Tail-Spend Management

How to Squeeze Savings from the

Most Fragmented 20% of Spend
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What is Tail-Spend?
Why is it Often Ignored?
What is the Real Cost & What are the Potential Savings?
How Can Significant Savings be Squeezed
from Tail-Spend?
How Does PROACTIS Help?
Tools for Procurement
Managed Service & Outsource Partners
Tools for Accounts Payable
A Practical Step-by-Step Approach
Gain Insight into Your Spend
Establish Purchase Controls
Increase Your Capacity for Spend Under Management
Address Categories Using the Best Method for Each
Automate Invoice Processing &
Other Accounts Payable Activities
Automate Invoice Capture
A Representative Scenario
Summary
Contents
What is Tail-Spend?
The term tail-spend comes from the well-known Pareto
principle that 80% of spend will come from 20% of suppliers;
and that, conversely, 80% of suppliers will account for 20%
of spend; typically across a wide range of categories.
The percentage and nature of tail-spend varies from organisation to organisation, but it nearly always displays a number
of similar characteristics:
A large number of categories (that rarely include direct materials)
A disproportionate level of spend from the farthest-flung locations within the organisation
Suppliers that no one in Procurement has heard of or worked with
Non-compliance and maverick spend are rampant
Many categories will be low value, but not all; many will have high transaction volumes
Why is it Often Ignored?
Tail-spend is an area that is often ignored or at least not closely managed. Why? Because there are so many
suppliers and the idea of tackling them can seem overwhelming.
Procurement professionals spend the majority of their time managing the big core areas of spend where the numbers
are larger and savings are more quickly won.
Even organisations that have gained a good level of control over most of their cost structure meet a number of challenges
when they look at the tail-end of spend:
Poor data visibility
Lack of effective controls
Little market coverage
Seemingly low potential savings
Lack of interest from other stakeholders
Lack of category expertise in the very high number of categories remaining
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This paper is intended to
supplement other PROACTIS
materials with a discussion
that focuses specifically on
issues around
managing
tail-spend

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What is the Real Cost & What are
the Potential Savings?
Allowing your organisation to spend that 20% (tail-end)
of total expenditure with little or no sourcing support,
and with little focus on the large number of invoices involved,
clearly results in paying higher prices.
It also means incurring higher risk and burdening Accounts Payable and other areas with a large invoice-handling
workload.
But by addressing the tail-end of spend together, Procurement and Finance can deliver significant savings in terms of
both reduced unit prices and process improvements both of which free up money and valuable resources.
10
%
5
%
in net profit
For a typical
organisation,
savings
increase
ontail-spend
can be the
equivalent
of a
How Can Significant Savings be
Squeezed from Tail-Spend?
Significant savings can be realised from greater focus on
tail-spend by applying a professional, methodical approach;
and by using the right combination of eProcurement
technology combined with appropriate outsourced and/or
managed services.
Like most Spend Control efforts, the place to start is with an analysis of current spend to identify a quick-win strategy
of consolidation, aggregation, and streamlining. In this way, you should be able to quickly achieve sustainable results.
The basic idea is to filter and reclassify your tail-spend so that appropriate strategies can be employed for each
category. For instance, you may segregate and address various subsets of tail-spend something like this:
Using this approach, you will see:
Noticeable cost savings
Better visibility of where you spend money (that visibility will, in itself, enable even better management)
A reduction in maverick and off-contract buying
A sizable cut in the number of invoices that need processing
A reduction in the time needed to manage suppliers
And by offering more attractive packages of spend to suppliers, you will also gain:
Improved payment terms
Access to better systems and tools
A genuine desire on the part of the suppliers to help you succeed
Segment Strategy
M|sc|ass|ed |tems
Rec|ass|fy and |ncorporate
|nto ex|st|ng contracts
Low pr|ce, h|gh frequency
Strateg|c sourc|ng, PCards, and use of
managed serv|ces for certa|n categor|es
One t|me, h|gh va|ue
Rap|d RFP and
eAuct|on methods
Fragmented spend
( e.g. across var|ous |ocat|ons |
Conso||date and
source centra||y
Maver|ck spend
Introduce P2P checkpo|nts
to ensure comp||ance
Low pr|ce, |ow vo|ume Rema|n|ng true ta||-spend
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How Does PROACTIS Help?
With a combination of technology, services and partners,
PROACTIS Spend Control and eProcurement solutions are
designed to help organisations improve control and reduce the
cost of all spend with all suppliers.
In addition to the tools to streamline management of your core, high-value categories, PROACTIS provides everything
you need to tackle tail-spend in a sustainable manner. The focus is on providing both Procurement and Finance with
the tools to:
Increase the range of spend under management
Reduce the volume of suppliers, orders and invoices where possible
Much more efficiently manage the remaining volume of suppliers, orders and invoices associated with tail-spend
PROACTIS capabilities that make management of tail-spend both practical and effective include:
Tools for Procurement
Rapid spend review service that quickly provides you with insight into your tail-spend,
including a clear picture of the biggest opportunities for savings.
Streamlined sourcing tools to perform accelerated sourcing events suitable for smaller spot-buys,
including rapid RFx and Quick-Quote capabilities.
Streamlined supplier management tools using an online supplier portal suitable for handling
a high number of suppliers, such as supplier self-registration, certification workflows, self-service
catalogue management, etc.
P2P tools such as supplier catalogue and punch-out capabilities that make it easy for employees
to find and buy exactly what they need from the right supplier even across hundreds of thousands of
tail-end items.
Spend visibility gained by capturing all purchase activity through PROACTIS Purchase-to-Pay.
Over time, this provides the basis for even closer analysis to continually identify incremental and
emerging savings opportunities.
Managed Service & Outsource Partners
Specialised category supply partners that specialise in ensuring the lowest prices and best value for
various categories such as stationery, paper, catering and janitorial items, work wear, workplace environment
products, lighting, print services, in-house print management, business machines, office furniture, promotional
items and more.
Managed service and outsourced sourcing partners that specialise in handling specific categories your
team may not have experience with on an as-needed basis.
Tools for Accounts Payable
Electronic invoice capabilities to reduce the invoice capture and processing burden associated with
tail-spend a wide range of tools suitable for both low and high volume suppliers, suppliers with both modest
and sophisticated technology capabilities, suppliers with whom you use PCards, energy suppliers, and more.
Invoice capture services to reduce the workload and improve accuracy for the remaining paper invoices.
Self-service supplier account enquiry using the online supplier portal to dramatically reduce the workload
associated with answering supplier calls and emails requesting invoice and payment status.
Together, these PROACTIS technologies, services and partners provide the framework you need to successfully manage
tail-spend. The next section explains how
A Practical Step-by-Step Approach
PROACTIS has hundreds of man-years experience
helping a broad spectrum of organisations reduce
and better control their total spend.
From this experience, we have developed a proven approach based on an understanding that:
The opportunities for savings are always there they just need to be clearly identified and prioritised
Although there are often opportunities for really large savings in a few big hit areas, much of the opportunity
comes from incrementally addressing pockets of opportunity by methodically addressing them one at a time
The approach to addressing each opportunity will vary; with each requiring a different combination
of technology capabilities and business process improvements
Although some sequence of activities is necessary, many initiatives can usually be worked in parallel
with each other to realise results more quickly
With that understanding in mind, the essence of our approach to working with you, for the specific purpose of squeezing
savings from your tail-spend, is as follows:
Gain Insight into Your Spend
Help identify and prioritise the opportunities for savings with an early emphasis on quick-hits that have the greatest
return in the least time.
i. PROACTIS Rapid Spend Review Service
Establish Purchase Controls
Establish a Purchase-to-Pay (P2P) environment that makes it easy for employees to buy from the preferred suppliers,
contracts, and catalogues put in place by Procurement, while also ensuring compliance with authorisation policies
and other purchase controls. Make sure this environment is intuitive, fast, and universal to ensure broad adoption.
Note: this step is key to gaining the full benefits of the steps that follow.
i. PROACTIS Purchase-to-Pay
ii. Supplier Catalogues and Punch-Outs
Increase Your Capacity for Spend Under Management
Help Procurement free up time to apply professional procurement processes further down the tail of spend by
streamlining ongoing sourcing, supplier management, contract management, and PO generation processes.
Improve spend data quality for ongoing analysis by capturing purchase activity at the source.
i. PROACTIS Sourcing
ii. PROACTIS Supplier Management
iii. PROACTIS Contract Management
iv. PROACTIS Supplier Portal
v. PROACTIS Purchase-to-Pay
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Address Categories Using the Best Method for Each
Utilise insights from the Rapid Spend Review to classify tail-spend as discussed earlier. Incrementally apply
appropriate methods across the various segments.
i. PROACTIS Quick-Quote for infrequent, higher value purchases (e.g. office furniture)
ii. PCards for frequent, lower value categories typically purchased in the field (e.g. petrol)
iii. PROACTIS specialised supply partners for categories with many lower-value items
(e.g. office and maintenance supplies)
iv. PROACTIS specialised managed service or outsourced sourcing partners for infrequent, higher-value
categories where category expertise is not available in-house (e.g. print services; energy spend management)
Automate Invoice Processing & Other Accounts Payable Activities
Automate invoice matching, troubleshooting, and payment authorisation. Enable supplier self-service account status
enquiry.
i. PROACTIS Purchase-to-Pay
ii. PROACTIS Supplier Portal
Automate Invoice Capture
Utilise insights from the Rapid Spend Review to categorise suppliers in terms of invoice volume, invoice complexity,
and technology capability. Dramatically reduce the percentage of invoices received in paper form and requiring
manual entry by incrementally applying appropriate methods across the various segments.
i. PROACTIS electronic invoice capture methods: XML, email, PO Flip, online entry, intelligent scanning, etc.
ii. PROACTIS specialised invoice processing: PCard statement processing, utility bill processing, Self-Billing, etc.
iii. PROACTIS specialised service partners: invoice scanning and intelligent document and data capture
Yes its a lot to do and it doesnt all happen overnight. But you might be surprised how quickly you can see results.
Many organisations we work with see net ROI in less than a year often within months. And our goal is always to
help our customers continue to see year-on-year savings on an ongoing basis.
20%
Core
80%
Tail-End
Source-to-contract
automation
Specialised category
supply partners
Managed service/
outsource partners
High Number
of Suppliers
20%
Core
80%
Tail-End
High Volume
of Invoices
Spend Under Management Electronic Invoicing
XML PCard Email Self Billing PO Flip
Intelligent
Invoice
Capture
Spend Value
80%
Core Categories
M
20%
Tail-End
PROACTIS Solutions Include PROACTIS Techniques Include
Managing Tail-Spend
with PROACTIS
Over 350 customers
across 70 countries
Streamlining the
purchase-to-pay-process
Obtaining best value and
control in procurement
PROACTIS:
Spend Control &
eProcurement
11 10
A Representative Scenario
If you have not yet addressed the savings opportunities within
tail-end spend because the number of suppliers and categories
seem overwhelming as compared to the opportunity, we would
like to talk with you.
We are confident that we can show you how the combination of PROACTIS technology solutions, services and
partners utilised in a methodical, sustained process can, in fact, enable you to squeeze significant savings from
that last 20% of spend.
Summary
One of the most common categories within tail-spend is stationery and other office supplies.
Problem The category includes tens of thousands of individual items;
mostly low value, but often large end-supplier mark-ups and
purchased very frequently.
Items are typically purchased in every office location, by many
different employees, from many different suppliers.
Total value is relatively high.
Typical
Approaches
Basically ignore it allow each location and employee
to buy from whoever they choose; no consolidation;
no discounts.
Contract with a large national supplier with nominal discounts
off retail prices; many purchases still made off-contract.
PROACTIS
Solution
(one example)
Utilise PROACTIS partner service to act as the category
expert and supplier.
o Example: The PROACTIS partner service specialises in
continuously offering the very lowest prices on quality
office supplies by negotiating direct contracts with original
manufacturers and managing the logistics of direct
delivery to customers. This eliminates one or more levels
of the supply chain with all of their associated costs.
Savings are largely passed on to the buyer. The partner
service can also act as an outsourced sourcing agent or
managed service provider for related categories via the
PROACTIS Purchase-to-Pay (P2P) platform.
Consolidate organisation-wide purchases to the selected
supplier.
Utilise PROACTIS P2P Punch-Out capabilities to enable
employees to quickly and easily find what they need and
purchase it from that supplier with full compliance to
authorisation policies.
Utilise PROACTIS partner as outsourced category experts
to source new items when the need arises.
Utilise PROACTIS electronic invoicing capabilities to capture
invoices (consolidated, if desired).
Utilise PROACTIS P2P automated invoice matching to
virtually eliminate manual invoice processing.
Result Significant savings on purchases through lower prices
based on specialised supply approach and consolidated
buying power.
Procurement time freed up to concentrate on other
categories.
Significant savings in Accounts Payable manpower
requirements.
e: info@proactis.com
w: proactis.com PROACTIS 2012