5 Tips to Help Prevent and Control Maverick Spend
- Procure to Pay
Being a maverick isn’t all bad. Just look at Steve Jobs and Sir Richard Branson. Their outside-the-box ideas drove innovation and resulted in enormous successes. But for companies trying to manage spend – and let’s be honest, who isn’t? – rules-are-meant-to-be-broken behaviors such as maverick spend can wreak havoc on processes and, ultimately, your company’s bottom line.
The upside is that it creates opportunities for procurement managers to re-evaluate processes, identify shortfalls and tighten spend gaps. But if left unchecked, it can – and will – end up costing your company money in the long run.
What is maverick spend?
Maverick spend is defined as buying from suppliers without following the company’s pre-established procurement policy. Purchasing goods or services out of contract or from non-preferred suppliers means that your company doesn’t benefit from the preferred supplier discounts that you worked hard to negotiate. Even worse, it can harm vendor relationships, affect future contract terms and open the door for underhanded business practices.
Maverick spend may not seem like a big deal, but it can really add up over time, costing your business lots of money. Usually, maverick spend can be easy to identify, but sometimes it can be less obvious – and more costly.
Let’s look at an example of maverick spend
The eProcurement department for a large electronics distributor had a customer who funneled 90% of their spend with the supplier through their eProcurement system. This is an incredible percentage of spend through eProcurement, however the company wasn’t satisfied. They wanted 100%. This customer had one dedicated category manager assigned to us. As she reviewed the purchases from us, she discovered that certain engineers were consistently buying the same items outside the eProcurement system. When the category manager approached one of the engineers, the conversation went something like this:
Category Manager: I see that you purchased this item outside of our eProcurement system.
Engineer: Yes, yes I did.
Category Manager: Why?
Engineer: I called our sales representative and was able to negotiate a better price on the item. I saved $100.00 on the item, but since it was a different price than the one listed in our eProcurement catalog, I had to process it manually. Isn’t that great that I was able to save $100?
Category Manager: Yeah, great. It cost the company $300.00 to manually process the order to achieve your $100 in “savings.”
What’s important in this example is that the category manager didn’t just identify the maverick spend, she took the extra step to determine why the maverick spend was occurring. When she discussed the maverick spend with us – the supplier – we took it a step further. What could we do to eliminate the need for this maverick spend?
Our solution was to design a system to allow the engineers to electronically request a quote for items through their eProcurement system and then add that quoted item to their electronic catalog. It was a win for the engineers, since they could purchase items at a reduced, negotiated price. It was a win for the purchasing department, since those items could be purchased through their eProcurement system and it was a win for us as the supplier, since we were able to support our customer.
The takeaway is that spend management is much more than just analyzing your spend – it’s turning that analysis into business intelligence and taking action on it. In this specific instance, identifying the maverick spend, determining why the maverick spend was occurring and implementing a solution that eliminated the maverick spend.
So why do employees “go rogue” and, more importantly, how can you stop it?
Here are five tips to maverick-proof your procurement processes.
1. Identify maverick spend.
Spend visibility is key. After all, you can’t save or fix what you can’t see. Do you know how much maverick spend costs your company? Or the work areas and spend categories where non-conformity occurs? A thorough spend analysis can help you identify gaps across all spend data sources. From there, you can pinpoint the who, what and where and put an action plan into place.
2. Determine why maverick spend occurs.
Most employees don’t “go rogue” on purpose or with ill intent. They simply may not understand the procurement process. Or they may find it cumbersome and time-consuming. eProcurement software can be intimidating, especially to employees who don’t use it regularly. Or they may see better prices elsewhere, not understanding the costs associated with invoice and payment processing or expense reimbursement.
Whatever the reason, regular efforts to explain the “why” and share the value can go a long way in gaining buy-in. Consider hosting (bring your own) lunch and learn sessions, recognizing outstanding department or individual accomplishments, and providing a forum for employees to recommend vendors and give feedback.
3. Review the entire procurement process.
If you find your procurement process difficult, simplify with a more user-friendly solution. There are a lot of affordable and easy-to-use automated eProcurement options on the market.
The key is to find a solution that’s easy to use and all-inclusive (one that sees all direct and indirect spend) that integrates with your enterprise resource planning (ERP) system. This ensures that all employees have access to the right information at the right time.
4. Hold people accountable for their expenses.
While creating processes is your job, spend management is everyone’s responsibility. Every manager in your organization should know exactly what’s being spent in his or her area, who’s spending it, and how much spend occurs outside of contract or supplier network.
If you have a coupon at home for Papa John’s pizza, you’re probably not going to order Domino’s and pay full price. While a simplistic example, the same holds true at work. It just may be that employees don’t know what discounts exist or aren’t being held accountable for purchase price variances.
5. Close the gaps in your procurement process.
Additional measures to consider to reign in maverick spend include:
- Limiting or eliminating P-card use to only certain vendors, merchant categories and/or dollar amounts. P-card usage can be difficult to monitor and measure which is why some companies are eliminating use altogether.
- Limiting who can set up new vendors. Do you have a well-defined process for onboarding new suppliers? If not, you should.
- C-level review of all non-contract or outside supplier network spend.
In the end, maverick spend and not playing by the procurement rules costs organizations BIG money. By digging deeper into the purchasing experience and the challenges and frustrations your employees encounter, you’ll better understand why maverick spend occurs, where it happens most often and, most importantly, what solutions you should implement to stop it.