![\"\"](\"https:\/\/www.manutan-online.co.uk\/blog\/wp-content\/uploads\/2021\/12\/BUY2110023PIC2-300x200.jpeg\")
<\/p>\n<\/p>\n
Long-tail spend optimisation<\/span> is a little-known issue in companies. Usually, procurement departments manage their head and mid-tail purchases in a structured way, but it is not always the case for long-tail spending, which is perceived as non-strategic. However, this type of purchasing accounts for up to 70% of hidden costs in procurement departments<\/span>1<\/span>. Fortunately, there is a method for optimising the management of long-tail spending based on data analysis, a Lean Procurement approach, and an agile framework.<\/span>\u00a0<\/span><\/p>\n According\u00a0to\u00a0<\/span>Pareto\u2019s\u00a0Law<\/span>, also known as the 20-80 Law, long-tail spend represents 5% of a business’s total expenditure but accounts for 50% of the total number of purchasing categories.<\/span>\u00a0<\/span><\/p>\n If the Kraljic matrix is applied and combined with the financial risk \u2013 which remains relatively low for this category of purchases \u2013 with the overall level of risk, long-tail spend can then be classified into two sub-categories:\u00a0<\/span>simple\u00a0purchases<\/span><\/b>\u00a0(which\u00a0present\u00a0a\u00a0low\u00a0risk) and\/or\u00a0<\/span>critical\u00a0purchases<\/span><\/b>\u00a0(which\u00a0carry a\u00a0significant\u00a0risk).<\/span>\u00a0<\/span><\/p>\n Two major issues, therefore, emerge in relation to long-tail spend, to which an appropriate strategy should be applied:<\/span>\u00a0<\/span><\/p>\n By\u00a0drawing\u00a0on data\u00a0analysis,\u00a0<\/span>a Lean Procurement approach,<\/span>\u00a0and an agile\u00a0methodological\u00a0framework,\u00a0companies\u00a0can set about\u00a0optimising\u00a0their\u00a0long\u00a0tail\u00a0spend.<\/span>\u00a0<\/span><\/p>\n They\u00a0can use\u00a0this\u00a0strategy\u00a0to\u00a0get\u00a0a\u00a0better\u00a0handle\u00a0on\u00a0their\u00a0total\u00a0costs\u00a0of\u00a0ownership, and\u00a0thus\u00a0improve\u00a0the management of\u00a0this\u00a0type of\u00a0purchasing,\u00a0through\u00a0six optimisation levers.<\/span>\u00a0<\/span><\/p>\n Because long-tail spend accounts for up to 75% of a business\u2019 suppliers<\/span>3<\/span>,\u00a0they\u00a0generate\u00a0significant\u00a0administrative\u00a0costs.\u00a0These\u00a0comprise supplier management\u00a0costs\u00a0(estimated\u00a0at an\u00a0average\u00a0of \u20ac1,000<\/span>4<\/span>\/supplier\/year) and\u00a0transactional\u00a0costs. This\u00a0is\u00a0why\u00a0it\u00a0is\u00a0worth\u00a0reducing\u00a0the size of\u00a0your\u00a0supplier portfolio by\u00a0replacing\u00a0certain\u00a0suppliers\u00a0(representing\u00a0low\u00a0annual\u00a0expenditure\u00a0or\u00a0covering\u00a0a local area, for\u00a0example)\u00a0with\u00a0a single\u00a0distributor\u00a0that\u00a0offers\u00a0a\u00a0wide\u00a0range of\u00a0products.<\/span>\u00a0<\/span><\/p>\n Internal customers are rarely guided in their long tail spend choices. This usually results in the purchase of high-end products, i.e., high-quality, high-priced products from well-known brands. However, this is not always appropriate when it comes to simple purchases, and it gives rise to direct costs. The solution is, therefore, to optimise the selection of products by ensuring that they meet the functional needs of internal customers, so as to avoid this phenomenon of \u201cexcessive-quality\u201d.<\/span>\u00a0<\/span><\/p>\n When you consider that long-tail spend accounts for 60% of the order volume<\/span>5<\/span>,\u00a0it\u00a0seems\u00a0imperative\u00a0to optimise the\u00a0transactional\u00a0process. To\u00a0achieve\u00a0this,\u00a0procurement\u00a0departments\u00a0can start by\u00a0<\/span>making\u00a0the Procure-to-Pay\u00a0process\u00a0paperless<\/span>,\u00a0from\u00a0product\u00a0selection\u00a0to\u00a0invoicing. As\u00a0well\u00a0as\u00a0improving\u00a0efficiency\u00a0within\u00a0the\u00a0company,\u00a0this\u00a0strategy\u00a0generates\u00a0financial\u00a0savings\u00a0and\u00a0environmental\u00a0benefits.<\/span>\u00a0<\/span><\/p>\n A\u00a0plethora\u00a0of\u00a0suppliers\u00a0and\u00a0orders\u00a0results\u00a0in a large\u00a0number\u00a0of\u00a0deliveries,\u00a0requiring\u00a0the mobilisation of\u00a0various\u00a0company\u00a0employees\u00a0(security,\u00a0inflows,\u00a0warehousemen, etc.)\u00a0without\u00a0any\u00a0real\u00a0added\u00a0value. To boost\u00a0everyone\u2019s\u00a0productivity,\u00a0procurement\u00a0departments\u00a0can\u00a0improve\u00a0processes\u00a0for\u00a0delivering\u00a0and\u00a0making\u00a0products\u00a0available\u00a0to\u00a0users\u00a0through\u00a0various\u00a0services:\u00a0personalised\u00a0or\u00a0timed\u00a0deliveries,\u00a0industrial\u00a0vending\u00a0machines, etc.<\/span>\u00a0<\/span><\/p>\n When procurement policies are not properly adhered to in a company, it leads to direct financial loss and the proliferation of rogue spend. Procurement departments must ensure that the benefits negotiated in the contract with a supply partner are fully utilised across the company\u2019s sites and raise awareness among internal customers if necessary (information, site visits, marketing campaigns, etc.).<\/span>\u00a0<\/span><\/p>\n Poor\u00a0quality\u00a0is\u00a0scattered\u00a0throughout\u00a0the\u00a0company,\u00a0making\u00a0procurement\u00a0management harder. This\u00a0is\u00a0why\u00a0it\u00a0is\u00a0crucial to solve the root causes of\u00a0identified\u00a0shortcomings\u00a0in\u00a0order\u00a0to\u00a0improve\u00a0the service rate.<\/span>\u00a0<\/span><\/p>\n While operational efficiency and cost reduction are among the priorities of procurement departments, long-tail spend optimisation represents a formidable lever for action. Such a strategy echoes Lean Procurement: continuously tracking down \u201cwaste\u201d to create value.<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Long-tail spend optimisation is a little-known issue in companies. Usually, procurement departments manage their head and mid-tail purchases in a structured way, but it is not always the case for long-tail spending, which is perceived as...<\/p>\n","protected":false},"author":9,"featured_media":22319,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[],"yoast_head":"\nThe challenge of long-tail spend<\/span>\u00a0<\/span><\/h2>\n
\n
\n
A \u201cLean-Agile\u201d method for long-tail spend optimisation<\/span>\u00a0<\/span><\/h2>\n
Rationalising the supplier portfolio<\/span>\u00a0<\/span><\/h3>\n
Optimising product selection<\/span>\u00a0<\/span><\/h3>\n
Digitalising transactions<\/span>\u00a0<\/span><\/h3>\n
Optimising logistics<\/span>\u00a0<\/span><\/h3>\n
Deploying a framework agreement<\/span>\u00a0<\/span><\/h3>\n
Managing quality<\/span>\u00a0<\/span><\/h3>\n