It’s not unusual for onboarding and ongoing maintenance costs to exceed the value of the actual purchase.

Onboarding a new supplier costs a company an average of EUR 500* in working hours alone. On top of that, there are annual maintenance costs of several thousand kronor per supplier. Very often, these are one-off suppliers that are never used again.

“It’s not unusual for onboarding and ongoing maintenance costs to exceed the value of the actual purchase. That’s when it becomes clear that this is not a sustainable way for companies to handle procurement,” says Rikard Redin, Key account manager at AirPlus.

This is also the dilemma of the long tail in the overall procurement chain, the part made up of many small purchases from a large number of suppliers, with whom companies often have no established procedures and agreements.

It may seem harmless

Together with Mastercard, AirPlus has analysed 39,500 suppliers across 700 Nordic companies. The analysis* showed that 71% of suppliers (28,000 in total) fall within the long tail, yet they account for only 1% of total procurement spend.

“It may seem harmless; a small cost for an event banner here, a last minute order there. But taken together, it consumes both time and money,” says Rikard Redin.

The risk of bypassing the process

Rikard Redin is well aware that some companies try to solve this challenge by simply bypassing the onboarding process and paying the invoice directly. But this can quickly lead to even bigger problems.

“It undermines procurement discipline and sends a signal to employees that internal processes are optional. At the same time, companies lose visibility and control over who they are paying, which makes follow up more difficult and increases the risk of regulatory and compliance breaches.”

Instead, Rikard Redin recommends the following three-step approach to maintain control over procurement while reducing unnecessary administration.

1. Always use existing processes first
“When planning a new purchase – large or small – always start by checking your existing ERP, S2P or P2P** systems to see if there is already a supplier that can be used.”

2. Use corporate cards for smaller, nonstrategic purchases
“If a new purchase cannot be matched with an existing supplier, always use a corporate card. This helps avoid unnecessary administration that would otherwise drive up operational costs.”

3. Use card to account if corporate cards are not accepted
“If a supplier does not accept card payments, my recommendation is either to find an alternative supplier that does or to use a ”card to account-solution”. The invoice is then paid with the corporate card, allowing you to use existing card processes while achieving a consistent solution for all long tail payments.”

*Source: Cost calculations based on an extensive survey conducted by Mastercard’s sourcing consulting team.