Tail spend makes up 20% of the average company’s overall annual procurement spend and involves interaction with 80% of a company’s vendors. Because it comprises thousands of low-cost, high-touch purchases, tail spend management is often an inefficient, logistical headache.
As a result many companies hand it off business process outsourcing (BPO) companies. Taking the BPO route allows procurement departments to avoid allocating internal headcount while still managing tail spend, but in the long term this approach is both ineffective and costly.
Traditionally, many companies that elect to outsource their tail spend management are B2C companies. This is because B2C enterprises have a larger percentage of vendors dedicated to direct spend than B2B companies. This makes tail spend an even lower priority for B2C companies, causing them to outsource tail spend procurement or completely ignore it altogether in order to limit adding headcount. Unfortunately, BPOs are rarely fully transparent with your spend and while they create guidelines and timelines for your KPIs, they are often not met.
The cost of outsourcing, coupled with unmet key performance indicators (KPIs) don’t outweigh the benefits of headcount reduction. Yes, BPO contracts commonly include guidelines and KPIs for turnaround time, throughput, savings, percentage of accuracy and more, but they are rarely met.
The increasing availability of affordable technologies that can automate and optimize tail spend management is driving many companies to bring it back in-house.
Notably, Univision recently brought their tail spend management back in-house and are utilizing Fairmarkit’s SaaS platform to streamline and simplify their processes. Fairmarkit optimized visibility into and control of tail spend processes enabling the multimedia organization d to realized cost savings of 6% on all spend pushed through the platform. Additionally, they eliminated the offshore team without adding internal headcount.
By automating tail spend procurement, companies can streamline the decision-making process and get RFQ feedback in the required 48 hours. This automation also enables CPOs to leverage aggressive pricing with trusted vendors, saving both time and money.
