however, ask yourself:&nbsp;</div> <div>&nbsp;</div> <ul> <li>How much time will I need to invest to manage this spend?&nbsp;</li> <li>How sizeable (or negligible) is the spend within this category?&nbsp;</li> <li>What strategies do I intend to enact to save money in this space &ndash; does it require a detailed, line-by-line analysis?&nbsp;</li> </ul> <div>Often, the overarching sourcing strategies that would impact this spend may not require the same amount of spend analysis time investment as other categories. As such, procurement can save a lot of time by holding off on a detailed T&amp;E analysis until it is critical to do so.&nbsp;</div> <div>&nbsp;</div> <div><strong>Considering <a href="http://futureofsourcing.com/why-cios-should-worry-about-tail-spend-management" target="_blank">Tail Spend&nbsp;</a></strong></div> <div>&nbsp;</div> <div>As mentioned above, T&amp;E spend has a pretty long tail. This isn&rsquo;t unique to just T&amp;E&mdash;any category of spend can build up a big tail. But at what point should you consider attacking this tail a wasted effort? &nbsp;</div> <div>&nbsp;</div> <div>I recommend establishing a line in the sand and sticking with it. Seek to analyze only suppliers in the top 90 percent of your total spend. This will weed out plenty of transactions while still delivering actionable results. Why? Because that huge tail will take considerable energy to address but it doesn&rsquo;t net much in terms of strategy.&nbsp;</div> <div>&nbsp;</div> <div>For example, take a supplier consolidation strategy. Say you have three suppliers providing the same product: to simplify this example, assume they all have an even slice of the volume pie. The carrot-and-stick market strategy is clear: &ldquo;Give us the best deal and you triple your volume with us. Give us a bad deal and lose it all.&rdquo; Will this be effective? &nbsp;</div> <div>&nbsp;</div> <div>It depends on the overall spend volume. If a given vendor&rsquo;s average deal is for $100,000 and your spend is well above that point, you have a pretty tasty carrot and pretty big stick. But what if you are only spending $10,000 annually? Plenty of suppliers will shrug and offer similar terms and pricing that you are already getting &ndash; the carrot just isn&rsquo;t good enough to bait them. So, why spend the time when you don&rsquo;t have the leverage? More importantly for the spend analysis, why spend the time working to analyze this spend when it won&rsquo;t help you create leverage?&nbsp;</div> <div>&nbsp;</div> <div><strong>Missed Opportunities&nbsp;</strong></div> <div>&nbsp;</div> <div>The worst thing you can do is spend too much time on an analysis &ndash; doing so will lead to otherwise avoidable missed opportunity costs. &nbsp;</div> <div>&nbsp;</div> <div>If I were to define what makes a spend analysis valuable, I&rsquo;d say it is an analysis that is both timely and impactful. Consider your entire population of data but target only the spend that is truly relevant to procurement&rsquo;s strategic sourcing goals.</div> <div>&nbsp;</div> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/spend-analysis" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Spend Analysis</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/tail-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Tail Spend</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/return-on-investment-roi" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Return on Investment (ROI)</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/data" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Data</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/analysis" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Analysis</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="What Makes a Spend Analysis Valuable? - Future of Sourcing" addthis:url="https://futureofsourcing.com/what-makes-a-spend-analysis-valuable"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Fri, 21 Sep 2018 16:38:21 +0000 Brian Seipel 1283 at https://futureofsourcing.com https://futureofsourcing.com/what-makes-a-spend-analysis-valuable#comments Why CIOs Should Worry About Tail Spend Management https://futureofsourcing.com/why-cios-should-worry-about-tail-spend-management <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://futureofsourcing.com/sites/default/files/articles/tail_spend624x325.jpg"><a href="https://futureofsourcing.com/sites/default/files/articles/tail_spend624x325.jpg" title="Why CIOs Should Worry About Tail Spend Management" class="colorbox" rel="gallery-node-1254-njXSNVyIg6Y"><img typeof="foaf:Image" src="https://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/tail_spend624x325.jpg?itok=AoPzZWxL" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <div>&ldquo;Tail spend&rdquo; represents a significant cost for large enterprises. While comprising a relatively small portion of total cost, the drip-drop accumulation of spend by large numbers of small, non-strategic suppliers making ad hoc and one-time purchases adds up to represent a sizable sum. The issue is exacerbated by inefficient contract management, cumbersome payment processes and a lack of automation.</div> <div>&nbsp;</div> <div>A longstanding bane of procurement executives, the <a href="http://www.futureofsourcing.com/cybersecurity-what-to-outsource-what-to-retain" target="_blank">IT tail spend</a> problem should also concern CIOs. As does any business unit within an enterprise, IT organizations apply most of their budget &ndash; and most of their management focus &ndash; to a few key suppliers and partners. A large number of non-strategic suppliers, meanwhile, account for a relatively small but still meaningful portion of overall IT spend.&nbsp;</div> <div>&nbsp;</div> <div>CIOs typically lack the bandwidth and capabilities to manage <a href="http://www.futureofsourcing.com/software-supplier-management-the-gold-standard" target="_blank">IT tail spend</a>. This is changing, however, as emerging tools and methodologies offer a new approach to tackling tail spend. The potential benefits for CIOs include cost reduction, increased visibility into how IT resources are deployed and an opportunity to develop strategic partnerships with other parts of the business.&nbsp;</div> <div>&nbsp;</div> <div><strong>Labor Intensive and Time Consuming</strong></div> <div>&nbsp;</div> <div>Historically, a key obstacle to managing tail spend has been maintaining oversight of large numbers of small, disparate suppliers. By definition, the task of keeping track of multiple parties, different types of contracts and discrete transactions doesn&rsquo;t lend itself to rationalization or efficiency.&nbsp;</div> <div>&nbsp;</div> <div>Consider what&rsquo;s involved in building and managing a global database of qualified vendors. Finding a supplier for an ad hoc or non-standard product or service typically requires painstaking research of potential suppliers. An IT example could include a one-off need for software support or licenses. This requirement could be directed either to an existing contract or consolidated post-negotiation with multiple vendors.</div> <div>&nbsp;</div> <div>In such a scenario, the process of vendor selection typically involves: trying to identify qualified candidates based on sketchy criteria; conducting a review using apples-and-oranges comparisons; using flawed data to select a winner; and then hoping for a cost-effective solution. For smaller, non-competitive purchases, the process is even more likely to be haphazard.</div> <div>&nbsp;</div> <div>Administering multiple contracts and invoices adds another layer of complexity. Then there&rsquo;s the issue of constant vetting, cleaning-up and onboarding of new suppliers to maintain an accurate and up-to-date database.</div> <div>&nbsp;</div> <div><strong>Intelligent Automation</strong></div> <div>&nbsp;</div> <div>Technology can dramatically reduce these time-consuming and labor-intensive tasks. Today, between 30 percent and 70 percent of routine transactional tasks involved in <a href="http://www.futureofsourcing.com/automation-an-inevitable-reality-for-procurement" target="_blank">Procure-to-Pay</a> processes can be automated through the combination of smart tools and process optimization.</div> <div>&nbsp;</div> <div>Data analysis and pattern recognition applications can help create categorized databases that use clearly defined criteria to identify the types of products and services a given supplier is qualified to provide. &nbsp;This enables a CIO to apply simple search criteria to pull a list of vendors tagged with those criteria. Self-service systems for vendors, meanwhile, can offload much of the administrative burden of supplier interactions.</div> <div>&nbsp;</div> <div><a href="http://www.futureofsourcing.com/robotic-process-automation-rpa-drives-value-and-saves-money-but-it-is-not-a-magic-wand" target="_blank">Robotic Process Automation (RPA) tools</a> and cognitive applications can streamline the onboarding of new vendors, the issuing of RFQs, reviewing of bids and processing of invoices. Alerts and updates can be issued automatically, enabling more efficient and proactive management of transactions.&nbsp;</div> <div>&nbsp;</div> <div>Deploying automation and process improvement to tail spend can drive cost savings of up to 50% for a given process, while delivering a 40 percent productivity boost. Savings accrue primarily from reducing the level of complexity, labor and overhead involved in managing suppliers and contracts. In addition, improving the accuracy of the criteria used to identify and screen suppliers enhances the competitiveness and quality of procured products and services.&nbsp;</div> <div>&nbsp;</div> <div>Perhaps most importantly, by driving dramatic efficiency and productivity gains and simplifying the management of each individual supplier, intelligent automation creates an opportunity to consolidate tail spend and implement a &ldquo;single vendor/single invoice&rdquo; approach with unique pay terms. Under this model, enterprises identify a partner to aggregate tail spend, while retaining visibility into individual agreements as needed via a dashboard tool.</div> <div>&nbsp;</div> <div><strong>Organizational Considerations</strong></div> <div>&nbsp;</div> <div>CIOs seeking to enhance oversight of their resources by improving their management of IT tail spend will likely need to address the question of turf: tail spend has typically been the purview of the Chief Procurement Officer. As such, a CIO&rsquo;s initiative to corral tail spend could be perceived as an incursion on the CPO&rsquo;s scope of responsibility.</div> <div>&nbsp;</div> <div>To avoid this, CIOs can position the initiative as a win/win that benefits both parties. Specifically, the idea of a cost-saving and productivity-enhancing effort that supports the procurement agenda should appeal to CPOs. Common initiatives for the CPO and CIO such as supplier performance measurements to rationalize the supply base to include mostly preferred vendors would further support the focus on tail spend. Moreover, IT and procurement teams are both involved in processes related to invoice review and sign-off and contract management. As such, streamlining processes around those functions has a positive impact on both.</div> <div>&nbsp;</div> <div>Ultimately, the key is to establish the feasibility of improving oversight of tail spend. Historically, the complexity of the problem and the effort required to solve it have overshadowed the potential benefits. As a result, businesses have lacked the bandwidth and the motivation &ndash; there have always been bigger problems to address and more strategic opportunities to pursue. Today&rsquo;s technology and process capabilities offer a new opportunity to address this longstanding blemish on operational performance. In many cases, CIOs can position themselves to lead the effort.</div> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/information-technology-outsourcing-ito" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Information Technology Outsourcing (ITO)</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/tail-spend" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Tail Spend</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/chief-information-officer-cio" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Chief Information Officer (CIO)</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/robotic-process-automation-rpa" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Robotic Process Automation (RPA)</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/cost" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Cost</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Why CIOs Should Worry About Tail Spend Management - Future of Sourcing" addthis:url="https://futureofsourcing.com/why-cios-should-worry-about-tail-spend-management"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Sat, 18 Aug 2018 22:57:04 +0000 Krishnan Venkat 1254 at https://futureofsourcing.com https://futureofsourcing.com/why-cios-should-worry-about-tail-spend-management#comments