Controlling the cost of direct and indirect purchases and leveraging the potential savings have become a major source of competitive advantage for companies in today's world. One of the key steps in keeping spending under control is taking an in-depth look at the company's data, which can significantly raise the performance bar when used correctly.
Tail spend : the potential to save considerable money
By analysing the total cost of ownership, it would appear that Class C purchases, as known as tail spend (which are non-recurring and non-strategic by definition) represent 70% on average of a company's total hidden costs, alongside Class B (20%) and Class A purchases (10%).
With Tail spend, there is a large and extremely varied range of factors that generate hidden costs, including the number of suppliers (i.e. several deliveries and transactions), checking orders against invoices, non-standard purchases, errors and returns, losses and thefts.
Therefore, only 8% of companies currently believe that they have an effective process for managing their Tail spend[1].
Data: an invaluable asset for procurement departments
At the present time, 80% of company data is unstructured and generated by a wide range of sources[2] (reports, email exchanges, faxes, etc.). With the advent of big data, the challenge facing procurement departments is to gather, structure and analyse procurement-related data, so that they can make strategic decisions and thereby streamline purchases and achieve significant cost savings.
Organisations can combine their information system with the appropriate business intelligence solution to collect and compile the data needed to analyse the different types of Tail spend behaviour based on six key cost control strategies:
- Deploy the agreement
- Streamline the product range
- Reduce the supplier panel
- Digitise transactions
- Improve the supply chain
- Promote continuous improvement
Organisations can then use a specific method to analyse all the data and establish opportunities for improvement and reduce the total cost of ownership.
Data combined with cost control expertise can enable companies to improve their competitive edge and reinvest the money saved into their development projects.
