In general, companies have structured the management of their head and mid-tail spends, which account for almost all their expenses. The long tail spend is quite different and is often (wrongly) considered as non-strategic. Even if this purchasing category accounts for an infinitesimal share in procurement budget, it includes most hidden costs. Through the Savin’side® method, Manutan helps you evaluate all these costs to define an optimisation plan. Discover this methodology on video with the case of Emma, procurement manager for a large company.
Why optimise your long tail spend?
Even if it involves low amounts, the long tail spend often accounts for hidden costs that are far from insignificant and necessarily inflate the total cost of ownership and sometimes even exceed it. As an example, they alone include 60% of the order volume, 75% of the number of suppliers and 85% of the number of items. These are simple purchases of goods and/or services for the company’s operation (office or workshop furniture, hygiene products, tools, etc.) which may become critical when their supply becomes complex, as was the case with personal protective equipment (PPE) during the pandemic, for example.
Due to its nature, this long tail spend raises two major challenges:
- The reduction of hidden costs, i.e. administrative and logistical costs;
- The security of these purchases, which unlike head and mid-tail spends, are mainly used by employees.
Starting from this observation, Manutan developed the Savin’side® method to help organisations get this purchasing category under control.
Focus on the Savin’side® method
Developed by buyers for buyers, the Savin’side® method aims to optimise the long tail spend management. Through data analysis, a Lean approach and an agile framework, this method allows companies to improve economic, environmental, and social performance and gain competitiveness.
Tried and tested with large, public-listed companies, Savin’side® identifies the hidden costs of the long tail spend and draws up a saving plan through six competitiveness drivers:
- The supplier portfolio rationalisation, which consists in sourcing a benchmark distributor to replace a multitude of suppliers;
- The optimisation of the product selection, which allows you to ensure that the products purchased are adapted to users’ functional needs;
- The digitalisation of transactions, which aims to dematerialise the whole Procure-to-Pay process;
- The logistics optimisation, which is intended to improve the supply process and provide products to users;
- The roll-out of the agreement, which ensures that the benefits negotiated in the contract with your supplier are used by all the company’s sites;
- The quality management, which aims to solve the root causes of malfunctions identified to improve the service rate sustainably.
The mapping obtained enables you to establish a precise diagnosis of the situation to implement a measurable progress plan for each of these drivers. It is then possible to precisely estimate the potential savings to be made on this long tail spend, in a continuous improvement approach.
The action plan is then monitored through key performance indicators and objectives set in advance. In agile mode, this monitoring system enables you to trigger the corrective actions necessary.
The case of Emma, procurement manager for a large company
In the case of the business presented in the explanatory video, the Savin’side® diagnosis highlights three drivers to optimise:
- Rationalising the supplier portfolio;
- Digitalising transactions;
- Optimising logistics.
Firstly, Emma, the company’s procurement manager, decides to tackle the first two themes identified. She observes that a large volume of purchases is spread across many suppliers that could potentially be replaced, while the Manutan offer can cover all her needs.
Furthermore, these transactions have a low rate of digitalisation because she hadn’t used an e-procurement solution with all these suppliers. With the help of William, a Manutan expert, she implements her action plan to gradually replace these suppliers with Manutan, with which she has already implemented an e-procurement solution.
In addition to rationalising her supplier portfolio, Emma accelerates the digitalisation of her procurement processes. This allows her to reduce her indirect costs relating to supplier management and transactions, not to mention reducing the environmental impact and improving the teams’ everyday lives.
Six months later, Emma and William meet again for an assessment. They observe 20% savings on overall spending on Emma’s company’s long tail spend! She will now be able to focus on the third driver that had been identified beforehand: optimising the supply chain logistics.
As you can tell, the Savin’side® method helps companies reduce the total cost of ownership (TCO) of their long tail spend. For each organisation, this means improving your competitiveness and gaining efficiency, while contributing to your CSR (Corporate Social Responsibility) strategy.
- Download our white paper ‘Indirect purchases: 6 drivers to activate to optimise your strategy’.