A Comprehensive Guide for Managing Maverick Spend
Tame the chaos effectively.
Managing Maverick Spend Effectively
“What the heck happened to my cost savings?”
You’ve put in countless hours negotiating favorable contract terms with suppliers. You’ve crunched the numbers, built relationships, and pulled off some impressive deals. But then, you notice something unsettling: those hard-earned savings are slipping through your fingers.
Why? Because maverick spend is creating chaos.
It’s creeping in, eroding the value you fought so hard to secure, and adding unnecessary costs to the bottom line. Maverick spend, or rogue spend, happens when employees make purchases outside of established procurement guidelines.
It can be frustrating to watch as your carefully crafted contracts go to waste because someone decided to book a flight on a popular travel site instead of using the company’s preferred provider.
In this guide, we take a look at why maverick spend is a problem and how you can tackle it head-on.
Understanding
Maverick Spend
So, what exactly is maverick spend?
It occurs when employees make purchases without following the established procurement policies.
A Hackett Group study identified the lack of self-service or guided buying tools and a non-compliant mentality as the top reported causes of maverick spend.
The message here? Fix your systems but don’t forget the human factor.
Maverick spend can happen for several reasons including:
- Lack of Awareness - Sometimes, employees simply don’t know about the procurement policies or the importance of using approved suppliers.
- Perceived Convenience - Some folks think they can snag a better deal or get things done faster by bypassing the official channels.
- Complex Processes - If the e-Procurement system feels clunky or confusing, it’s no wonder that employees might choose to sidestep it.
“When rogue spending occurs, process costs rise for nearly everyone involved.”
The Hackett Group
The Problems with Maverick Spend
Maverick spending creates a host of headaches for procurement teams, including:
- Increased Workload
- Financial Loss
- Compliance Risks
- Damaged Suppler Relationships
- Wasted Time
- Sustainability Concerns
These unauthorized purchases complicate payment processes, reduce cost savings, and expose organizations to unnecessary risks.
Maverick Spend Example
Let’s take something simple like office paper as an example of how maverick spend occurs.
Procurement negotiates a deal with a stationery provider to purchase a certain amount of office paper per year for a significant discount. All employees are informed via an email which includes instructions on how to purchase via the eProcurement system.
Unfortunately, several teams within the business decide to purchase off-contract and source their own office paper.
Reasons include:
The marketing team prefers a slightly glossier paper than the contracted product.
Some teams don’t want to wait for the paper to be shipped from the supplier, preferring to buy paper from the local office supplies store.
One person noticed office paper was on sale at her local store and thought she was getting a good deal for the company by buying some.
Some team members say they find the eProcurement system too difficult or confusing to use.
Others claim they simply didn’t know about the procurement policy and the contracted supplier.
As a result, spend on office paper actually rises over the year instead of falling. Data for off-contract purchases was not captured in the e-Procurement system, making it difficult to track. The office stationery supplier warns that the discount was offered on the condition of certain volumes being purchased and indicates that the contract has been breached.
In addition, it turns out that some of the office paper purchased off-contract was sourced from a supplier with a reputation for poor environmental practices. In other words, maverick spending has exposed the business to financial and reputational risk. It has also damaged the relationship with the supplier, who is unlikely to offer such beneficial terms again in future.
The procurement team should take steps to identify the causes of maverick buying and find targeted solutions.
Strategies to Control
Maverick Spend
How do you regain control and reduce maverick spending?
Here are some effective strategies:
- Invest in E-Procurement Systems
- Clarify Responsibilities
- Define Purchasing Roles
- Tailor P2P Processes
- Enforce Purchasing Orders
- Educate Employees
- Monitor Compliance
- Engage with Maverick Spenders
By addressing these factors and listening to employees' concerns, companies can streamline procurement, reduce financial losses, and enhance compliance while maintaining efficiency.
Getting Close to Maverick Spenders
Instead of viewing maverick spend purely as a problem, consider this: your so-called “mavericks” might be giving you valuable feedback about your procurement processes.
Often, maverick spending occurs because your systems or processes are difficult to navigate, or because your stakeholder education is lacking.
So, why not get closer to your mavericks?
Engaging with these employees can help you gather insights that lead to real improvements. By understanding their challenges and frustrations, you can identify areas where your procurement process could be streamlined or made more user-friendly.
Rather than reprimanding maverick spenders, embrace them as partners in improvement. Their experiences can guide you in creating a more efficient procurement environment that meets the needs of all stakeholders.
You can turn maverick spend into an opportunity for growth and better practices by fostering open communication and collaboration.
Stick vs. Carrot Approach
When it comes to managing maverick spend, you often have two choices: the stick or the carrot.
The stick approach involves enforcing strict policies and penalties for non-compliance. This can create a culture of resentment, leading to push back from employees who feel micromanaged or misunderstood.
The carrot approach focuses on incentives and positive reinforcement. Highlighting the benefits of compliance and providing rewards for adhering to policies creates a more collaborative environment. Think recognition programs, bonuses for departments that stay within budget, or a simple acknowledgment of employees who consistently follow the rules.
A balanced approach that combines both methods can be especially effective.
Ultimately, fostering a positive procurement culture that values compliance will lead to better outcomes for everyone involved.
Benefits of Reducing Maverick Spend
Is it worth the effort? Cutting down on maverick spend is about more than just cost control.
It comes with several added perks:
Increased Cost Savings
Effective procurement management allows organizations to realize savings that impact the bottom line.
Improved Supplier Relationships
Sticking to procurement policies strengthens partnerships with preferred suppliers, who are more likely to offer favorable terms.
Lower Risks
Managing maverick spending reduces operational and reputational risks associated with unauthorized purchases.
Enhanced Spend Analytics
Capturing data from compliant purchases provides better visibility into spending patterns, which aids in analysis and decision-making.
Support for Sustainability Goals
Adhering to procurement policies aligns with sustainable practices, helping meet their environmental commitments.
How Group Purchasing Organizations Can Help
Group purchasing organizations like Una can help you tackle maverick spend.
Having a GPO relationship in place reduces maverick spend by removing the need for stakeholders to choose between suppliers. For example, a single supplier for office stationery centralizes spending in this category.
Your team will no longer scatter it across dozens of unauthorized suppliers. Una drives purchasing compliance by providing explicit instructions to your buyers on how to utilize contracts.
We act as advisors, helping you streamline and close the gaps in your procurement process. Removing complexity will also aide in improving procurement compliance and reducing rogue spending.
With smart strategies and routine education in place, you're on your way to controlling maverick spend.
These tools will transform those wild spenders into responsible contributors in no time.
Conclusion
Managing maverick spend is a crucial aspect of effective procurement.
By understanding the causes and implications of rogue spending, you can implement targeted strategies to regain control. Investing in e-Procurement systems, clarifying responsibilities, educating employees, and monitoring compliance are all essential steps.
With the right tools, strategies and partners in place, you can transform rogue spenders into responsible contributors, fostering a culture of compliance and efficiency.
You don’t need to tackle mavericks on your own. The Una Team is here to help reign in even your wildest spenders.