Long tail spend: The rollout of a framework agreement, a key step in the procurement process

When a business signs a framework agreement with a supplier, the whole challenge lies in gaining support from internal clients to take full advantage of the contractual terms negotiated. For this purpose, the framework agreement must be deployed in the long term through a rollout plan. The actual application of this contract then multiplies its profits, whether in terms of financial savings or social and environmental impact.

The framework agreement’s purpose

The framework agreement defines the terms that govern the contracts to be signed over a determined duration within the framework of the commercial relationship.

Most often, companies decide to sign contracts for two reasons:

• Making savings by negotiating volume discounts;
• Improving efficiency by pooling procedures within the same organisation.

Until now, framework agreements have been popular for recurring spending on goods and/or services and can also extend to the long tail spend. Although they only account for 5% of spending in companies, these purchases cover most procurement segments and hidden costs. This emphasises the importance of getting this spending under control, with the aim of optimising the total cost of ownership (TCO).

Non-compliance, synonymous with maverick spending

Despite their vital nature, framework agreements are not always applied correctly in companies. Procurement departments often use key performance indicators to assess the actual implementation of their contracts. 

This non-compliance can be explained by many reasons, including the following:

• Internal clients are not aware of the procedure;
• They believe these new processes to be inefficient;
• They believe that their purchases will not have a significant impact.

This phenomenon is especially widespread when it comes to long tail spend. These purchases are often wrongly considered as non-strategic, and their management is unstructured due to a lack of resources. As a result, internal clients may not follow the defined channels or may use suppliers that are not listed.

The outcome is irrevocable: maverick spending multiplies. As you know, these purchases are made outside processes defined by the procurement policy and spread throughout the company. They’re a real scourge: in addition to slowing processes down, they inevitably inflate the total cost of acquisition of the good and/or service concerned. For over three quarters of organisations, the reduction in maverick spending also appears to be a priority[1]. In this configuration, the rollout of contracts is a pivotal stage in the procurement process.

A rollout plan based on collaboration

To guarantee the support of internal clients for the framework agreement, the procurement department must team up with the supplier in question to implement a precise rollout plan model. This must include two main steps: building the database software, then implementing a tailored action plan.

1. Building the database

The reliability and quality of the database are essential conditions for the success of the rollout plan. This is why you have to start by building an effective database software with a complete list of employees who are likely to use the contract as well as their contact details, in accordance with the company’s General Data Protection Regulation (GDPR).

In this list, the procurement department must then identify the people who will play the role of ambassadors by relaying messages and raising the awareness of their peers on the ground. This may be middle management, local procurement intermediaries or orderers, for instance.

2. Implementing the action plan

Secondly, the business and its supplier carry out real change management. Inspired by the change management model of Kurt Lewin, a social psychology researcher, this project has three phases.

Initiation

This first phase consists in informing users of the fundamental aspects of the framework agreement (discounts, associated services, etc.) and its main benefits.

Adoption

Then comes support with the new practices defined. The two partners determine together all the actions to implement and the resources to mobilise. The content will be adjusted according to the initial results obtained: response to users’ questions, help in getting to grips with the tools, reminder of the contract information, etc. This may take the shape of visits to the different sites, calling or email campaigns, a dedicated space in the e-procurement tool, webinars, or videos.

Consolidation

When these changes have finally been adopted, the aim is to stabilise the situation. This stage consists in supplementing the contract with relevant content, at key times, to maintain the level of support from internal clients. The messages will adapt to the company’s current events: site opening, new regulation, etc.

It’s also important to take the staff rotation rate into account to anchor these changes over time. Generic communication, orchestrated at regular intervals, will remind new employees of the ins and outs of the contract.

Like for any project rollout strategy, each link in the chain has a key role to play. The procurement department defines the strategy and action plan development, the ambassadors become their intermediaries in the field and the supplier oversees operational management.

By ensuring the smooth rollout of the framework agreements, the procurement department therefore structures the management of its long tail spend, paving the way for other areas of optimisation. Now, it can focus on new projects to keep getting its long tail spend under control.

Based on our experience, there are six main optimisation levers, with, at the top of the list, rationalising the supplier portfolio, optimising the product selection, or digitalising transactions.

Through an agile methodology, an overall analysis of its long tail spend consumption must be carried out to identify the potential sources of savings hidden in your spending. Through this work, the procurement departments will strengthen their company’s competitiveness and its strategic positioning.