Maverick Spend: Identifying & Reducing Spend Leakages
Although seemingly harmless, unregulated purchases can quietly drain your company’s budget and jeopardise financial goals. Maverick spend remains one of the main procurement pain points for many organisations. Besides the financial strain this purchasing behavior puts on businesses, it exposes companies to major compliance and reputational risks. This article will examine the key causes, risks, and practical steps to eliminate rogue buying.
What Is Maverick Spend?
Maverick spending refers to unauthorised purchases that ignore established procurement policies, contract agreements, and approval workflows. Because these transactions often happen on an ad hoc basis and outside of procurement oversight, they are difficult to trace, control, or even predict.
Hidden Dangers of Maverick Spend
While one unapproved purchase might not be the end of the world, allowing this type of purchasing behavior can quickly snowball into large sums, eating away at the company’s budget. Not only that—rogue spend poses long-term risks that can damage your procurement process and business as a whole.
Loss of Cost Savings
Maverick spend prevents companies from getting the most out of their contracts and cost-saving opportunities, like bulk purchase discounts and fixed prices. Turning to your preferred suppliers can drive savings of 30-40% in indirect spend.
Unplanned Expenses
When purchasing from an unapproved vendor, some individuals often overlook the total cost of ownership (TCO). The purchase might be costlier in the long run due to maintenance, repair, delivery, and other hidden fees. If unmanaged, these unplanned transactions can prevent businesses from meeting their financial goals.
Time Sink
When maverick buying, employees spend extra time researching suppliers and negotiating prices without the support of the company’s procurement system. Even if they quickly secure a deal, the vendor might delay the delivery, costing the organisation precious time. Moreover, off-contract transactions are rarely recorded in the company’s purchasing software, forcing the procurement team to waste time tracking invoices and lost data.
Breaches of Contract
Some contracts have an agreed-upon volume commitment, where a buyer pledges to purchase a set quantity during a certain period of time in exchange for discounts, lower prices, or better terms. Repeated maverick buying can lower demand for certain supplies. Failure to comply with the contract might result in legal disputes and damaged vendor partnerships.
Unmet Sustainability Goals
Nowadays, businesses strive to make their purchasing processes ESG-compliant. ESG (Environmental, Social, and Governance) factors push companies to adopt more sustainable and ethical sourcing and supply chain management approaches. Working with socially responsible vendors gives you a competitive advantage. On the other hand, buying from unapproved suppliers who neglect sustainability can lead to non-compliance with standards like CSRD (Corporate Sustainability Reporting Directive).
Quality Control Issues
Purchasing from an approved supplier guarantees a certain level of quality the vendor is obliged to uphold. Conversely, rogue purchases from unapproved suppliers may result in inconsistent product quality, possibly leading to customer dissatisfaction and even reputational damage.
Causes of Maverick Spend
To prevent unregulated purchases, you need to address the root causes of maverick spend early on and focus on filling the missing gaps in procurement. Some of the causes include:
- A complex procurement process.
Sequential approval workflows, manual data entry, and inefficient implementation of e-procurement tools can slow down the purchasing process and intimidate employees. Additionally, a decentralised procurement structure with limited central control is more prone to maverick spend.
- Unclear procurement policies.
If the company’s procurement procedures are poorly defined, employees might struggle to understand the proper steps for making purchase requests, obtaining approvals, and paying invoices. They are then forced to take matters into their own hands and make independent purchasing decisions.
- Limited spend visibility.
Without a clear grasp of your company’s spending patterns, you might struggle to pinpoint unregulated purchases. A lack of transparent financial reporting and spend management might lead to budget overruns and misalignment of spending with business goals.
- Limited knowledge and insufficient training.
Rogue buying is rarely intentional—more often than not, employees are either unaware of existing contracts or find other methods more efficient. Lack of proper training on the purchasing process also contributes to repeated maverick spend.
- Poor supplier management.
Failure to negotiate fixed pricing and track supplier performance impacts product quality and drives employees away from authorised vendors. They may choose suppliers they find more affordable or reliable based on personal experience.
How to Tackle Maverick Spend
Since unregulated purchasing varies between organisations, there’s no one-size-fits-all solution to maverick spending. However, you can reduce its likelihood and improve your company’s procurement by following the next steps.
Conduct a Spend Analysis
Regular spend analysis helps track spending trends, identify unapproved purchases, and spot areas for improvement. By comparing spend data with your key performance indicators (KPIs), you can pinpoint the root causes of maverick spend and develop a mitigation strategy.
Strengthen Procurement Policies
A blanket solution is not the answer when it comes to procurement across multiple entities, as each has unique purchasing needs. While some departments rely on structured, predictable transactions, others make purchases on a case-by-case basis, with needs fluctuating month to month. Develop clear procurement guidelines for each team or department and communicate the changes with proper documentation and training.
Invest in E-Procurement Solutions
Manual processes are time-consuming and inefficient, overwhelming employees with more workload. Procurement software helps trace each purchase from contract to invoice and keep spending data organised in one place. Such tools automatically flag duplicate and unapproved transactions so you can easily identify gaps in your procurement cycle.
Improve Knowledge Transfer
Whether you’re implementing a new procurement system or sticking to the existing one, inform all employees about procurement policies and contracts. Consider adding information about purchasing procedures to the onboarding process of new hires. If you decide to implement new e-procurement tools, communicate their benefits to the team and organise training sessions for relevant employees.
Key Takeaways
Maverick spend slowly drains budgets, cuts into savings, and damages partnerships. The root causes include limited knowledge about purchasing, lack of spend visibility, and unclear procurement policies. Implementing a comprehensive procurement strategy with regular spend analysis, digital tools, and knowledge sharing can help you address maverick spending and regain control over your finances.
