Maverick spending is a procurement or acquisition made outside laid down contracts.
What is maverick spending?
Maverick spending is the expense resulting from purchases that are breaking the rules established by corporate procedures. Maverick spending either intentionally ignores defined procurement processes or are simply by purchasing mistakes that aren’t in accordance with previous negotiated purchasing terms.
Businesses and organizations typically make contracts with suppliers to help build a long-term relationship that’s profitable and favorable to both sides.
The supplier agrees to keep making supplies to the procuring organization, and the procuring organization agrees to making their orders from the supplier and making payments. The aim of these contracts is to keep acquisition costs low and secure a guaranteed supply of inputs via a relationship with trustworthy vendors.
Here’s where maverick spending comes in: maverick spend is a procurement or acquisition an organization makes outside those agreed contracts.
While contracts are designed to help businesses purchase inputs, simpler and more coherently, maverick spending tends to negate this leading to higher acquisition costs and broken vendor relationships.
Here’s a detailed breakdown of ways you can control your organization’s maverick spending.
What causes maverick spending?
Before we can define ways by which organizations can control their maverick spending, it’s important to first understand why organizations make purchases outside agreed contracts in the first place—i.e. why maverick spending happens at all.
Maverick spending can typically be traced to 6 key reasons, namely:
Some organizations adopt a distributed procurement system that’s designed to help them be more agile. Individual team members and departments have access to funds (via corporate cards) which they can use to make purchases.
The aim is to remove the layers of bureaucracy so team members can make purchases just with permission from someone in procurement. Now, while that might simplify the procurement process, it leads to a situation where individuals or departments may make purchases that are already covered by an existing contract, simply because they’re unaware, etc.
Competitive maverick spending
In some situations, team members know there’s an existing contract covering an order they’re looking to make. But then, they still choose to purchase elsewhere because they figure the alternative is cheaper and they’re looking to save that money for the company.
Poorly managed spend approval
Many modern procurement tools are built to support distributed spending, which like we discussed above, is a system where individuals and teams have funds issued to them with which they can make purchases.
Now, for distributed procurement to work well, the procurement system needs to have approvals built in so the central procurement team can approve purchases by individuals and teams.
In a situation where this isn’t supported, maverick spending then shoots up to unimaginable proportions since now, individuals and teams within the organization can make purchases outside existing contracts without any restraint by the procurement team.
High indirect spend (typical for digital businesses)
For a conventional hardware company that uses mainly physical raw materials, inputs can be ordered in bulk time and time again and there’s little room or need to make purchases outside existing contracts.
On the other hand, for digital businesses like marketing agencies, software companies, etc., at every point, the business has a changing list of needs and individuals may have to make purchases outside existing contracts. Or worse, these contracts may not even exist at all.
In the chaos of managing procurement for digital businesses, it’s easier for maverick spending to continue over long periods of time.
Ineffective & time-consuming procurement processes
There are only so many hours in a day and if individuals or teams within your organization discover that the established internal processes needed to make a purchase will take longer than they can wait, they’ll most often find a simpler, faster alternative.
Poor supply documentation/Ignorance
Employees and team members can only take advantage of contracts that they know exist. If staff within an organization are unaware that a particular input they need is covered under an existing contract, they’ll readily seek out alternatives since they consider it their only option.
How do you tackle maverick spending?
Based on the points above, we understand that maverick spending doesn’t afford any benefits to a forward-thinking company. Maverick spending cuts into your profits and exposes your organization to operational risks.
So, if you are looking to minimize risks, stabilize your day-to-day business operations, and drive up your profits, you need to tackle maverick spending decisively.
Here are five ways you can reduce your maverick spending:
- Conduct a detailed spend analysis
Before setting out to reduce your maverick spending, you must first create a detailed breakdown of how much you’re spending outside existing contracts. To achieve this, you must break down your spend down to the basics to see where your money is going.
Next, you must identify the vendors and stakeholders on your team who’re the main drivers of maverick spend. That done, the next step is to estimate the short and long-term costs of your maverick spending, i.e. how much maverick spending is costing vs. how much you’d have spent had you stayed within contracts.
- Educate your team
Before you can drive participation in the procurement process, your team needs to understand the place of procurement in the big picture. It’s important to make every member of your team understand that:
- centralized procurement helps you save money on your purchases,
- maverick spending hurts your company financially,
- supplies sourced from unapproved vendors may be detrimental to your internal operations, and that
- centralized procurement can work if everyone will do their bit to make it work.
- Adopt smarter procurement systems and processes
Your work is only as good as the tools and tactics you’re equipped with. In order to improve your chances of eliminating maverick spending, you need to:
- equip your procurement team with tools that simplify the process and make it easy for the rest of the organization to collaborate with the procurement team,
- encourage team members to identify pain points in your existing procurement process,
- build simpler processes so teams and individuals can make requests easily,
- adopt a purchase approval system so purchases can be vetted before being made. This way, procurement staff can identify purchases covered by existing contracts so they can take advantage of them.
Your systems and processes form the background of your efforts to eliminate maverick spend and therefore, it’s critical to update them and ensure they’re working at peak capacity.
- Create a process for special purchase needs
No matter how well you structure your procurement systems and processes, there’ll always be a few cases here and there where there’s a need to be filled without an existing vendor to cover it. Or maybe there’s an urgent need that your existing vendor can’t meet in a reasonable timeline.
To avoid such scenarios leading to uncontrolled maverick spending, it’s advisable to create a simple process to guide escalation, detailing the steps to take when a required supply can’t be reasonably met by existing vendors.
- Build procurement education into your HR process
Involving your HR team in the procurement training process will help team members understand just how serious procurement compliance is, and makes it easy to avoid maverick spending since they’ve been grounded from Day 1 to do so.
Likewise, HR can be tapped to design and enforce penalties that’ll apply for team members who repeatedly spend outside agreed contracts.
In conclusion, it’s easy to see that maverick spending happens majorly when an organization uses complicated or severely limited tools that complicate the procurement process for stakeholders and make them seek alternatives.
On the other hand, a procurement solution like Kissflow Procurement Cloud simplifies the procurement process so stakeholders can collaborate with ease. Kissflow does this with a combination of:
- a simple purchase requisition function,
- central procurement management so purchases can be managed all in one place,
- intelligent vendor management no matter how many you have, and
- intuitive controls so you can get started with ease.
By simplifying your procurement systems and processes, Kissflow Procurement Cloud enables you to win the support of your stakeholders so you can eliminate maverick spending finally. Take Kissflow Procurement Cloud for a spin here.