One of the biggest challenges organisations face is ‘maverick spend’ – a term used frequently in the procurement industry to describe spending that hasn’t been approved by the central procurement team or sanctioned by a relevant budget holder.
Many organisations have pre-established procurement policies. Suppliers are vetted and selected on a range of criteria to ensure businesses obtain cost-effective and ethical goods. These suppliers are promoted as preferred sources for buyers in the business for certain categories of spend and are placed at requisition points for prospective buyers.
Maverick spending can undermine all of this. Individuals in the business can circumvent procurement and create relationships with suppliers on their own. However, more than often, this can be detrimental to the business. It can undermine relationships procurement has worked hard to establish as well as cost organisations more money, and reputation, in the long run.
In this blog post, we’ll discuss five of our top tips on how you can counter it.
#1 – Identify maverick spend first
Spotting maverick spend should be your priority. Without the appropriate visibility of what your business is spending and who is spending it, you won’t be able to tackle maverick spend.
You’ll need to conduct a thorough spend analysis to identify unexpected spending, for example spend with unknown suppliers, by people without (enough or any) budget authority, or even in spend categories that bear no relevance to a buyer’s departmental function or role.
Often procurement teams use spend analysis tools to help them aggregate the data into meaningful analysis – after all you can’t stop what you can’t see. When you’ve collated this information, it’ll be simpler to identify maverick spend and devise a plan to tackle it.
#2 – Ask yourself: why is maverick spend taking place?
In our years of supplying eProcurement solutions, most people don’t go rogue deliberately. Usually, there is a compelling reason for staff to contravene spending best-practice.
So, empathise with your staff. Ask yourself, and your buyers questions such as:
- Do you fully understand our procurement process?
- Is our procurement process long-winded or frustrating?
- Are we actually getting the best prices or best service in our areas of spend?
- Is the eProcurement solution you’re using complicated? Do you need to run training sessions?
Exploring all these options can go a long way to identifying who is responsible for the maverick spend in your organisation and what you can do to resolve it.
#3 – Make spend management everyone’s responsibility
Counting pennies shouldn’t be isolated to procurement. Fostering a culture of accountability, where all departments are responsible for their own spending is key to ensuring maverick spend doesn’t become an issue.
Each manager in the business should know what is being spent within their department, by how and how that spend looks against pre-arranged budgets.
Challenge managers on their knowledge and awareness of how much money is being spent within their team. And if they’re struggling to track this spend, consider points from our next tip.
#4 – Clearly define roles in the business
One of the trickiest areas of maverick spend centres around clearly defining who does what in the business.
Many employees prefer trying to call suppliers themselves, to negotiate a deal and then buy. And unfortunately, it is this action that leads to uncontrolled maverick spend. You should set up a list of agreed purchasers with spend limits that can buy for the business.
Defining clear spend authority limits for all your buyers, with further approval needed once those limits have been exceeded, should be the only way of buying in the business.
Combine this with enforcing purchase orders for any approved spend requests, with buyers understanding that ‘no PO means no pay’ and you are well on your way to eliminating a rogue spending culture.
By giving purchasers the correct systems and processes to support their buying you can easily make all their requisitions compliant.
#5 – Make your procurement process electronic
Many procurement teams have turned to eProcurement solutions to address the challenges posed by maverick spend. web3, just one of many eProcurement solutions available on the market, is adept at helping organisations understand their buying and combatting a spend culture.
web3 gives buyers a directory of all approved suppliers, and is accessible through an easy-to-use, shopping portal. It encourages spend to be requisitioned properly, enabling transparency on spend.
These systems are frequently called purchase-to-pay or procure-to-pay suites (P2P).
And the best thing – web3 can readily integrate with a multitude of ERP systems, enabling spend and supplier data to be fed back and forth, giving finance professionals a better view on all spend data.
Do you have any tips for reducing maverick spend?
Maverick spend is a real challenge for businesses all over the world. If it isn’t spotted and stamped out quickly, it can cause significant problems to the financial health of your business.
We’re always interested in hearing from procurement professionals, here at Wax Digital. Do you have any tips or tricks about curtailing maverick spend? Let us know on our Twitter and LinkedIn channels.