In November, the bimonthly SMART@WORK programme, which focuses on "well-working", took a closer look at tail spend. These purchases are, by definition, non-strategic and non-recurring. Journalist and presenter Aurélie Planeix welcomed three experts on the subject to discuss the various issues associated with this procurement category: Xavier Laurent, Mergers and Acquisitions Director for the Manutan Group, Natacha Tréhan, Lecturer at the University of Grenoble Alpes as well as a researcher and specialist in purchasing management, and Christophe Jan, Chief Procurement Officer at Orange France.
What does tail spend cover?
Natacha Tréhan reminds us that there are two steps to categorising purchases:
- Firstly, we need to establish the financial commitment for these purchases
Procurement uses the Pareto Principle to identify three classes of purchases : class A, B and C, also named tail spend. As such, Natacha points out that "Tail spend […] covers 50% of items purchased [but] represents just 5% of the total cost of purchases".
- Secondly, we need to analyse the criticality of these purchases
Tail spend are then put into two categories:
- Risky purchases, which refer to critical tail spend, such as masks during the COVID-19 crisis.
- Non-critical purchases, which are tail spend that are not considered critical. This category includes small tools, office supplies etc.
The dual challenge of tail spend
All three experts quickly agree that the problem with tail spend is twofold. This procurement category must contribute to both:
- Employee satisfaction
The nature of tail spend means that they are for all company employees. They play a key role when it comes to quality of life at work, but also health and safety within the company. That is why it is so important for everyone to be able to get the tail spend they need quickly and easily, through a digital solution that offers a good user experience.
- Company efficiency
Tail spend, with all the hidden costs they generate, now represent great sources of potential savings. As Natacha Tréhan says, this is "[Because these purchases will] generate the most products, the most orders, the most suppliers etc. With this level of complexity comes a problem of efficiency".
The rise of CSR
Alongside these two historic challenges, one topic in particular really gets the panel talking: corporate social responsibility. This topic is now vital for procurement departments, as Christophe Jan points out, "We looked into using online marketplaces […] but it didn't work out for one simple reason: The CSR characteristics of the platforms we looked at […] did not meet our requirements". Among other things, this included not recycling unsold goods, failure to respect human rights etc. These days, putting in place best procurement practices to support CSR is a necessity.
Xavier Laurent confirms this trend, "[CSR] has become one of the main selling points in calls for tender". A few years ago, it was enough for suppliers to simply set out their CSR policy in one page. Today, this section accounts for almost a third of the final score, and must be supported with quantifiable items. For example, suppliers need to specify whether they employ people with disabilities or those from disadvantaged areas, what types of lorries they use for deliveries, how many products are loaded in them etc.
Given these multiple challenges, it seems that companies now have an incentive to take into account full costs, as well as all the associated risks, to adopt a systemic view.
Finally, these tail spend, which are by definition non-strategic, are of the utmost importance for procurement departments. This may be increasingly true at a time of the health crisis, where quality of life at work, health and safety, and efficiency are hot topics for companies.