Unlocking procurement potential: Adding structure to your tail spend strategy

Tail spend represents about 20% of a company's total spend, but up to 80% of total transactions. The sheer volume of purchases can make managing tail spend seem prohibitive, but avoiding it can have long-term consequences for your budget. Structuring your tail spend as part of a smart business buying strategy, however, can make managing it more, well, manageable, leading to significant cost savings and efficiency gains.

Organizations that take a strategic approach to tail spend management can uncover hidden savings opportunities, reduce maverick spending, and improve overall procurement efficiency. By focusing on the suppliers or transactions that make up the bulk of this spend, companies can optimize their procurement processes and achieve better financial outcomes.

Finding the right mix of spend management strategies is crucial for driving and maintaining business growth. Let's dive into the tail spend strategies that can help you find the right balance of agility, savings, digital optimization, and data-driven decision-making.

Actionable steps for enhancing spend strategies

Procurement leaders are facing significant challenges as they navigate the ongoing complexities of today's supply chains. Shortages, delays, and price increases persist across many industries due to geopolitical challenges, high-profile cyber attacks, and environmental disruptions, to name a few. Simply maintaining business as usual under these circumstances can feel daunting, but the same strategies used to mitigate these challenges can also be used to structure your tail spend strategy.

To immediately enhance spend strategies, consider the following actionable steps:

1. Embrace technology: Upgrade your digital tools to automate and optimize procurement operations, ensuring seamless integration with existing systems. The right integrations can double as an opportunity to align across partner teams such as IT and finance.
2. Focus on data: Prioritize data accuracy and accessibility to make informed, strategic decisions. Use data analytics to track savings across all spend categories.
3. Cultivate agility: Develop agile procurement processes that can quickly adapt to changing needs by delegating purchasing decisions to the person on the ground, at the point of decision. The right solutions can automate the policies, customizations, and controls that will keep these purchases in line with strategic goals.
4. Engage in continuous improvement: Regularly review and refine procurement strategies to align with evolving business goals and market dynamics. This means ongoing training for your teams, as well as frequent alignment with partner teams throughout the organization.

By evolving spend management strategies, organizations can achieve greater efficiency, drive growth, and maintain a competitive edge in the procurement landscape. As procurement continues to transform, staying ahead with innovative and adaptable strategies will be key to success.

The role of innovation and technology

As the importance of agile procurement has grown, so too have the function's responsibilities. Digital transformation can allow procurement teams to move away from time-consuming operational tasks and focus on more strategic activities, such as supplier relationship management or collaboration with internal teams. These technologies also play a crucial role in successful tail spend management by offering insights into rogue, maverick, or indirect spend. By automating the procure-to-pay process, organizations can guide buyers to the right products at the right price, reducing friction in procurement operations.

Digital transformation journeys will vary based on your organization's starting point. If your organization is still working off of sticky notes and carbon paper, adding structure to your tail spend strategy may be as easy as onboarding a purchasing solution that offers access to a wide selection of vendors, categories, and products to simplify purchasing while creating visibility into how your organization is spending. So, rather than buyers across your organization purchasing IT, office, or janitorial supplies using disparate vendors and multiple payment methods — which then have to be reviewed, reconciled, and remitted — you can offer a single solution with access to hundreds of millions of products under a single business account managed by the procurement team. Look for a solution that can help you automate your spend policies and approval workflows, offers flexible payment methods, and ensures reliable delivery options.

If your organization has already made the transition to an enterprise e-procurement solution, then look for a solution that can integrate seamlessly with your current tools. Integrated smart business buying systems connect various purchasing systems, thereby simplifying operations, reducing costs, and improving compliance. These integrations facilitate automated spend controls and centralized data processing, aligning procurement with IT and finance teams to achieve shared business goals such as cost savings and sustainability.

Centralizing purchasing data

Once you have determined your organization's path to tail spend digitization and onboarded your chosen tools, the next step is creating a path to centralization. If your purchasing data is siloed and scattered across multiple departments and platforms, you may struggle to obtain a holistic view of your organization's spending activities. This fragmentation can hinder strategic decision-making and obscure opportunities for cost savings.

When buyers across the organization are searching for products and making purchases on a single — or properly integrated — platform, that's when the real fun begins. But buyers typically gravitate towards tools that make their jobs easier, not harder. Work with your partner teams, including IT and finance, but also designated purchasers (or "power users") across various departments to establish and automate thoughtful buying policies that balance speed and convenience with oversight and control. Determine who needs to approve, which purchases require approval, and which elements of this process can and should be automated. Should buyers be limited only to approved products; informed of more sustainable or less expensive products; or free to purchase any product within a set price range?

Your policies will depend on your organization's specific goals, but your tail spend solution should be powerful enough — and flexible enough — to support them. When properly integrated and combined with thoughtful purchasing policies and approval workflows, these integrated systems can equip procurement teams with more advanced analytics, facilitating real-time tracking and analysis of purchasing trends. This helps to foster transparency and accountability, creating a data-driven culture that supports continuous improvement and innovation within procurement processes.

Adaptive spend strategies

Once purchasing and its associated data are centralized and flowing properly through integrated systems, it becomes easier to develop adaptive spend strategies that further your procurement goals, such as targeting specific cost savings, increasing diverse spend, and supplier consolidation. Leveraging technology and innovation, such as machine learning and artificial intelligence, can also enhance your spend strategies.

Moreover, these technologies can help organizations adapt to shifting supply chain realities and evolving buyer behaviors. On the supplier side, supply chain reliability is an ongoing challenge, with many suppliers across multiple industries lagging behind in their abilities to support digital procurement needs, provide visibility into their inventory, or ensure on-time delivery. Tapping into a vast network of trusted suppliers could be critical to long-term success, allowing you to diversify your supplier base and reducing the risk of over-reliance on a single partner. This diversity can inject some resilience into your supply chain, ensuring that your organization remains agile and adaptable in a constantly changing marketplace.

On the other hand, some organizations may find that they would be better served by consolidating suppliers to simplify operations, unlock deeper discounts, and improve overall cost savings. Amazon Business, for example, offers a supplier analysis service for enterprise customers, available upon request. This service includes a comprehensive deep dive into your organization's spend, showing where teams are purchasing with non-strategic vendors and identifying opportunities to consolidate.

Further, by leveraging intuitive, centralized, or integrated systems, organizations can ensure compliance with buying policies while still providing a seamless buying experience for employees. This not only saves time and money, but also attracts a new generation of professionals who value digital tools. Satya Mishra, Director of Products and Technology at Amazon Business, recently observed, “The incoming and upcoming talent pools for procurement can be comprised of Millennials and Gen Z candidates. These professionals are more likely to be attracted to organizations that implement digital tools that streamline their work, improve decision-making, and enhance overall job satisfaction.”

Iteration, partnership, and improvement

Adopting new processes or systems requires intentional and far-reaching change management. It’s crucial that your procurement leaders are able to articulate the the long-term value and benefits of new policies, systems, or solutions to stakeholders across your organization. Data can play a key role in demonstrating the benefits, but training, iteration, and continuous improvement will be required to secure buy-in and ensure successful adoption.

“At Amazon Business, we work backwards from customer problems to find solutions. I recommend CPOs think about what existing systems their employees may already use, the organization’s buying needs, and their buyers’ typical purchasing behaviors. The buying experience should be intuitive and delightful," says Mishra. In other words, seek to understand your partners' needs and existing workflows first, before developing an end-to-end digitiztion strategy, and then use that knowledge to direct your solution selections.

“Amazon Business integrates with more than 300 systems, like Coupa, SAP Ariba, Okta, Fairmarkit, and Intuit Quickbooks, to name just a handful," says Mishra. With multiple integration options, organizations can customize their buying journeys based on their teams needs, preferences, and goals.

"With Punchout and Integrated Search, customers can start their buying journey in their e-procurement system. With Punch-in, they start on the Amazon Business website, then punch into their e-procurement system. With Single Sign-on (SSO), customers can use their existing employee credentials. Our collection of APIs can help customers customize their procure-to-pay and source-to-settle operations. This includes automating receipts in expense management systems and track progress toward spending goals," explains Mishra. “My team recently launched an App Center where customers can discover third-party apps spanning Accounting Management, Rewards & Recognition, Expense Management, Integrated Shopping and Inventory Management categories. We’ll continue to add more apps over time to help simplify the integrated app discovery process for customers."

With our commitment to customization and flexibility, Amazon Business is ready to partner with organizations at all stages of their procurement digitization journey.