According to the Pareto principle, tail spend represent 5% of the total cost of company purchases on average, but account for up to 50% of purchased items. Still too often considered non-strategic, this procurement category in fact covers the bulk of indirect spending. And behind these hidden costs are genuine savings opportunities.
By precisely evaluating all of their expenditure, procurement departments have all the information they need to optimise their tail spend. To assist them in this process, Manutan has created the Savin'side® method. This unique approach analyses the purchasing behaviour and total costs of a company through six key levers:
- Deployment of the agreement
- Product optimisation
- Supplier rationalisation
- Digitalisation of transactions
- Supply chain optimisation
- Quality management
Following precise diagnostics, a custom action plan is put in place and monitored regularly.
To complete the practical case presented in this video, take a look at each optimisation lever in detail.
As soon as a framework agreement is signed, it is essential to put in place a deployment strategy to ensure that all users do actually rely on this contract. Otherwise, the procurement strategy is not followed, users do not reap the rewards of the negotiated benefits, unscheduled purchases multiply and so on.
To deploy the contract correctly, it is necessary to rely on existing digital solutions, but above all on a real relational strategy (field visits, telephone campaigns, marketing campaigns etc.). The lead buyer and supplier must go into project mode and jointly decide which sites and contacts to approach, when and how frequently etc.
Within companies, employees tend to use a high proportion of premium products. They naturally lean towards high-end, which guarantees quality, but where the consumption is not always justified by the use.
In this context, consumers should be encouraged to use alternatives to premium products, which are cheaper but of equivalent quality. It is recommended that this downselling technique is used for the digital solutions available to the user (web portal or Punch-Out) to promote its effectiveness.
Tail spend represent 5% of a company's total purchases on average but also 75% of their total suppliers. Companies work with several hundred or even thousands of suppliers of tail spend, sometimes for small annual amounts. There are a number of reasons for this. Perhaps the different sites of a company have their own ways of working, or these purchases are not planned or are made urgently.
This is why streamlining the supplier portfolio is one of the main levers for optimising tail spend. This means relying on a supplier who presents an extremely wide product range as well as quick turnaround times (for the renowned urgent purchases). After confirming through careful work on the data that the supplier has the capacity to replace the smaller suppliers, the process must be approved by signing a framework contract.
Since we know that tail spend account for a large majority of the total volume of transactions within companies, it seems essential to optimise their costs and processing by digitalising the whole process.
First of all, the benefits are financial: The cost of a fully digitalised transaction is estimated at €19, while the cost of a conventional order is around €95. But beyond the price, acquiring a digital solution can also tap into many other levers, as seen earlier with the downselling approach.
Every order received requires a number of employees and resources to be mobilised within a company: reception, security, loading bay foreman etc. This represents an indirect average cost estimated at €22.
For this reason, it may be wise to streamline the receipt of goods process through two complementary approaches:
- Combine the deliveries from different buyers for the same site
- Pre-define regular delivery slots suitable for the goods
The last lever of the Savin'side® method focuses on quality, which is based on the principle of continuous improvement. Ensuring that you have a good service rate is essential so as not to generate additional work handling complaints. In addition to having an impact on team operations and customer satisfaction, this has a significant cost.
To drive quality, the lead buyer and supplier work together to analyse sources of insufficient quality, demonstrating transparency in their data and processes.
Savin'side® is a methodology created for buyers, by buyers. Proven in large companies, this approach ultimately aims to optimise the Total Cost of Ownership (TCO) of your tail spend.