State of
Tail Spend
Study by:
Welcome to the first annual State of Tail Spend. In the past five years, tail spend has become an increasing area of focus for companies due to a number of factors including supplier risk, operational risk, and bloated costs. As new technologies and processes to manage tail spend come about, The Hackett Group conducted a study to highlight new tail spend trends and what is coming next.
These responses were gathered from approximately 50 procurement leaders, including some of the largest companies in the world. They highlight the ways that tail spend has changed over the past year and where tail spend is going next. Here are the top trends and insights that stood out as we analyzed the responses:
Over 75% of respondents said that managing tail spend is a priority within their organization, with almost half of those respondents identifying it as a top priority.
This trend is continuing to grow. Almost 3/4ths of respondents noted that the importance of tail spend as an initiative is growing and very few see it slowing down any time soon.
It’s no wonder tail spend is a priority. Over half of the companies that responded said that tail spend comprises over 10% of their annual spend—that’s a lot of cash!
Unsurprisingly, the majority of respondents reported that over 80% of their suppliers were within their tail spend but almost 20% said reported this figure to be over 90%. This vast number underscores how critical it is to get the tail under management.
While respondents recognize the importance of managing tail spend, almost two thirds of respondents have seen minimal savings (<3%) with their tail spend management programs thus far, compared to the savings they are seeing in non-tail spend (80% see over 3% savings).
Almost 60% of respondents believe that 7%+ savings are achievable, which is much higher than the <3% savings they are currently experiencing. This leaves plenty of room for potential savings.
Traditional tools such as electronic requisitioning and catalogs are the most common ways that respondents are trying to manage their tail spend. While these methods have led to success for non-tail spend, there still is a lot of opportunity to adopt automation tools and B2B marketplaces as a way of unlocking those savings in tail spend.
The top challenge in managing tail spend was a lack of data integrity and visibility, with half of respondents agreeing it was getting in their way.
Half of respondents have little to no visibility into their tail spend—25% of spend or less. With that lack of clarity, it is not surprising that companies are having trouble driving proper tail spend management.
As the second most common challenge, 40% of respondents stated that difficulty managing end users also prevented them from properly managing tail spend. Combined with the level of effort required, and the lack of tools to help them, no wonder most were seeing minimal savings from their tail spend management efforts.
70% of respondents believe that reducing non-compliant spend, also known as maverick spend, is the biggest driver for improving tail spend. Not surprisingly, getting better spend visibility, which is a direct outcome of reducing rogue spend, was second.
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It’s safe to assume that respondents will be prioritizing reducing non-compliance in their efforts to optimize savings since it was identified as the major driver. In order to accomplish this, there’s an opportunity to look towards new, non-traditional tools and practices that are not being leveraged broadly.
This study was conducted by The Hackett Group, Tail Spend Management Survey, 2021