The white elephant of tail spend has always been around, holding the procurement department back from achieving excellence and much-needed recognition within the organisation. Tail spend, often ignored by category managers and top procurement practitioners, has finally captured the limelight in the last five years. Procurement teams having exhausted other options for obtaining value, realised the potential value that lay in managing this portion of spend in a better way.
Over the last few years, the procurement teams have finally been sold to the imperative of managing the tail spend better and included it amongst their top priority areas- the fact is that tail spend vastly remains a pain point- an irritant for most of the companies. Despite the fact, many organisations have braced up to the challenge and taken initiatives to tame this freakishly long tail- it is found that many of these initiatives fail to bring in a significant impact due to the traditional focus of managing only a portion of the tail or applying only compliance based solutions.
What is Tail Spend?
Typically, a small portion of spend is spread thinly across a vast (roughly 80 percent) supplier base, leading to very high number of transactions and operational costs - also sometimes defined as unmanaged spend, maverick spend or non-contracted spend, unclassified spend etc. across organisations.
Some facts about tail spend In most cases, the traditional approach employed by companies is analytics-based which commences with spend analysis and identifying the correct definition of tail spend based on an organisation’s nuances in addition to setting up tail-specific operations or spot buy desks – which could be outsourced or managed in-house.
Spend management involved applications of typical spend segmentation approaches like Kraljic framework arrive at different segments for tail spend. They are mapped as per spend and supplier risk exposure and then applies various sourcing levers to arrive at a sourcing-led strategy for the tail spend, focusing on demand consolidation and supplier reduction and identification of threshold-based buying channels.
This also usually results in benefits like some savings, compliance improvement, supplier reduction, and so on. However in our experience, most of these initiatives fail to achieve the complete benefit and stop short of addressing the problem in totality.
The factor that greatly contributes to the lack of luster in tail spend programs is that most programs solely work towards creating a push factor - pushing rules, compliance and directives to the users without really empathising on challenges faced by this segment. This often leads to unpopularity of such programs and hence poor adoption.
Hence most of the current tail spend solutions fail to really address the users’ problem and as a result are never able to achieve the success desired. In fact, as we move forward into the future - in a world of hyper-personalisation, intelligent technology, simplification and decision by insights – the tail spend problem is being exacerbated and is starting to re-appear again.
Does it mean that organisations have to do something more?
While the analytics-based approach offers the right way to tackle spend, there is clearly something more needed in addition to augment the traditional tail spend approach. In our view, building user delight into the overall tail spend strategy leads to better adoption and higher satisfaction levels.
Let us first understand the target audience for the tail spend initiative. The user can be classified, in simplified terms, as blue collar and white collar:
Blue Collar Users – typically users who don’t use a computer to do their job. They might be staff in a factory, warehouse, or supporting logistics etc. Here the user experience has to be developed around ways and opportunities to direct the user to the right ways of purchasing without having the need to leave the shop floor- ordering kiosks, mobile apps and part vending machines could be the solution that would work more appropriately here.
White Collar Users – typically users who use the computer to do their job and sit typically in a modern office complex with good internet connectivity and good access to the company’s enterprise applications. These users are generally spread across different functions like finance, marketing, sales, HR etc. and often have their own vendor preferences as well as a number of applications to log into. Here the focus needs to be around building a support/ guided experience (virtual chat assistants/ bots leveraging AI or other conversational UI) which can be easily initiated, leading to a non-complicated purchasing process as this also empowers the user to take right decisions.
Persona mapped solutions like those mentioned above clearly focus on the user needs and hence point towards a need for adopting Design Thinking (DT) approach as applied to different procurement personas to create pointed strategies and solutions for different user groups.
Design Thinking Led Tail Spend Design Approach
We use design thinking approaches extensively to run persona based mapping workshops with key users as a part of our solution design or consulting exercises to empathise with the user, define the problem statements and ultimately ideate the solutions using the 5-step DT methodology as highlighted above. Hence a focused exercise like this provides ideas - which then passes through the feasibility, business viability and user desirability lens, to take forward to prototype and test and finally design a user focused tail spend program.
Further, availability of technologies (automation, artificial intelligence, machine learning) and their constant evolution, allows us to develop user experiences around tail spend without making it a long drawn project, requiring unlimited budget to implement. Digital guided buying support through chat bots, powered by user buying behaviour analysis to continuously improve the buying experience as well as availability of easy ordering methods such as mobile apps and kiosks create convenience and relevance for the user to be attracted to the tail spend program; while embedded analytics in the purchase process - combining insights from data analysis and market intelligence, and availability of self-service channels like quick quotes, catalogues etc. create a sense of empowerment, leading to consistent value delivery that the tail spend program is focused at.
Thus, while the other traditional levers for managing tail spend i.e. analytics based buying methodologies and frameworks will continue be applied at the backend, these will get augmented with the new lever of user experience at the top. In our view, the combination of both creates a solution that delivers a more efficient and effective service. This attracts user adoption and higher compliance at lower costs, while delivering savings and creating a win-win for both procurement and its users
By Sreekant Natarajan, Senior Business Development Manager- Europe, Infosys BPM. Co-authored by Riya Nehra, Senior Consultant - Solution Design, Infosys BPM
The thoughts and opinions shared here are of the author.
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