As cost savings targets increase, procurement teams find themselves having to balance multiple demands on tight budgets. Add to this the volatility of global markets, and the subsequent nervousness from businesses about making investments, and you have a function that is being asked to do more, with increasingly less money.
These pressures are seeing procurement professionals widen the search for savings – and this, in turn, is leading many to look at their tail spend (the money spent on low-value transactions). This area usually accounts for around 20% of a purchasing budget but covers 80% of a company’s suppliers.
Getting to grips with tail spend can take up a great deal of time and administrative effort; time and effort that could be put to better use. If procurement teams want to get a better handle on this spend, they should take a closer look at the types of systems and processes they use, as this is where the administrative burden often lies. Reducing this burden can free up time and effort for procurement professionals to work with more suppliers and speed up the time to complete purchases.
One option to ‘tame the tail’ is to introduce a card-based payment model, which can reduce the hours spent completing laborious tasks such as checking the progress of transactions and setting-up new suppliers. The card issuers perform the background checks – such as anti-money laundering, anti-bribery and corruption – on new partners, speeding-up and simplifying the onboarding process.
This kind of approach can also help reduce the margin for human error, which, when dealing with sensitive data such as banking details, is critical to maintaining both security and good relationships with customers and providers.
While every company is unique, any business that interacts with suppliers risks falling into a costly tail spend trap. Working with a payment provider to optimise the purchasing process can provide one solution, with the business able to improve the way it tracks, processes and records transactions.
But the main thing to remember when taking control of tail spend is that, when implementing new systems or processes, winning the support of stakeholders is key. After all, without the backing of the business, the tail will remain untamed.
Maria Parpou is product director for Barclaycard Commercial Payments
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This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.