Tail management tail spend management

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Tail Spend Management Best practice procurement for optimising long tail supply chains

TAILMANAGEMENT

www.tailmanagement.co.uk

What is tail spend?

Tail spend is a concept based on the Pareto principle – often referred to as the 80/20 rule. The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.

This rule can be applied to many business practices such as:

• 80% of your profits come from 20% of your customers• 80% of your sales come from 20% of your products• 80% of your sales are made by 20% of your sales staff

It also has a specific and demonstrable effect on many business supply chains where by:

80% of your suppliers will account for 20% of your spend

This 20% of spend is known as “Tail Spend”. Within large scale organisations this small portion of spend is spread across a large range of product and services categories that often cover much of the organisations indirect (GNFR ) procurement, as well as occasionally covering direct spend.

Why is tail spend important?

In the current global economy it is becoming increasingly important for companies to seek out competitive advantage and cost reduction across all areas of their operations. With extensive networks of suppliers across a myriad range of products and services, many large organisations are realising their supply chains have become over complicated, with large volumes of transactions being made across multiple product and service categories with a wide range of suppliers.

A majority of organisations will have already identified their largest suppliers and developed established relationships, negotiating secure long term contracts and ensuring compliance. These supply chains will have been optimised and best practice procurement cost reduction principles will have been applied.

With this in mind Tail Spend, which is often seen as a lower priority area, can become a major differential between success and failure.

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AuthorSteven Paul020 8774 [email protected]

OfficeTeam LtdUnit 4, 500 Purley Way,Croydon, Surrey CR0 4NZInternet: www.officeteam.co.ukEmail: [email protected]: 020 8774 3415

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Understanding why tail spend is often left unaddressed

With businesses looking to optimise supply chain and purchasing efficiency it is clear that tail spend is the major concern. Organisations often find it difficultto define and execute a unified approach for their tail spend (particularly in the Goods Not For Resale supply chain) due to:

Poor data visibility

Complex supply chains, large numbers of suppliers and high numbers of stakeholders make data visibility a major issue in analysing and assessing tailspend, particularly in GNFR (Goods Not For Resale) products and services.

Lack of effective controls

Large numbers of suppliers, high transaction numbers and low transaction values mean that businesses often find it difficult to apply central control over tail spend purchases. There is often minimal accountability of suppliers, with product usage and/or consumption rarely facing the same scrutiny that more significant transactions are subject to.

Non compliance

Low value transactions and small volume suppliers often work outside of traditional supply chain and procurement supply chains. Often this is due to a specific product or service being sourced directly by internal stakeholders or as an emergency item, rather than through the businesses general framework and compliance procedures.

Low market leverage

Large numbers of suppliers and low transaction values effectively rule out economies of scale and bulk buying principles.

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“In the typical company, indirect procurement accounts for 60% to 80% of all purchasing transactions.”

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Low potential cost savings

Large numbers of suppliers and low transaction values make it difficult for large companies to effectively reduce spend as they are unable to apply bulk buying and cost reduction principles effectively and in the same manner they would with larger providers. Smaller suppliers require alternative methods of negotiation and are often restricted on margin and price due to the nature of their businesses.

Lack of product/service expertise

The sourcing of a wide array of products and services requires a wide array of extensive specialist product knowledge to procure effectively. Specialist product knowledge of indirect goods and ad hoc purchases is soften unavailable to many large organisations due to lack of available human resource capital, with internal staff focused on core purchases and the key suppliers.

Tail ManagementTail Management refers to the strategy of consolidating and optimising the long tail of your supplier base, to achieve cost and process benefitsacross your business. There are 4 key areas which can be addressed:

Supplier base optimisation & consolidation

The principal method of change is to apply the principles of compliance and consolidation to your company’s tail spend. This should begin with a full review of all suppliers to gain a proper understanding of the existing supply chain. Tail suppliers (particularly non compliant suppliers) should be removed and the spend transferred to selected preferred suppliers that are fully compliant.

A strategic view towards souring through multiple category partners is recommended with consolidation being the key aim for maximisingbeneficial impact. Consolidation can drastically reduce supplier numbers (up to 80% according to the Pareto efficiency) across this small portion of spend to achieve immediate cost and process benefits across your business.

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Process & Technology

Supplier consolidation and reduction makes it easier for processes to be aligned and streamlined across all aspects of the business, from supply chain tofinance. Compliance and demand management can be improved across the supply chain by addressing issues in the supply chain and P2P process, including ensuring early intervention for invalid requests in the requisitioning process and early visibility of new demands. This will help to prevent new vendors being created outside of existing contracts and allow preferred suppliers to manage demand more effectively.

Synchronisation of IT systems and software alongside reduced supplier numbers will provide greater visibility of stock inventory across the supply chain. The logistics process is simplified and this can often result in lead time reductions, reduced inventory need and deliver additional green supply chainbenefits.

Payables

Once compliance is applied to the tail spend of the supply chain, sub optimal payment terms can be removed. Consolidation across the supplier base cangenerate transparency and accounting efficiency due to reduced invoice numbers and clearer visibility of spend.

Outsourcing

Outsourcing allows the whole tail spend and tail supply chain management to be sub contracted to a single (or significantly lower number of) supplier(s),making it very easy to impose compliance, increase visibility of spend, increase control and leverage economies of scale across multiple product categories.

Small suppliers can be sub-contracted to the primary outsource partners ensuring any valuable non compliant suppliers are still contained and effectively managed within the supply chain. The logistics of the tail supply chain can be self contained and managed by the outsource partner(s).

“80% of your indirect suppliers will account for 20% of your business expenditure”

The Pareto principle applied to supply chain management

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The benefits of optimising tail spend

By adhering to best practice procurement and optimising your tail spend your business can realise the following benefits:

Reduced procurement costs

Through streamlining your supplier base, you can greatly reduce the time and internal resources that are currently spent managing a large number of small purchasing contracts, causing significant cost reductions on your procurement.

Leveraged spend for cost reductions

Consolidation provides the ability to leverage spend across multiple product and service categories to reduce costs by bulk buying and applying the principles of economies of scale to the tail spend.

Reduced supplier numbers

Consolidation across suppliers, products and services results in greatly reduced supplier numbers. The streamlined, consolidated supply chain results inreduced internal workloads for accounting, finance, and procurement.

Logistics and technology alignment

Synchronisation of IT systems and software across reduced supplier numbers provides improved ordering and logistics. This will enable you to benefit from reduced lead times, greater visibility of inventory and more effective stock management.

Increased visibility of expenditure

Lower numbers of suppliers, transactions and invoices, alongside compliance, will greatly improve visibility of spend. Product selection and consumption can be more effectively monitored to ensure that the most efficient solutions are utilised.

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Increased purchasing control

Increased compliance, higher visibility of spend and reduced supplier numbers make it much easier to control expenditure across the tail spend. Rogue spend becomes clear and is easy to eliminate. Sub optimal payment terms can be eliminated.

Reduced risk

By eliminating non compliant suppliers and consolidating with larger suppliers there is an increased level of compliance and reduced risk across the supply chain.

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About OfficeTeam Tail Management

Our Tail Management service is part of the OfficeTeam group. OfficeTeam is a national provider of GNFR products and services. Our specialist tail management capabilities are designed to allow your business to consolidate the procurement of multiple product categories to enable you to optimise your non-core spend and indirect supply chain processes.

By working as an extension of your finance, procurement, supply chain and logistics teams we enable you to increase efficiency, reduce workloads and reduce your total cost of procurement.

We have established relationships with many of the UK’s leading brands including Waitrose, Gala Coral, YHA ,Ocado, Timberland, GSK, Aston Martin, John Lewis, Majestic Wines, Fred Perry, 99P Stores, Phase 8, Amazon.co.uk and FCUK to name a few,

Our retail model enables major UK retailers to realise the following benefits:

Reduced total cost of procurementBenefit from reduced costs across multiple products and services across your Indirect/GNFR supply chain. Our single source solution and tail management enables you to consolidate providing the ability to leverage spend by bulk buying across multiple product and services categories. Our accountmanagement team are experts at providing further cost saving initiatives through product alternatives and opportunities for reduced consumption in order to achieve further savings.

Improved visibility and control of expenditureConsolidated invoicing across multiple products and categories, alongside specialist controls including bespoke product catalogues and spend restrictions. Our management reportingand account management reviews provide total visibility and increased centralised control of your business expenditure.

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Specialist knowledgeOfficeTeam’s in house specialists are experts in each GNRF product and services category we offer. Our specialist advice and product knowledge provides your retail GNFR procurement teams and internal stakeholders with the information and support they require to make the best decision for your business. Information is made available on an on-demand basis increasing flexibility and reducing internal headcount across your organisation.

Logistical expertiseUtilise OfficeTeam’s unique logistics platform across the whole of your tail supply chain. Benefit from our ability to source, stock and distribute products quickly and efficiently on a national basis. Intelligent stock management allows for increased fill rates and reduced inventory need with real time information on scheduling and product availability through all stages of the supply chain.

Tail management Outsource the management of your long tail spend for further consolidation across all areas of the indirect procurement. We take the hassle out of your GNFR supply chain by managing all the procurement and logistics for you. This will reduce procurement, logistics and accounting workloads across all aspects of your business.

Refined best of breed solutionsBenefit from our extensive experience retail sector experience including optimised processes and procedures.

Contact us:

At OfficeTeam our solutions are always bespoke, tailored to your business and your specific needs. To find out how we can help your retail business contact us on:

0844 822 1700www.tailmanagement.co.uk

Copyright: Steven Paul, OfficeTeam Ltd.

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To find out how we can help your business call us on:

0844 822 1700Or visit us on the web at:


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Tail management tail spend management