What Is Maverick Spend And How To Control It
Maverick buying is a problem for companies of all sizes — whether or not you realize it. And, for any business seeking to grow profitably, cutting down on waste must be a top priority.
More and more organizations are focusing on identifying and rooting out maverick spend in an effort to cut costs and optimize procurement. If you’re unfamiliar with maverick buying, start with this quick guide to understanding maverick spend, and the three starting steps to bring it under control.
[Read more: Maverick Spend: How It’s Hurting Your Business and The Best Strategies to Control It]
What is maverick spend?
Maverick spend — sometimes called rogue spend — refers to any purchases that don’t follow the organization’s established procurement rules and procedures. Maverick spending is the result of either deliberately ignoring procurement processes or of a purchasing mistake that doesn’t align with previously negotiated purchasing terms.
Research by the Chartered Institute of Procurement & Supply (CIPS) shows that at many organizations, maverick buying can account for up to 80% of all invoices, even at big organizations that have procurement departments. Maverick buying is, essentially, uncontrolled spending — which results in poor contract compliance and low benefit realization.
There are hidden costs to maverick spend too, such as the loss of savings that could have resulted from negotiated contracts. Some organizations report up to 16% losses in negotiated savings. Plus, maverick spending raises the risk of a potential breach of contract with suppliers and time wasted by accounting teams that are trying to reconcile accounting.
Fortunately, there are ways to bring your organization’s maverick spending under control. Here are some steps to take to discover and manage your maverick spending.
3 Steps to control maverick buying
By following these steps and periodically performing a spend analysis, companies can begin to rein in maverick buying.
Identify where maverick spend exists
The term “rogue spend” seems to imply that someone in the organization has gone off-script, taking spending into their own hands. But, more often than not, it’s a lack of transparency that leads to maverick spending. If employees with purchasing power don’t know about contracts or discounts, or the catalogs they’re using are outdated, then off-contract spending becomes more common.
It can be helpful to start by performing a spend analysis to see where maverick spending exists. If you don’t have a spend management platform, here’s how to perform a quick maverick spend calculation:
- Start with all your spend data. Use invoices, credit card statements, your ERP, financial spreadsheets, and any other financial records to pull together all spend data in one place.
- Clean the data. Standardize this financial information by removing duplicates, converting text into numerals, and formatting all your inputs to make analysis easier.
- Categorize your spending. Organize this data by amount spent, department, vendor name, and spend category. Mark which vendors are approved/preferred and which are “maverick.”
- Analyze your results. Finally, calculate how much was spent on vendors (both preferred and unapproved) within each category over a certain time period. This will show you precisely how much was maverick spending.
Improve the P2P cycle
Procure-to-pay, also known as purchase-to-pay or P2P, refers to the integration of purchasing and accounts payable tools to become more efficient. Procure-to-pay is a subset of the overall procurement process.
When companies have an effective P2P cycle, they are able to maximize sourcing and better manage payments, supplier relationships, data, and compliance. Procure-to-pay systems can empower organizations with oversight and visibility throughout the life-cycle of a transaction, allowing full insight into both cash-flow and financial responsibilities.
To handle the P2P cycle and manage uncontrolled purchases, organizations must:
- Institute a system that gives better control
- Provide an easy-to-use and intuitive interface that business teams can use to make purchases
- Simplify workflow procedures and approval processes for purchasing
Purchasing systems, like Fairmarkit, can automate the entire P2P process, including the approval process. An all-encompassing purchasing system helps cut down on maverick spend by offering employees a single, streamlined way to purchase everything.
Train employees to reduce maverick spending
With the right tools in place, an organization can make it easier for employees to get their purchases approved. But, sometimes implementing technology alone won’t result in behavior change.
“The truth is the easiest way to buy something is simply to grab the phone and call a supplier – bypassing the purchasing policy and process (if there is any),” wrote CIPS.
“At the same time, no one really dares to take responsibility for changing this behavior. Therefore, eliminating maverick buying, gaining control of an organization’s buying behavior, and realizing cost savings will depend on how much the executives really want it. Their direction must be clear and well communicated in one common P2P policy, with compliance being monitored monthly and individual cases of uncontrolled buying addressed directly.”
Transparency and education are key to reducing maverick spending. Educate employees on the negative consequences of maverick spend and provide the “why” behind your organization’s procurement policy. Train team members on your P2P process and software regularly.
For more advice on managing costs and reducing tail spend, check out Fairmarkit’s blog, The Source.