Indirect Spend Management
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Maverick spend is usually defined as requestors buying items or services that are outside the defined procurement process, from non-preferred suppliers and/or off contract. 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.
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.
483 KB pdf