As maverick spending, or rogue buying, can account for up to 80% of a company's total spend, the inherent savings potential is often substantial. We have shared five steps to help you to get control of your maverick spend.
What's Maverick Spend Maverick spend — also known as rogue or unmanaged spend — refers to purchases made outside of agreed contracts, channels, suppliers, and prices, or in broader terms, beyond a company's pre-established procurement policy. Many factors cause maverick spending, and ultimately, it translates to cost-saving leakages that prevent businesses from realizing the value associated with negotiated contracts.
Most Common Causes of Maverick Spend There are many factors that lead to maverick spending. Some of the common ones are:
Buying from unapproved suppliers or channels. Buying unapproved goods and services Buying from an approved supplier but at a price different than the negotiated/contracted one. Buying from an approved supplier at the right price but through an unapproved buying channel. How Many Dollars Companies Lose to Maverick Spend According to the Hackett Group, 29% of indirect spend is off-contract, and such high levels of maverick spend, can be a sign of bad company practices like poor spend visibility and procurement policy violations.
Why It's Important to Control Maverick Spend In addition to draining your savings, costing you time and resources, every maverick purchase undermines the impact of your procurement activities and pushes your company away from the bottom line.
Decreased realization of sourcing savings Decreased sourcing leverage from fragmented spend Increased purchasing process costs Increased supply-base risks Dissatisfied internal customers Quality, service, and other issues from unapproved suppliers
Five Steps to Reduce Maverick Spend and Drive Savings Let us take a closer look at five steps that can help you boost compliance and reduce rogue spending.
1. Investigate and Understand the Root Causes Talk to the responsible managers, department heads, and other relevant stakeholders where you've identified maverick spending. A pertinent question you need to address is:
What's the reason for maverick spend across the organization?
As a procurement professional, one of your responsibilities is to investigate and understand the root causes. And, of course, to implement the appropriate measures to mitigate the problem.
Use procurement analytics by combining spend and contract data to identify spend outside contracts and maverick spending .
2. Plan Your Initiatives Once you understand the reasons, you need to start addressing the issue. Set an overall plan for your procurement initiatives, define your targets and goals, and outline the specific tasks required to get there with deadlines and responsibilities.
3. Make Contract Information and Procurement Policies Easily Accessible One of the most common causes for maverick spending is defective policies and poor communication of contracts internally. In many cases, the end-users (usually the purchasers/buyers) are unaware that agreements covering their needs exist or lack information on using them.
To address this concern, you need to ensure that vital contract details, and any related procurement policies, are easily accessible throughout the organization.
If you have a spend management solution in place, sharing this information is relatively easy and provides you with multiple options, such as:
Grant access to contracts for applicable users, or Use APIs to leverage the contract information across your solutions or embed data to your intranet through iFrames. 4. Report Regularly to Business Stakeholders You should always report data-driven facts to facilitate process transparency and drive compliance. For example, you could set up a report showcasing spend through and outside contracts by departments, business units, or similar. The key is making these insights readily available across your organization, especially for department heads, managers, and other key stakeholders.
Please ensure that the reports and internal communications highlight the importance of maverick spending. You should clearly state that this is a focus area for the procurement team and provide additional information about your current initiatives, expectations, and goals.
5. Follow Up, Track, and Take Necessary Actions Set up relevant KPIs, such as share of spend through contracts, to track your initiatives' progress. If the numbers and trends are not moving in the right direction, you need to reach out to the business stakeholders and understand why (ref. step 1). As mentioned previously, the problem might be poor policies and communication internally.
Regular measurement keeps you focused and helps you make smarter decisions to improve your results. You have probably heard the following saying, which is something we strongly believe in:
What gets measured gets done!
Good luck! And remember, digital tools will help you get the job done.
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