What is Tail Spend? Definition

If you’re in the business world, you’ve probably heard the term “tail spend” before. But what is it, really? In short, tail spend is the money that businesses spend on goods and services that are not essential to their operations. This can include anything from office supplies to travel expenses. While tail spend may not be a huge part of a company’s budget, it can still have a significant impact on the bottom line. In fact, eliminating just 10% of unnecessary tail spend could save a business up to 5% of its total annual budget! So, how can you reduce your company’s tail spend? Read on for some tips.

What is Tail Spend?

Tail spend is the procurement of goods and services that make up a small percentage of an organization’s overall spend. According to Gartner, tail spend typically accounts for 15-20% of an organization’s total spend.

While tail spend may seem like a small amount, it can actually have a big impact on an organization’s bottom line. When left unchecked, tail spend can lead to waste and inefficiencies that can cost an organization millions of dollars each year.

However, by taking steps to better manage tail spend, organizations can realize significant savings. For example, many organizations are able to save 5-10% on their overall spending by reducing tail spend.

There are a number of ways to reduce and better manage tail spend. One common approach is to centralize tail spend under one department or manager. This allows for better visibility into spending and makes it easier to identify areas where savings can be realized. Additionally, many organizations implement technology solutions to automate the management of tail spend. This can help further reduce costs and improve efficiency.

The Different Types of Tail Spend

There are four main types of tail spend: indirect, professional services, marketing and IT. Each type has its own unique characteristics and therefore requires a different approach when it comes to managing and reducing it.

Indirect spend is the most common type of tail spend and typically includes items such as office supplies, travel expenses and logistical costs. While some of these costs may be necessary, there is often room for improvement when it comes to efficiency and waste reduction.

Professional services tail spend refers to the fees paid to outside consultants and contractors. This type of spending can be difficult to track and control due to the nature of the work involved. However, it is important to manage this type of tail spend in order to avoid overspending on projects that may not necessarily be beneficial to the company.

Marketing tail spend encompasses all of the costs associated with marketing campaigns, including advertising, public relations, market research and event planning. As with professional services, there is often a great deal of variability in marketing expenditures from one year to the next. Therefore, it is important to have a clear understanding of what exactly is being spent on marketing efforts in order to make informed decisions about future budgeting.

IT tail spend usually consists of software licenses, maintenance contracts and hardware purchases. This type of spending can be difficult to justify given the ever-changing landscape of technology. However, IT tail spend can often be reduced by negotiating better deals with vendors or through the use of open source alternatives

The Benefits of Tail Spend

Tail spend is often overlooked but can be a significant source of cost savings for organizations. Here are some of the benefits of tail spend:

1. Cost Savings: Tail spend can be a significant source of cost savings for organizations. By definition, tail spend is the spending on low-value items that are not typically strategic. This means that there is often significant room for negotiation on prices.

2. Increased Efficiency: In addition to cost savings, another benefit of tail spend management is increased efficiency. Organizations that manage their tail spend effectively are able to streamline their processes and avoid waste.

3. Improved Visibility: One of the challenges with tail spend is that it can be difficult to track and manage. However, by working with a tail spend management solution, organizations can gain visibility into their spending and make better decisions about where to allocate their resources.

The Risks of Tail Spend

Tail spend is the term used to describe spending on low-value, often one-time purchases that are not part of an organization’s core business. Because tail spend is not strategic and is typically less transparent than other forms of spending, it can be easy for organizations to let it spiral out of control.

left unchecked, tail spend can quickly eat into an organization’s bottom line. In fact, research from Gartner estimates that tail spend can account for as much as 15% of an organization’s total procurement spend.

There are a number of risks associated with tail spend, including:

Inefficiency: Because tail spend is often managed outside of the main procurement function, it can be highly inefficient. This can lead to higher prices and longer lead times for goods and services.

Lack of Visibility: Because tail spend is often spread across multiple suppliers and purchase types, it can be difficult to get a clear picture of what is being spent and where. This lack of visibility makes it difficult to manage and control costs.

Missed Opportunities: Because tail spend is often managed separately from the rest of an organization’s spending, there may be opportunities for cost savings that are missed. For example, volume discounts or preferred pricing arrangements with strategic suppliers may not be extended to tail spend purchases.

How to Manage Tail Spend

In order to effectively manage your tail spend, there are a few key things you should keep in mind. First, it is important to have a clear understanding of what your tail spend is. This includes knowing which supplier categories make up your tail spend, as well as how much you are spending in each category.

Once you have a good understanding of your tail spend, you can begin working on ways to reduce it. One way to do this is by consolidating your suppliers. This can help you negotiate better terms and prices with your existing suppliers. Additionally, it can also help you streamline your purchasing process and reduce administrative costs.

Another way to reduce your tail spend is by using e-procurement tools and processes. These tools can help you automate your purchasing process and improve visibility into your spending. Additionally, they can help you find new suppliers that may offer better terms and prices.

Finally, it is important to continuously monitor your tail spend levels and trends. This will allow you to identify any potential areas of improvement and take action to address them. By doing this, you can ensure that your tail spend remains under control and does not spiral out of control.

Conclusion

Tail spend is a term that refers to the money spent on goods and services that are not essential to the company’s operations. This can include things like office supplies, travel expenses, and marketing materials. While tail spend may seem like a small expense, it can actually add up to a significant amount of money over time. For this reason, many companies are now working to better manage their tail spend in order to save money and improve efficiency.