Tail Spend Analysis: Finding Your Own Tail

Four metrics reveal how large your own Tail Spend really is. They are the ratio of creditor count to order volume, the distribution of order values, the share of one-off creditors, and the resulting process costs. Only these four figures together show whether de minimis thresholds, a catalog system, or a single creditor pay off for your situation. Without such an analysis, every model decision remains a guess.

Creditor Count Relative to Order Volume

The first thing to look at isn't total volume, but the ratio of creditors to orders. Every buyer knows the logic from ABC analysis in procurement controlling: a few high-volume suppliers stand against many low-volume ones.

A company with 2,000 creditors in its ERP system that together trigger 6,000 orders a year has a different tail than one with 400 creditors at the same order count.

The closer the creditor count gets to the order count, the larger the unstructured tail, because each creditor then orders only once or twice a year on average.

Pull the number of active creditors from your ERP system and divide it by the order count for the same period. A value close to one shows a tail that consists almost entirely of one-off cases. That's the extreme case.

A value well below that points to a core of recurring suppliers, which can usually already be covered through framework agreements or catalogs. This exact figure is often missing from ongoing reporting, because one-off requirements get spread across collective accounts. Without it, there's no starting point.

What the Order Value Distribution Shows

The second step sorts the same orders by value instead of by creditor. At most companies, a large share of orders falls in the range under €500. The actual goods value is almost always somewhere else. That's exactly where disproportionate effort accumulates, because every order goes through the same setup, approval, and invoice review, regardless of amount. That's exactly where the highest process costs are hiding.

The following distribution shows a typical pattern, using made-up example values instead of real customer data:

If the curve doesn't drop noticeably past the €500 threshold, administrative effort is concentrated exactly where goods value is lowest. Never read this figure in isolation.

Always check it together with the creditor count from the first step. Only both figures together show whether the small orders are spread across a few suppliers or across many different ones.

One-Off Creditors: The Share That Never Comes Back

The third figure is the share of creditors who ordered exactly once in the last 24 months. These one-off creditors carry the full cost of setup. The effort never spreads across multiple orders. That costs twice.

A real-world example: maintenance orders a replacement motor for a conveyor system for €3,200 (example value), as a one-off. The supplier gets checked, set up, and approved. After that, no one in the company ever orders from this provider again, and the work of setting it up never pays off a second time. This case is typical.

In your ERP system, filter for all creditors with exactly one order in the period under review. If this share is a third or more of all active creditors, a significant part of your creditor master data carries no recurring justification for its own setup at all. This share warrants a closer look of its own.

Extrapolating Process Costs

The fourth figure combines the first three into a single euro amount. Small one-off requirements typically incur around €500 in process costs per order, as described in Haufe Akademie's process-costing glossary as well. You can determine your own figure using the methodology described in the article on measuring process costs.

Multiply the number of one-off creditors by the setup cost, then add the associated order count times the process cost per order. With 300 one-off creditors that together trigger 350 orders, and around €500 in process costs per order, this segment alone adds up to over €175,000 a year (example calculation). This money isn't tied up in goods value; it sits entirely in the process around it. That's exactly where the analysis comes in.

Metrics You Should Track From Now On

A one-off analysis only becomes a management tool once the same figures are tracked repeatedly. Five metrics are enough for this:

1. Share of one-off creditors among all active creditors – target direction: decreasing.
2. Creditor-to-order ratio – target direction: decreasing; the closer to one, the larger the unstructured tail.
3. Share of orders under €500 of total volume – target direction: keep transparent, since the need itself doesn't disappear as a result.
4. Average process cost per order – target direction: decreasing.
5. Number of newly set-up creditors per quarter – target direction: decreasing.

A quarterly review is enough for the first four figures; the fifth metric already pays off monthly, because it acts as an early warning signal long before the annual statistics show the trend.

Turning the Analysis Into a Model

Whether internal optimization or outsourcing to an external creditor pays off comes down to one number. It's embedded in the size of your one-off creditor share. Pedlar operates this model as a managed service.

Frequently Asked Questions

How Often Should I Repeat the Tail Spend Analysis?

Once a year is enough as a starting point. Once the metrics come from ongoing reporting, a quarterly review pays off, and monthly for new creditor setups.

Is an Evaluation From the Existing ERP System Enough?

Yes. All four figures can be exported from creditor master data, order history, and incoming invoices. You don't need any additional software for this.

What Does It Mean If Creditor Count and Order Volume Are Nearly the Same?

That's already a strong signal. Nearly every creditor then orders only once, and the tail consists almost entirely of one-off cases with no repeat.

At What Share of One-Off Creditors Does a Single External Creditor Pay Off?

There's no fixed threshold. From around a third one-off creditors onward, however, the administrative effort usually exceeds the benefit of any internal optimization.

At a Glance

• The ratio of creditor count to order volume shows how large the unstructured tail in your own procurement actually is.
• Order value distribution and the share of one-off creditors reveal where process costs pile up disproportionately.
• Only the process costs extrapolated from these figures show whether de minimis thresholds, a catalog system, or a single creditor pays off.

Find out how the Single Creditor Model structurally eliminates the one-off creditors identified in your analysis: Schedule a call →