Maverick spend—otherwise known as rogue spend—is any spending not managed by procurement. This type of noncompliant tail spend wreaks havoc on a company’s budget and opens the organization to greater levels of risk. Maverick spend isn’t just about people buying pens and papers out of petty cash or from unapproved suppliers. By some estimates, maverick spend accounts for up to 80% of some organization’s total spend.
And it doesn’t just cost companies money. It also means savings are lost from purchases that could’ve been covered in negotiated contracts. When maverick spend is brought into negotiated contracts, these savings can be as high as 16%. Hidden costs can also mount up from Maverick spend in the form of potential breaches of contract with suppliers and time wasted by accounting teams trying to reconcile the books.
The good news is maverick spend can be curbed. Here’s a few ways to rein in your mavericks and reduce the risks associated with their spend.
What’s the first step to curbing maverick spend? Finding out where it’s hiding! The companies with the greatest maverick spend problems are usually the ones with overall less visibility of their spend in general. When employees with purchasing power aren’t aware of the catalogs they’re supposed to be using, or the contracts their organization has signed for procuring items, then maverick spend becomes all the more likely.
To calculate your rogue spend, procurement teams should clean up their data and conduct regular spend analysis.
Spend analysis takes time—but it’s worth it. And it takes clean data—but that’s worth it too, for many reasons.
Locate you spend data from the company’s credit cards, enterprise resource planning systems, financial spreadsheets and invoices. Then place all this data into one database—and ensure the data is clean, uniform and free of duplication.
Put the data into a useful format, taking care to identify the key categories (like amount of spent, buyer and their department, vendor, spend category and frequency of purchase. For each spend item, be sure to identify if it was purchased from a preferred vendor or not.
Calculate the portion of annual spend for each vendor. Depending on whether the spend was with an approved vendor or not, you’ve identified the who, what and where of your maverick spend. If you’re interested in the why, ask you mavericks. It’s likely they’ll tell you it was a matter of convenience or unfamiliarity with the information required for compliant spend. This information is crucial to understanding how to…
Once you know how much maverick spending is impacting your bottom line—and why people are doing it—you can begin to implement strategies to control it.
The first step is to educate employees about the impacts of maverick spend and provide training for how they can personally control it. Oftentimes it’s about poor procurement systems. When they need an item that they can’t find in the procurement system—or the system has outdated prices or is cumbersome to use—mavericks take it on themselves to find a solution. Yet when provided with training in the system and an understanding of the problems that rogue spend causes for their company, these mavericks quickly become part of the solution.
Curbing mavericks also means having a better understanding of the purchase-to-pay cycle. When it comes to P2P, it’s not a case of one size fits all. Procurement teams need to design different systems to cover all types of spend in their organization. The same process should not apply to enterprise software and envelopes alike.
Yet centralization is also an important component to solving maverick spend. Software systems like Fairmarkit are designed to keep all your spend on one platform while also providing the ability to have different processes for different types of spend. In fact, the right platform can help companies curtail not just maverick spend but all types of tail spend.
Restraining maverick spend isn’t a one-and-done activity. Without constant care and attention, it can creep back up.
As well as education and training for employees and a good procurement portal is continual monitoring and refinement of your processes.
Automation is the maverick’s worst enemy—because it gives them less reason to go rogue! Try to automate as much of the process as you can—especially purchase approvals and budget controls.
Try to eliminate the use of Purchase cards and move towards an online system. P-Cards were useful once, but their time is at an end. Purchases made on P-Cards are often a big source of maverick spend because it’s hard to monitor the purchases made on them.
Finally, make sure you have a process for ‘special’ procurement needs. No matter how great your system, there will always be a few times when goods or services can’t be filled through the normal channels and vendors. Create a way for purchasers to quickly escalate their requests, explaining why their needs can’t be met through existing channels. This keeps the spend visible to the procurement team and will help plan for the future.
Bringing maverick spend under control is mission-critical for organizations seeking to grow profitably. With the right training and tools, maverick spend can be managed and prevented effectively. For more advice on spend analysis and managing tail spend, check out Fairmarkit’s blog, The Source.