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Key takeaways
- Tail spend is the large number of low value suppliers and purchases that together make up a small share of total spend.
- A common working definition is the suppliers that make up the last 20 percent of spend.
- The tail is costly to manage per dollar: many suppliers, many invoices and little attention.
- Tactics: reduce supplier count, use catalogs and cards, and automate approvals for low risk buys.
- Do not manage the tail supplier by supplier. Manage it by category and by rules.
Sort your suppliers from largest to smallest by annual spend. A few dozen at the top account for most of the money. Then the list goes on for hundreds or thousands of names, each with a modest invoice a year.
That long tail has a reputation for consuming more effort than it deserves. It does need managing, though, and the method differs from managing strategic suppliers.
What tail spend is
Tail spend is the portion of spend spread across a large number of small suppliers and low value purchases. The common rule of thumb defines it by the Pareto principle: the suppliers that sit in the bottom portion of the spend ranking, together making up around 20 percent of total spend, even though they are the majority of suppliers by count.
Tail spend is the many small, low value, often one-off purchases from a large number of suppliers that together account for a minor share of total spend.
The percentages are a rule of thumb, not a law. Your own spend analysis will show where your tail begins. See what is spend analysis.
Why tail spend is hard
- Many suppliers. Each needs onboarding, a vendor record and payment setup.
- Many small invoices. Processing a 150 dollar invoice costs nearly as much effort as processing a 150,000 dollar one.
- Little leverage. Small orders give you no bargaining power individually.
- Scattered buyers. Everyone in the company buys something, so there is no single owner.
- Hidden risk. Small suppliers can still hold data or create compliance exposure.
- Overlap with maverick spend. A lot of tail spend is also off-contract. See maverick spend.
Is it worth managing?
Two reasons say yes. First, the aggregated amount is real money, and a few percent saved or avoided there adds up. Second, the process cost of handling thousands of vendors is often larger than people think. Each extra supplier has a cost to onboard, pay and monitor.
Two reasons say proceed carefully. Savings per supplier are small, so effort must be small too. And over-control can slow the business for little gain.
Strategies that work
1. Cut the number of suppliers
Find categories where many small suppliers provide similar items and consolidate to one or two preferred suppliers. Fewer suppliers means fewer records, fewer invoices and better leverage.
2. Use catalogs and marketplaces
For repeat low value items, pre-negotiated catalogs let people buy from approved suppliers at agreed prices in a few clicks. Business marketplaces do the same with a wide selection.
3. Use purchasing cards with controls
Cards avoid the cost of raising a purchase order and paying a separate invoice for each small buy. Set limits, block categories and review the statements by category.
4. Automate approvals for low risk purchases
Let purchases under a threshold from approved suppliers go through without a manager's signature, with spot checks afterward. Save human time for larger decisions.
5. Outsource part of it
Some companies use a managed service or a specialist provider to handle tail categories end to end, including sourcing, buying and invoicing. This suits companies without the team to spare.
6. Manage by category, not by supplier
Group the tail into categories such as office supplies, facilities services and small IT items. Set a strategy for each category: preferred supplier, catalog, card or consolidation.
A company has 3,200 active suppliers and 15 million dollars of annual spend. The top 120 suppliers account for 80 percent. The remaining 3,080 suppliers share 3 million dollars, an average of under 1,000 dollars each. Of those, 1,100 were used once. The team removes inactive suppliers, moves office and facilities supplies to two preferred suppliers with a catalog, and issues cards for sub-250 dollar buys. Active suppliers fall to under 1,900 and accounts payable processes fewer invoices.
What to measure
- Number of active suppliers, and the number that account for the last 20 percent of spend.
- Share of spend through catalogs, cards or preferred suppliers.
- Average invoice value and processing cost.
- Suppliers used once in a year.
- Off-contract share of tail spend.
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A decision guide for each tail category
| If the category is... | Then try... |
|---|---|
| Frequent, low value, standard items | A catalog or marketplace with approved prices |
| Occasional small services | A preferred supplier list with agreed rates |
| Many one-time purchases under a small limit | Purchasing cards with limits and category blocks |
| Many suppliers for the same item | Consolidate to one or two suppliers |
| Hard to define or highly varied | Leave unmanaged, but report it and review yearly |
| Involves access to data or premises | Tier by risk and apply onboarding checks regardless of spend |
The aim is to match effort to value. The last row is the exception: low spend can still mean high risk.
Risk in the tail
Low spend does not mean low risk. A small supplier with access to customer data or one that works on your premises deserves checks. Tier risk by data access and criticality, not by spend. See vendor risk management.
Mistakes to avoid
- Treating each tail supplier like a strategic one. The effort outweighs the gain.
- Ignoring the tail completely. It grows unseen.
- Blocking purchases with heavy approval. People route around it.
- Removing suppliers without checking dependency. Some small suppliers provide hard to replace items.
- One-off cleanups. The tail regrows unless rules stay in place.
Where software helps
Spend analysis shows where the tail is. Catalogs and marketplaces provide easy buying. Procurement and card tools automate approvals. See tail spend management software and catalog management software.
- Run a spend analysis and mark where the tail begins.
- Count suppliers used once.
- Pick three categories with many small suppliers.
- Set a preferred supplier or catalog for each.
- Set card limits and blocked categories.
- Define an approval threshold below which purchases are automatic.
- Review the tail each quarter.
Jargon, decoded
- Pareto principle. The observation that a minority of causes produces a majority of effects, applied here to suppliers and spend.
- Catalog. A list of pre-approved items at agreed prices.
- Marketplace. An online platform with many sellers and a common checkout.
- P-card. A purchasing card for small purchases.
- Supplier rationalization. Reducing the number of suppliers.
- One-time vendor. A supplier used once and never again.
What to read next
Learn how to find the tail in what is spend analysis, and why buyers go off-contract in maverick spend. For the policy side, read procurement policy.
Frequently asked questions
What is tail spend?
It is the many small, low value purchases spread across a large number of suppliers, which together make up a minor share of total spend.
How is tail spend defined?
A common rule of thumb is the suppliers that make up the bottom 20 percent of spend, though the share varies. Your spend analysis shows where your tail begins.
Why is tail spend hard to manage?
Because it involves many suppliers, many small invoices, little negotiating leverage and many buyers across the company.
How can you reduce tail spend?
Consolidate suppliers, use catalogs and purchasing cards, automate low risk approvals and manage by category instead of by supplier.
Does tail spend carry risk?
Yes. Small suppliers can have access to data or sites. Risk should be tiered by access and criticality, not by spend.