What Is Tail Spend In Procurement And Why Is It Important?
Are you familiar with the term “tail spend” in procurement? If not, it’s time to get up to speed! Tail spend refers to the 20% of purchases that account for only 5% of a company’s total spending. While this may seem like a small fraction, tail spend can have a significant impact on your bottom line if left unmanaged. In this blog post, we’ll explore what tail spend is and why it’s important for procurement professionals to pay attention to it. So grab a cup of coffee and let’s dive into the world of tail spend!
What is Tail Spend In Procurement?
Tail spend refers to the expenditure of a company’s last dollars in acquiring a good or service. The reason that it is so important to track tail spend is because it can provide insight into how efficiently your company is acquiring goods and services, and whether there are any areas where savings could be made.
The first step in tracking tail spend is determining what qualifies as a “good or service.” This may be more difficult than it seems at first glance, since many purchases – such as office supplies – can easily qualify as both goods and services. To get a better understanding of where your company is spending its money, you need to break down all of your acquisitions into their respective categories.
Once you have established the category breakdown, you can start to track your company’s spending on each type of acquisition over time. This information can help you identify which purchases are costing your company more money than they should, and which areas of procurement could benefit from increased efficiency. By taking the time to track tail spend, you can ensure that your company is getting the most value out of its investment in goods and services.
Why is Tail Spend In Procurement Important?
Tail Spend In Procurement (TSIP) is a financial metric that helps procurement professionals identify and track the percentage of expenditures that are at the end of the procurement process. TSIP can help identify areas where spending could be reduced or redirected for greater value, potentially leading to savings for the procureors’ organization.
Inventory is one of the most important costs for companies. It takes up warehouse space, it consumes resources to produce, and it impacts company profits. On average, companies spend about 43% of their total budget on inventory. To reduce this cost, managers need to understand how much inventory they have on hand and where it is located. This understanding can be achieved through TSIP measurements.
TSIP analysis can help procurement professionals identify which items are in high demand but not yet in stock, which means they’re likely to be bought soon. By identifying these items early in the purchasing cycle, managers can plan stock levels accordingly and avoid expensive backorders or other disruptions down the line.
Since TSIP analyses are repeatable and accurate across different departments within a company, they provide an overall view of a company’s inventory policies and practices. By improving visibility into inventory levels and trends, procurement professionals can make better strategic decisions about where to allocate their resources and achieve optimal outcomes for their organizations
How to Reduce Tail Spend In Procurement?
Tail spend happens when a company spends more money on the last part of a procurement process, often resulting in higher bids and increased costs. There are several ways to reduce tail spend in procurement, including optimizing supplier selection, working closely with buyers to identify potential waste and unnecessary costs, and using Lean procurement techniques.
To prevent tail spend, companies should first optimize supplier selection by evaluating how well the supplier meets the company’s needs. Next, buyers should work closely with suppliers to identify any potential waste or unnecessary costs. Finally, Lean procurement techniques can be used to reduce overall costs and improve efficiency.
Conclusion
Tail spend is an important part of procurement because it can help businesses save money on their products and services. In addition, tail spend can also be used to improve the customer experience by ensuring that the products and services that are purchased meet the needs of the customers. By understanding how tail spend works and why it is important, businesses can better optimize their spending in order to achieve maximum benefits.