Philip Letts, CEO at blur Group, explains why companies that do the little things well are the real innovators
It’s the big announcements, the sweeping changes, the dramatic upsets that get the headlines, be it in politics, business or sport. Think Trump, Brexit, Leicester City.
But it can often be the little things that add up to a greater and longer-lasting permanent change. For brands we associate with exceptional customer service, it’s about covering every single last detail. For the brands that we admire for their perfection in design, like Apple, Dyson or Nike, it’s the same.
Innovation in procurement is another area where attention to detail really counts. And that’s nowhere more true than in tail spend where 20% of spend is directed to 80% of a firm’s suppliers.
While most companies believe they have the majority of their purchasing categories under control, tail spend is often neglected.
And yet there are companies, often the more agile and progressive firms, reaping the benefits of a fixation on this.
Messy and fragmented, transactions here are often of a relatively low value and seen as difficult to manage.
But that’s exactly why they should be managed. ‘Untouched and unchartered’ areas of internal spend are ripe for spend management and optimisation.
A study by The Hackett Group shows that, on average, over 7% cost savings can be achieved by managing tail spend better, and 30% of those surveyed thought they could achieve over 10%.
A major component of tail spend is uncontrolled maverick purchasing that circumvents established procurement procedures. Hackett estimates that many companies could cut costs by up to 5% just by tackling this.
But the benefits of properly managing tail spend extend beyond cost reduction.
Given its fragmented and complex nature, monitoring and managing tail-end transactions is difficult, and it’s this complexity and lack of visibility that creates the perfect conditions for procurement fraud.
A lack of scrutiny of low-value or one-off transactions from a myriad of suppliers, makes it easier for deliberate duplicate invoicing, for example, to pass unnoticed.
Meanwhile, legacy sourcing and procurement systems are often inefficient and potentially add to the problem, making purchasing more costly than it need be.
Given these perceived difficulties, many companies think that the benefits aren’t worth the effort or resources involved. That argument may have had some validity in the past, but no longer.
The latest technologies make it possible to track, monitor and control tail spend. In fact, it’s virtually impossible to properly manage tail spend without ‘going digital’.
Streamlining procurement processes to eliminate as many unmanaged components as possible is another part of the solution.
For those who continue to assume it’s too much of a challenge, the gap will continue to widen with the innovators already rolling out modern procurement practices across all aspects of their business.
At a time when CEOs cite cost reduction as their most pressing concern, why wouldn’t they be looking at every possible avenue to achieve savings? Leaders like to think big, but if that’s at the risk of losing sight of the fine details, there is, literally, going to be a cost.
Philip Letts is CEO at blur Group
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.