by Jan Malasek | Aug 19, 2020 | Strategic Sourcing
Ever since Peter Drucker made his famous statement about procurement being the last frontier of finding corporate efficiency in 1982, companies of all sizes have embarked on implementing procurement enhancements as a way to control and reduce cost. In nearly 50 years of procurement focus, one portion of vendor cost has gotten very little attention – Tail Spend, broadly speaking 20% of the overall spend that comes from 80% of vendors. While Tail Spend is something that always will be present in the cost structure of any organization, below are some examples where Tail Spend represents inefficiency: Using local vendors for services when there are existing agreements with national vendors, e.g. housekeeping servicesUsing software services specifically for individual business functions when there are enterprise level services available, e.g. business intelligenceUsing services that are not required or are already provided by existing vendors, e.g. certifications, marketing research, project managementRogue spend, not approved under any budget Because of the relatively small amount of spend associated with any individual vendor, Tail Spend can escape attention from finance and procurement functions for a long time. Paul Dhaliwal, a member of our OnDemand Professional Network has developed a systematic approach to identify suspect vendors within tail spend that may fit the criteria outlined above. This approach enables rapid identification of these vendors and take appropriate action in collaboration with individual spend owners. Typical disposition off these vendors includes immediate shut-off of their services, transition of their services to existing vendors, or consolidation with a national vendor. Tail Spend initiatives can yield cost reduction totaling 2% – 5% of overall total indirect cost and can...
