Maverick Spend: 5 Ways to Tackle It and Drive Savings
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.
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.
Maverick spend most often occurs in indirect spend and low-visibility tail spend, with numerous small transactions in various categories. Hence, it is not something that can easily stand out from your data but once identified, it can lead to tremendous cost benefits.
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.
The same report further indicated that 10% of maverick spending is typical for a non-mature procurement organization and 5% for a world-class organization. Also, maverick or rogue spending is an even bigger problem for larger companies spread across multiple locations.
Being challenging to locate and a source of significant losses, maverick spending is considered a bane for most procurement departments.
According to APQC's 2019 Open Standards Benchmarking in Procurement study, for organizations with ≥ $500 million in annual revenue, maverick purchasing represents 2.5% or more of the total purchases, while for top performers, it amounts to 1% of total purchases.
Let us see how it looks in terms of dollars: For companies with $1 billion in the yearly purchase, this means having $10 million in unmanaged maverick spend. While the loss of savings stand out here, decreased sourcing leverage and increased processing costs come as close seconds.
Why it is 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.
Below are some of the various effects of maverick spending:
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 have identified maverick spending. A pertinent question you need to address is:
What is 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.
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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How to Identify Savings Opportunities: Maverick Spending
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What is Tail Spend? To understand tail spend, we have to look at the procurement spend as a whole. To make it easy and fun, let us visualize spend as a bull, the head of which represents the top 1% to 5% suppliers, also sometimes