Tail spend management

Procurement functions in large organizations tend to delegate the bottom 20% of their spend to internal teams or third parties so they can focus on managing high-impact or strategic sourcing projects. This slice of spend usually consists of a high volume of low-value transactions with nonstrategic suppliers. It's fragmented, complicated, and hard to manage. Bringing it under control requires a programmatic approach and deep procurement expertise.

Organizations typically struggle to manage tail spend because:

• Current solutions deliver a poor user experience and are not aligned with tail-specific business needs
• The procurement delivery model doesn't support managing tail spend and is bogged down with complex workflows, legacy technologies, and high-cost resourcing
• There's a lack of collaboration with business units to develop and manage the tail spend process
• The business case benefits for managing tail spend don't align with the savings levers recognized by finance

But companies who fail to systematically manage their tail spend face issues such as:

• Operational and financial risks from buying from suppliers who aren't properly vetted or managed
• High opportunity costs as scarce procurement resources get involved in exceptions with tail spend suppliers instead of focusing on value-generating opportunities
• Loss of savings opportunities by not using preferred suppliers, and spend not being managed by professional buyers
• Increased procurement operational costs from maintaining unnecessary suppliers, managing high volumes of low-value transactions, and resolving exceptions

So, what can these organizations do to get full control over their tail spend?

Before embarking on transforming your tail spend, you need to consider the four key rules of tail spend transformation:

• You need the right solution to address your key priorities for tail spend, whether savings, risk, automation, or cost of operations
• You need it to be operationally robust and cost-effective
• You need it to be digitally enabled
• And you need to roll it out with a program for adoption and rigorous change management

Our tail spend experts deliver tailored solutions, spanning redesigning your digital footprint, optimizing buying channels on an advisory basis, and delivering AI-led managed services to control your tail spend more effectively.

Our 1,500-plus sourcing experts manage over $85 billion of spend globally and combine technology, domain expertise, and process knowledge to save money, drive efficiencies, and improve the user experience.

Our key solutions include:

• Our tail spend maturity assessment and transformation framework analyzes unmanaged spend to unlock value. We can then blueprint a comprehensive tail spend program with a detailed execution model, buy channel strategies, advanced technologies, and a change management plan
• For businesses with high tail spend volume and dissatisfied users, we can implement a user-focused buy desk team and automate, streamline, and simplify the purchasing process. We can also digitize operational execution with our tail spend optimizer that uses artificial intelligence (including generative AI) and machine learning to identify and execute tail spend opportunities
• Our sourcing and tail spend center of excellence help businesses implement tactical sourcing to reduce unmanaged spend. We identify quick sources of value from tail spend and develop a wave plan to execute a savings program that delivers significant savings at an accelerated rate
• For businesses with a high number of tail suppliers and transactions, our control tower and buy channel transformation framework assess and then optimize tail spend suppliers and transactions using automation, touchless processing, and a better user experience

When tail spend is managed well, it can lower processing costs, reduce risk, and release spend savings to the bottom line.

Genpact's tail spend solutions deliver:

• Increased spend under management
• 4%–8% annual savings on addressable tail spend
• 5x–6x return on investment
• A rationalized supplier base
• Reduced risk using preferred suppliers and buying channels
• Lower processing costs through touchless processing and automation

A global consumer goods brand was struggling with an extremely high unmanaged indirect spend of approximately 30%. Its spot buy program failed to generate material value, and it had a long tail of suppliers.

Genpact analyzed this spend and developed a business case for systematic management. We then designed a cost-effective global procurement operating model, leveraging our tail spend optimizer and a range of technologies to help digitize and automate processes.

Along the way, we ensured that each carefully planned phase embedded adoption efforts, supplier communication, and analytics to ensure program success.

By the end of the project, we had automated 40% of purchase transactions, delivered annual savings of 4%–8%, and rationalized the supplier base.