Tail Spend
Definition:
Tail spend refers to the small, often overlooked purchases that make up a relatively small portion of an organization's overall spend but can be numerous in transactions. These purchases are typically low-value, infrequent, or one-off transactions that are not strategically managed.
Example:
Acme Corporation's procurement team focuses mainly on managing high-value, strategic spend categories like raw materials, equipment, and professional services. However, they notice that a significant number of small purchases, such as office supplies, maintenance, repair, and operating (MRO) items, and one-off services, are being made across the organization without proper oversight or control. These purchases collectively account for a considerable amount of spend, known as tail spend.
Why is Tail Spend important to Procurement?:
Managing tail spend is important for procurement teams, as it can represent a significant opportunity for cost savings and process improvements. By bringing tail spend under strategic control, procurement teams can leverage volume discounts, reduce maverick spending, improve supplier management, and ensure better compliance with procurement policies. Effective tail spend management can also help to reduce administrative costs, improve spend visibility, and mitigate supply chain risks associated with a large number of unmanaged suppliers.