Maverick spend control is an important financial control in your organization. Not only does it help your company maintain financial discipline, but it also makes sure that your employees follow procurement policies and prevent budget overruns.

But here’s the thing- most employees lack awareness about controlling spend which might lead to either unauthorized or even excessive spending.

That’s why your business needs to maintain procurement standards to avoid these things from happening.

This article serves as a guide on how you can implement maverick spend control for your business.

Why Is Maverick Spend A Problem For Growing Companies?

Before we get into controlling maverick spending, let’s look at why maverick spending is a problem for many procurement organizations.

• Reduced cost savings: Maverick Spend leads to cost savings leakage and prevents sourcing teams from fully realizing the cost savings associated with a negotiated contract.
• Operational risk: If your employees are purchasing from unauthorized vendors, it could lead to additional risk.
• Increased process cost: This is not always true, but Maverick Spend could lead to additional work for purchasing and the Accounts Payable AP team.

 

3 Steps To Control Maverick Spend

Step 1: Conduct A Spend Analysis

The first step is to conduct a spend analysis exercise to identify the maverick spend.

• Consolidate your Spend data into one place, this could be a data warehouse or an Excel file.
• Make a list of preferred vendors for different categories. For example, CDW is the preferred vendor for IT hardware.
• Analyze spend by category, if your spending is not categorized –classify your spending data.
  Now mark vendors as preferred or not.
• Your spend file now should have a breakup of the maverick and non-maverick spending by category.

Step 2: Estimate The Cost Of Maverick Spend

Fixing the Maverick Spend problem needs effort and buy-in from executives. So it is important to correctly estimate the cost of Maverick Spend.

To estimate the cost of Maverick spend, start with the top spend categories.

• List the Spend for the top 10 categories where you have identified maverick spend during the Spend analysis exercise.
• For each category, list the total spend and % of spending which is maverick spend. Assuming that you are doing this analysis on the last 12 months of data.

Let’s take an example:

Let’s say you spend a total of $5M on MRO on an annual basis. Out of $5 M, $500K spent is with a non-preferred vendor or in other words, maverick spend.

For the sake of simplicity, let’s assume that the cost of the non-preferred vendor is 10% higher than your preferred vendor. To get the actual cost difference, please conduct a part purchase price variance exercise.

So 10% of $500K is $50K which is the cost of maverick spend in this case. Depending on your spend this number could be significant or insignificant.

Step 3: Project The Cost Of Maverick Spend

The maverick spend identification is not complete without forecasting cost savings lost over the next few years. This paints a better picture of cost savings leakage and frankly gets you the support you need to do something about the maverick spend.

Here’s how to do it:

1. Create a table where you list the spend by category, list only those categories where you have identified maverick spend.

2. Let’s take the above MRO example, in that case, your table should look like

3. Now do this exercise for all the categories.

4. Now, in this case, I have assumed that the annual demand and the price remain steady. This might not be the case for you.

So please review the demand and cost and adjust the annual numbers accordingly.

At the end of this, you have a reasonably accurate forecast of the cost of not doing anything with maverick spend.

 

Techniques To Control Maverick Spend

With your accurate forecast, you are now ready to tackle the maverick spending issue. Here are a couple of techniques that you can use

Get Executive Buy-In

I might sound like a broken record, but getting executive buy-in is crucial. It gives you the tailwind you need to get any adoption on this program.

So key people who should be made aware of this problem

CFO

The chief financial officer, of course, cares about cost savings. Since you have quantified the cost of Maverick Spend, it is easy to make a case for fixing it.

There are various ways to approach the problem, you might want to automate the process through purchasing automation or you might want to have more manual checks to ensure employees are not purchasing from non-preferred vendors.

Whatever the business case is, having quantified numbers will get you the support for fixing the maverick spend.

Key Stakeholders

The other key stakeholders might be the Vice president of each department. They are not involved in the day-to-day purchasing but they should be aware of the situation and they should be willing to support you.

If they communicate with their staff about the need to fix the maverick spend, you have a better chance of getting adopted.

Effective Communication About Purchasing/Procurement Role

Sometimes employees need to be reminded about the role of procurement.

There are times when your employees will take the matter into their own hands and sign contracts with a new vendor when you already have a preferred rate with an existing vendor.

The common excuse is that they didn’t know that we had to include procurement.

So try to get ahead of this problem by constantly communicating the role of procurement in the organization.

There are different ways to do it.

Intranet site

Almost all companies have a company intranet page where they publish news about company and employee resources.

You can create a section on “How to purchase” and use that as an avenue to communicate the role of procurement in the organization.

Work with HR

You can work with your HR department to include a section about purchasing in the employee handbook or during the induction process.

This would be a good way to introduce new employees to the purchasing departments.

If your HR department has an onboarding program, then you could have a procurement representative present during onboarding

• Road Shows: Another common practice is to conduct roadshows with different departments on the role of procurement and the value of consolidated volume leverage.
• Individual presentations: Another good idea to communicate with your stakeholders is through presentations with individual departments.

Most of the department heads have their staff meeting, you can easily request 20 – 30 minutes in the staff meeting to talk about the role of procurement.

This allows you to answer any questions and hopefully help to increase engagement and control maverick spending.

Make Purchase Orders Mandatory

In most organizations, a purchase order needs to be approved before the PO can be sent to the supplier.

Mandating purchase orders for all material orders will ensure that the purchase is reviewed by purchasing before the order can be sent or the spend is committed.

During the review process, the purchasing team can reject any spending that doesn’t match your defined purchasing guidelines.

The purchasing team can then route your employees to the preferred vendors.

Purchase orders also ensure that the vendors are aware of your standard terms. The vendors would receive your standard terms and if they don’t agree with it, they have all rights to decline the order.

Before you mandate purchase orders, ensure that you have the appropriate staff to review the purchase orders. All these things can be automated through a simple purchase order management software and we will discuss that next.

You can read more about purchase order management below or click on the link below to schedule a no-obligation production tour.

Implement A Purchase Order Management Software

We sell purchasing automation software, so we, of course, talk about the benefits of purchasing automation. But a purchase order management system can help you bring your maverick spending under control, here are a few ways the tool can achieve this goal

a ) By automating the purchase order approval process

The purchase order approval process ensures all purchase orders go through. Since you can automate the approval process, it reduces the load on your purchasing team and helps you to improve your team’s productivity.

On top of that, you can automate certain approvals so that you don’t have to review and approve every purchase order.

For example, you can set up a rule so that any order that is less than $1,000 and with a preferred vendor doesn’t need to be reviewed by the procurement department until it has approval from the appropriate person in the business.

b) Catalogs

Building catalogs is another way to control maverick Spend, the more catalogs you have, the easier it is for your employees to find the product or service they are looking for.

Since they can find most of the items in the catalog, it is unlikely that they will try to find items from other vendors.

c) Define a process for purchase escalation/ Emergency needs

A purchasing system also allows you to set up a process for purchase escalation. There are always cases where you need a part urgently. This is a common cause for maverick Spend.

Employees need to run operations and they need a part now and since your preferred vendor takes 2 to 3 days to deliver, they will go to a local store and purchase that part.

Having a system can help them mark an item as urgent and that allows the purchasing person to check if the same part is available from another preferred vendor.

Another thing you can do is to work with suppliers and see if they can keep local stock for some emergency items. You don’t want to carry excess inventory.

Your supplier might be able to carry this at a close location especially when that supplier has multiple customers in the same area.

Here are other ways you can implement maverick spend control in your business:

• Clear Policies and Communication: Establish transparent procurement policies and communicate them effectively to all employees to minimize confusion and ensure compliance.
• Training Programs: Conduct regular training sessions to educate employees on procurement guidelines, emphasizing the importance of compliance and the impact of maverick spending
• Approval Workflows: Institute robust approval workflows to ensure that all purchases undergo appropriate authorization before being finalized, reducing the likelihood of unauthorized spending.
• Vendor Management: Maintain a centralized vendor database to facilitate better negotiation and standardization of supplier relationships, minimizing the chances of employees making ad-hoc purchases from unapproved vendors.
• Real-Time Monitoring: Utilize technology to monitor spending in real-time, enabling prompt identification and intervention in cases of maverick spending.
• Data Analytics: Leverage data analytics to identify patterns and trends in spending behavior, allowing for proactive measures to prevent unauthorized purchases.
• Employee Incentives: Implement incentive programs that reward employees for compliant and cost-effective purchasing behavior, encouraging adherence to established procurement processes.
• Regular Audits: Conduct periodic audits of procurement activities to assess compliance, identify potential areas of maverick spending, and implement corrective measures.
• Continuous Improvement: Establish a feedback loop for continuous improvement, incorporating lessons learned from past instances of maverick spending to refine procurement policies and procedures. Regularly revisit and update guidelines to adapt to evolving business needs and challenges.

 

How Can ProcureDesk Maintain Maverick Spend Control?

ProcureDesk is built with key features to help your company maintain budget tracking and the ability to analyze the movement of cash flow.

Let’s talk about these key features one by one:

1. Budgets

ProcureDesk can track and control budgets with its budget feature. This makes sure that your team is on their toes when spending. It’s pretty straightforward to set up. You can even import from a spreadsheet or system like Quickbooks Online.

After you set up the budget, your employees can choose the specific budget for the purchase. ProcureDesk’s system checks the budget limit, to keep your team’s spending in control.

2. Cost Control Dashboard

ProcureDesk allows you to gain better cash flow visibility. The cost control dashboard allows you to see all your spending in one complete dashboard.

Here’s an example:

Through the cost control dashboard, it becomes easier to track monthly spending and keep a pulse of your company’s purchasing behavior.

 

5 Reasons Why Companies Suffer From Maverick Spend

Here are the top 5 common reasons for maverick Spending in any organization:

Even though you have well-defined policies, some employees would love to negotiate their contracts and pricing without procurement involvement.

This might be happening due to a lack of understanding of the process or the individual doesn’t care about the defined sourcing process.

Let’s look at some common reasons for maverick Spend.

Decentralization

Decentralization is a common root cause of maverick Spend.

This could be decentralized teams who don’t collaborate, or you have decentralized operations, and each location manages its purchasing.

It is also common to have a corporate and a business unit structure. For example, the corporate team might have negotiated a contract for professional services but the individual locations or different business units may or may not use that contract.

Purchasing Controls Implementation

Another reason for Maverick Spend could be the lack of tighter purchasing controls.

Let’s break this into two subprocesses:

1. Lack Of A Centralized System

If you don’t have a centralized purchasing system, then it isn’t easy to route spend to preferred vendors and have some sort of control over the purchasing process.

The lack of centralized systems and the usage of the purchasing process is very common in larger companies with inorganic growth. In other words, they are a combination of multiple companies acquired over some time.

Each company has its purchasing systems, and that could lead to challenges in implementing a common purchasing policy.

2. Lack Of A Centralized Process For Purchase

If your organization doesn’t have a centralized purchasing process, that could easily lead to maverick Spend.

It could mean that purchasing teams at different locations are using different processes and that leads to off-process and off-contract spending with different vendors.

In the absence of a standardized process, each location or business unit is free to set up its process.

Even if you have a standardized process, it is important that is implemented consistently across different business units or locations.

Lack Of Standardization

Lack of product standardization could also lead to Maverick Spend.

Let’s take a simple example of IT Hardware.

Let’s say you have a contract with CDW for all your hardware purchases. So assume that there is no standard for a common commodity like a Laptop.

That could lead to people at different locations purchasing a laptop model not carried by CDW and hence leading to Maverick Spend.

Now, this is a very simple example to make the case, most of the IT departments would already have standardized requirements across the board.

However, this is a very common problem with MRO products or high-volume, low-spend items like screws, gloves, etc.

Heavy Indirect Spend

If you are a manufacturing company, most of your Spend is direct except for MRO supplies and other supplies that are required to run the business.

Direct spending is very well controlled and hence limited maverick spending opportunity.

Let’s now take the case of a software company, almost all the Spend is Indirect Spend.

Since Indirect spending is spread across multiple categories, it is hard to implement standardized processes and control and that could lead to higher maverick spend.

This is not always true, but higher Indirect Spend, in general, would lead to higher maverick Spend.

Type Of Business

In some cases, your business itself lends to Maverick Spend. Let me explain with an example

Let’s assume that you are in the business of installing telecommunication systems/phones for businesses. Your supply chain group diligently manages all the parts required for installation and ensures that the technicians are carrying those parts with them all the time. For example, phones, cables, installation equipment, supplies, etc.

Now since each installation is unique (different customer premise), your technicians need to purchase a material/part to service the customer. That is a genuine business need but since you can’t predict accurately what they need all the time, technicians can purchase the parts from the nearest local store.

This is a genuine business need, so not sure whether you would agree with calling it maverick spend but the spend is not with your preferred vendor.

 

FAQs

What is Maverick Spend?

Maverick Spend (a.k.a rogue spend) is defined as the external vendor spend that doesn’t follow the defined purchasing policies.

Let’s take an example; Your sourcing team did an awesome job negotiating a 35% off the office supplies contract with your office supplies vendor.

That contract, of course, has some discounts built based on the volume of the purchase.

Now instead of buying from the selected vendor, your employees purchase office supplies from a different vendor and generally at a higher price.

Since your employees are not purchasing from preferred vendors, that generally leads to less volume with the preferred vendor and hence lost cost savings.

This is one of many examples of maverick Spend and there are many more.

Another example could be that the Spend doesn’t follow the correct process.

For example:

You have set up a PO process for all material purchases, however, your employees tend to use their corporate credit cards for such purchases.

You might have required Purchase orders because that helps you aggregate spend and provides better visibility.

This behavior deviates from the setup process and hence this is an example of maverick spend.

Why Is It Important To Control Spend?

Controlling spending is vital because it helps organizations stick to their budgets, save money, and use resources wisely.

It reduces the risk of financial issues, ensures compliance with rules and regulations, and strengthens relationships with suppliers.

By keeping a close eye on spending, businesses can make informed decisions, improve operational efficiency, and effectively plan for the future. It also helps manage cash flow, preventing unnecessary financial challenges.

Ultimately, spending control contributes to a more stable and successful business.

What is The Difference Between Tail Spend And Maverick Spend?

Tail spending and maverick spending are distinct concepts in procurement.

Tail spend refers to the portion of procurement activities that involve low-value purchases, often scattered across various suppliers. In contrast, maverick spending pertains to unauthorized or non-compliant purchases made outside established procurement processes.

While tail spending focuses on the economic value of purchases, maverick spending is more concerned with adherence to organizational procurement policies.

What Are The Types Of Maverick Spend?

Maverick spending can manifest in various forms within an organization. Common types include:

• Unapproved Suppliers: Purchases made from suppliers not approved or vetted by the procurement department, leading to potential quality and contractual issues.
• Non-Compliant Purchases: Transactions that do not adhere to established procurement policies, such as unauthorized product or service selections, violating compliance standards.
• Off-Contract Purchases: Buying goods or services outside agreed-upon contracts, missing out on negotiated discounts or terms, and increasing overall procurement costs.
• Duplicate Purchases: Repetitive procurement of the same or similar items without proper coordination, resulting in excess inventory and inefficient resource allocation.
• Rush Orders: Urgent purchases are made without proper planning or approval, often incurring higher costs and compromising negotiated terms.
• Non-Standard Payments: Payments made through unconventional channels or methods not aligned with standard financial procedures, posing a risk to financial transparency.
• Unauthorized Budget Exceedance: Making purchases that surpass allocated budgets without proper authorization, leading to budgetary overruns and financial strain.
• Out-of-Scope Purchases: Acquiring items or services beyond the scope of the original procurement agreement, potentially causing contractual disputes and increased expenses.
• Personal Purchases: Employees use company funds for personal items, which not only violates policies but also contributes to financial mismanagement.
• Technology and Software Procurement: Unauthorized acquisition of technology or software solutions without IT department approval, leading to compatibility issues and security risks.

 

The Bottomline

There are many benefits of controlling maverick Spend. There are also multiple ways to control maverick Spend.

However, the strategy for controlling maverick spend depends on a good understanding of what is causing the maverick spending in the first place and then designing a solution to solve it.

What are you doing in your organization to control maverick spending?