Unmanaged spending can be the bane of the chief procurement officer’s existence, but there are ways to curb the opaque costs.
The term maverick spend—with its connotations of rebellious gamblers and the Wild West—is an apt nickname for unmanaged tail spend as it brings to life the idea of people bucking procedure and doing their own thing when it comes to the procurement function.
And yet unlike the fancy-free mavericks of the olden days who cut their own path, today’s mavericks are risking more than their own purse. Employees who engage in maverick spend can cost their companies dearly.
What is maverick spend?
When employees buck the system to purchase goods and services on their own and ignore the contracts that the procurement team has negotiated with preferred suppliers, that’s maverick spend. It happens most often in indirect spending categories—diverse purchases like contract labor, professional services, office supplies, and MRO (maintenance, repairs, and operation). Such varied spend makes maverick behavior hard to identify and curb—but it’s not hard to see the damage to the bottom line, as it usually ends up with the company paying higher rates.
Ironically, negotiated supplier contracts exist expressly to govern tricky indirect spend. Procurement professionals have faith in the deals and pricing they’ve negotiated with their top suppliers. They’re proud of those relationships and strategies, which exist for the benefit of the organization.
The challenge for procurement teams is to curb these requisitions to non-preferred, non-contract suppliers. They must determine if a preferred supplier can step in, bring the spend onto the books and the budget, and keep it in line with financial estimates and expenditure goals. So how can the procurement team rein in the mavericks in their midst?
What causes maverick spend?
The first step is to understand just why these mavericks insist on performing unmanaged spending.
There are essentially three reasons mavericks operate the way they do:
- Because they can
- Because they don’t know any better
- Because existing processes take too long
Mavericks can be mavericks when there are no controls to enforce supplier contracts and negotiated rates—and no penalties for buying off-contract. It’s easy for employees to justify bypassing agreements—they have a friend who can do a better deal or know of a website that has the item on special. But people who make these types of excuses don’t always factor in the entire organization—for instance, what about rebate agreements or volume discounts? In many organizations, poor visibility of these agreements leads to maverick spending. If employees with purchasing power don’t know about the contracts—or the catalogs they’re using are out-of-date—then off-contract spending becomes much more likely.
Slow ordering or approval processes are also a big reason why employees engage in maverick spending. If it takes weeks to get an approval for a purchase, employees will work out a way around the process—especially if their needs are time-sensitive.
What stops maverick spend?
According to researchers at Forrester, one of the most successful ways an organization can constrain its maverick spend is to pay closer attention to its Purchase-to-Pay cycle (P2P). An effective P2P lets companies draw maximum benefit from all of their contracts and suppliers. Forrester says that without a structured P2P process, it isn’t rare to find cases where more than 80% of all invoices generated come from maverick spend. Yet the market research company warns that very few organizations have a controlled and robust process for their P2P.
To handle the P2P cycle and manage uncontrolled purchases, organizations must:
- Put in a system that gives you better control
- Provide an easy-to-use and intuitive interface for business lines to make purchases
- Simplify workflow procedures for purchasing
Purchasing systems can now automate the entire process, regardless of product or vendor—including the approval process. An all-encompassing purchasing system helps you corral mavericks by offering them a single way to purchase everything. But the system needs to be somewhere mavericks can actually find everything they need. And it also must be easy to use, so that mavericks have no excuse to look elsewhere.
Forrester advises companies to make the elimination of unmanaged spend an ongoing effort. Even with a comprehensive purchasing system, tricky mavericks may still try to work around it. But with robust analytics and purchasing data, procurement teams can regularly revisit unmanaged tail spend and address their mavericks’ concerns, helping them understand the system and engage with it.
Fairmarkit can help curb maverick spend by funneling non-compliant, off-contract spend to an organization’s preferred suppliers and contracts—preventing business lines from “going rogue.” The outcome is better adherence to category strategy, more spend under management, cost savings, and decreased risk.