Rethinking tail spend outsourcing in the age of AI

For decades, outsourcing tail spend management to Business Process Outsourcers (BPOs) has been procurement’s primary mechanism for managing high-volume, low-value transactions. As tail spend outpaced internal procurement capacity, outsourcing was a rational response. But this model assumed scaling labour was the most effective approach to managing tail spend – an assumption that no longer holds as AI reshapes what is possible.

Across industries, procurement leaders are reassessing long-held assumptions about outsourcing. This article outlines why the traditional BPO model is under pressure, and what actions procurement leaders can take to build a new structure in an AI-enabled environment.

Outsourcing tail spend: A model under strain

Introducing consistent, process-driven transaction management addressed the issue of scale but came at a cost. Visibility into buying decisions diminished. Data arrived late and aggregated. Procurement teams struggled to interpret and respond to demand signals. Business users experienced rigid processes that were misaligned with the reality of how they worked.

AI is upending the economics of this already-fragile outsourcing model. AI-enabled intake, automated compliance, guided buying, and embedded marketplaces now mean what once required large teams of transactional FTEs can now be delivered through intelligent, orchestrated systems. This shift undermines the core economic foundation of labour-arbitraged outsourcing models. In many cases, efficiency gains accrue primarily to the service provider, while clients lose insight and influence over their own spend.

The response for procurement is not to rebuild internal processing teams. The issue is not where labour sits, but whether human labour still does the heavy lifting. The shift required is more fundamental: moving away from labour scaling altogether, towards system redesign.

From outsourcing to orchestration: A window of opportunity for procurement leaders

Leading organisations are not simply bringing work back in-house. They are redesigning how procurement operates.

Modern delivery models blend:

• Technology and automation
• Data and benchmarks
• Targeted human expertise and judgement where it adds value

In this model, the majority of transactions are completed through guided, self-service channels, with compliance embedded directly into the buying journey rather than applied retrospectively. The result is faster buying, higher compliance, better insight, and a marked improvement in the user experience.

For CPOs, this shift represents an opportunity. Procurement can regain transparency, simplify buying, and actively manage tail spend without rebuilding large internal processing teams, manual controls, or bureaucratic friction. In doing so, Procurement moves from being perceived as a blocker to an enabler of the business.

Realising this opportunity requires a clear-eyed assessment of the current state of tail spend management. There are 10 critical questions a CPO must ask before redesigning the model.

CPO self-assessment: Understanding your current state

Patterns in the answers will point clearly to where intervention is required. Poor visibility demands better data architecture. A high volume of manual touchpoints signal automation opportunity. Rigid contracts point to a need for structural redesign. The following actions address these root causes directly. 

Five practical next steps for CPOs