Why Tail Spend Matters – Unlocking Hidden Value in Procurement

In the complex procurement world, it is easy to fall victim to non-strategic expenses—often referred to as ‘tail spend’—which can quietly erode a company’s financial health. These seemingly minor yet cumulative costs frequently escape the notice of procurement and finance teams, resulting in unaddressed financial leakage and missed opportunities for savings.

Unmanaged tail spend can quietly siphon off as much as 20% of an organisation’s annual budget, placing undue strain on resources. This category includes small, ad-hoc purchases made outside formal contracts or overlooked by sourcing strategies.

Neglecting these seemingly minor outgoings can be risky, as they may represent up to a fifth of a company’s total spend ( The percentage can vary greatly depending on the industry, company size, and procurement practices).

For those committed to sound financial management and operational efficiency, gaining control of tail spend is not just beneficial—it is essential.

What is Tail Spend

The tail spend represents those seemingly insignificant expenditures that are low in volume, frequency, or value. Because each purchase may seem inconsequential in isolation, their cumulative effect is far from negligible.

Companies that overlook tail spend management can significantly harm their bottom line.

And the time organizations attempt to manage this often-overlooked area, they face the following challenges:

• Data invisibility

  : Smaller transactions occur informally through calls or emails. In this manner, inconsistencies and inadequacies in documentation across departments easily arise. Such incoherent records used to document daily expenses are a nightmare for data analysts who try to track such costs.

• Involvement of Various Departments

  : Tail spend is usually dispersed across different departments; therefore, managing it in unison is very challenging. Sometimes, poor communication among the stakeholders can make one buy duplicates or contract for items twice, thus incurring losses that could have been saved.

• Difficulty in Classifying Tail Spend

  : Most tail spend falls under indirect spend, meaning it doesn't directly contribute to the cost of a final product. This makes classifying, budgeting, and forecasting tail spend complex, particularly when dealing with one-off purchases.

Importance of Tail Spend Management in Procurement

1. Cost savings :

   Effectively managing small, recurring expenses opens up significant opportunities for savings. According to Boston Consulting Group (BCG) research, companies that embrace digital tail spend management can reduce their annual expenditure by 5 to 10%. These savings can be reinvested to improve the company’s end product and drive business growth.

2. Increased visibility and control :

   Strong tail spend management offers better visibility into spending patterns that help procurement teams identify and minimise maverick spending and non-authorised spending. This visibility also highlights areas where cost-saving opportunities can be uncovered.

3. Efficient compliance :

   An effective tail spend management program would allow an organisation to maintain adherence to corporate procurement policies, regulatory mandates, and supplier diversity goals. Thus, this provision for centralised control and an auditing mechanism reduces the risk of non-compliance, hence, the possibility of damaging the reputation and various penalties that could be imposed. Further, a compliance culture ingrained among the employees brings the finance team much closer to accomplishing accounting process automation.

4. Risk mitigation :

   By taking control of this largely neglected area, procurement teams would stand well-positioned for acting strategically and driving business success. Besides optimising the costs, such focus can improve the agility of operations while lowering risks. However, before embarking on a tail spend management journey, the need is to quantify the full opportunity that could be taken advantage of.

Having addressed the challenges associated with the tail spend, we will now explore strategies for unlocking the hidden value in procurement.

How to make a robust tail spend management framework in 4 steps

Proactiveness is required to counteract tail spend. Putting in place a strong framework for managing tail spend offers an organised way to streamline procurement procedures, cut expenses, and improve functioning effectiveness. Four measures can be taken to create a thorough foundation that will increase tail spend:

1. Define and categorise tail spend

   The first step in successful tail management is to have a clear understanding of the types of goods and services that fall under the tail spend umbrella. For this, identify common characteristics of tail spend items, such as frequency, supplier concentration, and purchase value.

   Furthermore, group tail spend items into meaningful categories based on their characteristics like travel, supplies, etc.

   This will help you determine which categories of tail spend have the greatest potential for cost savings or risk mitigation.

2. Identify and assess tail spend suppliers

   Once you have categorised your tail spend, the second is to be supplier management to find all the associated suppliers, including those outside of the official procurement channels.

   To do that, you will need to analyse purchase orders, invoices and expense reports in order to identify rogue or ad-hoc spending. Having identified the suppliers, you are going to evaluate their performance, reliability, as well as the danger they pose. You have delivery as timely, quality consistency, and financial stability to consider.

   This evaluation will enable you to construct strategies tailored to the requirements of the management of your company's tail spend.

3. Develop tail spend management strategies

   Now, it is the time for you to formulate category-specific tail spend management strategies. Most of the strategies will differ based on the category and supplier relationships.

   For high-performance suppliers, you would want to bind discounts and terms by locking these in through volume commitments or blanket purchase agreements. In contrast, for underperforming or high-risk suppliers, you would probably seek alternative source arrangements and impose stiffer controls.

4. Implement and monitor the framework

   Now is the time to communicate the framework and policies to all the company stakeholders, from employees and managers to suppliers. That starts with training and resources to ensure adoption and compliance.

   How do you know your tail spending strategies are working? Establish the metrics and KPIs to monitor the effectiveness of your tail spend management framework.

   Conclusion: Managing tail spend effectively is quite an important issue for any company looking to reduce procurement costs. The guide here gives a clear understanding of tail spend, its challenges and benefits, and strategies needed for effective management. However, for further expert assistance, get in touch with our experts!

How can Refteck Help?

At Refteck, our team believes in creating solid strategies, doing outstanding spend analysis, and following the best practices to help our clients achieve procurement excellence. Our experts have in-depth knowledge in procurement and commercial best practices, and we partner closely with our clients to:

• Identify and analyse tail spend
• Define the scope and uncover opportunities
• Create customised procurement strategies to manage future spend, prevent tail spend growth, and reduce risks.
• Provide ongoing management of tail spend to ensure long-term success.