tail spend management how to squeeze savings
TRANSCRIPT
Tail-Spend Management
How to Squeeze Savings from the Most Fragmented 20% of Spend
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What is Tail-Spend?
• Why is it Often Ignored?
What is the Real Cost & What are the Potential Savings?
How Can Significant Savings be Squeezed from Tail-Spend?
How Does PROACTIS Help?
• Tools for Procurement
• Managed Service & Outsource Partners
• Tools for Accounts Payable
A Practical Step-by-Step Approach
• Gain Insight into Your Spend
• Establish Purchase Controls
• Increase Your Capacity for Spend Under Management
• Address Categories Using the Best Method for Each
• Automate Invoice Processing & Other Accounts Payable Activities
• Automate Invoice Capture
A Representative Scenario
Summary
Contents What is Tail-Spend?The term ‘tail-spend’ comes from the well-known Paretoprinciple – that 80% of spend will come from 20% of suppliers;and that, conversely, 80% of suppliers will account for 20% of spend; typically across a wide range of categories.
The percentage and nature of tail-spend varies from organisation to organisation, but it nearly always displays a numberof similar characteristics:
• A large number of categories (that rarely include direct materials)
• A disproportionate level of spend from the farthest-flung locations within the organisation
• Suppliers that no one in Procurement has heard of or worked with
• Non-compliance and maverick spend are rampant
• Many categories will be low value, but not all; many will have high transaction volumes
Why is it Often Ignored?
Tail-spend is an area that is often ignored – or at least not closely managed. Why? Because there are so manysuppliers and the idea of tackling them can seem overwhelming.
Procurement professionals spend the majority of their time managing the big core areas of spend where the numbersare larger and savings are more quickly won.
Even organisations that have gained a good level of control over most of their cost structure meet a number of challengeswhen they look at the tail-end of spend:
• Poor data visibility
• Lack of effective controls
• Little market coverage
• Seemingly low potential savings
• Lack of interest from other stakeholders
• Lack of category expertise in the very high number of categories remaining
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This paper is intended tosupplement other PROACTISmaterials with a discussionthat focuses specifically on
issues aroundmanaging tail-spend
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What is the Real Cost & What arethe Potential Savings?
Allowing your organisation to spend that 20% (tail-end) of total expenditure with little or no sourcing support, and with little focus on the large number of invoices involved,clearly results in paying higher prices.
It also means incurring higher risk and burdening Accounts Payable and other areas with a large invoice-handlingworkload.
But by addressing the tail-end of spend together, Procurement and Finance can deliver significant savings in terms ofboth reduced unit prices and process improvements – both of which free up money and valuable resources.
10%5%
in net profit
For a typicalorganisation,
savings
increase
on tail-spendcan be theequivalent
of a
How Can Significant Savings beSqueezed from Tail-Spend?
Significant savings can be realised from greater focus on tail-spend by applying a professional, methodical approach;and by using the right combination of eProcurement technology combined with appropriate outsourced and/ormanaged services.
Like most Spend Control efforts, the place to start is with an analysis of current spend to identify a quick-win strategy
of consolidation, aggregation, and streamlining. In this way, you should be able to quickly achieve sustainable results.
The basic idea is to filter and reclassify your tail-spend so that appropriate strategies can be employed for each
category. For instance, you may segregate and address various subsets of tail-spend something like this:
Using this approach, you will see:
• Noticeable cost savings
• Better visibility of where you spend money (that visibility will, in itself, enable even better management)
• A reduction in maverick and off-contract buying
• A sizable cut in the number of invoices that need processing
• A reduction in the time needed to manage suppliers
And by offering more attractive packages of spend to suppliers, you will also gain:
• Improved payment terms
• Access to better systems and tools
• A genuine desire on the part of the suppliers to help you succeed
Segment Strategy
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How Does PROACTIS Help?With a combination of technology, services and partners,PROACTIS Spend Control and eProcurement solutions aredesigned to help organisations improve control and reduce thecost of all spend with all suppliers.
In addition to the tools to streamline management of your core, high-value categories, PROACTIS provides everything
you need to tackle tail-spend in a sustainable manner. The focus is on providing both Procurement and Finance with
the tools to:
• Increase the range of spend ‘under management’
• Reduce the volume of suppliers, orders and invoices where possible
• Much more efficiently manage the remaining volume of suppliers, orders and invoices associated with tail-spend
PROACTIS capabilities that make management of tail-spend both practical and effective include:
Tools for Procurement• Rapid spend review service that quickly provides you with insight into your tail-spend,
including a clear picture of the biggest opportunities for savings.
• Streamlined sourcing tools to perform accelerated sourcing events suitable for smaller spot-buys, including rapid RFx and Quick-Quote capabilities.
• Streamlined supplier management tools using an online supplier portal suitable for handling a high number of suppliers, such as supplier self-registration, certification workflows, self-servicecatalogue management, etc.
• P2P tools such as supplier catalogue and punch-out capabilities that make it easy for employees to find and buy exactly what they need from the right supplier – even across hundreds of thousands of tail-end items.
• Spend visibility gained by capturing all purchase activity through PROACTIS Purchase-to-Pay. Over time, this provides the basis for even closer analysis to continually identify incremental andemerging savings opportunities.
Managed Service & Outsource Partners• Specialised category supply partners that specialise in ensuring the lowest prices and best value for
various categories such as stationery, paper, catering and janitorial items, work wear, workplace environment products, lighting, print services, in-house print management, business machines, office furniture, promotional items and more.
• Managed service and outsourced sourcing partners that specialise in handling specific categories your team may not have experience with on an as-needed basis.
Tools for Accounts Payable• Electronic invoice capabilities to reduce the invoice capture and processing burden associated with
tail-spend – a wide range of tools suitable for both low and high volume suppliers, suppliers with both modest and sophisticated technology capabilities, suppliers with whom you use PCards, energy suppliers, and more.
• Invoice capture services to reduce the workload and improve accuracy for the remaining paper invoices.
• Self-service supplier account enquiry using the online supplier portal to dramatically reduce the workload associated with answering supplier calls and emails requesting invoice and payment status.
Together, these PROACTIS technologies, services and partners provide the framework you need to successfully manage
tail-spend. The next section explains how…
A Practical Step-by-Step ApproachPROACTIS has hundreds of man-years’ experience helping a broad spectrum of organisations reduce and better control their total spend.
From this experience, we have developed a proven approach based on an understanding that:
• The opportunities for savings are always there – they just need to be clearly identified and prioritised
• Although there are often opportunities for really large savings in a few ‘big hit’ areas, much of the opportunity comes from incrementally addressing ‘pockets of opportunity’ by methodically addressing them one at a time
• The approach to addressing each opportunity will vary; with each requiring a different combination of technology capabilities and business process improvements
• Although some sequence of activities is necessary, many initiatives can usually be worked in parallel with each other to realise results more quickly
With that understanding in mind, the essence of our approach to working with you, for the specific purpose of squeezingsavings from your tail-spend, is as follows:
Gain Insight into Your SpendHelp identify and prioritise the opportunities for savings with an early emphasis on ‘quick-hits’ that have the greatestreturn in the least time.
i. PROACTIS Rapid Spend Review Service
Establish Purchase ControlsEstablish a Purchase-to-Pay (P2P) environment that makes it easy for employees to buy from the preferred suppliers,contracts, and catalogues put in place by Procurement, while also ensuring compliance with authorisation policiesand other purchase controls. Make sure this environment is intuitive, fast, and universal to ensure broad adoption.Note: this step is key to gaining the full benefits of the steps that follow.
i. PROACTIS Purchase-to-Pay
ii. Supplier Catalogues and Punch-Outs
Increase Your Capacity for Spend Under ManagementHelp Procurement free up time to apply professional procurement processes ‘further down the tail’ of spend bystreamlining ongoing sourcing, supplier management, contract management, and PO generation processes. Improve spend data quality for ongoing analysis by capturing purchase activity at the source.
i. PROACTIS Sourcing
ii. PROACTIS Supplier Management
iii. PROACTIS Contract Management
iv. PROACTIS Supplier Portal
v. PROACTIS Purchase-to-Pay
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Address Categories Using the Best Method for EachUtilise insights from the Rapid Spend Review to classify tail-spend as discussed earlier. Incrementally applyappropriate methods across the various segments.
i. PROACTIS Quick-Quote for infrequent, higher value purchases (e.g. office furniture)
ii. PCards for frequent, lower value categories typically purchased ‘in the field’ (e.g. petrol)
iii. PROACTIS specialised supply partners for categories with many lower-value items (e.g. office and maintenance supplies)
iv. PROACTIS specialised managed service or outsourced sourcing partners for infrequent, higher-valuecategories where category expertise is not available in-house (e.g. print services; energy spend management)
Automate Invoice Processing & Other Accounts Payable ActivitiesAutomate invoice matching, troubleshooting, and payment authorisation. Enable supplier self-service account statusenquiry.
i. PROACTIS Purchase-to-Pay
ii. PROACTIS Supplier Portal
Automate Invoice CaptureUtilise insights from the Rapid Spend Review to categorise suppliers in terms of invoice volume, invoice complexity,and technology capability. Dramatically reduce the percentage of invoices received in paper form and requiringmanual entry by incrementally applying appropriate methods across the various segments.
i. PROACTIS electronic invoice capture methods: XML, email, PO Flip, online entry, intelligent scanning, etc.
ii. PROACTIS specialised invoice processing: PCard statement processing, utility bill processing, Self-Billing, etc.
iii. PROACTIS specialised service partners: invoice scanning and intelligent document and data capture
Yes – it’s a lot to do and it doesn’t all happen overnight. But you might be surprised how quickly you can see results.Many organisations we work with see net ROI in less than a year – often within months. And our goal is always tohelp our customers continue to see year-on-year savings on an ongoing basis.
20% Core
80% Tail-End
Source-to-contract automation
Specialised category supply partners
Managed service/outsource partners
High Number of Suppliers
20% Core
80% Tail-End
High Volume of Invoices
Spend Under Management Electronic Invoicing
XML PCard Email Self Billing PO FlipIntelligent
Invoice Capture
Spend Value
80% Core Categories
M
20% Tail-End
PROACTIS Solutions Include PROACTIS Techniques Include
Managing Tail-Spend with PROACTIS
Over 350 customers across 70 countries
Streamlining thepurchase-to-pay-process
Obtaining best value andcontrol in procurement
PROACTIS: Spend Control &eProcurement
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A Representative Scenario If you have not yet addressed the savings opportunities withintail-end spend because the number of suppliers and categoriesseem overwhelming as compared to the opportunity, we wouldlike to talk with you.
We are confident that we can show you how the combination of PROACTIS technology solutions, services and
partners – utilised in a methodical, sustained process – can, in fact, enable you to squeeze significant savings from
that last 20% of spend.
SummaryOne of the most common categories within tail-spend is stationery and other office supplies.
Problem • The category includes tens of thousands of individual items; mostly low value, but often large end-supplier mark-ups and purchased very frequently.
• Items are typically purchased in every office location, by many different employees, from many different suppliers.
• Total value is relatively high.
Typical Approaches
• Basically ignore it – allow each location and employee to buy from whoever they choose; no consolidation; no discounts.
• Contract with a large national supplier with nominal discounts off retail prices; many purchases still made off-contract.
PROACTIS Solution
(one example)
• Utilise PROACTIS’ partner service to act as the category expert and supplier.
o Example: The PROACTIS partner service specialises in continuously offering the very lowest prices on quality office supplies by negotiating direct contracts with original manufacturers and managing the logistics of direct delivery to customers. This eliminates one or more levels of the supply chain with all of their associated costs. Savings are largely passed on to the buyer. The partner service can also act as an outsourced sourcing agent or managed service provider for related categories via the PROACTIS Purchase-to-Pay (P2P) platform.
• Consolidate organisation-wide purchases to the selected supplier.
• Utilise PROACTIS P2P Punch-Out capabilities to enable employees to quickly and easily find what they need and purchase it from that supplier with full compliance to authorisation policies.
• Utilise PROACTIS’ partner as outsourced category experts to source new items when the need arises.
• Utilise PROACTIS electronic invoicing capabilities to capture invoices (consolidated, if desired).
• Utilise PROACTIS P2P automated invoice matching to virtually eliminate manual invoice processing.
Result • Significant savings on purchases through lower prices based on specialised supply approach and consolidated buying power.
• Procurement time freed up to concentrate on other categories.
• Significant savings in Accounts Payable manpower requirements.
