Tail spend is defined as the roughly 20% of a procurement department’s spend allocated to non-core transactions. Typically, this is spend on items not significant enough to be run through a procurement process, typically due to a high volume of small suppliers and limited in-house resources available to manage them. For most organizations engaging niche suppliers to accommodate specialized contingent staffing needs, this type of niche spend often falls into the “tail spend” category. While spend in this bucket may be small overall, the risks associated with workforce procurement may represent outsized risks and as such, it warrants increased attention to avoid potentially costly problems. Here’s what you need to know.
Purchases from services suppliers (like those commonly utilized for specialized staffing projects) can add up to considerable spend volume within a procurement organization’s tail spend. Services procurement often requires much more attention than traditional procurement of goods. In an unmanaged environment, small staffing, SOW, and project based suppliers can become a significant burden for procurement organizations to track. This is especially true given the relatively small profile of niche providers within an organization’s entire supplier portfolio. In some cases, this results in spend not being controlled or managed properly and creates risk and exposure for the hiring organization.
Regulatory and Compliance Risks – Under-managed services relationships can result in improperly crafted contracts, missed critical background checks, insufficient/unverified insurance coverage, worker misclassification, and others. Any of these oversights can result in costly penalties. Ironically, each of these requirements would be addressed during the procurement process if the spend was more significant. Yet, because many organizations rely on an array of niche suppliers for relatively small spend volume, these purchases are often relegated to a tail spend bucket and deeper due diligence is not performed. Regulatory and compliance risks are only one part of the risk profile though.
Performance and Opportunity Risk is also a significant item to consider when relegating these smaller packets of spend to the tail spend category. Smaller suppliers are often crucial to certain projects or geographies and can bring new and innovative workforce strategies and ideas to the table. If an organization lacks visibility into these relationships, they can also be missing out on opportunities to embed the same supplier performance management strategies into their overall portfolio as they do with their large suppliers, costing the hiring organization more for less quality and impacting on overall competitive advantage.
To avoid getting bitten by the downside of unmanaged tail spend, successful organizations often rely on the guidance of talent acquisition and management experts who help procurement professionals separate the wheat from the chaff when it comes to building an array of smaller staffing suppliers into an effective workforce management program. Many nextSource clients have asked us to assist them in this effort. We have found that, by establishing and enforcing standard terms, conditions and performance metrics for all suppliers, clients optimize the contributions of each supplier while protecting their tail!
To read more on this subject, turn to nextSource for expert guidance and visit our services procurement page.