According to a 2016 Benchmark Report on the Challenges in Procurement, 80% of senior Procurement executives (100 were interviewed for the report) identify managed spend (as a percentage of total spend) as a key performance indicator.
So what does this mean?
It means that the value of your Procurement organization is directly tied into its ability to reduce maverick spending.
You may have an idea what maverick spending is, but let’s more specifically identify what it is, why it’s bad for your Procurement organization, and what are some ways, in fact six ways, to reduce it.
What is Maverick Spending?
Maverick spending is any spending that is not done under the purview of the Procurement Department. It tends to happen when an individual needs a resource and simply purchases it on their own.
This typically happens when the person making the purchase wishes to obtain the material without having to go through the procurement process. It can also happen when a company does not have a centralized procurement department.
There’s a few other reasons why maverick spend occurs:
- Purchases are considered to be too small to worry about.
- Management may not believe it’s possible to manage the spend.
- The procurement department is too busy with other duties to deal with maverick spend.
Un-managed spend can turn into a huge problem if your organization doesn’t do something about it. When spending gets out of control, it can carry certain risks such as wasted money, and noncompliance.
How To Reduce Maverick Spending
Gaining more visibility into your company’s spend can seem overwhelming. This is especially true if you work for a larger organization.
But it’s not impossible.
Limiting maverick spending in your organization will take a lot of work, but if you are diligent, it can be done.
Identify The Issue
If your Procurement Organization is going to seize control of your spend, you need to identify the areas where you are lacking control. You have to figure out where most of the issues are happening.
This means you have to perform a spend analysis. When you have all of the relevant data, you can create your plan of attack.
Your efforts at gaining more control of your spend won’t work if you don’t get the support of stakeholders. You have to make sure that everyone involved is on board. It’s especially crucial to get buy-in at the executive level.
- Identify who the stakeholders are.
- Appeal to their self interest. Let them know how this new initiative will benefit them.
- Make sure you set the right expectations for the initiative.
- Keep each stakeholder up to date on the progress.
Ensuring that all stakeholders are on board with your initiative will help your company make the transition more smoothly. The last thing you want is for your initiative to be held up because you don’t have the support you need.
Use Maverick Spending To Your Advantage
If you look at maverick spending the right way, it can actually benefit your organization. That’s right. Maverick spending can actually be a good thing!
Yes, Procurement needs to do everything they can to minimize and even eliminate maverick spending, but sometimes, it can actually serve a purpose. Instead of seeing rogue spending as something that is aggravating, maybe you should see it as a warning. If you look at it the right way, you will see rogue spending as “the mining canary of procurement.”
When you identify areas where there is rogue spending, it can show you what needs to be improved in your Procurement Organization. Maverick spending can uncover issues in the way your Procurement Organization works. It can also show areas in the larger organization that might need some improvement.
For instance, if a manager in the sales department is downloading a software for her sales agents, then that would indicate that there’s an issue that needs to be fixed. Instead of focusing on the fact that the manager downloaded software without consulting Procurement, it might be a better idea to focus on the need she was trying to fill. In this way, Procurement can partner with sales and other departments to identify needs and purchase the resources required to fill those needs.
Use Purchase Orders for Each Purchase
In order to ensure that your Procurement Organization has full visibility and control over the procurement process, it’s best to have everyone use purchase orders for each and every purchase. Implementing this will not be easy, but once it’s done, you will discover how much easier it is to reduce maverick spending.
When purchase orders are required for each purchase, management will be able to access important Procurement data without having to dig for it. Additionally, Procurement will find it easier to reconcile receipts and invoices with delivery times.
Requiring purchase orders also promotes greater accountability. When management has more visibility into what’s being purchased, they can more easily spot trends that could become harmful.
One of the main causes of maverick spending is the fact that there’s no regulations regarding who is allowed to make purchases. If your Procurement operations are decentralized, you need to make sure that only certain employees are able to make purchases.
Assigning Procurement functions to certain employees is an easy way to reduce maverick spending. When only a few employees can make purchases, it’s far easier to keep up with what is being bought by the organization.
In cases where assigning specific roles is not possible, putting higher-visibility tracking mechanisms in place, such as the use of p-cards. to better identify where and what purchases are being made.
Communication of The New Policies
After you have developed your new plan to reduce maverick spending, you need to make sure you communicate the new policy. It’s important to make sure that each stakeholder knows exactly what the new guidelines are.
Don’t forget to communicate the “why.” People are far more likely to comply with a new policy if the reasons behind it are explained.
Explain how these changes will benefit the organization. Explain how much money will be saved. You could also explain the risks of rogue (maverick) spending and the potential impact it could have on your company.
As you can see, maverick spending is a huge issue for many Procurement Organizations. The Benchmark Report on Procurement Challenges which is a result of interviews with 100 Procurement Executives, highlights the fact that other companies are facing similar issues related to un-managed spend.
The recommendations presented here are just some small steps towards effectively managing more of your spend. Learning about the importance of implementing a comprehensive Tail Spend Program will allow you to move to the next level of getting your un-managed spend under control.