Okay, so you’ve seen the light and realized the importance of tail spend management. This area of non-managed spend is costing your organization a lot of money. At first, you may have believed your organization’s unmanaged spend was a minor issue. You probably thought the rogue spending only made up a few smaller purchases.
Then, you realized the truth. Rogue spending is costing your organization tons of money each year and you know something needs to be done about it.
But how do you provide your leadership with a compelling enough case to get them to begin a corporate-wide initiative to start exploring the area of non-managed spend?
Perhaps you have already tried. There are so many priorities on their desk that are important to the success of your company. How do you get their buy-in?
In many cases, companies fail to adopt a tail spend management program because they believe it’s too difficult. Not only that, they may not believe that it’s worth the effort required.
But here is the irony: If there was more streamlined vendor management, your team would have more time focusing on other projects that could greatly benefit your organization. In addition to that, you are hoping there are no surprises when it comes to software license purchases. What if your organization is in danger of software license non-compliance?
Fortunately, it doesn’t have to be this way. It may not be easy, but it is possible to get your leadership to shift their priorities. If you present the business case for tail spend in an effective and persuasive way, you will gain their buy in and approval.
Then, you can begin to transform the way your company manages its spending. This post will give you some steps to help you start convincing your leadership to consider implementing a tail spend management strategy.
Step 1: Do The Research
Before discussing the benefits of tail spend management, you need to get some information. The first step should be to take a snapshot of some of the purchases, both managed and non-managed and see if they are in line with your procurement best-practices. This should take place across a spectrum of different purchases.
There is no way around it, this may take some time.
If your company allows various offices and silos to make their own purchases, you will need to find out exactly what these offices are buying? What resources they are purchasing? and what suppliers they are using? This will help you give concrete examples of how your company is currently handling its spend.
Step 2: Identify the Issues
Next, is to organize the data to create a compelling case. Demonstrate clearly how this issue is hurting the company.
Without establishing the fact that there’s a problem, there’s no reason for anyone to buy into a solution. Convincing your organization’s leadership that tail spend management is needed starts by showing them that there is a serious issue that needs to be addressed.
Provide the evidence to the higher-ups. While procurement may be aware of as much as 80% of the spend your company is engaging in, there may still be many unmanaged purchases.
It’s also important to discuss the root of the issue. In most cases, this happens because non-procurement professionals find it easier to make certain purchases without consulting with procurement. Either they don’t understand the importance of procurement’s involvement or they are just too busy performing their job and don’t have the time for the extra red-tape.
Your leadership may not be able to see the risk-reward trade-offs on their own. This is why it’s important to make sure you are communicating the benefits persuasively.
Step 3: Communicate The Impact Of The Problem
This is where the evidence you have uncovered communicates the impact of the unmanaged spend on your company. Remember, you don’t need to explain every single detail. If you’re speaking to people in upper management, it’s always best to give them the bullet points.
But make sure they feel the pain. You need them to see how much money the company is losing. You have to show them how much risk your company is taking.
There are also other resources that can back up the claims you are making. It’s been shown in many cases that companies that don’t properly manage their spend, end up wasting millions of dollars.
Step 4: Explain What Will Happen If The Problem Persists
What are the potential consequences and risks your organization face as a result of rogue spend?
One potential consequence is non-compliance. What if a non-procurement professional decides to make software purchases without consulting procurement?
This could be damaging to your company.
Since they don’t know how to manage software licenses, it’s highly likely that they will miss a compliance element and cost your firm money in fee and fines. A skilled procurement professional can ensure that your company complies with its end use license agreement.
When it comes to IT, lack of a tail spend management program can be especially problematic. If you’re not managing these purchases, it’s very likely that these purchases are being spread out over many different suppliers. Not only does this make the job of procurement professionals more difficult, it can also cause security breaches.
Step 5: Pitching The Solution: Tail Spend Management
The major hurdle is getting your leadership to see the consequences of un-managed spend. When they become aware of the true costs and risks, they they will be ready for the solution.
Remember, it all comes down to the bottom-line. The first thing you should explain is how much money your company will save.
Of course, the amount of potential savings is different for each organization. In many cases, companies have been able to save between 15% – 17% on their costs each year. This could add up to millions of dollars in savings. It would also be a great idea to talk about where your company could invest these savings.
Another great point to make is how much more efficient your procurement department will be. Limiting the number of vendors you’re dealing with could greatly increase your team’s productivity. With less vendor relationships to manage, your team can focus on more important company initiatives.
Finally, you should address the non-compliance issue. Since many leaders are not familiar with the consequences of mismanaging their software licenses, you should show them how serious this can be. Eliminating this threat alone is worth the investment.
If you do the research and can find evidence of how your company is wasting money to unmanaged spend, then you may make your leadership begin to pay attention. Once you have their interest and eventually their buy-in, it will make things easier. However, there will still be a lot of work to bring all the departments into the same line of thinking.