Maverick spending, also known as rogue spending or maverick buying, is a term used to describe purchases made within an organisation that do not comply with established procurement policies and processes.

While it is not always the case these transactions are usually associated with low value purchases or indirect spend.

This uncontrolled spending can have severe ramifications for businesses, ranging from financial losses, impact on relationships with suppliers and operational risks to reputational damage and compliance issues.

Maverick Spend – How To Reduce It

It is crucial for organisations to avoid maverick buying in order to streamline their procurement processes and ensure cost savings. Maverick spending refers to unauthorised or off-contract purchases made by employees outside of the established procurement policies and preferred supplier agreements.

Implementing strategies to reduce this brings several benefits to the organisation, which we will touch on later in this article.

Here are some of the steps we would recommend.

Maverick Spend – Identify The problem

From identifying the reasons behind maverick spend, organisations and more specifically the procurement department can develop targeted strategies to address the underlying issues and reduce its occurrence.

Organisations can start by interviewing managers, department heads, and relevant stakeholders. These individuals can provide valuable insights into why the problem is happening, such as lack of awareness about the procurement process, policies, dissatisfaction with preferred suppliers, or difficulty in accessing approved suppliers. Conducting these interviews in a structured manner and documenting the findings is essential for understanding the extent and impact of maverick spend.

In addition utilising procurement analytics is instrumental in identifying instances of spend outside contracts and maverick spending. By analysing spend and contract data, organisations can uncover patterns and trends that indicate instances, such as frequent purchases from non-preferred suppliers or recurring unauthorised purchases. This data-driven approach enables organisations to quantify the financial impact and prioritise areas for improvement.

Whether it involves strengthening purchasing policies and guidelines, renegotiating contracts with preferred suppliers, or improving communication and training around proper procurement processes, addressing the root causes empowers organisations to create a more efficient and compliant procurement function.

Maverick Spend – Make a Plan

To effectively address the issue of maverick purchasing organisations need to develop a comprehensive plan that outlines specific steps and initiatives.

The following steps can guide procurement professionals in designing an effective plan:

1. Set Clear Targets and Goals: Define specific targets and goals that you aim to achieve through your procurement initiatives. This could include reducing maverick spending by a certain percentage, increasing compliance with the purchase process, or improving supplier management.

2. Identify Key Tasks and Responsibilities: Outline the specific tasks that need to be undertaken to achieve the targets and goals. Assign responsibilities to relevant team members, ensuring that there is clear accountability for the success of each task.

3. Define Deadlines and Timeframes: Establish realistic deadlines and timeframes for each task to ensure that progress is monitored and that initiatives are implemented in a timely manner. This will help avoid any unnecessary delays and keep the procurement team focused on meeting their objectives.

4. Coordinate and Communicate: Foster collaboration among team members and relevant stakeholders by encouraging open communication channels. This will help ensure that everyone is aligned with the plan, understands their roles and responsibilities, and can provide input or address any challenges that arise.

5. Monitor and Evaluate: Regularly monitor the progress of the initiatives against the targets and goals set. Implement mechanisms to track maverick purchases and measure the effectiveness of the initiatives, making adjustments as necessary.

Maverick Spend – Communication

Clear and effective communication of procurement policies and procedures within your organisation is crucial. By clearly articulating the guidelines and expectations, you can create a culture of accountability, prevent maverick purchasing and ensure that all procurement activities are aligned with the organisation’s objectives.

Clear and concise guidelines help employees understand procurement, including the approval hierarchy, preferred suppliers, the sourcing process and contract terms. This clarity reduces the chances of maverick spending and unapproved purchases, as employees are aware of the proper channels to follow. It also promotes accountability and transparency, preventing any breaches of contract or operational risks.

Effective communication leads to significant cost reductions. By making employees aware of cost-effective suppliers and negotiated discounts, organisations can streamline their procurement activities, ultimately reducing expenses. Moreover, it helps in identifying potential savings opportunities and promoting a cost-conscious culture within the organisation.

Efficient communication also improves supplier relationships. By clearly communicating expectations and requirements, organisations maximise collaboration with suppliers, leading to better negotiation terms and improved service delivery. Suppliers will have a clearer understanding of the organisation’s needs and preferences, leading to a more efficient and mutually beneficial partnership.

Lastly, effective communication of the purchasing process reduces legal and financial risks. By ensuring employees are aware of the contractual terms etc., organizations can avoid reputational risks, compliance issues, and legal disputes. This fosters a culture of compliance and minimises the chances of non-preferred suppliers or poor-quality purchases.

Maverick Spend – Educating Employees

Ensuring employees are aware of the importance of compliance is crucial in reducing the risks and consequences associated with rough purchases. Understanding the potential issues that can arise from non-compliance empowers employees to make informed decisions and adhere to established procedure.

When employees make purchases outside of approved suppliers or without following proper protocols, it can lead to higher costs and missed cost savings opportunities. Additionally, non-compliant purchases may result in breach of contract, leading to legal disputes and financial penalties.

Moreover, it can also negatively impact an organisation’s reputation. Engaging with unauthorised suppliers or purchasing poor-quality products can damage relationships with approved suppliers and harm the organisation’s image in the market.

Targeted training sessions should be implemented to highlight the financial and reputational impacts of non-compliance, emphasising the importance of following procurement procedures. By providing concrete examples, employees can better understand the real-life consequences of maverick spending.

Establishing a clear reporting process is also critical in mitigating the risks of non-compliance. Providing tools and resources, such as anonymous reporting channels and clear guidelines on reporting procedures, can facilitate the reporting process and ensure that potential issues are addressed promptly.

Maverick Spend – Track & Manage Spend

This can help enhance financial performance and operational efficiency within an organisation. By having a clear overview of spending patterns and trends, companies can identify areas of overspending and take necessary actions to reduce costs and improve savings.

Using specialised technology, software or tools designed for spend management offers numerous benefits. Such systems enable organisations to track and analyse spending data in real-time, providing actionable insights to make informed decisions. They can highlight discrepancies, identify unauthorised spending, and consolidate procurement activities to leverage volume discounts and reduce expenses.

Moreover, implementing a centralised procurement team can streamline the entire process, resulting in better management of spend. This team can negotiate better pricing and terms with suppliers, establish standardised procurement practices, and ensure compliance. By centralising these responsibilities, organisations can eliminate duplication of efforts, reduce rouge purchases, and improve overall operational efficiency.

Maverick Spend – Accountability & Transparency

When there is a strong culture of accountability, it ensures that everyone within the team understands their responsibilities and is committed to adhering to procedure.

Clear role definitions play a vital role in establishing a culture of accountability. Each team member should have a clear understanding of their specific roles and responsibilities within procurement. This clarity helps to eliminate confusion and ensures that everyone knows exactly what is expected of them.

In addition to role definitions, effective communication is essential for accountability. Regular communication channels should be established to facilitate information sharing, address any issues or concerns, and provide updates on procurement activities. This open and transparent communication allows for the prompt resolution of any problems that may arise and helps to foster a collaborative and accountable team environment.

Hold employees accountable for non-compliance. When employees understand that there are consequences for not following the established guidelines, it deters them from engaging in rogue purchasing. By holding individuals accountable, it sends a clear message that adherence to procurement procedure is a priority and helps to create a culture of responsibility and compliance.

In conclusion, developing a culture of accountability and transparency within the procurement team is crucial for effective spend management.

Maverick Spend – Managing One-off Purchases

To effectively manage rouge purchases organisations must establish a clear procedure for one-off requirements.

One way to support this process is through the use of purchasing cards. These enable authorised employees to make low-value purchases quickly and easily, while still adhering to established procurement guidelines. By implementing a procedure for one-off purchases and supporting the use of purchasing cards, organisations can minimise the risk of non-compliance and increase efficiency.

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Maverick Spend – Benefits of Avoidance

Reducing maverick purchases can bring many benefits to an organisation.

While there are far too many for us to go through in this article here are three that we see as some of the main reasons the to pursue better control of your expenditure.

Maverick Spend – Improved Supplier Relationships

Cultivating better relationships with suppliers is crucial for businesses seeking to enhance operational efficiency and drive long-term success. One effective way to achieve this is by reducing unauthorised purchasing outside of established procurement guidelines.

Funnelling purchases towards pre-negotiated contracts is a key strategy for reducing non-compliance. This approach not only ensures compliance but also provides the opportunity for better value. By consolidating purchasing activities and leveraging the organisation’s buying power, businesses can negotiate better volume discounts and achieve significant cost reductions. Additionally, working closely with selected suppliers allows for better communication and collaboration, leading to improved product quality and timely delivery.

Sustaining strategic supplier relationships involves regular performance evaluation and adherence to procurement practices. Continuously monitoring supplier performance helps identify potential areas for improvement and ensures that suppliers meet quality and reliability standards.

Collaborative approaches with suppliers can drive continuous process improvements and identify cost reduction opportunities. By involving suppliers in the review and enhancement of procurement’s approach, organisations can tap into their expertise and gain valuable insights. This collaborative approach fosters innovation, drives efficiency, and leads to improved supplier relationships.

Maverick Spend – Compliance With Contract Terms

Improved compliance with contract terms is essential for preventing losses and maximising savings in procurement activities. By adhering to the agreed-upon terms and conditions outlined in supplier contracts, businesses can avoid costly operational risks and legal liabilities. Non-compliance can lead to breach of contract, resulting in financial penalties and reputational damage.

Moreover, complying with contract terms ensures that businesses take full advantage of cost-saving opportunities. Contracts often include provisions for volume discounts, rebates, and other incentives that can result in significant savings. By strictly following contract terms, organisations can ensure they receive the agreed-upon benefits and minimise unnecessary spending.

Effective communication of approved suppliers and relevant contract terms to purchasers is crucial for achieving compliance. Clear communication provides purchasers with the necessary information to make informed buying decisions.

When purchasers are aware of selected suppliers and the specific terms and conditions in contracts, they can align their purchasing activities accordingly. This helps prevent rouge spending and ensures that purchases are consolidated and directed towards cost-effective suppliers.

When organizations consistently adhere to contract terms and prioritise selected suppliers, it creates a sense of partnership and trust, leading to more successful collaborations and long-term mutual benefits.

Maverick Spend – Lowering Risk

Lower supply risk is an essential benefit that organisations can achieve by effectively controlling purchases. By mitigating the risks associated with engaging unapproved suppliers through maverick purchases, organisations can safeguard their operations and reputation.

Engaging unapproved suppliers poses significant operational risk, as these suppliers may not meet the necessary quality standards or adhere to contractual obligations. Poor quality products or services can lead to disruptions in operations, delays in project timelines, and increased costs for remediation.

Reputational risk is another consequence of non-compliant purchases. If an organisation is associated with unethical suppliers or becomes known for disregarding procurement procedure, it can lead to a loss of trust from stakeholders, customers, and the wider industry. This can have long-term negative implications for the organisation’s brand and market position.

By implementing a robust approach to procurement and enforcing compliance with approved suppliers, organisations can significantly reduce the supply risks and ensure that purchases are made from trusted and qualified suppliers. This ultimately enhances supply chain stability, minimises operational disruptions, and safeguards the organisation’s reputation in the marketplace.