Tail Spend

What is tail spend?

Tail spend refers to the numerous, lower-value, and unmanaged transactions outside of strategic spend.

Although many of the individual transactions that constitute tail spend are low value, the cumulative impact of tail spend on an organization’s overall spending can be substantial.

This nuanced concept has long lingered in the shadows of procurement strategies, where much more time and resources are spent on managing strategic spend categories. In contrast, tail spend is often harder to manage.

As a result, procurement teams grapple with the challenge of developing effective solutions to tame the tail, unveiling a landscape where the devil is indeed in the details.

What is tail spend — and why is it so hard to manage?

At its core, tail spend includes multiple transactions characterized by their lower value and relative frequency.

These transactions are often the unsung heroes of everyday organizational operations, ranging from office supplies and maintenance services to one-time purchases that fall beneath the radar of traditional procurement strategies.

Although each transaction is small, when brought together, they collectively form a “long tail,” which can be a significant percentage of total spending. The challenge lies not in the magnitude of individual transactions but in their sheer volume and the organizational resources required to manage them efficiently.

Procurement teams, overwhelmed with the demands of managing high-value contracts and complex supplier relationships, often found themselves ill-equipped to grapple with the intricacies of the tail.The absence of tailored solutions meant that these everyday purchases have traditionally operated in a decentralized and often chaotic fashion, slipping through the cracks of systematic procurement management.

The tools traditionally employed for strategic spend, such as e-sourcing and contract management platforms, often proved unwieldy and overly engineered for the numerous, lower-value transactions characteristic of tail spend.

Examples of tail spend.

Tail spend typically consists of smaller, less frequent transactions that collectively make up a significant portion of an organization’s overall spending.

Examples of tail spend may include:

Software licenses: Procurement of individual software licenses or subscriptions for less critical or specialized software needs.

Office supplies: Purchases of everyday office supplies such as pens, paper, toner cartridges, and other stationery items.

Maintenance services: Repairs, minor maintenance services, or one-time maintenance tasks for facilities or equipment.

IT accessories: Small IT-related purchases like cables, adapters, or peripheral devices that are not part of larger IT projects.

Travel expenses: Individual or infrequent travel bookings for employees, especially for smaller or non-strategic business trips.

Temporary labor: Hiring of temporary staff for short-term projects or specific tasks that fall outside the scope of regular workforce planning.

Marketing collateral: Printing of marketing materials, promotional items, or other collateral needed for smaller marketing initiatives.

Training materials: Purchase of training materials, manuals, or resources for employee development programs or smaller training sessions.

Catering services: Catering for smaller events, meetings, or employee gatherings that are not part of regular catering contracts.

Legal or consulting services: Smaller, one-off legal or consulting services that do not fall under ongoing or strategic engagements with legal or consulting firms.

Utilities and bills: Smaller utility payments, such as water, electricity, or internet bills for less significant locations or usage.

Safety equipment: Purchases of safety equipment, workwear, or personal protective gear for occasional or non-specialized needs.

It’s important to note that the specific examples of tail spend can vary across industries and organizations.

What characterizes tail spend in many industries is not only the type of purchase but also the infrequency and lower individual value of these transactions. Efficiently managing tail spend involves consolidating, optimizing, and strategically handling these smaller transactions to achieve cost savings and process efficiency.

A change in approach for tail spend.

As organizations strive for greater efficiency, cost savings, and overall procurement excellence, the tail is emerging from the shadows.

New generations of procurement technologies are now being developed specifically to address the unique challenges posed by tail spend. These tools leverage automation, data analytics, and user-friendly interfaces to streamline the management of numerous, smaller transactions efficiently.

By providing visibility into tail spend, organizations can identify patterns, consolidate purchasing, negotiate better contracts, and ultimately unlock hidden cost savings.

How Airbase helps with tail spend.

Airbase’s automated procure-pay-close platform helps get tail spend under management. Here’s how.

Automation and visibility: Airbase leverages automation to streamline the approval process for all transactions, including smaller and infrequent transactions.

Automated workflows can help track and manage tail spend transactions, providing visibility into spending patterns and enabling better control.

Expense policy enforcement: By implementing and enforcing expense policies within the platform, Airbase can help ensure compliance, even for smaller transactions. This includes setting spending limits, defining eligible vendors, and ensuring adherence to company policies.

User-friendly interface: A user-friendly interface makes it easy for employees to adhere to procurement processes. This is particularly crucial for tail spend, where decentralized purchasing may be more common. Since employees actually like using Airbase, they follow proper channels for even smaller transactions, without finding workarounds.

Data analytics and reporting: Airbase has robust analytics and reporting tools that help analyze spending patterns, identify trends, and make data-driven decisions. This capability is valuable for understanding the nature of tail spend and optimizing procurement strategies accordingly.

Supplier management: Efficient management of suppliers, including those associated with tail spend, is essential. Airbase may facilitate the categorization and management of suppliers, ensuring that relationships with even smaller vendors are optimized.

Customizable approval workflows: Tail spend transactions often involve different approval processes than larger transactions. Airbase’s customizable approval workflows accommodate the specific needs of various departments or types of purchases, ensuring a streamlined approval process.