LONDON--(BUSINESS WIRE)--Organizations across a diversified spectrum of industries have started adopting tail spend management (TSM) in their daily operations to effectively manage spend activities and optimize their procurement function and supply chain. Tail spend management follows the Pareto principle, also known as the 80:20 rule, where out of the total supplier base of an organization, approximately 80% of the suppliers account for only 20% of the total spend. The bottom 20% of the total spend is termed as tail spend.
In their latest analysis, procurement market intelligence firm SpendEdge examined the advantages and challenges of tail spend management (TSM). SpendEdge observes that, “Organizations tend to ignore the benefits of an effective tail spend management due to lack of time, people constraints, and growing complexity of supply chains. But the increasing pressure on organizations to reduce costs and create sustainable cost saving opportunities has led them to adopt tail spend management.”
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Tail spend management at first may look a bit complex in nature but it’s easy when practiced. SpendEdge procurement analysts note that once implanted and practiced, TSM has several benefits that can be leveraged in order to drive profitability:
- Positively impacting a company’s bottom line, resulting in instant visible savings
- Optimizing supplier base by combining all the low volume suppliers and enabling management to focus its spend on fewer suppliers
- Facilitates better supplier relationship management and helps organizations to retain suppliers who positively contribute and deliver value to the organization
SpendEdge has over 13 years of experience assisting organizations to identify their needs, monitor their tail spend and thereby reduce procurement costs by using tail spend management methodologies. SpendEdge recently completed a tail spend assessment for the pharmaceutical industry:
Tail Spend Assessment for Leading Pharmaceutical Company
SpendEdge worked with a leading global pharmaceutical and biopharmaceutical company, who focuses on developing products for several diseases. SpendEdge was tasked to commission a spend analysis engagement to optimize the client’s supplier base and improve process efficiencies.
By leveraging contract rates and conditions through the implementation of service or commodity catalogs, the tail spend assessment helped ensure that the commodity or service will be purchased from the contracted supplier only, at the contracted rate irrespective of demand origination. By identifying the risks due to the lack of long-term contracts and inappropriate sourcing practices, the spend analysis solutions provided by SpendEdge also offered suggestions such as obtaining a supplier specific report from the data management team and updating the buying team with more information regarding the supplier. This resulted in about 26% savings in few categories and about 57% reduction in the supplier base.
View the study: https://www.spendedge.com/casestudy/tail-spend-assessment
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