Tail spend—those small, but frequent purchases spread across various departments—is often seen by many companies as too insignificant to manage.

Yet, its cumulative impact can result in inefficiencies and hidden costs.

Effectively managing tail spend helps procurement teams take control of these overlooked expenses, unlocking greater transparency, efficiency, and cost savings.

In this article, we’ll explore the top five benefits of tail spend management and share practical insights on how to achieve them.

Increased Transparency

To better understand how tail spend management increases transparency, we first need to define what tail spend is.

Here’s how the Boston Consulting Group (BCG) defines it:

“Tail spend is generally defined as the amount of money that an organization spends on purchases that make up approximately 80% of transactions but only 20% of total spend volume.“

Therefore, these 80% of transactions typically include a vast number of low-value, frequent, or infrequent purchases across many product/service categories and an even larger number of suppliers.

Below, you can see this 80/20 distribution based on the Pareto principle, along with some typical types of purchases that can be classified as tail spend.

Source: Veridion

The tail spend categories shown above are just some typical examples, and what constitutes tail spend can vary from organization to organization.

Because these purchases are considered minor individually, they often go unmanaged, but their sheer volume can lead to significant inefficiencies and hidden costs.

Conversely, such inefficiencies can be eliminated and unnecessary costs reduced by increasing tail spend transparency.

In fact, The Hackett Group’s study revealed that companies actively managing tail spend can cut their annual expenditures by approximately 7.1%.

Here’s a more detailed breakdown of the responding companies’ cost-saving estimates.

Illustration: Veridion / Data: The Hackett Group

While the potential for savings is clear, the challenge lies in how companies can increase tail spend transparency to realize this benefit.

The issue is that tail spend is often decentralized across departments, business units, or locations, so it lacks the same oversight as strategic spend.

While this complexity was the main reason why tail spend was not controlled by procurement in the past, that’s no longer the case.

More precisely, the advent of digital tools—from procurement automation solutions to spend analytics software—has enabled companies to centralize and track even the smallest transactions with greater accuracy.

Such tools allow procurement teams to gain valuable insights into tail spend, identify purchasing patterns, and enhance financial forecasting and budgeting.

This not only increases transparency but also enables better decision-making, ultimately allowing companies to manage their tail spend much more efficiently.

Reduced Complexity

The complexity of tail spend transactions has historically been the primary barrier preventing procurement teams from gaining visibility and control over these smaller purchases.

While digital tools have made achieving transparency much simpler, this is only part of the solution.

More precisely, tail spend often remains scattered across numerous stakeholders, categories, and suppliers, which leads to complex and inefficient procurement processes.

This is supported by Amazon Business’s 2024 State of Procurement Report, where survey respondents identified complex systems and processes as the number one challenge for procurement departments.

Illustration: Veridion / Data: Amazon Business

This complexity stems from both internal and external factors.

Internally, many organizations deal with fragmented procurement processes where multiple departments, locations, or business units are independently making purchases.

These decentralized practices often lead to inconsistent procedures, varied supplier relationships, and a lack of standardization, all of which complicate tail spend management.

On the other hand, trying to route all tail spend purchases through procurement adds complexity.

It increases administrative overhead and can potentially lead to suboptimal purchasing decisions.

That’s because procurement teams often lack the necessary technical expertise to evaluate highly specific products needed by particular departments or business units.

The Amazon Business report we mentioned suggests a balanced approach:

Illustration: Veridion / Data: Amazon Business

In this model, department-level stakeholders handle simpler, low-risk purchases while relaying their expertise on specialized products to the procurement team. 

The procurement team then manages the rest of the process, including supplier selection and negotiations.

This approach reduces the complexity of procurement’s workload without compromising its oversight or control.

As for external factors that increase complexity, the sheer number of suppliers involved in tail spend also complicates effective procurement management.

Many companies need to maintain relationships with a wide range of suppliers for small, routine purchases, often with limited leverage for negotiation due to the low volume of spend per supplier.

One of the most effective ways to reduce this complexity is supplier consolidation.

By reducing the number of suppliers, organizations can streamline procurement processes and gain better control over their tail spend.

To do this effectively, you first need to identify smaller or redundant vendors in your supplier base, which requires accurate spend data.

As Donnie Finkler, a global commodity manager, points out:

Illustration: Veridion / Data: LinkedIn 

This approach again underscores the importance of conducting detailed tail spend analysis with the help of digital tools.

Leveraging these tools will greatly simplify the analysis and allow your organization to consolidate spend with fewer strategic partners.

This will not only reduce the complexity of procurement processes but also streamline supplier management, leading to greater efficiency and improved control over tail spend.

More Efficient Processes

Another benefit of effective tail spend management is the improvement of overall procurement efficiency.

As companies gain greater visibility into their tail spend, they can identify inefficiencies or overly complex processes within their procurement system.

This newfound clarity opens the door for streamlining workflows and automating routine tasks, both of which contribute to more efficient procurement processes.

Yes, improving work procedures and resource allocation is important.

But automating manual, time-consuming procurement tasks is even more crucial for enhancing efficiency and reducing errors.

With all the talk about digital transformation in procurement, one might assume that most companies have already automated their processes.

Yet, there remains significant room for improvement, as the numbers from the 2023 Ivalua research highlight.

Illustration: Veridion / Data: Ivalua

As you can see, more than half of procurement and supplier management processes are still not digitized and therefore not automated. 

This leads to a significant portion of the procurement team’s time being wasted on manual or paper-based tasks, which makes processes less efficient and leaves room for human error.

This is particularly true for diverse and scattered tail spend transactions.

Conversely, when key processes such as purchase orders, invoice management, and supplier discovery are automated, it can free up valuable time and resources.

More specifically, procurement teams can then focus on more strategic activities like supplier tail spend analysis, supplier consolidation, and risk management.

Let’s take supplier discovery as an example.

While finding new suppliers that meet your specific procurement criteria has historically been one of the most time-consuming tasks, that’s no longer the case.

In fact, McKinsey’s research has shown that automating this process with the help of AI-driven algorithms can reduce the time needed to find suppliers by 90% or more.

To illustrate, take a look at the comparison below. 

It shows the difference between a manual supplier search (via internet searches and spreadsheets) versus an automated search powered by our supplier-sourcing tool, Veridion.  

Source: Veridion

As shown, the automated search significantly accelerated the supplier-sourcing process and discovered considerably more suitable candidates.

Keep in mind that the initial search for suppliers in Veridion, once you’ve entered the desired criteria in natural language, takes only a few seconds.

In the above example, the remaining time was spent on vetting potential suppliers against additional criteria (such as their ESG commitments) and assessing risks like financial stability and fair labor practices.

This is achieved by giving your team access to Veridion’s global, weekly updated database of suppliers and advanced search functions.

Source: Veridion

This automation of supplier discovery and the resulting efficiency gains can be extended to other processes through relevant procurement automation tools.

By applying similar automation to tail spend management, you can streamline routine purchases, reduce manual effort, and save valuable time, thus increasing the efficiency of your procurement processes.

Cost Savings

A natural result of having transparent, less complex, and more efficient processes is procurement cost savings, especially in the tail spend space.

As we mentioned, these savings can amount to about 7% of total spend for at least one-third of companies that actively manage their tail spend.

This is because unmanaged tail spend often involves paying higher prices due to a lack of negotiating power and missed volume discounts.

Therefore, identifying recurring tail spend items opens the door to consolidating those purchases, which can unlock significant cost savings.

To illustrate, let’s take Delta Airlines as an example.

Before Delta introduced centralized spend management software, the company’s business units were procuring their own services and supplies without informing each other of the deals they achieved.

Once all the spend data was centralized, this revealed many tail spend areas where Delta could use its purchasing power to drive savings.

For instance, they consolidated hotel providers and managed to save $11 million in three months.

Illustration: Veridion / Data: Procurement Academy

This example shows how centralizing spend data can reveal opportunities for consolidation and generate significant savings in tail spend areas.

Of course, effective tail spend management can uncover additional cost-saving opportunities beyond consolidation. 

For instance, tail spend transparency allows procurement teams to analyze purchasing patterns and detect duplicate or unnecessary purchases whose elimination can reduce procurement costs.

Likewise, centralized and automated procurement processes allow companies to track tail spend transactions, which helps ensure compliance with procurement policies.

In turn, this can minimize off-contract, maverick purchases.

Overall, when tail spend is properly managed, your organization can realize significant financial benefits while improving operational efficiency and reducing administrative costs.

Less Risk

Lastly, effective management and optimization of tail spend can significantly reduce the risks your organization faces.

These risks include lower product quality, supplier unreliability, and contractual non-compliance, to name a few.

For instance, unmanaged tail spend often results in inadequate supplier vetting, which increases the likelihood of engaging with low-quality, unreliable, or unethical vendors.

This can damage your organization’s reputation and expose you to legal disputes.

Additionally, unchecked supplier quality issues and delivery delays can disrupt your operations. 

Likewise, inadequate supplier vetting increases your company’s vulnerability to fraud, which, according to Trustpair’s 2024 Fraud Report, affected 96% of US companies in 2023.

Illustration: Veridion / Data: Trustpair

In addition to all this, unmonitored tail spend opens the door for end-users to bypass established purchasing policies, leading to rogue spending or friendly contract awards.

Naturally, such actions then inflate purchasing costs and undermine procurement strategies.

Increased compliance risks are another concern.

Since tail spend transactions often fall outside standard procurement processes, this raises the likelihood of non-compliance with internal policies and external regulations.

This exposure can again result in increased costs, legal penalties, and reputational damage.

Conversely, implementing robust tail spend management strategies supported by the right tools can mitigate these risks by enhancing visibility, streamlining spending practices, and ensuring internal and regulatory compliance.

Conclusion 

It’s clear that effective tail spend management leads to numerous benefits, from increased transparency and reduced complexity to cost savings and risk mitigation.

It enables procurement teams to track and manage tail spend purchases more efficiently, eliminate inefficiencies, and ensure compliance with internal and external regulations.

By centralizing spend data and leveraging procurement automation tools, your organization can achieve tail spend savings and efficiency gains, ultimately driving significant financial and strategic value for your business.