For Adriano Robles, procurement project manager at Accenture Brazil, the so-called 'long tail spend', or Tail Spend, is an expense that corresponds to at least 20% of the total volume of company spending. These are expenses that are generally not managed by the Purchasing areas, which, even with limited internal resources, manage large networks of suppliers and, therefore, are unable to dedicate time and focus to this demand.
“Effectively managing tail spend continues to be a major challenge and opportunity for many Purchasing departments. It can represent savings ranging from 5% to 10%,” adds the consultant from what is considered the largest global consulting and management company.
Robles was one of the participants in the 2nd Competitiveness and Purchasing Congress, an event organized and held on March 29, in São Paulo, by the Brazilian Council of Purchasing Executives (CBEC), where the manager gave the lecture “The division of expenses and the search for savings in the 'long tail' expenses”.
In his opinion, managing long-tail spending (or Tail Spend Management) is one of the biggest sources of incremental savings and can help improve corporate results. In the COSTDRIVERS blog, the manager explains that to achieve these savings, it is necessary to implement a plan to reduce the cost of Purchasing operations with a focus on increasing influence over managed spending. To do this, it is necessary to develop tools that improve the purchasing experience for end users, on the one hand, and, on the other, reduce so-called “maverick purchases”. This, Robles adds, “optimizes process efficiency and encourages the use of time and resources, which can result in significant cost savings and increased ROI for the company.
COSTDRIVERS – How would you define 'long tail spending', the so-called Tail Spend? What are these expenses?
Adriano Robles – Long tail is a term used in Statistics to identify data distributions such as the Pareto curve. It is a type of methodology that identifies low-visibility expenses and that, normally, the Purchasing area has little or no influence on, as they can be delegated to the requesting areas.
COSTDRIVERS – How can we reduce these expenses, which, in your opinion, can represent around 20% of the total volume of company expenses? To what extent can we reduce them and how?
Adriano Robles – The reduction of this expense can reach up to 10% of its total value, a percentage obtained through a cost reduction program, which must follow a simplified approach to strategic sourcing to achieve increased influence and visibility of the expense.
COSTDRIVERS – And how can this be managed?
Claudio Robles – By implementing a high degree of automation of requests and centralization of demands. The provision of umbrella contracts, catalogs or price lists should also be considered, since the “purchasing and decision-making power” will be taken away from the user.
COSTDRIVERS – Are there specific tools capable of controlling this type of expense?
Adriano Robles – Yes, there are several Purchasing tools that can be used as a “layer” for managing R2P (request to payment) or even the company’s own ERP. These tools are extremely important for this program, since without them, it is very difficult to provide good service to internal customers without some type of automation.
COSTDRIVERS – How do companies deal with long tail expenses?
Adriano Robles – Currently, most companies delegate the management of this expense to the internal user, who is responsible for everything from identifying the demand to its actual payment. This implies a potential problem of compliance and visibility of the expense, so one of the ways to reduce the impact of tail spend on business is by implementing a program that provides greater visibility and management of demands and expenses.
