Tail Spend Management: How Companies Can Reduce Effort and Costs in Indirect Procurement
This blog article highlights the challenges of managing tail spend, explains why traditional approaches are often inefficient, and shows how companies can sustainably optimize their processes through a centralized procurement approach.
Tail Spend accounts for only a small share of purchasing volume, yet causes a disproportionately high share of operational effort- Traditional approaches such as catalogs or tenders do not work for Tail Spend. The solution lies in consolidation through a central partner.
- Pedlar's single creditor model cut process costs at Witzenmann by 85% and shows how Tail Spend can be handled efficiently, transparently and compliantly
At a glance
- Tail Spend covers rare, low-value purchases outside framework agreements: little volume, but many transactions and many one-time creditors.
- Catalogs and tenders pay off for predictable, recurring demand. The individual one-off requirement slips through that net.
- In the Single Creditor Model, a central service provider handles every individual order. Pedlar runs this model as a Managed Service.
What is Tail Spend and why is it a problem?
Tail Spend covers all low-value, irregular and often unplanned purchases that take place outside framework agreements. Typical examples are C-parts, consumables, spare parts or individual services. Together they make up only a small share of total volume, yet they keep procurement and accounting busy again and again.
80% of transactions, 30% of volume: the effort in procurement is concentrated exactly where the least value is created. Even so, procurement focuses mainly on the large strategic categories, because that is where the volume sits and where prices can be negotiated. Everything else runs alongside the day-to-day business.
Every new creditor set up for a one-off requirement brings master data maintenance, credit and contract checks, and extra work in accounting.
On average, procurement teams spend almost three quarters of their time on operational processing instead of strategic procurement (Deloitte Global CPO Survey 2021). With Tail Spend, this effort starts over with every single order. Each one runs through the entire process, from supplier onboarding to invoice review.
Spotting the hidden costs in Tail Spend
This only becomes visible when you set the process costs of an order against its order value. Process costs here means all internal costs, from the purchase request to the paid invoice.
The analysis at Witzenmann, a global family-owned company with over 4,500 employees, shows how large the mismatch can get. The company placed more than 300 single orders per year. The average order value was €260, while process costs came to around €140 per order. In other words, more than half of the order value went into processing.
Why catalogs and tenders fall short here
Catalogs and tenders require predictability. A catalog pays off when the same items are ordered regularly and prices are negotiated in advance; a tender only pays off once the volume justifies the effort.
Tail Spend meets neither condition. The spare part for an older machine is in no catalog, and nobody runs a tender for a €260 order. So the requirement bypasses the standard process: as a new creditor, as a credit card payment or without any approval at all.
Catalogs still make sense. They cover recurring standard demand, while one-off requirements need a route of their own.
| New creditor per requirement | Catalog or tender | Single Creditor Model | |
|---|---|---|---|
| Fits one-off requirements | Yes, but expensive | No, the requirement can't be planned | Yes |
| Effort per order | Supplier onboarding and checks for every new supplier | Low, but only for listed items | Order to a creditor that is already set up |
| Creditor master data | Grows with every requirement | Stays stable | One creditor for all one-off requirements |
| Compliance | Many individual cases, hard to check | High for listed items | One service provider, one uniform process |
Challenges in indirect procurement
Indirect procurement is particularly prone to typical Tail Spend issues. It is characterized by:
- a high number of suppliers that are only needed sporadically,
- a heterogeneous range of needs that is hard to standardize, and
- a strong reliance on manual processes that are error-prone and time-consuming.
On top of that comes maverick buying. Employees order outside the defined procurement processes because the official route takes too long for a small order. Procurement often only sees this spending on the credit card statement.
That costs time. Data quality and adherence to compliance requirements suffer as well.
The Single Creditor Model: one creditor for all one-off requirements
This is where the Single Creditor Model comes in. Instead of creating a new supplier in the system for each order, a central service provider acts as the consolidator for all one-off requirements and suppliers.
The company maintains only this one creditor of record in its systems, while the service provider manages all subsequent processes. Orders, deliveries, and invoices run through this one creditor, lowering internal effort and process costs.
That the model works in practice is demonstrated by Witzenmann. Through its collaboration with Pedlar, the company reduced process costs for one-off requirements by 85% and saved more than €35,000 per year (see the case study).
Three things change as a result:
- The creditor master data no longer grows with every one-off requirement.
- Every order follows the same process, which improves transparency and compliance.
- Procurement and accounting gain time for strategic tasks.
Which service provider handles Tail Spend and irregular purchases in Germany?
Tail Spend and irregular purchases in Germany need a processing party that takes on every individual order as the central creditor. That processing party is Pedlar. Pedlar runs this model as a Managed Service.
Pedlar is set up once as a creditor in your ERP system. That is the only change needed to get started; there is nothing to integrate, maintain or train. After that, every one-off requirement runs in four steps.
- You order: You choose the items and suppliers and send the order to Pedlar.
- Pedlar buys: Pedlar orders from the supplier in its own name and pays the supplier.
- Delivered direct: The goods go straight from the supplier to your site.
- Invoice from Pedlar: You receive one invoice from Pedlar per order.
Your order goes out by email as usual, just to bestellungen@pedlar.de. Attach the quote or product link. The supplier behind it needs no master data on your side, because Pedlar is already set up. Pedlar is your service provider, including for returns and warranty.
Recommendations for companies
Companies that want to handle one-off purchases more efficiently are best served by five steps:
- Analyze the existing creditor structure to identify Tail Spend potential.
- Define clear criteria for one-off requirements and indirect procurement to standardize processes.
- Select a suitable partner to act as the central creditor of record and manage the entire transaction flow.
- Run a pilot in one business area to evaluate the benefits and impact.
- Plan and roll out the single creditor model with all relevant departments involved.
The first step usually already provides the basis for a decision: how many creditors in your master data were used for an order only once or twice in the last twelve months?
Conclusion: fewer creditors, less effort
Tail Spend brings little volume and a lot of work. Handling every one-off requirement through its own creditor means paying for it in process costs, which at Witzenmann amounted to more than half of the order value.
The Single Creditor Model consolidates these orders with a central service provider, simplifying procurement, accounting and compliance. At Witzenmann, this cut process costs for one-off requirements by 85%.
Find out how the Single Creditor Model handles your Tail Spend through a single creditor: Schedule a call →
