Maverick Spending, A disease for Procurement
Posted On 20 June 2022 by Fazal Sayyed
What is Maverick spending?
The purchase of products or services beyond the bounds of the stated spending policy is referred to as "maverick spending." It might suggest that staff are spending unjustifiable costs on behalf of the company, or that the proper procurement process for new items, equipment, or services is not being followed.
Maverick spending is most common in indirect spending and low-visibility tail spending, with multiple minor transactions in a variety of areas. As a result, it may not readily stand out from your data, but once recognised, it can result in significant cost savings.
Procurement specialists are well aware of the negative consequences this may have on a company. Among the issues are
1. The process time is increased:Maverick spending perplexes accounting departments, which must spend time attempting to make sense of irregular invoices and payments with no accompanying purchase order.
2. Transaction costs rise:When members of your team purchase anything for which they are not authorised, additional transaction fees are incurred on top of the aforementioned charges.
3. Long vendor lists:Your team is adding vendors not already on the list, making vendor management more time-consuming.
4. Fraud:The risk of fraud rises when procurement does not control purchases.
Poor company spending culture and inefficient technology are the two most common causes of maverick spending. So addressing those two causes is the best way to eliminate maverick spending. It is possible to reduce wasteful spending through education and the use of the appropriate processes and tools. Companies must spend on what is needed to achieve business goals and address the root causes of maverick spending through the following strategies:
Inform your staff on the risks of maverick spending.
Every purchase must be made via a purchase order.
The roles must be clearly defined.
Automate the procurement process.
In order to fight and limit maverick spending, you must involve the entire company. Educate your staff and upper management about maverick spending and the above-mentioned costs of non-compliance.
This may appear too optimistic, but without a purchase order, the commitment of expenditure will not be recorded in the ERP system and so will be unknown to management. Terms of business and payment terms will not be conveyed to the provider and will thus be unenforceable. Furthermore, there is nothing to link goods receipts and invoices to the dates and times when products and services are delivered. In our experience, around 90% of all transactions should be made on a purchase order, with the other 10% covering expenditures that do not generally require one, such as subscriptions, utilities, and personal travel expenses.
Most employees like contacting suppliers, negotiating pricing, and purchasing—and it is this behavior that is the basis of excessive spending. This must change. "Operational buyers" should only issue a requisition when they have a purchasing need, and 'operational buyers'—those with a 'licence to buy' and the power to create a purchase order—should then carry out the purchase on behalf of the requisitioner by utilising the right P2P processes, purchase order management, and available contracts provided by 'strategic purchasers." Depending on how the system is configured, operational purchasers can easily service a large number of requisitioners inside or across business units, either locally or centrally. Normally, this may be accomplished without the need for extra employees.
Electronic procurement, often known as eProcurement, is the computerised purchasing of goods and services. Supply procurement automation aids in cost prediction and control. It allows you to improve expenditure visibility while also reducing the effort of your vendor management and spend approval teams. Consider automating the purchase of routine things such as toner and paper, as well as the payment of authorised subscriptions and services, to save time for approval of non-regular and large-ticket items.