Tail spend, maverick buying and the outsourcing proposal
A UK housing association spends £38m a year with 4,200 suppliers. Its procurement team has five staff. Spend analysis shows 78% of transactions are below £1,000 but represent only 9% of spend; 62% of invoices are off-contract; three buyers manage 1,100 active suppliers; average invoice processing costs £28; 14% of invoices are paid late; and 11 duplicate supplier records exist. The organisation has no purchase-order compliance for purchases under £500, and 40% of suppliers are used only once. Facilities managers say the e-catalogue is slow and incomplete, so they buy locally. The board wants 10% savings in 18 months without cutting frontline services. A consultancy proposes outsourcing the entire tail to a managed service provider for a 6% fee. HR warns that outsourcing may trigger redundancy costs and union resistance. The finance director wants quick wins but is worried about losing control of local suppliers.
1. Diagnose the main causes of maverick buying in the data and assess whether outsourcing the tail should be the first move.
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Start with segmentation, not a single 'tail' label. The £38m spend divides into a small number of strategic suppliers and a large transaction tail: 78% of transactions but only 9% of spend, roughly £3.4m. The £28 invoice-processing cost is material because many transactions are below £1,000; a £400 purchase can cost 7% to process. Duplicate records and off-contract buying inflate transaction cost and weaken leverage.
Likely root causes are: a catalogue that does not cover what facilities staff need; delegated authority that is unclear below £500; no purchase-order control; local suppliers offering speed; and payment delays that make buyers avoid the official route. These are process and behavioural causes, not simply 'bad suppliers'.
Outsourcing the whole tail is premature. A 6% fee on £3.4m is about £205,000 a year before transition and redundancy. It may reduce transactions but can also reduce local responsiveness and transfer data and compliance risk. A better first move is a pilot: clean the supplier master, introduce purchase cards or a simplified catalogue for low-value buys, mandate purchase orders, and consolidate one tail category. Outsource only if the pilot shows lower total cost and acceptable service.
2. Set out a 90-day and 12-month plan, with three measurable KPIs.
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First 90 days: (1) freeze new supplier creation and de-duplicate the master file; (2) analyse the tail by category, supplier and transaction volume; (3) pilot a purchase card or e-catalogue for purchases under £500 in two business units; (4) publish a simple delegated-authority matrix and mandate a purchase order; (5) meet union and facilities representatives to explain the reason and invite feedback. Quick wins should be visible but not disrupt repairs and maintenance.
Months 4-12: consolidate suppliers where demand is repeatable; negotiate a tail framework with a small number of local suppliers; move to e-invoicing and automated three-way match; set payment terms and improve on-time payment; train budget holders; and run a competitive pilot with a managed tail provider only if the internal pilot fails. Review progress quarterly with finance.
KPIs: off-contract invoices fall from 62% to 35% within 12 months; average invoice-processing cost falls from £28 to £18; duplicate supplier records fall to zero, with on-time payment at 95%. Savings should be measured net of transition and redundancy costs, not gross price alone.
3. How would you manage the resistance from facilities managers and the union?
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Resistance is predictable because the change threatens local discretion and jobs. Treat facilities managers as users, not offenders. Run workshops to find out why the catalogue fails; include them in choosing the pilot categories; give them a fast route for genuine emergencies; and publish service standards. Remove the causes of maverick buying rather than punishing individuals.
With the union, be transparent about the scope: is the proposal about process automation, supplier consolidation, or outsourcing? Share the data and the criteria. If outsourcing is possible, consult early, provide retraining and redeployment options, and cost redundancy properly. A joint review team with finance, procurement, facilities and union representation can test the business case. Communicate that the aim is to protect frontline services by reducing wasted transaction cost. Monitor complaints and exceptions to show whether the new process is working.