How AI is Revolutionizing Tail Spend Management for Cost Savings & Compliance
How many businesses today can effectively manage their tail spend? The answer is not difficult to guess, considering that this portion of spend is often not actively monitored.
Comprising thousands of small purchases scattered across many suppliers and product types, tail spend often remains under the radar.
The question now is: Why do internal business teams make several purchases outside their contracts? How can they lower their maverick spend?
Insignificant as it may seem, ignoring tail spend can prove costly, especially when multiple internal teams make varied purchases under this category.
In the past, tail spend never got the attention that it deserved. But the general opinion to managing tail spend is now changing, thanks to advancements in the latest AI models, says Michael Seitz, vice president of consulting at GEP in a webcast.
Let’s take a deep dive into the world of technology-driven tail spend management.
What is Tail Spend?
Tail spend comprises several one-time, non-contracted purchases made by different internal teams. Traditionally defined as high-volume, low-value transactions, tail spend can refer to ad hoc spending and uncategorized purchases that are low in value or frequency.
The large number of non-monitored transactions means that tail spend can account for more than 80% of the total transactions. Still, tail spend may account for 20% of the overall spend. This data shows that businesses have an opportunity to significantly increase savings by effectively managing tail spend.
In the absence of a streamlined approach to managing this spend, companies lose 15-20% of potential savings and add to their administrative costs due to inefficient ad hoc processes.
Because of the low-value and infrequent nature of transactions, tail spend can also be a source of non-compliance. It can even provide cover for fraudulent purchasing.
