As corporate procurement departments have gotten leaner and leaner, and buyers have been asked to do more with less, it only stands to reason that tail-spend expenses, with relatively low-spend volume priority, tend not to get the same attention as they would if procurement resources were more robust.
Low-spend volume doesn’t necessarily equate to a lack of savings opportunity, though, as these lesser-managed categories tend to be the places where supplier margins are fattest.
This is one cost of lean procurement: the inability to act on good opportunities in certain tail-spend categories.
For a plant to operate, the uniform service, waste hauler and pest-control technician must show up on a regularly scheduled basis. This is non-negotiable. Uniforms have to be delivered. Waste needs to be hauled away. Pests must be controlled. And so, when the contract is about to expire, there’s a moment in time that tends to overcome whatever internal corporate inertia usually prevails in these areas.
For those brief moments, these lower-tier expenses move to the top of a busy buyer’s list of priorities, although that focus never lasts long in a lean procurement department. Soon enough, a new agreement gets signed, or an extension is granted, and the buyer returns to focus on higher priorities.
The strategy, if you can call it that, is entirely reactive: an impending contract expiration demands attention. A new commitment is made. Then attention moves elsewhere, until it’s demanded again.
When it comes to these typically mismanaged expenses, the biggest source of competition is internal corporate inertia. Failure to secure uniforms, waste hauling or pest control might be a disaster at the plant level, but nobody turns into a pumpkin if they don’t start saving 30% or 40% on those services next week — even if it’s completely possible to do so.
In lean procurement departments, many buyers are only working on that which is completely non-negotiable at any moment in time, and are lacking anything but a reactionary strategy for most of their portfolio of expenses.
If a deal is lost at the category manager level, the excuse is, “I’m working on MRO, or energy, or logistics, so I can’t possibly look at that right now.” Which translates to: “I don’t have a strategy for the stuff I’m not actively working on at present.”
P&L owners, procurement leaders and finance managers should ask procurement team members the following two questions:
Odds are you won’t be terribly impressed with the answer to number 2, and a teachable moment may emerge.
It’s often said that you can be good at your job by doing good work across your biggest-priority categories. But to be great at your job requires a strategy across your entire portfolio — even the categories you aren’t actively working on at present.
Your suppliers know you’re lean, which makes you a target. In environments where procurement is increasingly asked to do more with less, having a strategy across all expenses — not just your highest-priority categories at this moment in time — must be non-negotiable.
As you identify the categories in need of a strategy, take note of this reality: Just because a buyer isn’t “actively working on” a particular expense doesn’t mean they aren’t losing valuable time to that category.
When it comes to distractions, not all expenses are created equal, and the realm of tail-spend expenses is inhabited by some especially distracting categories. When rented uniforms aren’t getting returned at Plant 16, the problem gets escalated to your buyer. Plant 11 is complaining about “container overfill” charges on its waste-disposal invoices, and your buyer is pulled into the dispute. Plant 5’s pest control provider says the location needs a $200,000 fumigation. Does it really? And is that cost right?
Your buyer wasn’t “working on” any of these categories. But all the distractions are most assuredly eating into productivity on the higher-priority initiatives that are actually “on their radar.”
With the right strategy, you can not only save money in these categories. You can also enhance the productivity of your team, by reducing the continuous distractions emanating from those expenses.
Here’s the thing about many of these “under-the-radar” tail-spend expenses: They’re stealthy, by definition. They attack when you’re not looking. And as we’ve discussed, it’s not only your bottom line that’s under attack — it’s also your team’s precious time and mission focus. So any strategy that fails to build in defense mechanisms against these continuous attacks will be insufficient.
Effective contracting alone will never be enough in these categories. Even an optimal contract can’t fend off the full range of a supplier’s efforts to increase spend, nor can it prevent field-level distractions from eating away at your team’s productivity. It’s not better contracts you need (though you might need those, too), it’s better strategies.
The expense-management world offers a host of solutions for overburdened procurement departments feeling the pressure to deliver savings. Investigate your options, but beware: Many of the “solutions” you’re offered won’t solve the most vexing, ongoing problems with complex tail-spend categories, and you’ll find yourself dealing with the same distractions and bottom-line erosion you’ve always endured.
Your strategy can’t end at sourcing and deal-making. With many tail-spend expenses, any strategy offering procurement without management will miss the target and leave you exposed. But the right strategy can deliver the quick wins you need while also solving persistent problem areas for your business. Maybe then, you can finally stop chasing your tail.
Rich Ham is CEO of Fine Tune.
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