Businesses Aren’t Sure How To Tackle Maverick Procurement

The cost of indirect spend, the materials and services that businesses need in order to operate, can add up quickly. Some research estimates indirect spend accounts for up to 50 percent of a company’s purchases. In a joint survey by Supply Management and Expense Reduction Analysts, 71 percent of procurement professionals named managing the purchasing of non-procurement employees as the No. 1 challenge to their efforts to reduce indirect spend. While procurement teams agree that so-called “maverick spending” is the problem, they are divided on how to fix it.

Suggested fixes include training non-procurement professionals in procurement processes and limiting the purchasing power of non-procurement employees. One-third of survey respondents called for providing procurement training to employees with purchasing power. Another third recommended control over all spending decisions, both direct and indirect, is given to procurement teams. Procurement teams rarely have sole control. Consolidating the number of suppliers is the solution for 16 percent.

The survey shows in many organizations, the responsibility of managing indirect spend falls to many departments. Most commonly responsibility is given to senior department heads (42 percent), finance (39 percent) and operational staff (25 percent). The amount of control exerted by procurement teams varies across spending categories. When it comes to consumable goods like office supplies, equipment and packaging and logistics, procurement teams take the lead. They are likely to take a back seat on spending relating to services such as legal and marketing. The divide between procurement involvement in the selection of goods and services is not hard and fast. Results from the survey, “The dangers of tackling indirect cost and tail spend,” show procurement departments have influence when it comes to professional services (51 percent), business process outsourcing (51 percent) and consultancy (50 percent).

Maverick spend may be the biggest challenge procurement teams face, but it is also closely linked to other issues identified by Supply Management and Expense Reduction Analysts. When it comes to controlling indirect spend, 46 percent of respondents claimed misclassified items and poor reporting was their biggest challenge. Other top-ranking challenges include lack of ownership by stakeholders, an “if it ain’t broke, don’t fix it”attitude, and little understanding of what indirect procurement spend is and true amount spent. Most if not all of these challenges could be addressed with better communication and understanding between all of those responsible for purchasing decisions.

Frustration over not having more influence in purchasing decisions was a common refrain of survey respondents. “Procurement is subordinated – we cannot make any decisions,” one said. Another added, “I am currently having to change attitudes towards procurement. Stakeholders are given free reign to purchase what they want despite having a procurement department in place.”

Overall the procurement professionals surveyed felt that greater influence within their organizations would improve control over indirect spend. For many, influence starts in the C-suite. Forty-seven percent want procurement to have a higher status in the boardroom. Outside of upper management, better oversight and reporting metrics of departmental spend would also help control spending, with 42 percent of respondents calling for increased transparency. Existing tools could help businesses analyze spend. One-third of respondents pointed to implementing a procure-to-pay (P2P) system as a way to better track spending. P2P services are still relatively young, but the industry is growing. The integrated nature of the software may serve as a link between procurement and finance teams.

The majority of the 360 people surveyed see maverick spending as a concern, but some see it as an opportunity. Writing for Spend Matters, Pierre Mitchell sees maverick spending as a stress test, calling it a “gold mine for understanding failures in the procurement system.” The process of reducing maverick spending requires businesses to define it and find the root causes that support it. Rather than aiming to eliminate maverick spending, business should use it as an opportunity to gain a deeper understanding of the procurement process, allowing organizations to look for weaknesses and craft ways to improve them.