Any spending not managed by procurement is defined as maverick or rogue spending. Does your organisation make multiple purchases without following the procurement workflow? Do your employees bypass creating purchase orders because it is too much of a hassle? Then, your organisation is at the risk of finance leaks through unaccounted maverick spend. Sometimes, companies spend as much as 80% of their total cost as maverick spend. Implementing e-procurement and making it easier for your staff to create purchase orders is the best-known way to curb rogue spending.
What are the Reasons for Maverick Spend?
Employees don’t intentionally spend money without purchase orders. Mostly, unregulated spending happens because off-contract spending is not monitored correctly. Without involving the procurement workflow, employees with purchasing power don’t realise the significant impact of low-value purchases. Despite the reasons for unaccounted spending, maverick spend hurts your organisation’s budget. According to a study by the Hackett group, more than 75% of participants agreed that self-service tools greatly help reduce maverick spending, but only 40% of the companies use such tools.
Following are some of the reasons for maverick spend:
- Unavailability of guided purchasing tools
- Resistance from leaders to adopt a digital procurement solution
- Inherent mentality to ignore compliance assurance and urgency
- Insufficient catalogue of goods and services
- Unavailability of marketplaces for ad-hoc purchases
- Lack of communication and collaboration
- Unclear purchase-to-pay policy
Even though undocumented spending is bad for any organisation, maverick spend can sometimes unlock the potential to find local suppliers with better pricing and offers. However, the risks of maverick spending are far too high to ignore. Companies with appropriate diversity policies can implement e-procurement that provides space to constantly look for local suppliers with better value.
Why Good Tail Spend Management Is Vital For Procurement?
According to a Deloitte CPO study, 77.62% of participants agreed that reducing costs is the key to developing effective business procurement strategies. Every purchase must follow the procurement cycle, and your organisation should not just care about big buys. The procurement team must be involved in purchasing small and big-ticket systems to ensure standardisation across the company.
Following are some of the ways in which maverick spend affects your business:
With procurement software, a list of qualified suppliers will always be ready for every item that needs to be purchased. Without a proper sourcing strategy, your company will have to deal with multiple vendors who bring little to no value to the procurement process. Excess vendors will always result in contract issues and redundancies that a digital procurement platform can easily avoid.
Without optimised sourcing, your employees won’t be able to assure the quality of goods supplied by the supplier. Employees always go with the suppliers they like for maverick spend instead of thinking about adding value to the organisation. As a result, the quality and delivery timeline will suffer.
- Lost Saving Opportunities
Maverick spend always results in lost opportunities for cost savings. Your organisation will not benefit from bulk discounts when your employees make small purchases. Without a controlled workflow, it is impossible to negotiate successfully with suppliers. As a result, your employees will procure items at higher prices.
Since employees purchase from suppliers outside of procurement, there are increased compliance risks. Without binding contracts, the suppliers can’t ensure the quality of deliverables.
Invisible maverick spending leads to numerous small and uncontrolled transactions that incur unnecessary costs.
With maverick spend, your employees must spend manual hours chasing suppliers, which results in productivity loss. Invisible spend also creates problems with the company budget, hampering financial planning and forecasts.
How Can E-Procurement Eliminate Maverick Spend Effectively?
Tail spend management can be implemented effectively with a comprehensive procurement solution. Proper planning, purchase planning, and optimised procurement workflows will help eliminate maverick spending. Following are the tips to control, monitor, and eliminate maverick spend:
The first step to controlling and eliminating tail spend is to analyse organisation spending. Your procurement team must collect direct and indirect spending data to identify maverick spending. Procurement software can immediately give you detailed spend analytics when appropriately implemented, which helps curb out-of-contract spending.
Implementing a procurement system is just the first step. Everyone involved with the company purchasing should learn and use the procurement platform for seamless operations. Some employees may resist using new technology, but with adequate training, anyone can learn to use the procurement solution without any hassle. Communicating the benefits of streamlined procurement to all the stakeholders will help you to get them onboard.
- Use A Comprehensive E-Procurement Platform
Digitisation aims to create a unified platform for all enterprise-wide procurement. It is possible only if your procurement solution has all the necessary features to onboard suppliers, accept bids, compare suppliers, create purchase orders, and communicate with suppliers. Centralised spending is possible only when the entire spend data is consolidated into a single database.
While implementing procurement software is crucial for procurement automation, not every purchase must go through the procurement system. Your employees still need the freedom to make purchases they deem necessary. You should use the spend analytics to set up a purchasing threshold. Creating purchase cards for purchases below threshold value will also help you track low-value purchases. Devising centralised contract management will help your organisation to ensure compliance. Empower your employees with purchasing capability based on their role and hierarchy in your organisation.
Procol is an all-inclusive procurement solution that can monitor, control, and automate both direct and indirect spending. Schedule a demo with us to deploy the procurement platform in just 7 days for proactive tail spend management.