Maverick Spending

Let’s start with the obvious, what is Maverick (aka Rouge) spending? Here’s what I’ve been taught it’s defined as: Off-contract, Non-PO or out of Compliance Spending. And what are the typical causes of this? Well, there are a multitude of reasons.

1. Ignorance of company policies and processes
2. An attempt to go around the policies/processes to expedite the purchase
3. Laziness or the conveience of not having to go through standard approval processes
4. Senior Level Executives wanting to keep projects secret
5. Potential Procurement Fraud

Put More Simply it’s “Unmanaged Spend”

But, why does it happen?

• A lack of understanding of how it impact’s the bottom line
• It’s under the spend threshold to engage Sourcing
• An effort to expedite the process or go around it for ease
• Executives believe what they are doing is “too sensitive” to go through the standard procedures

Why Should I Care About Maverick Spending?

Well there are a multitude of reasons, it’s considering it’s overall impact. It’s not only a bad deal for the purchaser, but it has larger implications for the company. Which most of the time, aren’t known by the buyer. Add to that,  suppliers aren’t going to volunteer the information on discounts they could be losing.

So here’s a look at the ‘why’ should you care: First and foremost, you could be easily losing out on contracted discounts, terms and conditions. Especially those that protect you if the company goes bankrupt or  you give them a depsoit and they disappear.

Other legal loop holes you’d be giving away: no way to implement or formally track KPI’s or SLA’s to ensure quality of the product you receive. Not to mention compliance risks (especially if you are in a highly regulated environment). Oh, and don’t forget about contradictory contract terms.

Cutting out Sourcing/Procurement Function, misses the opportunity to negotiate, have them as a third party when issues arise and so much more. There are things we can easily identify as a bad practice (payment terms, rate types, etc.) that could be eliminated with a single review (outside of legal).

And as much as I realize Executive’s want to keep a secret, it really puts an extra burden on the sourcing function to ensure the purchasing is in compliance with exisiting contract terms. I’ve seen this a lot with consulting contracts. But I also know, there are a ton of other categories that are affect by maverick spending!

What’s the Solution for Maverick Spending?

First line of defense: Proper on-boarding and training of all employees. This helps to eliminate the “I didn’t know that there was a process” type of excuse. Ignorance can be controlled, if you are pro-active in ensuring employees have the right resourcees and training.

Second Line: Spend Analysis. And this just reinforces the importance of having these type of tools in your tool box. There is no way you’d be able to audit and look for fraud in a accounting based system. You just don’t have all the necessary information in one place.

Third LIne: Having easy to use and follow information available for the entire P2P process (including sourcing, purchasing, vendor adds, etc.). This to address those who will complain that they look, but it was to complicated to figure out (and it’s been to long since the training…yea.)

Fourth Line: Implementing No-PO no pay type of system.  Newer purchasing organizations may lack this ability, but most mature organizations have it on lock down.

Last but Not Least: Continual monitoring for compliance. Not to mention the education of the P2P employees of the rules, mandates, and strict policy guidelines.

Expert Advice on Maverick Spend Control

Zycus – Article Link

Spend Matters – Article Link

CIPS Org – Article Link

SIG Org – Article Link

Procurious – Article Link

Procurement Leaders – Article Link

Market Watch – Article Link