In this article, Serge Milman explains the high costs of adopting a tail spend category.
Unmanaged Spend ≠ Spend Category. Tail Spend is not a spend category, and thus cannot be sourced effectively. Tail Spend – or more accurately, Un-managed Spend – is an aggregation of spend and vendors that typically represent 40%-60% of total spend. Attempting to source Tail Spend as a category makes about as much sense as including Professional Services and Technology Hardware into a single RFP. Procurement professionals would never consider the later, and they likewise should never consider Tail Spend sourcing either.
Undefined requirements lead to poor results. Sourcing scope without the benefit of business requirements, KPIs/SLAs and overall category-level strategy is poor substitute for good work. This is true in traditional Category Sourcing, and certainly holds true for Tail Sourcing. Sourcing in the ‘blind’ is foolish not only because it communicates that your Procurement team are amateurs, but also because, in best case scenario, Tail Spend sourcing will achieve only 30%-40% of the savings and only a temporary/short-term basis.
Technology is not the answer. eAuctions may be effective for some spend categories, but not for an amalgamation of spend across multiple categories. Remember, CRM did not magically transform average sales teams into star performers; Procurement point-solutions or suites will not elevate Procurement either.
Poor results masquerading as achievement. “You don’t know what you don’t know”. Tail Spend sourcing may generate some positive results but these results are short-term in nature. Furthermore, Tail Spend approach almost never addresses key Procurement objectives, including: a) reduce complexity, reduce operating risk and maximize cost reduction by consolidating “Tail Spend” vendors, and b) maximizing sourcing savings, particularly given that Tail Spend sourcing misses 60%-70% of the total savings opportunity.
Key points include:
- Incremental work effort for comprehensive category sourcing vs Tail Spend is minimal
- Poor results masquerading as achievement
Read the full article, 5 reasons why Tail Spend Sourcing is like setting fire to money, on Linkedin.