Tail Spend Management Strategies & Direct vs Indirect Spend 

Learn how to manage tail spend effectively and understand the difference between direct and indirect spend in a strategic procurement framework. 

The overlooked power of tail spend management 

“Tail spend” refers to an organization’s often overlooked and unmanaged expenditures on goods and services that are typically low-value and non-strategic. While tail spend may only account for a small percentage of a company’s total outgoings, it can be costly due to the high administrative effort involved in processing a large number of small transactions with many different suppliers. It often escapes visibility, governance, and negotiation – not because it doesn’t matter, but because it is fragmented and therefore difficult for procurement managers to control.  

Rather like trying to catch snowflakes in a blizzard! 

In this article we’ll set out why tail spend management does matter, explore related concepts such as direct versus indirect spend, and suggest some strategies for tail spend optimization. 

What is tail spend? 

In most organizations tail spend is a classic example of the 20/80 rule: the bottom 20% of spend (in terms of value) typically accounts for roughly 80% of transactions. Tail spend can be more accurately defined by four main characteristics: 

Small and infrequent purchases: These are often one-off or occasional purchases such as office supplies, consumables, or services that don’t warrant setting up a strategic contract.  

Fragmented and decentralized: The purchases are made by different people across various departments, rather than through a centralized procurement process.  

Low relative value: The individual transactions are low in monetary value, leading to a high volume of separate purchases.  

High administrative burden: Managing these transactions is labor-intensive, as each one can involve separate supplier setup, master data maintenance, credit checks, and invoice processing. 

Despite the low value of tail spend, it poses a heavy burden on procurement professionals due to inefficient processes, lack of control, and lack of strategy. Purchases are made outside of company policies and pre-negotiated contracts, leading to a loss of potential volume discounts and negotiated pricing. It’s difficult to track and control this spending, which can lead to increased costs and risk. Furthermore, unmanaged tail spend undermines the value of strategically managed spend by eroding the advantages of the overall procurement strategy.

Direct versus indirect spend and their relationship to tail spend 

Note that most of these tail-spend purchases fall under indirect procurement. Whereas direct procurement involves purchasing goods and services directly used in a company’s final product, indirect procurement is for goods and services that support daily operations but are not part of the final product. 

However, that’s not to say that all tail spend is indirect and vice versa. Typical estimates suggest that 80–90% of tail spend falls into the indirect category, depending on the industry sector. 

Examples of indirect procurement that is not tail spend include IT and digital categories such as ERP and cloud services. These do not directly enter the cost of end products, but they are big-ticket items that are centrally managed and core to business operations. Likewise, facilities management (building maintenance, cleaning, utilities, and security contracts) are typically high spend and rely on long-term supplier relationships. Other examples include corporate travel and events, professional services and training and development. 

Though rarer and more difficult to envisage, tail spend can occur in direct procurement, usually as unplanned or low-volume purchases outside the main contracts.  

Let’s take an example from automotive. A prototype gearbox component (such as a small-batch casting, custom bearing, or test housing) would count as direct tail spend because it’s part of the product or production process (so, by definition, direct spend). However, it’s a one-off or low-volume requirement, perhaps for R&D, testing, or a customer-specific prototype. It’s typically sourced outside established supplier contracts from a niche supplier (with no negotiated terms and an urgent timeline). It may be expensed through engineering or project budgets rather than the main sourcing channels. 

Even though the cost can be passed on to the customer (for instance, under a development agreement), it still falls within tail spend from a procurement management perspective because it’s unmanaged, off-contract, and administratively inefficient relative to its value. 

Other examples of direct tail spend in manufacturing include emergency purchases of fasteners, seals, or gaskets for a production line trial, ad hoc tooling, jigs, or fixtures made for a small batch run, and low-volume materials used in testing or pilot production (e.g. a new alloy sample). 

A third type of expenditure that is neither indirect nor direct, and is certainly not tail spend, is capital expenditure (CapEx), covering projects such as construction, which are capitalized on the balance sheet and depreciated over time. 

Why tail spend deserves attention 

Why should procurement concern itself with tail spend? Although each transaction is low value, the aggregate cost, inefficiency, and risk exposure can be substantial. Procurement teams that actively manage tail spend typically uncover 5–10% savings and significant process efficiencies. 

First, this is because similar items are often bought at different prices by different departments. Consolidating demand and standardizing suppliers can yield immediate savings. Tail spend often hides hundreds of one-time or duplicate suppliers, inflating administrative cost and risk. Off-contract tail spend bypasses negotiated terms, meaning organizations pay higher rates or lose rebates. 

Second, there are opportunities to increase process and administrative efficiency. Tail spend transactions consume disproportionate time in requisitioning, approvals, and invoice processing. Automation tools (P-cards, guided buying, catalogs, and AI-driven sourcing) can cut the cost per transaction by 50–70%. Fewer suppliers also means simpler onboarding, risk checks, and payment cycles. 

Third, rationalizing low-value suppliers (supplier base optimization) reduces overhead and improves leverage with preferred vendors. A smaller, vetted supplier base improves compliance with ESG, cybersecurity, and diversity standards. Consolidation strengthens buyer power and reduces the likelihood of procurement fraud. 

Fourth, organizations can benefit from the visibility that effective tail spend management brings. Analyzing tail spend exposes patterns of maverick buying or unmet internal demand. These insights can inform category strategies and reveal emerging sourcing needs before they escalate. This can also highlight sources of innovation and can help diversify the supply base to meet ESG targets: for example, niche suppliers from minority communities with unique capabilities. 

Strategies for managing tail spend 

The previous section sets out the theory (why should you do this?) but the execution (how?) is obviously much trickier! In a large organization with thousands of suppliers, the challenge is how to manage tail spend without burning more resources than you save. The key is to treat tail spend as a data and automation problem, not a manual clean-up exercise.  

Here are some best practices: 

Start by defining what “tail spend” means for your organization. For example, is it all spend under a certain threshold (€10k, €25k) or outside top 80% of spend by value. Then use spend analytics tools to cluster suppliers and transactions by category, frequency, and business unit. Identify the “micro-tails” (very low-value, one-off items) versus “hidden tails” (repeat spend with small suppliers that could be consolidated). It’s best to focus first on repeatable, non-strategic purchases. This is where automation delivers the biggest ROI. 

Next, take advantage of proven P2P technology. Integrate approved supplier catalogues or B2B marketplaces for low-value, high-frequency buys.  This standardizes pricing, automates approvals, and drastically reduces maverick buying. Tail suppliers can often be redirected into catalog frameworks, giving employees an easy, compliant way to source everyday needs. 

With the latest P2P technology you can automate procure-to-pay workflows, deploying guided buying and spot-buy tools. These increasingly use AI to match requisitions to preferred suppliers or run micro-tenders automatically. Automating the “long tail” can cut procurement cycle time by 70% and reduce manual touchpoints. 

Rather than attempting a mass cull, take a data-driven, category-by-category approach to rationalize the supplier base. Identify overlapping suppliers that provide similar goods or services (such as multiple office-supply vendors). Engage preferred suppliers to absorb low-value categories or add catalog coverage. Phase out truly inactive or non-compliant vendors. These can often represent 20–30% of registered suppliers that see no spend year-on-year. Then set up preferred small supplier frameworks for niche or local vendors that offer unique value but low volume. 

You can also outsource tail management to specialist aggregators such as cooperatives and group purchasing organizations (GPOs) who consolidate thousands of suppliers under one master agreement. Cooperatives (such as E&I Cooperative Services in U.S. higher education, or equivalents elsewhere) aggregate spend across multiple institutions or companies. This lets members access pre-negotiated contracts for common indirect categories – everything from IT peripherals to laboratory supplies, furniture, or MRO. 

Such providers handle supplier onboarding, payment, and compliance under one umbrella, while maintaining visibility through dashboards. 

Define KPIs and track progress  

It’s important to monitor progress continuously or else you are likely to drift back into bad habits. Define tail-spend KPIs with baselines to evaluate progress. Typical metrics include percentage of spend under management, supplier compression (absolute number of suppliers and number of passive and active suppliers reduced), cost savings achieved, and process efficiency improvements (cycle time, automation rate, staff hours saved etc.) 

Then use AI-driven analytics to provide greater visibility. Detect maverick spend and track compliance to preferred supplier frameworks. Regularly review thresholds:  what counted as “tail” last year may merit strategic sourcing this year. And align KPIs: measure not just savings, but reduced supplier count, lower transaction cost, and improved contract coverage. 

Finally, make the wider community feel they have a stake in this. By setting up self-service tools and communicating procurement performance metrics internally, you can make it easier for buying departments to make on-contract purchases. 

Case study: A mid-ranking university 

An American public land-grant research university became a beacon for world-class tail-spend management in the higher education sector, streamlining its supplier base from more than 60,000 suppliers to 4,000 that are closely managed to meet the needs of the institution and the wider community.  

Earlier, the university had an open supplier registration system. “Suppliers could easily register in the system without the University knowing a thing about them,” recalled the Director of Procurement. That not only meant wastage through high volumes of off-contract spend, but also created a serious risk of fraud. 

There was a good reason for correcting this situation. In the course of 2016-19 several higher education institutions had fallen prey to billing fraud schemes executed through supplier records. In one instance a Canadian university lost several million dollars. Scammers simply contacted universities through telephone calls or email and posed as suppliers that needed to update banking information. 

The university worked with JAGGAER to replace this open registration system. Suppliers were invited to register to do business, and the university vetted every one of them by collecting all standard business information. An algorithm created for the university with JAGGAER subsequently helped it rationalize the number of suppliers down to 2,500. The team then went out to campus customers and end users, in particular IT and Facilities, for feedback, before inviting their preferred suppliers to come back and register. This brought the supply base back up to 4,000.  

Every supplier is now required to manage their own records. Ongoing registrations of new suppliers are invitation only, which is helping the institution to meet goals such as social responsibility and community outreach. Suppliers are also screened against multiple sanctions lists via a third-party integration in JAGGAER, helping to ensure that the University only does business with legitimate companies that are entirely above suspicion.  

As well as increasing admin efficiency within procurement, benefits were felt in the finance department, which gained greater clarity into which suppliers should be issued with IRS tax forms. 

Final thoughts 

Effective tail spend management isn’t about micromanaging every €500/$500 purchase. It’s about building systems that handle them automatically. With the right blend of analytics, spend management automaton, tail-spend automation, and supplier frameworks, companies can reduce thousands of vendors to a manageable core, cut process cost, and free up procurement talent for higher-value work. Use automation for low-value purchases to enforce compliance and improve visibility. 

Many JAGGAER customers, in sectors as diverse as automotive manufacturing and higher education, have done precisely that.