adr international Procurement consultants

Manage your tail spend

Some of the smaller, less obvious areas of spend can yield big savings, says Simon Aldred

Managing the big, core areas of spend is the easy part. The numbers are larger and the savings are usually quickly won and impressive. We're all pretty good at managing this 80 per cent or so of procurement.

However, let's not forget the tail of spend, the remaining 20 per cent. Often these areas are not so well managed.

This is usually because there are many suppliers involved and tackling them is seen as an overwhelming task.

But dealing with the tail end of procurement can deliver significant savings both in unit price reductions and process improvement, freeing up money and valuable resource.

The key is a systematic, professional approach built on a strong foundation of industry knowledge. You can start with a detailed analysis of current spend and develop a quick-win strategy of consolidation, aggregation, streamlining and market testing.

In this way, you will quickly achieve sustainable results. Not only will you see significant cost savings, you will also gain better visibility of where you spend money. And as we all know, if you can see it you can manage it.

Expect also a big reduction in maverick and off-contract spending, a sizeable cut in the number of invoices that need processing and a reduction in the time needed to manage suppliers.

By offering more attractive packages of spend to suppliers you will also gain improved payment terms, access to better systems and tools, and a genuine desire on the part of suppliers to help you succeed.

The limiting factors for undertaking this activity are usually resource and appetite.

But given the current economic situation the appetite is likely to be there. Most companies are looking keenly at their spend to see where they can become more effective.

As for resourcing, there are several ways to resolve this. You can resource internally, or use the services of an interim manager. Or you can engage a specialist procurement services provider.

The need to manage the tail of spend is relevant for organisations of all kinds, from large blue chip companies right down to SMEs. The challenges are the same and the results can be equally surprising.

Remember it is likely that your competitors are already undertaking this activity and getting the benefits of cost savings, efficiency improvements and a more effective and better managed supply chain.

Remember too that for a typical company a 5 per cent saving on the tail of spend can be the equivalent of a 10 per cent increase in net profit.

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