Tail spend is a term used for low-value purchases that companies make which are normally made up of many purchases from a range of suppliers. These purchases can account for approximately 20% of the business’ total spend and a large proportion of the suppliers that a business uses.
Every penny counts
As the saying goes look after the pennies and the pounds will look after themselves. This saying rings true for procurement as it’s the small purchases that when combined become a significant spend. When you analyse this spend you will probably find that the purchases are:
- Made by a diverse range of employees
- Many choices are made out of ease or convenience with no comparisons or shopping around
- No contracts are in place
- Negotiations don’t take place and there is a risk of overpaying
- Many purchases may be made last minute on a need basis rather than planned
- Significant internal costs are incurred in processing payments from a greater number of suppliers
All of these factors can lead to higher and uncompetitive prices on purchases that go unmonitored due to the low-level cost individually to the business.
How to reduce your tail spend
Undertaking a review of your low-level purchases is an essential way of understanding what you are buying and who from. Once you know the scale and breadth of your purchases, you can then look at grouping your purchases into categories so that you can then look for suppliers that can match the needs of these groups of products.
When you have more significantly sized groups of products you could tender out the supply or do a price comparison of a range of suppliers to find the most competitive deals. Understanding what your business needs puts you in a position of power and allows you to negotiate better pricing and planning your purchasing ahead of when they are needed to get better value for money.
We appreciate that undertaking a review of your tail spend and finding suppliers that will cater for a broad range of needs is not a simple or quick task and may be especially difficult if you don’t have dedicated procurement resource. But this is where we are able to help you.
TEQ Group is cost management experts who understand procurement and have the experience to quickly analyse your spend and provide solutions that will help you reduce your costs. We will present you with a range of options to help you to make better purchases and plan your procurement more effectively.
To see find out how we can help you make cost-savings across your business contact TEQ Group today on 01423 815299 or click the button below and we’ll be happy to offer some advice.
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