Tail spending – also known as rogue spending or maverick spending – occurs when there is unmanaged, uncontrollable spending within an organization. Tail spending can be either intentional or unintentional. Sometimes employees will choose specifically not to follow a standard procurement process if it is too complex or takes too long, while other times tail spend may occur due to miscommunication, poorly structured workflows, and poorly optimized procurement processing.
More often than not, our team sees tail spend develop during budget planning. When dealing with software spend, many businesses tend to focus their spend optimization efforts on large vendors such as Microsoft, Oracle, IBM and SAP. These vendors usually account for 80 to 90 percent of an organization’s spend, while only accounting for 10 percent of their overall software transactions.
After the time-consuming endeavour of controlling spend from large vendors, businesses often have limited or no resources available to manage the remaining software spend from smaller vendors. This small oversight has serious consequences – although these small vendors only account for 10 to 20 percent of software spending, they generate up to 90 percent of all transactions. Managing the full volume of these transactions is often not feasible for organizations with no remaining budget, contributing to tail spend.
To resolve this, organizations need to rely on a team or responsible individual with extensive knowledge of every publisher, their subsequent software products, and their different license terms which are within the current contract. Even for a trained IT team, this can be an overwhelming task. As a result, organizations should use techniques, tools, and processes to help enhance their efficiency.
Let’s take a closer look at how to manage tail spend in the Digital Supply Chain.