Tail Spend Management

What is tail spend management?

With tail spend referring to the low-value, decentralized, and often unmanaged purchases made within an organization, tail spend management is the process of gaining visibility and control of this spend – an amount that, combined, can equate to as much as 20% of business’ total spend.

Companies that take a strategic approach to managing this tail spend – or more specifically, identifying, consolidating, and streamlining these purchases – often benefit from substantial cost savings.

Benefits of effectively managing tail spend

Cost savings

There are a number of ways that tail spend management can deliver cost savings, including:

• Reduced maverick spend – By gaining visibility and control of tail spend, organizations can eliminate unapproved purchases, which can subsequently lead to better pricing and terms through preferred suppliers. It also enables procurement leaders to rightsize contracts based on usage data, which is particularly important given how maverick spend contributes to a substantial amount of SaaS wastage – 33% of all software licenses are either unused or underutilized.
• Negotiations – Software prices are very rarely set in stone, even for tools that may have been categorized as tail spend. Our own data indicates that companies tend to overpay for SaaS by an average of 26%, which means that factoring negotiations into your tail spend management can deliver substantial cost savings.

The earlier you start negotiations, the better – when negotiations begin more than 90 days ahead of renewal dates, companies achieve average savings of 49%. Check out our spend insights hub for exclusive intel.

• Consolidation of duplicate or redundant applications – By identifying and consolidating duplicate tools in use across the organization, as well as those serving the same purpose as other applications being subscribed to, companies can significantly cut back on their software spend.
• Volume discounts – By taking a more strategic approach to managing low-value purchases, organizations stand to secure volume discounts by consolidating the smaller, fragmented purchases being made across different departments. Common examples include office suppliers, as well as lower-value software licenses such as project management tools which are often subscribed to by multiple teams.  

Improved procurement efficiency

• Centralized purchasing control – Tail spend management helps bring fragmented purchases under control, providing companies with full oversight of their spend. With the right procurement software, companies can then identify all cost-saving opportunities that exist across their entire tech stack.
• Faster approvals – When tail spend is effectively managed, companies can ensure that the procurement of these purchases go through automated workflows, allowing for quicker approvals and therefore faster delivery or implementation.

See how one company sped up their approvals process by 30%.

More strategic sourcing

Tail spend management also allows organizations to focus on long-term value, rather than solely cost reduction. By being more strategic with supplier selection, companies can:

• Establish stronger partnerships – Building lasting relationships with suppliers based on trust and collaboration can lead to not only better service levels, but also preferential pricing and access to innovative new features.
• Optimize supplier diversity – Expanding the range of suppliers can help companies find more competitive pricing, unique offerings, and reduce reliance on a few large vendors. This is particularly important in tail spend, where smaller purchases are typically overlooked.

Greater compliance

By strategically managing tail spend, companies can ensure that all purchases, regardless of their size or value, are compliant with organizational policies and regulatory requirements, for example GDPR or HIPAA.

Tail spend analysis: The key to identifying savings and efficiency

Tail spend analysis specifically refers to the process of examining an organization’s spending patterns in order to identify opportunities to reduce costs and improve efficiencies.

How to identify tail spend

Identifying tail spend within an organization requires a systematic approach and should be shared between both finance and procurement teams. This approach specifically involves:

• Data collection – The first step in identifying tail spend is to obtain a complete picture of your procurement spend, pulling data from your procurement software, ERP system and/or finance platforms. It’s important that you have full visibility of this spend, including instances of shadow IT. If you’re not already doing so, we’d recommend investing in a SaaS management platform that offers SaaS discovery functionality.
• Categorize spend – To work out which purchases constitute tail spend, you will need to start by categorizing all areas of expenditure. Start by separating spend into different categories and value ranges, for example low, medium, and high-value, as this will allow you to more easily identify the smaller-dollar transactions contributing to this tail spend. You may also want to set a threshold for what qualifies as low-value.

‍What to analyze

Once you’ve identified the purchases making up the tail, you can start analyzing the data to pinpoint opportunities for both cost savings and improved efficiency.

• Analyze supplier performance – Identify which suppliers or vendors are receiving a disproportionate share of the low-value spend. This can highlight inefficiencies in the supply chain, drawing attention to those that might not be providing the best value, have poor service levels, or charge more than alternative suppliers. With this knowledge, you can take proactive steps to renegotiate contracts or even switch to one offering better terms or pricing.
• Identify instances of maverick spending – Maverick purchases that fall outside of company-approved suppliers and procurement processes are often a major contributor of tail spend. These unapproved purchases typically result in higher prices, inconsistent quality, and missed opportunities for negotiated savings. By flagging high-risk or non-compliant spend, you can also take corrective action by redirecting purchases to approved suppliers, improving compliance, and ensuring that all spending aligns with the organization's budget and procurement strategies.

Find out the specific metrics that leading procurement teams are tracking to tackle wasted spend and drive organizational value.

• Evaluate spend by department – Identify which departments or business units are responsible for most of the tail spend. This insight allows you to pinpoint areas of overspending or inefficiencies, enabling you to implement targeted cost-saving procurement strategies. By analyzing department-level spending, you can identify patterns such as frequent small purchases or reliance on non-preferred suppliers, and work with those departments to streamline purchasing processes.
• Examine purchase categories – Review which categories of spend contribute most to tail spend. This can help to understand where you may be overspending, as well as where you may be using multiple suppliers for the same type of purchase. With this intel, you can make more informed decisions on whether to consolidate purchases, standardize procurement, or switch to more cost-effective suppliers.
• Review contract terms – It can also be worth examining the terms and conditions of existing contracts, looking at the pricing, payment terms, renewal clauses, and even volume or performance-based incentives. By reviewing these terms and comparing them against pricing benchmarks and utilization data, you can start to uncover whether you’re overpaying for these subscriptions and getting enough value from them, while also identifying any discrepancies between what was agreed upon and what is actually being provided.

How to improve your tail spend management

An effective tail spend management strategy has several fundamental components that can drive significant saving opportunities. In fact, organizations can easily reduce costs, streamline processes, and improve supplier relationships simply by stopping tail spend from slipping through the net.  

With this in mind, here are some of the steps that can be taken to improve tail spend management.

‍1. Optimize internal processes

It’s important that you have a streamlined process in place for managing the procurement of tail spend. By automating and standardizing key steps in the purchasing process, such as approvals and requisitions, you can reduce both inefficiencies and errors. Tail spend automation plays a crucial role in this by ensuring that low-value, fragmented purchases are automatically routed through approval workflows, reducing manual oversight and enabling faster decision-making. This automation not only enhances efficiency but also ensures better control over tail spend, ultimately leading to significant cost savings and process improvements.

2. Standardize and analyze spend data

Once you have identified your tail spend, you will need to consolidate the data into a centralized system. This will allow you to analyze spending patterns, enable better decision-making, and help to uncover opportunities for reducing costs and consolidating suppliers.

3. Set clear goals and procurement KPIs

Establish measurable objectives and key performance indicators to track the success of your tail spend management strategy. Example procurement KPIs could include reducing maverick spending or even savings from tail spend optimization. ‍

4. Leverage advanced procurement automation

Consider working with a procurement software provider that utilizes advanced tail spend automation, or better still AI, as this can allow for enhanced data analysis, more streamlined procurement processes, and the ability to more easily identify opportunities for both cost savings and efficiency improvements. Get a better idea of what AI in procurement consists of here.

‍5. Promote financial visibility and accountability

Effective tail spend management and optimization relies on there being standardized procurement processes in place across the organization. As with any change management initiative though, its success does, however, rely on the relevant stakeholders fully understanding the impact of unmanaged purchases. By fostering open communication and maintaining full transparency, you can enhance accountability, reduce maverick spend, and cultivate a culture of financial responsibility.

6. Continually monitor and refine

As with any aspect of procurement, it's important to continuously assess and refine your tail spend management practices to ensure ongoing efficiency and cost-effectiveness.

Outsourcing tail spend management

One of the most effective ways to better manage tail spending is by outsourcing the process to external procurement specialists.  

While many procurement providers can handle as much or as little of your processes and contracts as needed, many companies opt to solely outsource the procurement of non-strategic, low-value software subscriptions, for the simple reason that they don’t have the time or resources to manage these smaller, less critical purchases internally.

Some of the specific benefits of outsourcing tail spend include:

• Being able to leverage expertise and resources – Outsourced tail spend management providers not only bring vast amounts of knowledge and experience to the table, but they also have the technology to streamline processes and improve efficiency.
• Substantial time savings – By working with external procurement experts, companies can offload the management and negotiations of low-value contracts, freeing up a substantial amount of time to focus on more strategic procurement initiatives.

Take a look at how one company saved 115 hours on contract negotiations in just three months.

• Better visibility – In addition to consolidating all software applications, the best procurement providers will also utilize advanced features and functionality to provide detailed insights into an organization’s spending patterns and software utilization rates. With more comprehensive SaaS and cloud visibility, companies can more easily identify and address inefficiencies.
• Significant cost savings – Many providers will not only have access to exclusive pricing benchmarking data, but they will also have a huge amount of vendor knowledge and substantial negotiation experience. Combined, this gives them unrivaled buyer power in negotiations, enabling them to secure the best possible price and terms on any contract – tail spend included.
• Demonstrating strategic value – There are almost always opportunities to drive down the cost of tail spend, however many procurement leaders simply don’t have the time to devote to managing these purchases. By outsourcing it to a third-party procurement provider, companies can benefit from their expertise and technology – including, but certainly not limited to their tail spend software – ensuring that this area of lower-value spending is being optimized without straining internal resources. By achieving cost savings, improved compliance, and more efficient processes, procurement teams are able to demonstrate greater value across the organization.

Tail spend management software: Your options and tips for evaluating providers

There are huge benefits to outsourcing the procurement and management of your tail spend, however, there are a number of considerations that should be factored in when making a decision on which software provider to partner with.

• Negotiations – When it comes to tail spend management, it’s not just about identifying the purchases that constitute tail spend, it’s also about making sure they are delivering value long-term. For software purchases, this involves securing the best possible pricing and terms during contract negotiations. Ensuring that any provider you’re evaluating can handle these negotiations on your behalf is therefore key to getting the best possible deals.
• Workflow capabilities – We’d recommend assessing the platform’s workflow and intake management capabilities and customization options. Ideally, you should be opting for a solution that can enable bespoke workflows for these more tactical purchases, for the simple reason that the requisition and approval processes will differ to the more strategic and higher-value purchases.
• The breadth and quality of vendor benchmarking data – While successful negotiations are dependent on a range of factors, the savings potential will largely come down to the quality of the provider’s pricing benchmarking data. It is therefore worth investing in a platform that has extensive vendor coverage, and that also operates globally as this will ensure successful negotiations in any market.
• Savings guarantee – Spend management plays a critical role in reducing and optimizing tail spend, and while almost all platforms on the market provide this functionality, very few solutions actually guarantee cost savings. By doing your research and choosing one that guarantees savings, you can ensure maximum ROI on your procurement software investment.

Get a detailed comparison of the leading SaaS Procurement and Management Platform providers in this Lionfish Tech Advisors Report

Manage your tail spend with Vertice

Tail spend is just one of the many factors pushing up software expenditure year-on-year, but without proper management and visibility, it can easily go unchecked, leading to a substantial amount of wasted spend.

By partnering with Vertice, you’ll not only have total visibility of your entire technology stack – tail spend included – but our advanced platform and expert procurement team will also ensure that this spend is optimized for maximum cost savings and that your processes are streamlined for greater efficiency.

Why not see for yourself how our tail spend software helped one of our customers achieve average savings of 32% across their entire software portfolio, or how we saved another more than $330,000 in just three months?

Alternatively, see for yourself how we can help you achieve total procurement visibility, identify utilization rates across your organization, and uncover substantial cost-saving opportunities by taking a self-guided tour of our platform.

If you’d like to learn more about tail spend management and its associated topics, check out the list of articles below.

• SaaS visibility — A guide to surfacing SaaS licenses in your organization and eliminating shadow IT;
• Cloud visibility — A guide on how to improve visibility of the cloud products in your IT system;
• Shadow IT — Learn more about maverick purchasing, known in the SaaS space as shadow IT, and how to tackle it;
• Cloud spend management — Information on how to effectively manage cloud spend, including a 60% reduction on AWS EC2;
• Full stack observability — Closely linked to SaaS visibility, gain insight into the end-to-end performance of your entire SaaS portfolio;
• IT procurement category management — Discover how category management can ease procurement efforts and stimulate greater ROI;
• IT procurement purchasing strategy — Information on how to build an effective purchasing strategy in IT procurement;
• SaaS spend management — Wider insight into SaaS spend and how it can be brought under the control of software tools;
• Vendor relationship management — A guide to vendor relationship management and why it’s vital to all procurement efforts.