How Tail-end Spend Visibility can Reduce Supply Chain Risk

If there’s one thing that keeps procurement professionals awake at night, it’s not cost savings but risk.

Shaving a few percentage points off the headline price of an item or mitigating cost rises in future contracts are often the day-to-day focus of teams.

However, when the supply of goods is threatened it can become the stuff of nightmares. 

Global instability as a risk factor

Many issues are beyond the control of businesses, such as conflict, natural disasters or pandemics, while inflationary pressures lead to suppliers going out of business which can wipe out entire sectors almost overnight. 

But that’s not to say procurement teams can’t prepare for such eventualities by reducing their reliance on suppliers from high-risk parts of the world. Due diligence also needs to be conducted on suppliers’ credentials, as organisations cannot afford to buy from unethical companies that do not meet their own corporate social responsibility or sustainability standards. 

Central to this is information: understanding what the business is spending and on what; identifying key suppliers and where these are based; and anticipating potential spikes in demand or reduction in supply should an unexpected event occur.

Procurement concerns

Most procurement teams have this information for direct spend – money allocated to components likely to form part of end-products that will come into contact with customers. But not many truly have control over indirect, or tail-end, spend.

This encompasses items that are vital to the overall running of the organisation. Examples include IT systems or other office technology, stationery, cleaning equipment, furniture or office furnishings. 

Typically, such items will be bought by office managers or individuals, ordered when they are required and with little scrutiny given to the price or the credentials of the supplier. But this can cause issues for procurement teams, who may not know about such purchases – which are generally paid for by employees and claimed back through expenses – and have little information on how much is being spent and on what. 

From a risk perspective, this is a significant problem. Not only do procurement professionals not have the information they require to manage and reduce spend, they also do not know when items are  needed based on previous buying history. This increases the threat of not being able to obtain products when they are needed. They are also unaware of which suppliers are providing items, running the risk of items failing safety standards or sustainability requirements and exposing the business to safety and reputational risks.

Risk mitigation strategies

Digital procurement solutions such as Amazon Business are helping organisations manage tail-end spend. Authorised employees have a single source through which to buy items up to pre-agreed limits, while procurement teams get insights into spend by category, supplier, employee and department. 

In turn, teams can better understand demand and predict when items will be required, which helps with budgeting and ensuring the business does not run out of stock. The use of artificial intelligence can help with this, learning from previous activity to  predict future requirements.

Organisations can also choose which suppliers are put forward. This means they can prioritise those from the local area – reducing the risk of logistics-related issues and carbon emissions – or those which possess CSR and sustainability credentials, which can help protect the buying organisation from reputational damage. Procurement teams can view the use of such suppliers over time and demonstrate the progress they are making towards wider organisational goals.

Multi-academy trust The White Horse Federation has benefited from greater visibility into its spend. With 30 schools across South West England, its previous procurement set-up was fragmented and disjointed, with teachers buying items as and when they were needed, running the risk of understocking vital equipment. 

Partnering with Amazon Business means the trust can provide its staff with an easy system to find and buy products – a system they were familiar with from their personal lives. This has freed up time for teachers but also generated a much clearer picture of what the trust spends for those in its procurement team. 

“It’s not just what we buy but how we buy,” says Rijk van der Merwe, Commercial Director at The White Horse Federation. “Partnering with Amazon Business has allowed us to track costs across the trust, negotiate strategically and secure further savings, while maintaining a compliant route to market.”

To find out more about how Amazon Business could help you gain more visibility into spend, visit business.amazon.co.uk/