Understanding Maverick Spend in Procurement

As a procurement professional, you may have heard the term “maverick spend” thrown around, but what does it really mean and why is it important to manage it? In this article, we’ll dive into its definition, how it differs from tail spend, and why it’s crucial to have a strategy in place to manage it effectively.

What is Maverick Spend?

Also known as rogue spend or non-compliant spend, refers to purchases made outside of an organization’s established procurement process. This can include purchases made without proper authorization, from non-preferred suppliers, or without following established pricing agreements.

How is Maverick Spend Different from Tail Spend?

While these terms are often used interchangeably, they are not the same thing. Tail spend refers to the 20% of an organization’s spend that is made up of low-value purchases from a large number of suppliers. Maverick spend, on the other hand, can occur across all spend categories and is typically a result of non-compliance with established procurement processes.

Tail spend can be managed through strategic sourcing and consolidation of suppliers, while maverick spend requires a different approach.

Why is it Important to Manage it?

Such purchases can have a significant impact on an organization’s bottom line. It can lead to overspending, missed savings opportunities, and increased risk. Here are a few reasons why it’s crucial to have a strategy in place to manage maverick spend:

Cost Savings

These rogue expenditures can result in higher costs for an organization. When purchases are made outside of established contracts or pricing agreements, it can lead to missed savings opportunities. By managing non-compliant spend, organizations can ensure that they are getting the best value for their money and avoid overspending.

Increased Visibility and Control

These can also lead to a lack of visibility and control over an organization’s spend. When purchases are made outside of the established procurement process, it can be challenging to track and manage them effectively. By implementing a strategy to manage maverick spend, organizations can gain better visibility and control over their spend, leading to more informed decision-making.

Mitigated Risk

It can also increase an organization’s risk. When purchases are made from non-preferred suppliers or without proper authorization, it can lead to issues with quality, compliance, and even fraud. By managing maverick spend, organizations can mitigate these risks and ensure that all purchases are made in accordance with established processes and guidelines.

How to Manage Maverick Spend

Managing these types of purchases requires a multi-faceted approach that involves both people and technology. Here are a few steps organizations can take to effectively manage maverick spend:

Educate and Communicate

One of the main reasons for maverick spend is a lack of understanding or awareness of established procurement processes. By educating employees on the importance of following these processes and communicating the consequences of non-compliance, organizations can reduce this type of expenditure.

Implement Approval Processes

Implementing approval processes for purchases can help prevent this type of spend. By requiring proper authorization for all purchases, organizations can ensure that all purchases are made in accordance with established processes and guidelines.

Utilize Technology

Technology can play a significant role in managing maverick spend. By implementing a procurement software solution, organizations can gain better visibility and control over their spend. These tools can also help automate approval processes and provide real-time insights into spend data.

Monitor and Analyze Spend Data

Regularly monitoring and analyzing spend data can help identify patterns of maverick spend and areas for improvement. By understanding where this spend is occurring, organizations can take targeted actions to reduce it.

Establish Preferred Supplier Agreements

Having preferred supplier agreements in place can help reduce this spend. By consolidating suppliers and negotiating favorable pricing agreements, organizations can ensure that employees are more likely to make purchases from preferred suppliers.

Real-World Examples of Maverick Spend Management

Managing it often leads to high administrative costs and non-compliance issues. Many organizations perceive it as “high effort, low return,” so the issue often goes unaddressed.

One of our clients encountered challenges related to spend visibility and accurate categorization due to numerous low-value transactions. SpendQube tackled this issue by consolidating data from multiple ERP systems to gain a comprehensive view of maverick spend volumes and patterns. By analyzing data from various departments, cost centers, and key stakeholders, SpendQube developed a customized digital strategy. As a result, the client achieved significant cost savings, reaching over 92% compliant spend management.

This case study demonstrates SpendQube’s ability to assist businesses in optimizing their spend management practices. By effectively addressing maverick spend and implementing strategic measures, such as those employed in this scenario, companies can enhance cost efficiency and compliance within their procurement operations.

Who is Responsible for Managing Maverick Spend?

Managing this expenditure is a team effort and requires collaboration between procurement, finance, and other departments within an organization. However, the procurement team typically takes the lead in implementing strategies and processes to manage it effectively.

Takeaways

Maverick spend can have a significant impact on an organization’s bottom line, but it can be managed through a combination of education, technology, and strategic processes. By implementing a strategy to manage it, organizations can reduce costs, increase visibility and control, and mitigate risk. With the right approach, this spend can be effectively managed, leading to a more efficient and cost-effective procurement process.