Customer expectations and cutthroat competition requires modern manufacturing businesses to devote significant financial and management resources securing and streamlining their direct supply chain and major capital expenditures.
This focus is understandable and follows a well-established procurement pattern. Because industrial supply conforms to the Pareto Principle, where approximately 80% of an organization’s budget is concentrated in the 20% of its SKUs and the vendors that provide them it is only natural that these expenditures and suppliers attract the bulk of the company’s attention and investment.
With much to be gained from generous contract terms, favorable delivery schedules, and vendor-managed efficiencies, leading companies to implement robust supplier strategies to nurture these key supplier relationships.
Until recently, however, this level of intensity routinely bestowed upon major suppliers and critical stock has been too costly and time-intensive to extend to tail spend. But today, tail spend, or the remaining 20% of a business’s SKUs and supply chain transactions that are typically spread across 80% of its suppliers, represents a significant opportunity for operational optimization.
Why the Tail Wags the Dog
Individual tail spend transactions, by definition, are routine and low value. But because they are so numerous, they invite waste that compounds into a real gut punch to the bottom line. Tail spend remains unregulated and decentralized in many business environments for several reasons:
- Complexity: Tail spend spans hundreds of diverse categories and departments, from screws to scouring pads, gloves to gaskets, making management difficult to address systematically. This complexity hinders efforts to consolidate suppliers, negotiate better terms, and improve overall efficiency.
- Low Visibility: Many organizations lack the technology or processes to effectively track and analyze their tail spend. It is common for a manufacturing business to list the same item under multiple SKUs, for example. This lack of visibility makes it difficult to identify opportunities for savings and improvement.
- Bigger Fish to Fry: Managing numerous small suppliers requires different tools and approaches than overseeing a few large ones. Limited resources and bandwidth push tail spend management to the back burner.
Technology, data analysis, expert third-party providers, and other factors, however, allow businesses to unlock efficient solutions for reining in tail spend and improving their overall supply chain performance.
Taming the Tail
Identifying tail spend, analyzing its patterns, and understanding its impact on the overall procurement strategy by leveraging data analytics, supplier relationships, and the latest procurement technologies, organizations can achieve greater visibility and control. SDI has incorporated a suite of services and tools to help any size company save tail spend transactional costs and streamline operations:
- Tactical Buying Desks: Modern tail spend management begins with centralized assessment teams that evaluate incoming purchase requests strategically. These specialized units categorize requests based on value, complexity, and criticality and base approvals on standardized frameworks to ensure consistent outcomes. They use their experience to consolidate similar requisitions to achieve bulk purchase discounts and employ optimal fulfillment methods.
- eProcurement Solutions: The proprietary SDI platform directs routine ordering and purchasing through pre-approved vendor catalogs to automate payments and reconciliation. It centralizes buying activities, collating data that is instrumental in forecasting, trend identification, report generation, and productivity planning.
- AI Enablement: Our artificial intelligence analytics capabilities uncover subtle patterns in spending data that might escape human analysis. AI can then not only use this historical data to predict future spending needs but also suggest ways limit it by consolidating suppliers, controlling rogue purchases, and minimizing waste.
- Supplier Evaluation: SDI secures the most favorable supplier terms and responsiveness with opportunities to reduce the vendor base while ensuring reliable supplies. This is accomplished through comprehensive supplier performance evaluations, strategic partnerships with key suppliers, and strategic tiered supplier management techniques.
Stop Chasing Your Tail
Implementing a successful tail spend management plan can transform your procurement strategy, and partnering with SDI ensures the process comes off without a hitch.
We’ll help you secure executive sponsorship and user buy-in to achieve alignment and collaboration across departments. Our experts will help you select the right technology and services to augment your employees’ skills in controlling and leveraging tail spend.
Partnering with SDI results in improved pricing and reduced transaction costs. It enhances compliance and risk management, crucial in today’s regulatory landscape. You will see stronger supplier relationships that spur innovation, improve productivity, and ease cash flow.
To explore how SDI can assist your organization in developing a robust tail spend management plan, reach out to an SDI representative today. Together, you can unlock the full potential of your procurement strategy and drive lasting value across your organization.
