If you think managing indirect- and tail-spend is problematic, you’re not alone. See what procurement professionals are thinking.
Big surprises come in small packages. When it comes to procurement, those surprises aren’t necessarily welcome ones. I’m talking about the big surprises procurement managers get if and when they analyze their tail-spend; purchases that are made outside of procurement; ones that are considered either too small or too infrequent to be handled by the procurement department. Although the individual purchases may be small, in the aggregate, they add up to quite a lot…and that can impact a company’s bottom line.
We’ve posted a number of blogs that have dealt with the unfortunate, and all too often, lack of control when it comes to indirect spend; how it’s the least managed, if managed at all, of procurement duties. And the smaller the purchase, the greater the lack of control. Accenture, in an article, “Taming the Tail-spend Beast,” found that, when looking at their customers’ indirect spend, approximately 10 percent fall into that tail-spend classification. And they estimate that there is a substantial amount of waste within the category, around 15 percent. Considering that, Accenture estimates that a billion-dollar company will waste about $15 million annually.
This is a problem that transcends geography, as evidenced by this recently released UK-based survey, “The dangers of tackling indirect cost and tail spend,” jointly sponsored by Supply Management magazine and Expense Reduction Analysts, a global network of specialist procurement advisors. The results reveal that managing indirect procurement and tail-spend is a huge challenge. The largest percentage (71%) say that maverick spend (uncontrolled spending outside of procurement that are not in compliance with procurement practices and procedures) by non-procurement professionals is the biggest challenge, when it comes to indirect procurement, and especially, tail spend management.
Other challenges listed are:
- Lack of ownership by stakeholders (49%)
- Misclassified items and poor reporting (46%)
- Lack of knowledge of where indirect spend lies and the amount (45%)
- And the proverbial and troubling “if it ain’t broke, don’t fix it,” “hide your head in the sand” attitude regarding senior management (43%)
All of the above contribute to the overall issue of managing indirect spend, but how to reduce maverick spend is the primary concern and respondents offered a variety of potential solutions. The top three are:
- Put procurement in control for the purchase of even those low-value, infrequent goods and services (31%)
- Procurement training and process establishment for non-procurement professionals (34%)
- Consolidate the number of suppliers (16%)
So what are the possible solutions for managing indirect spend? For one, procurement professionals feel they’re often not given enough influence when it comes to controlling indirect spend, so a higher place in the company hierarchy could make a big difference. If non-procurement professionals are to maintain the authority to purchase specific indirect spend items, then procurement practices, policies, and processes will need to be established and followed. There’s a need for better oversight and transparency. You can’t control spending you can’t see. Reporting metrics of departmental spend will also play a significant role in solving these problems.
See how you can improve your working capital by getting tighter control of your indirect spend.