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Tail-Spend Management:
Extracting savings from the most
fragmented 20% of spend
Simon Dadswell, Marketing Director
Simon Lipscomb, Sales Director EMEA
This session:
About PROACTIS
Tail-Spend Overview
What is Tail-Spend?
The opportunity
Discussion
Practical steps
Case studies
Summary
Agenda
About PROACTIS
100% focused on Spend Control & eProcurement:
Procurement, Purchasing & Payables
500 customers, 90 countries
Across all sectors
About PROACTIS
Who we are:
Lower operating costs, Improved efficiency, Reduced risk
How we help:
About PROACTIS
Cash Savings Efficiency
Savings
Transparency &
Control Compliance &
Risk
External Spend
(Goods &
Services)
People
(Payroll)
Costs (£)
What we do:
About PROACTIS
Spend Control and eProcurement
PROACTIS
Purchase-to-Pay (Value Capture)
Source-to-Contract (Value Creation)
Supplier Management
Sourcing
Contract Management
Content Management
Purchasing
Invoice Receipt
Invoice Processing
Employee Expenses
Supplier Interaction and Commerce
Tail-Spend Overview
What is Tail-Spend?
A large number of categories
Spend spread across business locations
Suppliers not known
Non-compliance
Low value, high transaction volumes
Overview
Issues High transaction costs?
Fire fighting?
Cavalier attitude to risk?
Wasted opportunity?
Why is it often ignored?
Poor data visibility
Lack of effective controls
Little market coverage
Seemingly low potential savings
Lack of interest from other stakeholders
Lack of category expertise
…..It’s not just the ‘trivial’ purchases!
Overview
The main causes:
Lack of compliance and, therefore, spend visibility
Emergency purchases
Spend not covered by current contracts
The real cost:
Paying higher prices
Large invoice-handling workload
Exposure to risk
Overview
For most, there is some way to go:
What we see
“Only 4% claimed to achieve
excellence in strategic sourcing”
“Procurement influence less than
60% of spend across all categories”
“More than a quarter struggle to get beyond
the basic level for risk management”
“Only 45% have achieved an established
level of maturity for their use of technology”
Transactions < £100:
3.6% total invoice value
66.7% of all invoices received
Thus 2/3rd’s of AP effort
Significant cost but no value
Case study example
Top 10 suppliers:
50% of Invoices < £99
Lyreco UK Ltd = 23%.
Priority for electronic trading
i.e. ordering and invoicing
Saving circa £112K to £350K pa
Case study example
Things to consider:
Spend visibility
Filtering & reclassification
Sourcing
Online eRFx & eAuction tools
Spot buys
Repeat spot buys onto contract
Accelerated sourcing techniques
Purchase-to-Pay
P-cards, online catalogues, punch-outs
Accounts Payable
Overview
Analysing Tail-Spend:
Overview
Type II:
Low Value/ High
Risk or Sole
Sources
Type I:
High Value/ High
Risk or Single
Sources
Type III:
High Value/ Low
Risk and/ or
Multiple Sources
Type IV:
Low Value/ Low
Risk and/ or
Convenience
Sources
Ris
k
Value
Categories:
• Stationery
• Copiers
• Fleet
• Couriers
• Contract Labour
• Professional Services
• Marketing Services
• Equipment costs
Analysing Tail-Spend:
Overview
Type II:
Low Value/ High
Risk or Sole
Sources
Type I:
High Value/ High
Risk or Single
Sources
Type III:
High Value/ Low
Risk and/ or
Multiple Sources
Type IV:
Low Value/ Low
Risk and/ or
Convenience
Sources
Ris
k
Value
Categories:
• Limited supply markets
• Emotive issues
• Services
• Travel
• Legal Audit etc.
Broader Classification
Overview
Short Tail Spend that can be identified
Classified with contracts
e.g. office supplies
Broader Classification
Overview
Long Tail None standard requirements
Requires sourcing efforts
e.g. marketing services
Broader Classification
Overview
Steady Tail None contractable spend
High price volatility
Use appropriate techniques:
Overview
Segment Techniques
Misclassified items Reclassify & incorporate into existing contracts
Low price, high frequency Sourcing, Pcards & use of managed services
One time, high value Rapid RFP & eAuction methods
Fragmented spend Consolidate & source centrally
Maverick spend Introduce P2P checkpoints to ensure compliance
Low price, low volume Remaining true tail-spend
If you do, you will see:
Noticeable cost savings
Better visibility of where you spend money
A reduction in maverick buying
A sizeable cut of invoices
A reduction in time needed to manage suppliers
Also…
Better supplier relationships
Better payment terms
Overview
Discussion
Questions – what are your:
Top Procurement challenges?
Key opportunities for the next 12 months?
Thoughts on tail-spend?
Discussion
Current ‘market’ intelligence:
Discussion
Metric Bottom
Performers
Top
Performers
What is the Procurement ROI? 100-300% 700%
What proportion of spend is “under management”? 0-30% 70%+
What savings from Sourcing activities? 5% 17%+
What level of contract compliance? 35% 76%
Overall invoice cycle time? 32.9 days 2.9 days
Practical Steps
Our approach:
1. Increase your capacity for Spend Under Management
PROACTIS Supplier Network
2. Establish purchase controls
PROACTIS Purchase-to-Pay
Supplier catalogues & Punch-Outs
3. Automate invoice processing
PROACTIS Invoicing
4. Incremental refinement & expansion
Practical Steps
1. Increase your capacity for Spend Under Mngt.
PROACTIS Supplier Network
On-boarding
Data Maintenance
Catalogues
Orders
Invoices
Queries
Suppliers Buyers
Practical Steps
PROACTIS Supplier Network:
Practical Steps
Supplier Directory & Intelligence
Commodity Categories/ Classifications
• Rationalisation
• Registration
• Accreditation
• Appraisal
• Self Service
Supplier Management
• RFQ
• RFI
• RFP
• eAuction
• Multi Stage
• Advertisement
eSourcing
RFx
• Repository
• Classification
• Collation
• Review
• Monitor
• Tasks/ Events
Contract Management
Vision:
Practical Steps
Source-to-Contract (Value Creation)
Purchase-to-Pay (Value Capture)
Break it down:
Practical Steps
Source-to-Contract (Value Creation)
Purchase-to-Pay (Value Capture)
PROACTIS Sourcing
Supplier Management
Contract Management
Catalogue Management
Purchasing
Invoice Receipt
Invoice Matching
Employee Expenses
Practical Steps
Invitation
for
relationship
Approved
Status
RFx competitive
sourcing
Contracted
arrangements
POs Non-contract
spend Initial registration
Continual review
Supplier qualification & approval:
Before a transaction
Before an opportunity to compete for business
More than a quick finance check
2. Establish purchase controls
PROACTIS Purchase-to-Pay
Supplier Catalogues & Punch-Outs
On-boarding
Data Maintenance
Catalogues
Orders
Invoices
Queries
Suppliers Buyers
Practical Steps
Identify need Multi-source
search
Automatic account
coding
Routing &
approvals
Ordered
Practical Steps
Requisitions & Purchase
Order Processing
Receive or reject
goods & services
Invoice
processing
Release
to
payment
Goods & Services Receipt
& Invoice Processing
Controlled
route-to-market
Automatic
budget checking
Identify need Multi-source
search
Controlled
route-to-market
Automatic
budget checking
Automatic account
coding
Routing &
approvals
Ordered
Receive or reject
goods & services
Invoice
processing
Release
to
payment
Multi-Source
• Catalogues
• Contracts
• Punch Out
• Data Entry
• Supplier Network
Practical Steps
Identify need Multi-source
search
Automatic account
coding
Routing &
approvals
Ordered
Receive or reject
goods & services
Invoice
processing
Release
to
payment
Multi-Source Search
• Catalogues
• Contracts
• Punch Out
• Data Entry
• Supplier Network
Practical Steps
Route-to-Market
• PO
• Request to buyer
• RFx Initiative
• Quick quote
Controlled
route-to-market
Automatic
budget checking
Identify need Multi-source
search
Automatic account
coding
Routing &
approvals
Ordered
Receive or reject
goods & services
Invoice
processing
Release
to
payment
Multi-Source Search
• Catalogues
• Contracts
• Punch Out
• Data Entry
• Supplier Network
Practical Steps
Order
• XML
• Portal
• Fax
Controlled
route-to-market
Automatic
budget checking
On-boarding
Data Maintenance
Catalogues
Orders
Invoices
Queries
Suppliers Buyers
3. Automate Invoice processing:
Practical Steps
Practical Steps
Capture
invoice data,
review &
validate
Receive mail,
open, sort,
batch, scan
Invoice Receipt
Electronic Invoice
Managed Service
Manual
entry
PO Box
XML
PO Flip
PCards
OCR Output
Stand alone
Invoice
PO
Invoice
Code Invoice Authorisation
Match Resolve
Outside
Tolerances
Release
to
payment
Release
to
payment
Invoice Processing
Managing complexity:
Practical Steps
More than 90% of
suppliers send less than
15 invoices a month
~30% of annual invoice
volume from max 50
suppliers
Amount of
invoices
per
supplier
Amount of suppliers
Where next?:
Practical Steps
Spend Categories
Organisation-wide
Adoption
Purchase-to-Pay Source-to-Contract
Supplier
Adoption
100%
100% 100%
100%
100%
Summary
In short:
Don’t overlook Tail-Spend!
Address “pockets of opportunity”
Focus on process improvement
Tactics:
Establish purchasing controls
Help procurement free up time
Use the best methods for each category
Automate invoice processing
Summary
proactis.com
Self-assessments
Source-to-Contract
SRM
Sourcing
Contract Management
Catalogue Management
Purchase-to-Pay
Purchasing
Invoice Processing
Next steps
