In the broad field of procurement management, tail spend has gained a prominent role within the business environment. In diving into this topic, we explore how this concept, which refers to that small percentage of spend that is spread across a large number of suppliers, creates both opportunities and obstacles for companies making international purchases.
Developing a sourcing strategy to efficiently manage tail spend can be a key move to increase efficiency and maximise supply chain benefits. To achieve this, we must not only manage financial resources well, but also carefully select and manage suppliers, especially when tail sourcing involves importing goods from complex foreign markets, such as China and other Asian countries.
Benefits of effective tail spend management.
Tail spend often goes unnoticed in many companies, but its management can offer a host of benefits that positively impact a company’s operations and financial margins. By implementing a well-structured strategy, great opportunities to reduce costs and improve supplier relationships can be achieved.
In the context of imports, effective tail spend management enables companies to access global markets, securing products and services that may not be available locally. In addition, this proactive approach can uncover new business opportunities and international partnerships, strengthening the company’s global presence through strategic sourcing.
Disadvantages of inappropriate tail spend management.
We do not want to mislead anyone. Tail spend management can also have disadvantages when it is not done properly. Lack of control over these smaller but numerous purchases can increase risks in the supply chain, a fact that has an impact on the company’s accounts and, quite possibly, on the selling price of the products.
When it comes to imports, the complexity is multiplied. The variety of international suppliers, currency fluctuations, customs regulations and delivery times are just some of the additional challenges in managing international tail spend. Each of these variables, if not managed effectively, can increase costs and decrease expected profits.
5 examples of tail spend strategies.
Tail spend strategies can vary, but here are a few ideas that can be a good starting point for most companies:
Implementation of a Single Point of Purchase (SPP)
An SPP is a mechanism to consolidate and manage queue purchases through a central platform, which facilitates more effective control and tracking of expenditures.
Electronic catalogues
Use electronic catalogues to centralise and standardise purchases, especially of low complexity or low value products, reducing the number of suppliers and facilitating administrative management.
Procure-to-Pay (P2P) technologies
Implement P2P solutions to automate the purchasing process, from application to payment, reducing processing times and improving efficiency.
Reverse auction
Use reverse auctions for products and services that are in the tail spend, generating competition among suppliers and potentially reducing costs.
Collective purchasing
Although it may seem difficult to achieve, participating in or creating purchasing groups to consolidate demand with other companies and negotiate better terms and prices with suppliers is one of the best strategies to optimise tail spend procurement.
A sourcing company can help you with the tail spend.
Given the complexity of this type of procurement, sourcing companies play a key role in optimising this part of the supply chain. As business management professionals, working with sourcing partners enables companies to explore and tap international markets effectively, mitigating risks and leveraging tail spend advantages.
A professional sourcing company not only facilitates the search and verification of suitable international suppliers, but also helps negotiate favourable terms and ensure smooth logistics and customs management. By delegating this task to expert hands, companies can focus their efforts and resources on their core business, without having to worry about their tail spend.