Identifying and Eliminating Maverick Spend

Thousands of dollars disappear from company budgets daily due to maverick spending and unauthorized purchases. Maverick spending leads to cash leaks, negatively affecting the company’s budget. 

Throughout today’s guide, we will review everything regarding maverick spending, from what it is to causes and efficient maverick spending prevention strategies. Thus, let’s dive into it! 

What is Maverick Spending? 

First, let’s get clear on the concept of maverick spending. 

Essentially, maverick procurement spending refers to purchasing goods or services outside of the defined spending policy. For instance, employees are making unjustified expenses on behalf of an organization, purchasing from non-preferred suppliers, or conducting other forms of off-contract spending. 

Examples of Maverick Spend

In order to understand the full picture, it is vital to review a few examples of maverick spending. The common examples fall under three main categories, that are: 

• Uncontrolled or Unknown Spending 
• Partly Controlled and Partly Known Spending 
• Partly Controlled and Known Spending. 

An example of uncontrolled or unknown spending is an invoice that is received from a supplier company that does not have a contract with or has never worked with before. Partly controlled/known spending is an incomplete invoice sent by the supplier (you previously worked with/know of). The incomplete refers to certain details, such as the quantity of the unknown product. Finally, partly controlled and known refers to purchases received from suppliers the organization has contracts with but lacks some details regarding the transactions. 

Maverick spending can happen with any type of purchase across different departments within the organization. For instance, if a team member purchases a laptop for a project. That is why it is essential to understand the main reasons behind the occurrence of maverick spending to efficiently prevent it. 

What Causes Maverick Spending? 

Maverick spending appears due to a variety of reasons, such as: 

• No clear control to enforce procurement policies and compliance with the set regulations. 
• Incidents cause a necessity for spending and are a lot harder to control as usually, this results in a necessity to purchase products damaged from the incident as soon as possible. 
• Poor spend visibility due to lack of transparency prevents the company from gaining full reports on spending patterns and increases risks associated with maverick spending. 
• Inefficient approval processes allow employees or teams to skip necessary approval processes and purchase something necessary for the project without getting approval first. 
• Lack of internal communication. Employees may not be aware of preferred suppliers or procurement policies, which is one of the main reasons behind maverick spending. 

Importance of Controlling Maverick Spend

Maverick spending is important to control for several reasons, as it can greatly affect the company’s bottom line. 

If you lack spending control within the organization, it can result in missed savings opportunities and reduced quality control. Also, it can further contribute to inaccurate budgeting as maverick spending can go unnoticed; thus, the procurement department may be unaware of whether or not the budget requirements are being met. 

Reputational risk is another factor that proves the necessity of controlling spending. If the employees purchase from unauthorized suppliers, it will pose risks of low-quality products and further reputational damage to the organization. 

So, essentially, maverick spending and lack of spending control leads to lost savings, breach of contract, and reputational risks.

How to Prevent/Control Maverick Spending 

Finally, let’s dive into the practical section of this guide and understand the most efficient strategies that will help you prevent and control maverick spending. 

Set a Clear Procurement Policy 

In order to prevent maverick spending or take better control over it, it is vital to set a clear procurement policy. The policy must clearly define set rules and regulations regarding procurement spending to educate stakeholders on expectations and strategies for preventing maverick spending. 

If you want to create an effective policy, then objectives and scope must be defined. Then, outline procurement processes, each with a clear set of rules and regulations. Make sure to outline approval and authorization levels as well. 

Streamline Approval Workflows 

Another way to prevent maverick spending is to automate purchase orders. Manual processes are slow and prone to error, while automation provides solutions to these drawbacks. With the right automation solution, you can streamline approval workflows, avoiding delays and recording every stage of the transaction. It will provide greater transparency in the process, allowing organizations to prevent unauthorized spending that affects the company’s bottom line. 

Define Roles and Responsibilities 

To prevent maverick spending, clearly defining user roles and responsibilities within the organization is essential. For starters, it prevents unauthorized spending. 

The usual scenario is to establish roles according to the hierarchy within the organization. For instance, employees of non-managerial positions can request approval for PO before actually making the purchase, and employees of managerial positions will review and approve/deny the request as found fit. This is a structured approach that will help to eliminate hidden costs and maverick spending. 

To efficiently integrate this strategy into your procurement department, make sure to be clear and concise. Each role must have a specific set of responsibilities aligned with procurement policy. 

Defining roles and responsibilities helps to minimize or eliminate maverick spending within the organization.

Build a Strategic Sourcing Program 

Another strategy for preventing maverick spending is to build a strategic sourcing program. Maverick spending does not refer to only Maverick purchases but also purchases from authorized and unapproved suppliers. Thus, the company must build and incorporate a strategic sourcing program. It will ensure that your organization is set to receive the best value and price from the authorized suppliers. 

To build an efficient strategic sourcing plan, make sure to follow these steps: 

• Identify and categorize spend to understand areas where strategic sourcing is a priority. 
• Develop supplier criteria based on which the procurement team will select suppliers for further collaboration. The criteria should cover parameters such as desired quality, cost, reliability, etc. 
• Consolidate suppliers and purchase from preferred vendors that have a proven track record of delivering quality products and fast lead time. 
• Negotiate long-term contracts with the preferred vendors to secure good deals and ensure smooth supply chain operations. 
• Engage in continuous relationship-building and performance evaluation with the suppliers to address concerns promptly and continue collaboration. 

You can improve strategic sourcing initiatives by using e-procurement software solutions that come in handy with potent sourcing tools. Sourcing tools allow you to easily conduct supplier research by providing all the necessary details regarding the potential vendor, including performance and previous client ratings. 

Incorporate the Right Technology 

Let’s not forget about the importance of incorporating the right procurement technology. Such software solutions will help you eliminate maverick spending by providing 100% visibility into business spending and automation functionalities. 

For instance, Tradogram’s spend analysis software will allow you to efficiently eliminate expenses and elevate cost savings with robust spend insights. 

First, it offers seamless integration capabilities with current ERP and accounting systems such as NetSuite or QuickBooks. With Tradogram, you will be able to leverage a potent dashboard to gain comprehensive insights into a business’s spending patterns and make informed decisions. It also allows you to customize procurement spend analysis reports effortlessly to fit specific needs and requirements. 

The main features of Tadogram include: 

• Real-time spend analytics to gain updated and accurate updates on budgets, a compressive overview of company activity, and optimize supplier relationship management. 
• Customizable reports to create personalized reports for further analysis, analyze data, and make informed business decisions regarding spend and savings. 
• Data organization tools to streamline auditing and automate spend reports while easily tracking and managing orders at different stages. 
• In-depth spend analysis tool to analyze business spending patterns, gain details, and identify cost-saving opportunities. This feature also provides detailed analytics into hidden costs and overlooked spending elements, allowing organizations to adopt and eliminate maverick spending. 

Eliminate Maverick Spend with Tradogram 

If you are looking for a perfect software solution to eliminate maverick spending and improve centralized procurement management, then you are in the right place. Tradogram is a robust spend analysis software that offers all the necessary features to take control of business spending and efficiently manage different procurement processes within the organization. 

Tradogram offers features ranging from spend visibility and robust analytics to inventory and supplier management tools. Every feature and tool is designed to elevate and streamline procurement processes in your organization with ease and precision. 

To find out more about how Tradogram can help your organization eliminate maverick spending and stick with a budget, improve cash flow schedules a free demo with our team.