Maverick Spend: It’s Not Just about the Money
In a world where nearly any purchase is just a click away, keeping maverick spend in check has become one of the top challenges facing procurement. The vast majority of maverick or “rogue” spending happens for perfectly innocent reasons: convenience, laziness, ignorance, or people just being in a hurry. True, sometimes there is an element of dishonesty involved, such as small kickbacks in the form of gifts.
Occasionally, there may be outright procurement fraud going on. According to PwC’s 2018 Global Economic Crime and Fraud Survey, procurement fraud accounted for between 23%-29% of fraud crimes in the consumer, technology, industrial products, and professional services industries.
But, whatever the motive or the cause, maverick spending still has a serious impact on your business. You spend lots of time on negotiation to drive the best price. Then employees buy off-contract and your company ends up paying more than it should.
And there’s a lot of this going on. In organizations that do not have a procure-to-pay (P2P) solution in place, typically 80 percent of indirect spend is off-contract. But maverick spend doesn’t just affect organizations financially.
Why Maverick Spend Isn’t Just About the Money
For one thing, maverick spending can impact contract fulfilment. Some contracts have exclusivity clauses or minimum order requirements, and if employees are purchasing elsewhere, your company could be in breach of contract. Even if that is not the case, it could damage your relationship with a preferred supplier or business partner.
You could also be exposed to other legal risks. For example, if there is no contract in place and the supplier suddenly goes out of business while you are working on a project for a customer, or if the supplier does poor quality work and you get into a dispute, you may have no legal protection and may be liable for remedial costs.
Maverick buyers are unlikely to use preferred suppliers, and as a result, the goods and services they receive simply won’t match the timeliness, quality, price, efficiency, or customer support that you’d expect from a preferred supplier
Then there is the opportunity cost involved in having procurement professionals chasing down transactions or suppliers. If they are spending their time putting out fires caused by rogue spending, they’re not creating value for the company.
Maverick buying can put a strain on internal or interdepartmental cooperation. If one department loses its discount because another buys elsewhere, the effect on relations can be serious. Not least, your financial team won’t be too happy when rogue spending messes up their forecasting and budgeting.
And, finally, maverick spending can be bad for your reputation. High levels of maverick spend provide cover for procurement fraudsters.
To tackle this issue, businesses need to find a P2P solution that is a joy to use for any purchasing – even for non-contract categories – with workflows that make sure approvals happen quickly. JAGGAER customers typically report 90-95% approvals within 24 hours.
About the Author:
Robin Fred is Manager, Onboarding Programs at JAGGAER’s Morrisville, NC headquarters. A graduate of Texas Tech, he has been working with customers, partners and employees since joining JAGGAER in 2012.