Maverick Buying

Maverick Buying and financial health

Maverick buying can negatively affect a company's financial health. For example, it can lead to unplanned spending or a lack of transparency within an organization. Purchases made outside regular channels, for example, can cause an organization's bargaining power to deteriorate when it comes to discounts granted for purchase quantities of a certain size.

Lack of supervision

In addition, a company loses control over its purchasing policy because of the anomalous purchasing behavior, thus compromising the necessary transparency about spending. And where transparency decreases, the risk of fraud increases due to lack of oversight of purchasing activities. Moreover, unforeseen expenses are very undesirable for a company, since the reserves set aside for such costs are amounts that ideally would be used for investments. Thus, a relatively innocuous phenomenon like decentralized purchasing soon leads to serious problems.

• Read more about maverick buying as a problem for Finance

The consequences of maverick buying

Maverick buying is the term used when talking about unmanaged expenditures made by employees outside of a preferred channel or supplier. For example, consider an individual purchase not covered by a contract. Products or services are then purchased outside the regular purchasing system by individual employees within an organization.

Independent decisions made by employees often arise from the mistaken assumption that a small purchase here or there won't hurt. Thus, there may be a sense of dissatisfaction with the purchasing processes or their flexibility. Circumventing procedures is then tempting, because why couldn't you just place a quick order through a supplier's Web shop?

• Read more about the benefits of increasing spend under management

Employees on board

To combat maverick buying, it is important to engage your employees in preventing alternative purchasing practices. There are a number of ways you can reduce maverick buying.

For starters, clear communication around purchasing policies, for example, as well as the consequences of maverick buying, is hugely important. Without the right information, the chances are quite high that employees will unintentionally engage in maverick buying.

Involve them regularly through existing communication channels in the knowledge and expertise you have as an organization about maverick buying. In this, do not underestimate the importance of sufficient education, as well as assigning defined roles in which responsibilities are distributed among employees.

Only when employees know who is actually responsible for different parts of the procurement process can they commit to complying with it. By taking shared responsibility over purchasing policies, you significantly reduce the risk of maverick buying. 

• Read more about how organizations can prevent maverick buying

The benefits of streamlined procurement processes

When looking at a way to combat maverick buying, the answer is almost always the same: utilize a streamlined purchasing process. And that's not surprising, considering that a streamlined purchasing process brings a number of key benefits.

One benefit, for example, is cost savings: in fact, a streamlined procurement process helps companies take control when it comes to spending. The better this is monitored, the more likely a company is to benefit from economies of scale, volume discounts and better contract terms.

• Read more about the benefits of streamlined procurement processes

Policies and procedures

In addition, a streamlined procurement process also helps a company establish and adhere to clear policies and procedures. Only when there are clear frameworks within which employees are allowed to move when it comes to purchasing is there many times less chance of acting outside those frameworks. Efficiency also improves with a streamlined procurement process, in part by automating repetitive tasks.

Everything that was previously done manually can be automated after a streamlined purchasing process, and with that freed up time, employees can focus on strategic purchasing activities, for example. Also, the incoming flow of orders can be monitored so that the relevant department knows exactly what invoices are in the pipeline.

Disrupted relationships

That maverick buying can have a negative impact on supplier relationships is no surprise. Yet employees underestimate the impact maverick buying has. The inconsistency of purchasing is one example of the detrimental effect of maverick buying: once there is an expectation that purchases will be made through established channels, it can fall on unwelcome ground when purchases are suddenly made outside agreed-upon avenues. That frustration pretty quickly leads to a lack of trust in the relationship between them, with all the consequences that entails.

It is also no exception that maverick buying is noticed by the supplier and then responded to stricter terms. For example, prices may be raised, discounts reduced or payment terms tightened. So an innocent purchase here and there can have disastrous consequences for your business, often without employees being aware of the impact that a relatively small act has.

Compliance and contract management

Admittedly, the purchase of a product or service can be arranged so quickly online that it is quite understandable that the consequences are underestimated. Yet there are: lack of oversight, inefficient spending and reduced bargaining power are realistic consequences of maverick buying.

Thus a small operation unintentionally causes higher procurement costs and all sorts of organizational problems within an organization. This is not only in the actual purchase value, by the way, but also in the indirect costs: time lost due to the "exceptional" purchase. An e-mail here, a search for billing information there, and a simple purchase easily takes a few hours.

• Read more about compliance and contract management

Irreducible invoices

Moreover, accounts payable departments often have to deal with incoming invoices that cannot be traced back to purchase orders or existing suppliers. If maverick buying plays out within your organization, it's time to take a critical look at the existing agreements in place regarding purchasing policies. The best way to avoid maverick buying behavior is to redesign procurement processes with sufficient attention to the needs of employees on the one hand and procurement policies that are workable and practical on the other.

Know your supplier

Compliance means that a company adheres to the law and to internal procedures, rules and (ethical) standards. Thus, maverick buying is already non-compliant by definition because maverick buying involves deviating from internal purchasing procedures.

In addition, maverick buying poses a number of other compliance risks. For example, it is know your supplier is an important focal point for many companies. For some industries, there are even strict rules and laws for this , for example in the case of financial institutions.

The use of technology

Don't forget to take advantage of available technology in the fight against maverick buying. For example, technology can help you get a handle on anomalous purchasing behavior through automated procurement systems, integrated workflows, real-time reporting and spend analysis, and the use of electronic approval processes. An e-procurement system can manage the entire procurement process, where features such as contract integration, catalog management and electronic approvals can make a big difference in limiting maverick buying.

• Read more about the automation of procurement

Greater insight

An automated approval workflow ensures that purchase orders go through a number of required approvals before they are actually placed. By submitting employee purchase requests electronically, there are multiple people involved who must review and approve the purchase before it can actually go through. You can also choose to have visibility into the various budgets so that it is clear how much of the allocated budget was actually spent. Thus, for each part of the procurement process, there is a technological solution that can take a lot of work off your hands in an efficient and reliable manner.

• Read more about cross-departmental KPIs for spend under management

Best practices

It is often thought that maverick buying is easy to detect. Yet unfortunately, this is quite disappointing; maverick buying takes place outside the carefully designed purchasing processes, and is therefore difficult to monitor. A good example is invoices without a PO (purchase order). Any invoice for which no PO is known falls, by definition, under maverick buying. Fortunately, there are certain measures that help identify maverick buying.

First, you can use data analysis identify anomalies in payment traffic and unauthorized purchases. Pay attention to regular purchases from unauthorized suppliers, or anomalous purchase volumes. It is also advisable to run regular purchase reports prepared on a regular basis; those reports will allow you to keep track of any unusual purchases and purchases not made according to purchasing procedures.

Supplier Management

In addition to data analysis and procurement reports, also supplier management is an important measure to curb maverick buying. Supplier management refers to carefully managing existing supplier relationships. This includes looking at which suppliers are authorized so that employees know exactly which suppliers they can make purchases from.

In addition, having regular audits is an important way to check procurement procedures and identify maverick buying as quickly as possible. Do not underestimate the value of external auditors in this regard; a fresh perspective can lead to many new insights. Convenient solutions allow you to retrieve an overview of invoices without a PO in an instant, allowing you to see exactly what kind of invoices are involved. At the same time, you can calculate how much spend is "under management," how much unmanaged spend there is, and then what kind of products are involved.

• Read more about supplier management

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What does ICreative do

We are purchase-to-pay partner for organizations, institutions and governments. We feel particularly at home in large and complex administrations, such as the use of multiple ERP systems.

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