6 Ways to Reduce Maverick Spend with Spend Analysis
Is maverick spend buzzing the tower of your company’s bottom line? It is not uncommon for a spend analysis to show maverick spend accounting for 10-15% of organizational procurement.
That’s a negative, ghost rider.
Companies invest in purchasing and procurement programs to track and control costs. Major time and resources go into finding suppliers, negotiating terms, and setting up logistics. When employees skirt the system and order outside of the program, it undermines the ROI of the program.
Why does maverick spending occur?
Rogue spend does not come from negligent or malicious employees. A lot of it is understandable. Common scenarios include:
- Employees think they negotiated a better deal on an item purchase. They think they saved the business money, but do not realize the cost of the accounting mess it creates.
- Purchase of small items outside of the catalog for day-to-day work—pens, ink cartridges, cleaning supplies, et cetera. Picking these up from a nearby retail store seems convenient and harmless, but throws a wrench into supply chain spend analysis.
- Poorly structured purchase-to-pay (P2P) regime. Non-compliant purchasing traces back to flaws in management. Cost reduction occurs only when a clear-cut policy is in place, and employees bound to it.
How to reduce maverick spending: 6 points
Supply chain executives have thought long and hard about reducing maverick spend. Here are several ways culled from industry experts at Forrester Research, industrial procurement veteran Sergio Giordano, supply chain consultant Pete Laughlin, and Jes Batting, a sourcing and procurement specialist at PA Consulting
- Purchase from suppliers that offer e-catalogs and negotiate framework agreements. Online catalogs help employees find everything they need. The company determines the products that go in the catalog and negotiates the list price with the supplier. Ease of use drives compliance and taking advantage of cost reductions.
- Establish a system of approval. Add accountability to employee purchasing that does not require constant supervision. Make spending via approved procurement channels a trackable metric.
- Separate roles within the company’s procurement process. The “buyers” have p-card or account clearance to make purchases. The “requestors” submit purchase specifications through the e-procurement system for the buys to approve or reject.
- Let the nature of purchases dictate policy. The process for hiring a consultant should be different from buying bathroom supplies. Make sure to route the procurement flow appropriately throughout the company.
- Communicate policy clearly to stakeholders. Put it in writing and make sure the designated buyers adhere to it by attaching metrics for approved channel spending to a KPI.
- Use e-invoicing and e-procurement in tandem. This alleviates the accounting workload by reducing the number of erroneous invoices that need investigating. A supplier that can accommodate your company’s invoicing system compounds this benefit.
Can you integrate NeweggBusiness items into your company’s e-procurement system?
Most likely you can. Leading e-procurement platforms by SAP Ariba, SciQuest, Unimarket, Basware, and ESM can integrate a customized NeweggBusiness punch-out catalog into their systems. Read about more NeweggBusiness and e-procurement, or contact NeweggBusiness specialists for more information.
Recommended reading for getting started with e-procurement
- SAP Ariba Case Studies
- SciQuest Savings Manager Assessment Tool
- E-invoicing: Why Growing Companies Should Care
- ESM Solutions Library
- The Right Way to Do E-Procurement (for governments)
Final thoughts
Supply chain managers using e-procurement platforms for internal purchasing—please tell me in the comments how you reign in maverick spending and other supply chain point points.
