The Strategic Importance of Tail Spend: A Missed Opportunity
A Nomia vision Paper
Our customers tell us that tackling tail spend is seldom high on the priority list of a CEO, CFO, or even the CPO. Procurement departments usually focus much of their time and efforts on managing strategic spend – the high-value purchases central to a company’s risks, partnership and operational success. This approach makes perfect sense: with mission-critical products and services at stake, the C-suite and procurement team devote their attention to core, high-cost transactions, ensuring they are managed with precision, efficiency, and compliance. On the other hand, tail spend – typically comprising low-value, high-frequency transactions, that often appear to offer less strategic value vs effort – sometimes flies under the radar. Despite the smaller scale of individual purchases, when combined, tail spend can have a significant impact on the bottom line. It can cumulatively account from millions to occasionally billions of dollars each year, depending on the size of an organisation. What is sometimes overlooked is the hidden potential within tail spend – for cost savings, improved efficiency, greater supply chain agility, and better risk management – which can be unlocked when it is addressed and managed effectively. As businesses face a more competitive global landscape, exploring ways to optimise procurement strategies is becoming essential to future success for enterprises. Indeed, recognising the importance and value of taking control of tail spend can create significant business value. Moreover, seeking and leveraging the right combination of professional experience and Artificial Intelligence (AI) technology empowers organisations to turn this neglected procurement area into a competitive advantage.
Understanding the Challenges of Tail Spend
For many organisations, tail spend is not a central focus for their procurement teams. Strategic spend, which typically accounts for 80% of an enterprise’s annual outlay, includes purchases such as manufacturing materials, business-critical IT infrastructure and software, logistics and transport services, sensitive business processes such as customer support, and utilities and energy – usually triggered over a certain cost threshold. Many procurement teams are skilled in navigating these high-value transactions and managing them effectively in effect aligning their own strengths and costs to the most important area.
Tail spend – sometimes called ‘tail end spend’ – typically represents roughly 20% of total spending in an organisations and tends to be a low priority for procurement teams. Consisting of an often-overwhelming number of low-value transactions across multiple departments and locations. Tail spend generally covers items that are less integral to the business than strategic spend. These transactions are usually spread across a vast array of suppliers, with procurement teams sometimes lacking visibility or control over how much is spent, with whom, and for what purpose.
We are told that managing these transactions internally can be a massive administrative burden – requiring resources to track spending, negotiate contracts, ensure compliance, and onboard suppliers. Dealing with hundreds or even thousands of transactions for items such as office supplies, marketing materials, event catering, computers and IT peripherals, specialised software, cleaning supplies, and travel and accommodation can stretch even the most well-staffed procurement teams.
Given the fragmented nature of tail spend, companies could easily conclude that the effort required to manage it effectively outweighs the benefits. For many procurement teams see expending their resources to concentrate on tail spend as a challenge that they often don’t have the budget to address, and that would not deliver a worthwhile return on investment. This decentralised and fragmented nature of tail spend can lead to “maverick” spending—unmonitored purchases made outside standard procurement channels, exposing customers to increased spend a compliance challenges.
Often, the cumulative effect of tail spend transactions goes unrecognised, though it can provide substantial financial and strategic benefits when addressed collectively. While each individual transaction may be relatively small, when totalled, these purchases can amount to billions of dollars annually for major enterprises. For example, a global financial institution with $10 billion in total external spend might view 20% of that – or $2 billion – as tail spend.
Failing to effectively manage tail spend on that scale can lead to several issues, including:
- Missed savings opportunities: Without competitive sourcing or oversight, businesses may pay more than necessary for products and services. Vendors often charge higher prices when there is a lack of competition or transparency.
- Compliance risks: Tail spend transactions are frequently not subjected to rigorous compliance checks. This exposes companies to potential violations in areas such as transparency, internal policies, industry certifications, regulatory requirements, supplier diversity targets, ethical standards, and other criteria.
- Operational inefficiencies: With multiple departments and individuals managing low-value purchases independently, procurement processes can become disjointed, leading to inefficiencies, redundancies, and missed opportunities for optimisation.
Unlocking Savings Potential
One of the most compelling reasons to address tail spend is the potential for significant cost savings. A broad array of industry research has shown that companies can achieve savings ranging from 5% to 15% on tail spend through different procurement management practices, such as expanding their supplier base rather than contracting it, running more competitive tenders, and implementing data-driven decision-making.
The key to unlocking these savings lies in accessing a wider array of vendors and negotiating more competitive contracts. Buyers at the individual or departmental level sometimes stick with familiar suppliers or choose the most convenient option for low-value purchases, due to time pressures and miss out on cost savings. It becomes a simple effort vs reward equation. By widening the choice of vendors and encouraging direct competition, businesses can secure better deals, even for routine or minor purchases. For instance, Nomia’s experience in widening the tail spend supplier pool for Fortune 500 and Global 2000 companies has netted savings of 7-15% on these transactions. For a company spending $10 billion a year, with 20% being tail spend, the savings can tally as much as $300 million. In addition, many organisations are sometimes unaware of how much they could save by consolidating their purchases across multiple departments. Tail spend, by its very nature, tends to be decentralised, often with little oversight or coordination. Aggregating these purchases into larger contracts or categories enables businesses to negotiate bulk discounts or more favourable terms.
Improving Compliance and Meeting ESG Goals
In an era when Environmental, Social and Governance (ESG) compliance is critical, tail spend can present hidden risks for organisations. Companies are increasingly being held accountable for the environmental and social impacts of their supply chains and their internal targets for diversity and inclusion. However, tail spend often involves small, low-visibility transactions that may not undergo the same rigorous compliance checks as strategic spend. Also appearing to contribute to a lesser degree to any ESG goal.
Ensuring compliance with both internal and external standards become increasingly important moving forward and loose management of tail spend can leave companies exposed, both from a regulatory and a public affairs standpoint. Our customers tell us that they believe that in the future, meeting company policies, legal requirements, and industry best practices will be critical within their organisations, including:
- Competitive bidding and due diligence before onboarding suppliers.
- Contractual requirements such as payment terms, delivery schedules, and insurance.
- Supplier diversity, which can include business type, ownership, location, and representation.
- Industry certifications in areas like approved testing, food standards, and equipment safety.
- Data privacy and security, such as GDPR (General Data Protection Regulation) in the EU.
- Transparency and regulatory reporting with respect to transaction records, contracts, supplier performance, and compliance checks.
Without proper oversight, transactions in these and other areas can expose companies to risks arising from unmonitored parts of their supply chain. For example, using non-compliant vendors, failing to meet diversity quotas, or neglecting due diligence in contracting can all lead to reputational damage, fines, or lost business. By improving the management of tail spend, organisations can mitigate these risks and ensure that even low-value purchases meet the same compliance standards as strategic spend. Furthermore, implementing better data management and analytics tools can provide procurement teams with greater visibility into tail spend transactions, making it easier to track compliance with ESG requirements and other policies.
Accessing Specialist Vendors and Innovators
Another aspect sometimes overlooked, for a more active tail spend management, is its potential to open doors to specialist vendors and innovators. While strategic spend often involves long-term relationships with large, established suppliers, tail spend can provide a gateway to working with smaller, more agile suppliers that offer specialised products or services. These vendors are often at the forefront of innovation, particularly in areas such as technology, IoT, and sustainability.
Without a structured approach to managing tail spend, however, businesses could miss out on the opportunity to engage with these suppliers. Small vendors often lack the resources or capabilities to navigate complex procurement processes, which can lead to businesses defaulting to larger, incumbent suppliers. By streamlining vendor onboarding and simplifying procurement processes to more easily onboard smaller suppliers, companies can gain access to cutting-edge innovations and diversify their supply chains – all while boosting competition. Having a much larger pool of competitive suppliers offers cost-saving opportunities and improved efficiencies while expanding vendor choice by product, service, region, and even scheduling – the ability to meet a tighter deadline, for instance.
Leveraging the Power of Data and Analytics
Managing tail spend effectively requires visibility and control over the entire procurement process. Many organisations struggle with fragmented data, making it difficult to track spending patterns, supplier performance, and compliance. Data and analytics play a crucial role in creating a ‘single source of truth’ for tail spend, equipping businesses to make better informed decisions and optimise their procurement strategies.
AI is already making its mark in strategic spend procurement, but it is also showing tremendous promise in tail spend where it can take supplier tracking, analysis, and automation to the next level. Advanced, AI-driven analytics tools are increasingly enabling procurement teams to identify patterns in tail spend, such as recurring purchases across different departments or opportunities for supplier consolidation. By aggregating this data into a centralised platform, businesses can gain real-time insights into their tail spend, enabling them to identify cost-saving opportunities, track compliance, and streamline supplier management.
Additionally, having a single source of truth helps companies improve transparency and accountability. This will enable procurement teams to easily track spending across departments, ensuring that purchases align with company policies and budgets. This level of visibility often makes it easier to report on tail spend transactions in audits, tenders, or compliance checks, reducing the risk of non-compliance.
Aggregating Vendors and Streamlining Processes
One way of effectively managing tail spend is by aggregating vendors through a single procurement platform or ecosystem. Many large organisations work with thousands of suppliers managed separately by individuals or departments, which has the possibility to lead to inefficiencies, increased administrative load, and higher costs. By consolidating these relationships within a more manageable tail spend management platform – with AI tools providing the necessary analytical power – companies can streamline the onboarding, contracting, and payment processes, reducing complexity and improving operational efficiency.
Vendor aggregation can also enable businesses to negotiate better terms and pricing. When procurement teams have better visibility over all their tail spend vendors, they have a greater opportunity to identify supplier consolidation activities, allowing them to leverage their purchasing power more effectively. Additionally, aggregating vendors through a single platform simplifies the contracting process, ensuring that all suppliers meet the necessary compliance and regulatory requirements.
Freeing Internal Teams efforts
The possibility of outsourcing the management of tail spend has increasingly emerged as a more practical solution than handling it internally through the procurement teams. One of the primary reasons for this is that the sheer volume and complexity of tail spend transactions are deliver less value per activity than alignment to more important vendors for procurement teams. Procurement teams are often stretched thin, and expected to keep doing more with less, reaching their ceiling with high-value strategic spend and having to ignore the tail. Internal procurement taking on the close management of hundreds, thousands, even tens of thousands of tail spend vendors could only create huge bottlenecks slowing the purchase journey and negatively impacting operations and effectiveness. It would also affect partnerships and supplier relationships that have a material impact on planning, budgeting, contract management, and inventory control.
Outsourcing tail spend management allows procurement teams to focus their resources on the big-ticket strategic purchases that drive an organisation’s success while shifting the administrative burden to an organisations set up to manage the complexities and volumes of tail spend. An outsourcing service provider can also offer guidance and access to vast numbers of smaller and specialist vendors that it has vetted through AI-powered analytics. Outsourcing providers with access to AI-driven technology, broad supplier networks, and procurement expertise offer enterprises the tools enterprises need to treat tail spend in a more coordinated, holistic, and strategic manner.
Nomia’s Approach: Creating an End-to-End Tail Spend Management Solution
As companies grapple with the challenges of effectively managing the opportunity and risks inherent within tail spend, Nomia offers an innovative solution that combines human intelligence and AI-driven technology to optimise the end-to-end procurement process. By outsourcing tail spend management to Nomia, businesses can offload the administrative weight of managing a high volume of low-value transactions while gaining access to a broader pool of suppliers and sometimes more competitive contracts.
Nomia’s platform provides full visibility into tail spend, enabling procurement teams to track spending, manage compliance, and identify cost-saving opportunities. Nomia’s procurement experts leverage an AI-driven digital platform to analyse end-to-end data providing real-time visibility into tail spend – reducing errors and improving decision-making. With AI automating time-consuming tasks like supplier matching and experienced procurement professionals overseeing critical decisions, Nomia’s hybrid approach ensures that businesses can manage their tail spend efficiently without sacrificing control or compliance. Nomia empowers organisations the opportunity to make faster, smarter, and even more informed procurement decisions.
In summary, tail spend can represent a missed opportunity for many businesses. By recognising its potential value and importance and leveraging the right combination of technology and expertise, companies can unlock significant value, reduce costs, and usually improve procurement efficiency. Nomia’s end-to-end tail spend management solution offers a practical way to transform this often-overlooked area of procurement into a source of competitive advantage.
Expert Insight: Taking Tail Spend Management Beyond the Tactical to a More Strategic Future
“At Nomia, we’ve seen first-hand how tail spend has often been viewed as purely tactical, but the truth is, when managed well, it can often become a strategic asset. Organisations that can unlock value within their tail spend through outsourcing and smart, AI-driven procurement technologies can move beyond their current outcomes in their handling of tail end transactions. They can usually start to see real, measurable savings, improved compliance, and access to innovative suppliers that drive agility and growth. Going forward, we aim to help companies recognise that tail spend is no longer something to ignore – it’s a competitive advantage waiting to be tapped.”
– Nick Petheram, Founder, Chairman and CEO of Nomia