2 min read

What is Maverick Spend?

A recent discussion in the Foundry regarding maverick spend produced some interesting responses. We wanted to follow up on this discussion by offering our definition of it and go more in-depth on this topic, particularly how it works for measuring key metrics and how it impacts your procurement department.  

What is it? 

Our accepted definition of maverick spend (also sometimes called rogue spend) involves the act of buying from suppliers without following the company’s pre-established procurement policy. Doing this has repercussions, including that when you purchase products or services out of contract—or from non-preferred suppliers—your company is unable to receive usual benefits like preferred supplier discounts, etc. And you have likely worked hard and negotiated for these. 

Worrying about maverick spend might seem a bit dramatic—or perhaps it may not seem like such a big issue to you— but we assure you that its effects can collect over time, causing huge headaches at best and costing you a ton of money, or more, at worst. 

As we mentioned above, a few of our members in our Foundry community added their own definitions of maverick spend. One member defined it as “spend that your sourcing group has not touched or is not on a contract you established,” while another explained that “maverick spend is any spend that is above my company’s pre-determined spend limit for contracting.” 

 

Why Does Procurement Need to Stop Maverick Spend?  

Although we touched a bit on the repercussions of maverick spend, we wanted to take it one step further by sharing an example of how it can get out of control to drive the point home. 

Imagine that your sourcing team negotiated an impressive contract allowing them a generous discount of 30% off from office supplies from your selected office supplies vendor. Now, naturally included in this contract would be discounts that were reliant on the volume of the supplies purchased. Are you with us so far? Everything seems fine, right?  

Now imagine that your employees—instead of buying from the vendor mentioned above that you have a contract with—decide to purchase office supplies from another vendor. Nine times out of ten, this will mean that you are paying higher prices (losing out on savings and profit) because no discounts exist with this out-of-network vendor. There has been no contract negotiation for that 30% off. Simply put, your employees have gone rogue and purchased outside of the lines, costing you profits. That is one of many examples of how maverick spend can present itself in operations. 

 

How Can Procurement Stop Maverick Spend? 

Rather than simply leaving you with a definition and somewhat dark view of the repercussions of maverick spend, we’re going to help you understand how to stop it in a few simple steps.  

First, you must identify the maverick spend. When doing this, spend visibility is key. By conducting a comprehensive spend analysis, you can begin to identify gaps across all spend data sources. This can help you successfully target who, what, and where the main problem is rooted in. 

The next step is to examine why maverick spend is happening, including the specific processes causing it. Most employees don’t engage in maverick spending on purpose or spitefully, but instead, it is often simply a matter of their not having a solid understanding of the procurement process. If this is the case, knowing they are confused can alert you to a need for a more simple process or some other innovative and relevant solution.  

When reviewing your process for possible improvements, ask other departments about their spend. You’d be surprised what you can discover and how it can help. Once you have researched and asked the necessary questions to uncover the issues, you can create new processes.  

Regardless of what is fueling it, the bottom line is that maverick spend and going rogue outside of approved procurement rules ends up costing companies much more than just a pretty penny. Knowing the serious repercussions of maverick spend, it is more than worth it for your operation to invest in digging into your procurement activities and ensuring that all is well—not rogue. 

By Michael Cadieux

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