Long tail spend whitepaper

Long tail spend whitepaper2 Digital transformation is accelerating within organisations, and the procurement function is no exception. As such, the digitalisation of processes – a driver of agility and resilience – remains the 3 rd strategic priority for procurement departments (1) . This approach makes sense when it comes to long tail spend * . Indeed, the management of head spend and mid-tail spend is already under control within increasingly structured purchasing organisations. If Pareto's law * is applied to the overall expenditure of companies, it can be seen that these first two categories of purchases represent on average 95% of the combined purchasing budget. However, this is not the case for long tail spend, which accounts for only 5% of corporate expenditure. Applying the logic of the Kraljic matrix * , these are simple purchases * such as furniture, office supplies or small tools, but they can also become critical purchases * as they become more complex, such as the supply of personal protective equipment during a health crisis. Since these purchases are not really optimised, and since they cover the majority of purchasing segments spread throughout the company, the result is clear: they concentrate up to 70% of hidden costs (2) within procurement departments. In view of this, it becomes imperative to control their Total Cost of Ownership * (TCO) in a better way. VISIBLE EXPENDITURE VERSUS HIDDEN COSTS HEAD SPEND MID-TAIL SPEND LONG TAIL SPEND VISIBLE EXPENDITURE 80 % 15 % 5 % HIDDEN COSTS 10 % 20 % 70 % These hidden costs, which, for example, include out-of-process purchases, claims, and numerous other transactions and deliveries, remind us of the need to optimise the Procure-to-Pay process * . To achieve this, digitalising transactions, from product research to invoicing, is a formidable lever. It is also a way to categorise better and to manage expenditure, as well as to improve user experience. The Manutan team 1 PwC, Digital Procurement Survey, 2020-2021 2 Manutan Group, internal data * See the definition in the glossary p.11Page 1Page 3