Managing tail spend in your software digital supply chain

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.

Sources of tail spend in the software Digital Supply Chain

Tail spend can occur for many reasons. It’s important that organizations understand the primary sources of tail spend – otherwise, it will be difficult for them to investigate and optimize certain areas of the business. Here are a few common sources of tail spend in the software Digital Supply Chain:

• Mundane purchases – Managers need to look into simple, redundant purchases when searching for sources of tail spend. Imagine that one department skips the procurement process when getting a free trial of software. However, they forget to cancel during the trial period, and the software’s contract renews. This may be a small, seemingly insignificant expense – no more than $100. However, if every department across an organization does this, it can total to thousands of dollars in tail spending.
• Managerial ambivalence – Sometimes management will turn a blind eye to small, one-off software purchases, and only ask for the documentation of more expensive purchases – like an entire software suite. If employees are aware of this, they’ll begin to throw the formal procurement process to the wayside for any nominal purchase.
• Poorly optimized Forms – If employees need to spend 15 minutes filling out a form and wait three days to buy much-needed cloud storage space, they’ll try to get around it by any means necessary. Managers need to evaluate their existing procurement forms and optimize them as needed.
• Complex contracts – If your company has a lot of software publishers in its supply chain, there’s a good chance that your contracts have contradictory or redundant requirements. This misalignment makes it hard for employees and managers alike to determine the right way to procure products.
• Lack of awareness – Many managers are blissfully unaware of tail spending in their organization – until ignorance isn’t bliss. When managers realize the scope of the problem, they’re likely to shoot from the hip and poorly execute initiatives to reel in tail spending.

If organizations don’t evaluate these sources of tail spend, they will likely suffer the consequences. This can result in too many unauthorized vendors, which complicates contracts and creates unnecessary transactions. Employees may even purchase from non-preferred suppliers that charge more for simple services. In the end, poor tail spend accountability totals into a massive waste of both money and labour hours.

How to minimize tail spend in the Software Digital Supply Chain

There are a few helpful tactics that will help managers get a firm grip on software tail spending. In the past, it was difficult to manage maverick spending – but with the advent of digital supply chains and the introduction of specialized tools and software, it’s easier to account for these items. Let’s look at a few prominent ways to minimize tail spend:

Perform a spend analysis

Without concrete data on sources of your direct and indirect spending, it’s difficult to identify the breadth of your software tail spend. This step is absolutely necessary – even if a spend analysis has a high upfront cost, managers must leave no stone unturned.

Brief teams on tail spend

Make sure that every department understands why software tail spend is an issue and keep them abreast on the next steps in how the organization plans to tackle it. Otherwise, they may not fully commit to the new procurement process. Start communicating with executive leadership and work your way down the organization. Don’t only communicate expectations – be sure to resolve concerns and explain how everyone benefits.

Use software

It’s much easier to manage tail spend when an organization uses a centralized, integrated solution for procurement. These solutions should provide complete visibility into your organization’s software lifecycle, and have the ability to integrate with your existing Enterprise Resource Planning (ERP) if needed. Organizations would also benefit from using eProcurement and Software Asset Management solutions to remove redundancies, roadblocks, and errors. This will help prepare your organizations assets and licenses before an audit, centralize contracts and catalogues, while establishing purchasing thresholds. In the end, ensure your software isn’t just easy for your IT team to implement – make sure it makes software procurement processes as easy and straightforward as possible for all employees involved.

Assign roles

A good way to reduce tail spending is by only giving a few people on each team the right to purchase items. If fewer employees can make purchases, there’s fewer opportunities for tail spend. However, don’t be too stingy with these permissions – otherwise, it could result in lengthy purchasing processes that cause operational disruptions.