April 27, 2010
by Purchasingb2b Staff
How much is maverick spending costing your organization? Depending on categories you’re responsible for, the answer might be more than you think.
According to The Hackett Group, companies in many sectors are losing out on targeted or negotiated cost savings because buyers aren’t accessing contracted rates from preferred suppliers.
The issue is particularly prevalent among indirect spending categories. The percentage of maverick spend is highest—18 percent—in the sales and marketing support category. That’s followed by administrative and business services (14 percent), travel and entertainment (13 percent), human resource services (12 percent), capital equipment/facilities operations (11 percent), general equipment and supplies (10 percent) and IT and telecommunications (eight percent).
“The lost profits from maverick spending are far from trivial,” the Hackett report reads. “At 12 percent maverick spending on five percent annual savings, the resultant 0.6 percent of annual spend is roughly the amount that is spent to run an entire world-class procurement organization!”
According to Hackett, high levels of maverick spending tend to indicate other bad practices are in place, including procurement policy violations and poor spend visibility.
Measuring maverick spend is the best defence. This can be done with detailed spend and contract visibility.
It also helps to be able to locate and address the root causes of non-compliance, including:
• Weak stakeholder buy-in and poor policy definition/enforcement;
• A bad connection between sourcing and procure-to-pay; and
• The inability to help requisitioners easily find preferred supply sources and associated buy/pay processes.
Hackett identifies the last point as especially important, because it “encourages a mindset shift from viewing maverick spending as an act of malfeasance (which it usually isn’t) to a continuous improvement opportunity.”