Tail spend accounts for 20% of non-essential purchasing transactions that are not actively managed or go unnoticed due to a large volume of suppliers and limited internal resources.
The number of private healthcare users has continued to increase in recent years; rising by almost 4% since 2019 to reach 12 million people between insured and mutual society members; according to the report Private Healthcare; Adding Value 2023; produced annually by the Institute for the Development and Integration of Healthcare (IDIS Foundation).
One of the critical but often underestimated issues in the healthcare sector is the management of 'tail spend'; which refers to the 20% of non-essential purchasing transactions that are not actively managed or go unnoticed; usually due to the large volume of suppliers and the lack of internal resources for administrative or financial control. As these expenses are not categorised; it is difficult to pinpoint where the losses occur. At ERA Group; we analyze how 'tail spend' impacts this sector.
How to tackle 'tail spend'?
The best way to illustrate tail spend is through the Pareto Principle; according to which 80% of an organization's expenditure is strategically managed with 20% of its suppliers. This 80% usually includes the cost of materials; tools and other expenses such as insurance. In contrast; the remaining 20% is considered 'tail spend' and is carried out with 80% of suppliers.
At ERA Group; we help you identify this phenomenon and how it can be redirected towards smarter and more effective investment:
- Fragmented supplier management: the huge number of suppliers can lead to a lack of consistency in prices and terms of service; which unnecessarily increases costs. In this regard; it is important for healthcare centers to streamline their supplier base; paying particular attention to negotiating better terms to achieve savings without sacrificing the quality of products or services.
- High resource commitment: a great deal of transactions; time and attention are devoted to an activity that does not add differential value to the company. Inefficient purchasing processes for minor expenses represent a waste of financial and administrative resources. The implementation of automated procurement systems reduces operating costs; increases competitiveness and frees up resources for valuable investments such as patient care.
- Lack of visibility into spending: Controlling tail spend is a tedious and often inefficient task due to a lack of information. To solve this; it is advisable to use technologies that improve the visibility and traceability of expenditure and; therefore; enable more informed and strategic decision-making about purchasing processes.
Without active management; healthcare centers may overlook savings opportunities that; in some expenditure categories; range from 10% to 40%. One option to consider to counteract the effects of tail spend is to engage a specialist partner who can provide the organization with a detailed; personalised analysis of spending patterns and identify untapped areas for savings; which can then be reinvested in improving facilities or other critical aspects."Failing to manage tail spend can be too costly from a business perspective;" says Fernando Vázquez; consulting partner and co-area developer at ERA Group Spain. "It is possible to achieve savings on non-strategic purchases; as well as streamlining and securing supply on the best terms. By being more efficient; you are more competitive."
