Tail spend is easy to overlook. When it comes to procurement, businesses typically focus on the more strategic aspects of cost reduction, such as strategic sourcing and contract negotiations. Whilst these areas certainly offer attractive savings, focusing solely on them can cause businesses to lose sight of seemingly less significant, indirect costs.

Tail spend is the large number of small, low-value and often one-off purchases that sit outside an organisation's managed contracts. Each transaction looks insignificant, but together they involve many suppliers, a high share of invoices and very little oversight. Managing tail spend means making that spending visible, then consolidating and controlling it.

What Is Tail Spend?

Tail spend refers to the less-managed portion of a company's procurement spending. It often involves numerous small suppliers but accounts for a small percentage of total spend. While these are typically low-value, non-strategic purchases, they can add up and affect a company's bottom line.

The name comes from the shape of a spend chart. Rank your suppliers from largest to smallest and a few large suppliers form the head, whilst a long line of small ones forms the tail. In most organisations the tail holds the majority of suppliers and transactions but only a small share of total spend.

In procurement, tail spend typically includes categories such as office supplies, IT accessories, small facilities repairs, marketing items and ad hoc professional services. These purchases are often made by individual departments, outside of contracts, and as a result they fall off the radar of spend management.

Tail spend is sometimes described as maverick spend, but the two are not quite the same. Maverick spend is any purchase made outside agreed contracts or processes, whatever its value. Tail spend is defined by its low value and high volume, although much of it is also maverick.

Why Tail Spend Matters

Whilst such transactions may seem insignificant on their own, over time they accumulate. The main issue is the lack of traceability, which makes it difficult for organisations to identify where money is being lost. There are three main reasons to take it seriously.

• Hidden cost – Different departments buy like-for-like items from different suppliers at different prices. Without consolidated volumes, there is no negotiated pricing and no discount.
• Risk – One-off purchases are often made with suppliers that have not been vetted. Undocumented spend can leave a business exposed to fraud, poor quality and non-compliance with its own policies.
• Admin burden – Every new supplier has to be set up, and every small invoice has to be approved, matched and paid. The processing cost can be out of proportion to the value of the purchase.

There is also a cost to employees. Without an agreed route to buy everyday items, staff spend time searching for suppliers when they could be doing productive work.

Because many businesses choose to ignore their tail spend, addressing it can deliver savings that competitors are missing. It is one reason why spend analytics services often look at the tail as well as the largest contracts.

Want to get tail spend under control? Talk to our spend analytics team.

How to Identify Tail-End Spend

Putting a tail spend management procedure in place is relatively simple. Identifying the tail in the first place can be the difficult and time-consuming part. It often requires a business to track thousands of purchases, a vast range of product categories and an extensive supplier base.

The steps below set out a practical approach.

1. Gather the data – Pull at least 12 months of spend from accounts payable, purchase orders, purchasing cards and expenses. Tail spend hides in the sources that procurement does not normally see.
2. Cleanse supplier names – A supplier may not always appear under the same name. It may invoice under its legal name, its trading name or an acronym, and these need to be merged into one record.
3. Rank suppliers by spend – Sort suppliers from highest to lowest annual spend and calculate the cumulative percentage.
4. Draw the line – A common approach is to treat the suppliers that make up the bottom 20% of spend as the tail. Alternatively, set a value threshold per supplier that suits the size of your organisation.
5. Check against contracts – Mark which tail suppliers have a contract in place and which do not. The uncontracted group is usually where to start.

Many organisations attempt this exercise in a spreadsheet. That can work for a first pass, but it is worth understanding the downsides of Excel for spend management before relying on it for regular reporting.

Tail Spend Analysis

Once the tail has been identified, tail spend analysis is about segmenting it and looking for patterns. The aim is to separate the spend that can be consolidated or controlled from the spend that is low risk and can be left alone.

A useful way to structure the analysis is a spend cube, which views the same data by supplier, by category and by business unit. Typical segments include:

• Category – Group tail suppliers by what they provide. This shows where many small suppliers are providing the same thing.
• Business unit – Identify which departments or sites generate the most tail transactions.
• Transaction size – Separate very small, frequent purchases from larger one-off purchases, as they need different solutions.
• Contract status – Compare tail purchases with existing contracts to find items that could have been bought from a contracted supplier.

The patterns to look for are repeat purchases of like-for-like items across departments, several suppliers for the same category, suppliers used only once, and frequent low-value invoices from the same supplier. As a simple illustration, an organisation might find it buys stationery from 15 suppliers across six sites. That is a clear candidate for consolidation to one or two.

How to Manage Tail Spend

There is no single answer to how to manage tail spend. Most organisations use a combination of the approaches below, matched to each segment of the tail.

• Consolidation – Move repeat purchases to a smaller number of preferred suppliers and negotiate pricing on the combined volume. This also allows you to choose suppliers on their performance and reliability.
• Catalogues – Procurement catalogues are typically created by purchasing managers and limit what employees can order to approved items at agreed prices.
• Purchasing cards – Cards remove the need to raise a purchase order for very small purchases, and automatically record who is buying what and how often.
• Marketplaces – Online business marketplaces give employees access to a wide range of suppliers through one account, with spend limits and approval rules applied.
• Managed services – Some organisations outsource the tail to a third party that buys on their behalf. Tail spend management services of this kind suit organisations with a large tail and limited procurement resource.

Each approach has limits. Catalogues and cards can be restrictive, typically limiting employees to a single supplier or a range of items that may not meet every need. It is always worth testing a new route with the people who will use it, because a process that is hard to follow will simply be bypassed.

Cost and effort also need to be weighed. The time and resources invested should not outweigh the potential savings, so it is important to recognise when outside help is worthwhile. Experienced procurement consultants can provide tail spend management consulting for the initial analysis, then hand a working process back to your team.

Quick Wins

Some actions deliver results quickly and need little investment:

• Redirect purchases to an existing contracted supplier where one already covers the item.
• Merge duplicate supplier records and close accounts that are no longer used.
• Set a simple rule for low-value purchases, such as a card for anything below an agreed limit.
• Share the analysis with budget holders, who are often unaware of how fragmented their spending is.

Tail Spend Management Tools

Technology has made tracking and analysing tail spend far easier than it used to be. One reason the tail has been difficult to track is that invoices are stored as PDFs across different platforms and databases. This makes it hard to compile all of the data for a single supplier by hand.

The main types of tail spend solutions are:

• Spend analytics software – Collects data from multiple systems, matches the different versions of a supplier name and categorises the spend automatically.
• Purchase-to-pay systems – Guide employees to approved catalogues and suppliers, and apply approval rules before money is committed.
• Automation – Robotic process automation (RPA) can handle steps between purchase request and purchase order, such as consolidating supplier data and selecting an appropriate supplier.
• Governance and alerts – Tools that track employee spend and notify stakeholders when procurement procedures are not being followed.
• Integrated suites – Business spend management platforms bring sourcing, purchasing, invoicing and expenses together in one place.

The right choice depends on the size of the problem. A smaller organisation may need only analytics and a purchasing card policy. A larger one may justify dedicated tail-end spend management software. In reality, tail spend management solutions work best when the process and policy are agreed first and the tool is chosen to support them.

Key Takeaway

Previously a grey area, tail spend is increasingly recognised as a source of additional savings. The starting point is visibility: identify the tail, segment it, and then apply the simplest control that fits each segment. Effective tail-end spend management does not require every small purchase to be tendered, only that each one follows a sensible route.

How Athena Can Help

We help organisations gain transparency over their entire company spend, including the tail. We assess your current position, cleanse and categorise your spend data, and identify where consolidation and better controls will deliver savings. Our work includes the Block spend analytics case study, where £250k of savings and a supplier database were delivered for Block Solutions.

Our approach is designed to minimise the load on your team. As spend management consultants, we can also guide you through selecting and implementing the right software, including the ISPnext spend analytics software that we implement for clients, alongside our own in-house analysis tools.

Want to get tail spend under control? Talk to our spend analytics team.

Frequently Asked Questions

What is tail spend in procurement?

In procurement, tail spend is the low-value, high-volume purchasing that is not actively managed by the procurement team. It is usually spread across many small suppliers and made without contracts. Individually the purchases are small, but together they represent a meaningful cost and a large share of transactions.

What is tail spend management?

Tail spend management is the process of identifying, analysing and controlling low-value purchasing. It typically involves consolidating suppliers, giving employees simple approved routes to buy, and using technology to keep the spend visible. The aim is to reduce cost and risk without adding bureaucracy.

How do you identify tail-end spend?

Gather 12 months of spend data from all sources, merge duplicate supplier names and rank suppliers by annual spend. The suppliers that make up the bottom portion of total spend, commonly the last 20%, are the tail. Then check which of them have contracts in place.

How can I track tail spend and identify savings opportunities?

Track it by refreshing the analysis on a regular basis, ideally using spend analytics software that categorises the data automatically. Savings opportunities usually appear where several suppliers provide the same items, where purchases bypass an existing contract, or where many small invoices could be replaced by a catalogue or card.

Is tail spend the same as maverick spend?

Not quite. Maverick spend is purchasing that bypasses agreed contracts or processes, and it can be of any value. Tail spend is defined by low value and high volume. The two overlap, because much of the tail is bought outside contract.