Procurement processes are an integral part of any business, and managing them effectively is crucial to the success and profitability of your organization. One of the biggest challenges procurement professionals face is dealing with maverick spending, or purchases made outside of the established procurement process.
According to Procurement Magazine, rogue spending can account for as much as 80% of an organization’s total spend. This type of spending can have many consequences, including increased costs, lack of control over spending, loss of visibility, compliance issues, and an increased risk of fraud. Understanding the problem is the first step to reducing unmanaged spend.
In most organizations, maverick spending can be attributed to either technology or culture. It’s often as simple as team members not understanding the process — or the costs and consequences of not following it. This is where a well-defined policy comes into play.
According to 75% of procurement professionals, the lack of self-service or guided buying tools is the biggest reason for maverick purchases. Two other common reasons are related to culture: a non-compliance mentality, and resistance from users to change their behavior despite clearly stated policies and procedures.
Rogue spending can also be attributed to burnout. According to Supply Management, 86% of procurement professionals had an increased workload last year, and only 52% said they had the resources to handle it. The same report linked burnout directly to rogue spending. Nearly a quarter of procurement professionals (24%) said they cut corners to ensure supply, and 22% admitted to making purchases outside of approved supplier lists.
Once you know what may be causing rogue spending, the next step is to gain better visibility into the extent of the problem. Determine how much your business may be losing by creating a detailed breakdown of how much your organization is spending outside of existing contracts.
This will allow you to estimate the short- and long-term costs of how much unmanaged spend is costing your organization. Next, identify the vendors and stakeholders on your team who are the main drivers of maverick spending so that you can begin to address the issue.
Does your organization have a clearly defined procurement process? If not, now is the time to set one up. It’s also important to review existing policies, update them if necessary, and ensure that your staff is familiar with them.
Well-defined policies should detail the entire procurement process, including approvals, vendors to use, and budget parameters. The policy should include points like who can set up new vendors, and threshold spend amounts that require manager approval. You may also want to include restrictions that limit P-card use, and set up a review process for non-contract spend. Policies should be reviewed and updated regularly to ensure they remain relevant and effective.
Once you’ve established (or updated) a clearly defined procurement process, it’s time to train end users on your policies. This step is crucial, as end-users often make purchases without understanding their role in the procurement process. Agents can’t make informed decisions if they don’t understand the policies.
Training sessions should cover everything from policy details to the importance of compliance, and stress the importance of all purchases being made through the approved channels.
Tools that automate procurement processes can go a long way to minimize unauthorized spend while streamlining workflow and improving compliance. Workflow automation software combined with a user-friendly web form builder is a great place to start to standardize your procedures.
Something as simple as creating a branded purchase order requisition form is a good way to start to standardize the process, and is easier to track than simple email or verbal requests. Automating workflows that are customized to your organization’s policies can go even further to reign in maverick spend.
Workflow automation software allows you to automatically route approvals based on your rules. For example, if someone submits a PO that requires approval because it’s over $5,000, you can set up a workflow so it’s automatically routed to their manager for approval.
Purchase orders under a certain threshold can be set up to bypass the approval step, while high-dollar POs may be routed to two different managers for approval. You can also set up exceptions, so if a manager is on PTO, the approval will go to someone else.
This takes a lot of the opportunity for poor decision making such as not adhering to set policies, or even forgetting what gets routed to whom, entirely out of the equation. Look for a user-friendly solution that integrates with your ERP. You also want software that’s easy to set up so you don’t have to involve IT every time you want to set up a new rule, or change an existing one. Solutions like DocuPhase use simple drag-and-drop functionality to set up workflows.
Monitoring and analyzing the procurement process is crucial to identify areas of maverick spending so you can take corrective action. Workflow software that’s integrated with your ERP can track spending so you can identify patterns. By analyzing the data, you can also identify areas where you can reduce costs and improve the procurement process.
Reigning in maverick spending is a critical task for procurement professionals, and requires a comprehensive approach. By establishing clear procurement policies, automating workflows and routing approvals, you can gain better control over spending and reduce costs.
DocuPhase’s workflow automation software and easy-to-use electronic web forms builder are a great way to standardize your procedures and reduce spending. Schedule a demo with our team of experts to discuss all of your options today.