What is tail spend? It’s a great question, and there’s no simple answer! Just like spend data classification, its definition is subjective. Some organisations classify tail spend as the bottom 20% of spend, while others might set a financial level such as spend beneath £100k or £1million. 

According to CIPS, the answer is “usually small value purchases that are conducted by the organisations outside of a contract and often outside of the awareness of the procurement team.” Amusingly, they also suggest the names “rogue spend” and “maverick spend” as alternatives.

What is tail spend? The Classification Guru explains 

Complex explanations are all well and good, but there is a simpler way to understand things. Very simply, tail spend is mostly made up of those low-value, fiddly suppliers that you’ve probably used once but shouldn’t have, and will probably never use again.   

But here’s the thing. There will be a few genuine, valued suppliers in there, such as The Classification Guru… 

Another way to look at tail spend 

Perhaps the best way to understand tail spend is to visualise it. It actually looks like a tail… 

So, what is problem with tail spend? 

Well first of all, there’s a lot of it. Even though it’s only 20% of spend, it can be thousands or hundreds of thousands of rows of data. And, who has time to deal with that? When you’re struggling to manage the strategic 80%, how valuable is it to spend time classifying a line for £1.50? 

However, it’s still important to manage. That’s because today’s tail spend could be tomorrow’s strategic spend as the following example explains: 

Imagine a scenario where you classify your data every six months and last classified your data a month or two before year-end. You also have a new supplier valued at £100k. 

This new supplier falls into tail spending. However, over the next six months they become a strategic supplier. Yet, no one has picked up that this spend is not being classified… Is it the end of the world? No. Could someone make a wrong decision because the right information wasn’t available? Absolutely. 

What’s the solution?

Well, there’s no easy or quick fix. The “easiest” option is to outsource tail spend management, but you need to know how it’s being classified by your third-party supplier.  Are they automating it? Is a team doing it? If so, how experienced are they? And are they classifying 100% of the data?  

It’s hard to know.

I know many suppliers will classify 90-95% of the value, but that can still leave hundreds, if not thousands of unclassified lines. I’ve also seen a lot of suppliers classified as “unclassified” or “uncategorised”.  THIS IS NOT A CATEGORY!  The truth is because it’s small value items in the large scheme of things, it could be wrong but no one is checking… what if that tail spend is tomorrow’s strategic spending? 

Another option is to manage this in-house. This requires a lot of time, patience, attention to detail, and thoroughness. Yet, the reality is most people are already overloaded with higher priority tasks, so who is there to do it? If they do do it, will it end up slipping down their to-do list? 

It’s not a great solution. And that’s why you need The Classification Guru.  

How the Classification Guru classifies tail spend  

100% of your spend data will be manually (or visually) classified by a team with a combined experience of over 30 years. We’ll research your suppliers and assign the correct classification more quickly than you could do in-house.   

Will it cost you? Of course, but let’s think about it this way… yes, you could wash your car yourself, but wouldn’t you rather have it hand valeted? Absolutely. 

Plus, once you’ve got your shiny new data set back, you’ll more than recoup the costs of the classification through spend analytics… suddenly supplier rationalisation, spend visibility and cost savings become much easier! 

Remind me again, what is tail spend? 

Of course! It’s the combination of low-value, fiddly one-off suppliers as well as those with whom you’ve spent a small amount so far, but who may become future strategic spends. Ensuring you reflect your tail spend in your analysis gives you a fuller picture and helps you make better overall decisions – it pays to choose wisely when deciding how to manage your tail spend!  

I hope you found this post helpful. If so, you might also enjoy this post, Why maintaining your procurement data is so important.