Recently I was interacting with a Customer and they highlighted to me the process pain point they are experiencing in managing Tail Spend in their organization. We exchanged ideas how adoption of marketplace technology can help them streamline fragmented/ maverick spend and capture cost efficiencies.
Having helped my customer realize benefits by adopting spot-buy technology, I decided to write this blog and share my experience with the SAP community . Hopefully this can help you also engage and help your customers optimize tail spend using spot buy/ market place adoption technology.
Introduction to the problem of Tail Spend :-
- Modern Procurement Organizations have streamlined processes, developed advanced strategic sourcing programs and consolidated at least 80% of spend down to 20% of their suppliers.
- To unearth further savings, Procurement Organizations must expand the scope of their influence and take a hard look at 20% of spend spread thinly across the remaining 80% of suppliers a.k.a. Tail Spend – primarily low-volume and often one-off or infrequent orders that go out to a wide array of suppliers. Despite the vast number of items included in tail spend, it accounts for just the bottom 10-20% of a company’s total spend.
Tail Spend is 80-90% of Suppliers represent 10-20% of the Spend. Examples include: –
- Off contracted spend
- Fragmented spend
- Low value spends
- Low value transactions
- Non PO spend
- Commercial/ one time vendors
- Unclassified/ misclassified spend
- Maverick spend
- Not managing Tail Spend well is like leaving money on the table.
- Take a company that has a total direct spend of $3 billion—$400 million of which is tail spend with a 5-15% savings potential. By not managing its tail spend to capture those savings, the company misses out on $40 million.
Identifying the Tail Spend
- Tail Spend Management starts with identifying sources / reasons contributing to unmanaged spend.
- Digital technologies provide visibility into millions of purchases made every year, helping companies understand and manage their tail spend at a level of detail never before possible. And with the maturation of big data and advanced analytics, artificial intelligence (AI), automation, and digital platforms, companies can improve operational processes and manage tail expenditures better.
- The key to managing long-tail expenditures is to analyze the data behind these purchases. Before the advent of digital, most tail spend data was inaccessible and unwieldy. Today, big data and analytics, AI, automation, and digital platforms allow companies to develop an overview of the spend baseline by automatically collecting and assessing different types of high quality data.
- Data analysis includes but not limited to the following: –
- 80%-20% Analysis
- Spend cube analysis for expenditures across categories, business units, and suppliers.
- Supplier spend profile (<10K, 10K-100K, etc.)
- PO Value (<500, 500-2.5K, 2.5-10K etc.)
- Fragmented spend due to Business Unit
- Tail spend focus categories
- Supplier count analysis
- Non-preferred supplier spends
- Spend Analytics at Category and Supplier Level.
B2B Spot Buy Technology for Tail Spend Management
- Digitalization and adoption of newer technology increases visibility of tail spend and unlocks this hidden opportunity in procurement.
- B2B Spot Buy technology helps increase visibility, gain control and expand procurement’s spend influence on tail spend buys.
- Categories for Spot Buy
- Subscriptions/books, Training, Emergency repairs, Short-term rentals, Out-of-pocket spend
- Non-catalog office supplies, technologies and accessories.
- Non-catalog special lab supplies, electrical & test equipment.
- Repair services, facilities & maintenance, MRO & industrials etc…
- Advantages of spot buy solutions include:
- Individual buyers can search for and purchase items from a base of sellers through their existing procurement system on a common platform.
- The procurement organization increases its visibility over a large category of spend that until now has been extremely difficult to manage. Over time, as spend is channeled through procurement, repeat spot buys in low-volume categories can be identified and driven onto contract.
- Supplier setup, relationship management and master data maintenance costs are minimized. This is especially important at small and midsized businesses without the resources to set up a tactical buying desk or an internally maintained e-catalog.
- Category managers are able to focus on more value-added activities.
Tail Spend Management using Ariba Spot Buy
- The SAP® Ariba® Spot Buy Catalog solution is your custom business-to-business (B2B) marketplace that makes it easy to find and buy non-sourced goods with competitive price and delivery options.
- Built-in, customizable controls, your procurement organization.
- Can use the capability to improve buying compliance and savings across the enterprise.
- As a global B2B marketplace, SAP Ariba Spot Buy Catalog allows buyers to find high-quality, trusted suppliers.
- Ariba Spot Buy Catalogs can be configured to meet: –
- Corporate policies
- Limit user access
- Control specific commodities
- Establish price thresholds.
- The Spot Buy capability, available with SAP Ariba Buying and Invoicing and SAP Ariba Catalog, delivers a cost-saving, single source for buying indirect goods. It simplifies those one-off or emergency purchases previously considered too costly and time-consuming to source. Now your employees can find what they need from among more than 100 million items sold by suppliers within such marketplaces as Ariba Network, eBay, Mercateo, and Mercado Libre.
- With this intuitive, consumer-simple shopping experience – customized to match your purchasing policies and automate compliance – buyers can quickly find what they need while you increase organizational savings through:
- Simpler processes – The Spot Buy process for finding and buying non-sourced goods eliminates non-catalog request process costs and lengthy response times
- Lower prices – Spot Buy prices compared to non-catalog and existing contract prices reflected savings of 10% to 50% in many cases, due in large part to the buying power of the SAP customer base
- More rebates – Customers using P-Card can enjoy additional savings from rebates while reigning in control over walk-around P-Card programs
- Lower supplier management costs – Using Spot Buy for the purchase of non-sourced goods eliminates the need to manage a base of one-time, ad-hoc suppliers
Additionally, Ariba Spot Buy solution offers the following advantages: –
- Trusted supplier network
Goods found through the Spot Buy solution capability are from both qualified Ariba Network suppliers and, regionally, the eBay, Mercateo, and Mercado Libre marketplaces – all available via a single search.
- Strong compliance
A three-tier supplier vetting process helps to make sure that the suppliers from which your employees buy goods meet your compliance standards.
- Thorough risk assessment
SAP Ariba partners with Global Risk Management Solutions (GRMS) to ensure complete and thorough supplier risk assessments.
- Manageable supply base
Based on your procurement policies, you determine the suppliers to which your employees can have access with the Spot Buy capability.
- Customizable restrictions
You can turn buying restrictions on and off based on a range of parameters, including supplier, category code (i.e. UNSPSC), price thresholds, manufacturer, user, and even preferred items.
- Enriched payment data
Gain greater visibility into P-card data enriched with purchase order number, item, commodity code, item amount, taxes, and shipping information.
Managing Tail Spend efficiently can provide corporations with recurring additional savings and provide opportunity to improve P&L and working capital. Thanks to development of digital technologies, companies have opportunity to create more value. Modern B2B Marketplaces and Ariba Spot Buy is one of them are re-shaping the future of indirect buy/ tail spend by offering One Stop shopping, faster and cheaper delivery, transparent/dynamic pricing, managing spend and compliance.
I hope you will like this post and your customers can also benefit with adoption of spot buy technology like Ariba Spot Buy for Tail Spend.
Please provide feedback or ask clarifying questions on this topic using the link https://answers.sap.com/questions/ask.html
Also added is the link to Ariba Spot Buy Product Documentation.