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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 spend, which is perceived as non-strategic. However, this type of purchasing accounts for up to 70% of hidden costs in procurement departments<\/span>. Fortunately, there is a method for optimising the management of long-tail spend based on data analysis, a Lean Procurement approach, and an agile framework.<\/span>\u00a0<\/span><\/p>\n According to\u00a0<\/span>Pareto\u2019s Law<\/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: <\/span>simple purchases<\/span><\/b>\u00a0(which present a low risk) and\/or\u00a0<\/span>critical purchases<\/span><\/b>\u00a0(which carry a significant risk).<\/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 The Manutan Group has developed a method to support its key clients in long-tail spend optimisation. Designed by buyers for other buyers, Savin\u2019side\u00ae is based on data analysis, a\u00a0<\/span>Lean Procurement approach,<\/span>\u00a0and an agile methodological framework.\u00a0<\/span>\u00a0<\/span><\/p>\n This strategy aims at getting a better handle on the total costs of ownership, and thus improve the management of this type of purchasing, through six optimisation levers.<\/span>\u00a0<\/span><\/p>\n Because long-tail spend accounts for up to 75% of a business\u2019 suppliers<\/span>3<\/span>, they generate significant administrative costs. These comprise supplier management costs (estimated at an average of \u20ac1,000<\/span>4<\/span>\/supplier\/year) and transactional costs.\u00a0This is why\u00a0it is worth reducing the size of your supplier portfolio by replacing certain suppliers (representing low annual expenditure or covering a local area, for example) with a single distributor that offers a wide range of products.<\/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>, it seems imperative to optimise the transactional process. To achieve this, procurement departments can start by\u00a0<\/span>making the Procure-to-Pay process paperless<\/span>, from product selection to invoicing. As well as improving efficiency within the company, this strategy generates financial savings and environmental benefits.<\/span>\u00a0<\/span><\/p>\n A plethora of suppliers and orders results in\u00a0a large number of\u00a0deliveries, requiring the mobilisation of various company employees (security, inflows, warehousemen, etc.) without any real added value. To boost everyone\u2019s productivity, procurement departments can improve processes for delivering and making products available to users through various services: personalised or timed deliveries, industrial vending machines, 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 spending. 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 quality is scattered throughout the company, making procurement management harder.\u00a0This is why\u00a0it is crucial to solve the root causes of identified shortcomings in order to improve the 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 spend, which is perceived as...<\/p>\n","protected":false},"author":9,"featured_media":22322,"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
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Savin\u2019side\u00ae, 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