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Tail Spend Management as Significant Value Driver

Leveraging value in a competitive environment results in demand for ongoing process optimizations, continuous cost reductions, risk mitigation, and initiating strategic sourcing. The ongoing pressure to find value-creating opportunities is high for procurement managers. Resources are fully stretched, dealing with a global supply market and complex challenges in terms of regulation, suppliers, lead times, visibility and control.

In this environment, procurement departments rather use resources for high value strategic spend and long-term contracts. As a result, risks like assembly delays are neglected and saving opportunities at around 80% of the supply base – the tail spend, aren’t seized.  This peripheral tail spend might be just as important to the outcome as strategic spend. In fact, there is proof that effective tail spend management results in average savings of 7.1 percent.

So why are procurement officers of leading manufactures only focusing on head spend and not broadening the range of value creating initiatives to tail spend? Why is it so hard to approach tail management from a strategic perspective? The answer can be found in the complexity: Improving the problems in tail spend supply requires new processes, supplier relationship building, data optimizations and resources that organizations often don’t have. In reality, it’s rarely feasible to find the resources to give these orders more than a cursory examination to enable efficiencies and savings. Too frequently, the outcome is bad pricing for tail supply, significant risk, and exorbitant administrative costs.

One approach that’s gaining traction as the ‘ideal solution’ for tail spend management is to partner with an Integrated Supplier. In this case, tail optimization and tail spend management are outsourced to an independent, brand-neutral supplier. This supplier takes over responsibility for sourcing and procurement including inventory control, logistics and related business processes within a defined set of requirements.

This white paper addresses the opportunities in the often neglected tail of the procurement environment. It shows why an integrated approach to tail spend management can strengthen your procurement department and exploit valuable opportunities.

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