Updated: Apr 7
What is the long-tail?
Long-tail spend has gotten its name from a business’ spend curve. As seen in the tail spend graph below, there is a group of suppliers with a lot of spend. This is most often direct spend, which accounts for around 80% of the business’ entire spend.
Following the curve from left to right, spend per supplier decreases. But there are so many of these suppliers with low spend that the graph keeps going – this is what creates the long-tail on the spend curve. Indirect spend, which long-tail spend is, typically only accounts for 20% of a business’ entire spend.
Direct spend accounts for 80% of spend and long-tail accounts for 20% of spend. So, it is natural for Procurement to focus on direct spend (also called “strategic spend”). But while long-spend only accounts for 20% of spend, it accounts for 80% of all transactions. And 80% of all suppliers.
Purchases in the long-tail are primarily low volume with a broad range of suppliers. Many one-time suppliers or infrequent purchases make it difficult for procurement and finance to manage the inevitable administrative burden of creating Purchase Orders, handling approvals, onboarding suppliers, processing invoices and making payments for the long-tail.
Why does it matter?
It is unfortunately easy to ignore long-tail spend and not give it the same strategic attention as direct spend. The complexity that surrounds the long-tail causes many businesses to ignore serious efforts to optimise this spend – it’s simply not worth -he effort.
But there are great savings potential in the long-tail. By strategically managing the tail, businesses can save up to 15% of their tail spend. How much depends on the business – the less mature the business, the more the saving. These savings especially stem from the lower cost of handling invoices and onboarding and managing suppliers.
This is not to mention the many soft savings of process optimisation, improved compliance, better supplier relations, increased employee efficiency and minimised payment risk. But it requires the business to let go of the “it’s not worth it”-mentality and instead pursue the great financial and operational value in simplifying long-tail spend.
It’s time to rethink
Rethinking the long-tail spend management opens up a world of automation, agility and streamlined processes. Many businesses apply the same complexity to the long-tail as they do for direct spend. Tedious onboarding, expensive purchase orders and manual invoice handling for thousands of long-tail invoices and suppliers. But traditional procurement solutions don’t work for long-tail suppliers.
Instead, businesses must look towards simplification, consolidation and automation. Cost-effectiveness must be a priority for tail spend procurement. Mazepay specialises in indirect spend and the long-tail. By simplifying indirect procurement and B2B payments, Mazepay improves cash flow and provides businesses with much-needed spend visibility and spend management. By rethinking the long-tail, businesses can cut the tail – and cut the spend that follows.
At Mazepay, we believe the way large enterprises approach long-tail procurement can be significantly improved. It is our goal to assist companies in building a sustainable business, where indirect procurement is seen as a business enhancer that drives efficiency, facilitates growth and ensures financial stability. Click here to learn more about how Mazepay can help you simplify your business.