7 tips to reduce maverick spend in procurement

Maverick spend in procurement is a common challenge, referring to off-contract spend or outside of approved supplier contracts.

The total spend attributed to maverick spend varies greatly across organizations. The share of maverick spending depends on spend under management, purchasing policy implementation success and procurement maturity.

Even small instances of maverick spend can add up, impacting the organization’s bottom line and disrupting carefully planned supplier relationships.

In this article, we'll dive into the main causes of maverick spend and share seven effective strategies to reduce it. By understanding these factors, you can proactively align purchasing behavior with your procurement policy. 

Why is Maverick Spend a Problem?

Maverick spend creates several key challenges:

• Lost Savings: Missing out on pre-negotiated prices and volume discounts reduces cost savings, which should be procurement’s #1 priority.
• Breach of Contract: Failing to meet agreed purchase volumes can result in contract penalties or termination. For example, if you’ve committed to buying 200,000 units annually but some departments buy elsewhere, it could lead to a shortfall.
• Reputational Risk: Purchasing from non-approved suppliers can harm your company's reputation, especially if these suppliers don't meet the environmental, social, and governance (ESG) standards your company has set.

Maverick spend disrupts cost-saving efforts and can damage supplier relationships. Keeping purchases within approved contracts ensures better pricing and compliance.

Causes of Maverick Spending

Maverick spending is most evident in tail-spend categories, meaning small, frequent purchases like marketing, IT software, and professional services. It can occur when the Procure-to-Pay (P2P) process is unclear or complicated.

Even the most efficient employees can fall into maverick spending patterns if procurement policies aren’t communicated effectively. This can happen due to:

• Confusing Processes: If Procure-to-Pay (P2P) and approval workflows are too complex, employees may bypass them for a faster alternative to fulfill their needs. This hurts profits and exposes your organization to operational risks.
• Decentralized Spending: Certain spend categories may fall outside procurement’s direct control, leading to off-contract purchases. 
• Insufficient Training: Unaware of procurement protocols, employees might make non-compliant purchases. Contract handover is a key step in not leaving money on the table.  They may not be aware of the full contract scope, potential discounts, and value-added services that impact the total cost of ownership (TCO).

Despite the intentions, the end result remains the same for spend management – money is left on the table. Make your P2P process more accessible to minimize off-contract purchases. Small improvements can lead to significant savings!

See below the full list of reported causes of maverick spend according to the Hackett Group (2019).

How to Reduce Maverick Spend in Procurement: 7 Tips

In mitigating maverick spend, the big idea is to establish clear roles and define who holds the license to buy.

P2P processes and policies should be transparent for all categories and easy for employees to justify and follow. Purchase orders should be placed for every purchase, commonly referenced as the "no PO, no Pay" policy.

If this sounds too harsh, here are seven practical tips to help you reduce maverick spend and maintain control over procurement:

1. Identify Maverick Spenders with Spend Analysis

Good spend analysis data will also allow you to track and identify suppliers who have non-contracted spend, as well as spend with non-contracted vendors. Spend classification helps reveal multiple vendors for the same product or service category and consolidate spending on preferred suppliers.

2. Educate and Train Employees on Procurement Policies

People don’t follow rules they don’t understandShowing the WHY of your procurement process policies can make a difference. Procurement policy does not exist for the fun of it. It does not serve procurement interests only. Discuss why cost optimization, contract with detailed specifications, quality management, and ESG risk mitigation are for their benefit, not only yours.

3. Build Collaborative Relationships with Business Units

Get to know your business priorities, customer requirements, market dynamics, and supply base. Strive to find the best suppliers together. When supplier selection is a joint agreement, there will be a higher level of commitment to the business relationship too.

4. Communicate Preferred Suppliers and Contract Terms Clearly

Nothing is more frustrating than ordering products online with a high shipping cost and learning later that you would've gotten a free delivery by just ordering one more item. The same applies for corporate buying. Everyone working with the supplier should understand the terms you have agreed on for purchasing the products or services. Have a read on how to succeed in your next handover -- A Complete Guide to RFP: a Guide to Successful Contract Handover.

5. Make Purchasing from Preferred Suppliers Easy

Make it easy for employees to choose the right supplier. Provide a list of preferred suppliers for each category and set up user-friendly catalogs with product details, prices, and volume discounts.

6. Speed Up Approval Processes for Requisitions and Orders

When there is a real need for a product or service, you don't want to slow down your business by adding lead time for purchasing and approvals. When there is a strong drive to get things done, people may not have the time or the will to wait days or weeks for bureaucracy. Study your processes and eliminate any bottlenecks.

7. Create a Process for One-Off Purchases and Use P-Cards

Not all ad hoc purchases can be predicted. Define what qualifies as a one-off purchase and use P-cards to manage these expenses. This consolidates spending under one label and provides better visibility and control.

Is Maverick Spend Always Harmful?

Not all maverick spend is bad. It can occasionally act as a dialogue starter. 

For example, employees might find a local supplier with a better price or specifications that better fit their needs. This can open up discussions for re-negotiating contracts or exploring new partnerships. In organizations with localization or diversity policies, maverick spend may even uncover new suppliers for future consideration or emergency use during supply chain disruptions.

Transparent dialogue on maverick spend based on category data can reveal opportunities for improvement and change attitudes.

How to Track Maverick Spend

Effective spend analysis is crucial for identifying and managing maverick spend. By tracking where off-contract purchases are happening, you can:

• Pinpoint Problem Areas: Categorize spend data to see which departments or categories are driving maverick spend.
• Calculate the Cost: Measure the impact by analyzing purchase price variance (PPV) and estimating savings missed due to non-compliance.
• Take Action: Use this data to target specific areas with corrective measures and improve adherence to procurement policies.

Not all track their spend covered by purchase agreements or spend efficiently enough to provide meaningful data, or if they do, they do not share it with the wider organization to enable continuous improvement of spend coverage. Maverick spending thrives in organizations where the procurement function is immature, or the culture does not support cost-saving initiatives.

You need the right tools and sufficient data to mitigate maverick spending. Sievo Spend Analytics reveals where off-contract spend is occurring and potential areas for spend consolidation. 

Example of contract dashboard in Sievo

Header picture credit: Luke Stackpoole (unsplash.com)