Controlling costs and optimizing spending is the bedrock of business profitability, and an overlooked facet of this mission often lurks within the depths of ‘maverick spend’. It’s a term that refers to uncontrolled, unmanaged purchasing within an organization – often side-stepping procurement protocols and negotiated contracts. This can lead to increased costs, lack of visibility, and potential non-compliance risks.
While it may seem like a daunting beast to tame, with strategic planning and the right techniques, maverick spend can be effectively managed and substantially reduced. In this blog, we will dive into the nitty-gritty of maverick spend and provide insightful tips on how to rein it in, making your enterprise more fiscally efficient and operationally robust.
What exactly is Maverick Spend?
Maverick spend, or rogue spend refers to purchases made outside of established procurement policies. It can occur due to multiple reasons, such as when an employee purchases items from a non-approved supplier or exceeds their purchasing authority without prior approval.
Companies often focus on strategic spending but overlook tail spend – the smaller, one-off purchases that collectively make up a large portion of overall spending. This oversight can lead to big losses. According to the Hackett Group, businesses could lose up to 16% due to uncontrolled tail spend.
Different companies have different reasons for maverick spending, but one thing is clear: its impact is significant and can be harmful. Why is it so important to deal with? What problems does unchecked maverick spending cause, and how can technology, specifically AI, help control it?
Before we dive into the role of AI in taming maverick spend, let us first understand why it is so common among businesses.
Why is Maverick Spending So Common?
Simply understanding what a maverick spend is not enough. Businesses must be able to identify the hidden causes behind this phenomenon so as to develop adequate measures. Some of the reasons behind maverick spending in businesses are:
- Lack of awareness: Often, people may not be familiar with the company’s buying rules. This is common with new employees or in companies that are spread out. It shows that there’s a need for regular training to make everyone aware of the purchasing protocols.
- Inadequate technological investment: Ironically, many organizations fail to control maverick spending due to inadequacies or complexities in their existing technologies. Majority of businesses often lack the necessary tools to reduce maverick spend. On the other hand, others grapple with complex tools that often lead to non-compliance. A call to simplify and optimize sourcing processes is therefore a critical part of the equation.
- Poor internal communication: In many organizations, specifically the large ones, different parts of the company don’t communicate well with each other. This happens generally due to the siloed nature of their business structure. With departments operating in silos, they end up handling their own sourcing requirements and negotiate contracts separately. Such decentralized approaches result in businesses missing out on potential volume benefits via consolidated purchases. In this aspect, investing in a sourcing automation tool that provides a centralized platform for communication becomes important. Businesses can ensure greater collaboration among stakeholders, ensure all parties are informed and aligned and eliminate chances of bypassing established protocols.
- Time constraints: Under pressure, it is possible that employees may not completely adhere to the company’s purchasing policies. They could be in a hurry to purchase an item and decide to skip a few steps in the official process. It’s crucial to streamline and simplify procurement procedures, ensuring that even urgent purchases are made in compliance with procurement policies.
The role of business leaders in this scenario becomes crucial. They need to encourage a proactive approach in managing maverick spending, advocating for investment in robust technologies like AI. Additionally, companies need to cultivate a culture of compliance and financial responsibility within organizations.
Unmasking Maverick Spending: Understanding its Business Impact
Maverick spending is more than a financial nuisance. It can derail transparency in the purchasing process, undermine contract adherence, and even invite legal complications. We will now explore the many problems due to maverick spending.
- Eroding cost efficiency: Companies usually have a list of approved suppliers who offer goods at special rates. When employees buy items from other places, they often end up paying more. This can eat into the company’s profit margins.
- Fragmenting purchasing power: Maverick spending tends to dilute purchasing power. When purchases are scattered across different suppliers instead of just a few approved ones, a company loses its ability to negotiate better prices.
- Breaking contract adherence:Maverick spending can mean not sticking to the rules set out in contracts with suppliers. Existing contracts often have specific terms and conditions with regards to quantities, delivery timelines and minimum business volume. Maverick spending can violate these terms, often resulting in contract termination or legal action.
- Obscuring spend visibility: Maverick spending can make it difficult to keep track of where the company’s money is going. Purchases from unapproved vendors often go unrecorded in spend data, resulting in a fragmented and incomplete spending picture. This makes it harder to find ways to save money and negotiate better deals with suppliers.
- Inefficient procurement process: Each transaction, no matter how big or small, requires time and resources to process. Higher the maverick spending, higher the number of transactions, leading to increased workload for procurement and finance teams. Additionally, when transactions made outside agreed norms are greater in number, the auditing time becomes more time-consuming and complicated.
It’s clear that controlling maverick spending is not just a financial requirement, but a strategic necessity. To effectively address this issue, businesses must understand the reasons behind maverick spending and its subsequent effects. Using technology like AI and teaching employees about procurement rules can make a big difference.
Streamlining Purchases: The Key to Financial Success
Today’s competitive market makes good financial management a must, not just a bonus. Businesses need robust purchasing practices, now more than ever, to avoid losses and increase profits.
Tackling maverick spending means spotting the problem and using the right tools to fix it. One powerful new tool is sourcing automation. In the following section, we dive deep into how sourcing automation can help businesses save money and become more efficient and profitable.
The Power of Sourcing Automation: A Strategic Vision for the Future
In today’s fast-paced business world, tools like sourcing automation are game changers. They help companies automate non-value added activities and see clearly where their money is going and make buying more efficient. AI-powered platforms like Aerchain are leading this change.
But AI sourcing platforms do more than just control maverick spending.
Let’s look at how sourcing automation & optimization enables enterprises to create smarter, more efficient buying strategies.
Embracing PR-PO automation
PR-PO automation streamlines the entire sourcing process, from PR creation to PO generation. Businesses can eliminate human intervention for non-strategic requirements, saving time and effort. Users can create PRs in seconds by sharing their requirements through AI-enabled chatbots. Sourcing automation platforms like Aerchain analyzes buyer requirements based on buying processes and historical transactions. The system then processes the requirements through the most appropriate channels (Rate contracts, Purchase orders, RFQ verticals like category), depending on business needs.
Additionally, businesses can harness the power of AI negotiation capabilities in sourcing automation platforms to identify cost saving opportunities and make data-driven decisions. The AI algorithms monitor pricing trends, market dynamics and supplier capabilities to negotiate better deals for tail spend purchases at all times.
AI-guided buying: The new norm
AI has revolutionized various business functions, and procurement is no exception. AI-guided buying reduces the cost and time associated with purchasing, thereby increasing efficiency. By simplifying routine procurement tasks, like tail-spend purchases, AI-platforms enable businesses to save time at every step.
Through AI-guided buying, organizations can also receive tailored recommendations based on criteria such as quality, price, and delivery timelines. In this manner, procurement officials can ensure that purchases always stay within the set budgets and compliance guidelines.
Catalog buying: A blueprint for efficient sourcing
Buying from a catalog can save businesses a lot of hassle and money. It shows a list of items you can buy, their prices, who sells them, and when they’ll arrive. When you only buy from this list, you can keep costs down, stop maverick spending, and make buying more efficient.
Studies show that catalogs can really help control spending. They can cut the cost of transactions by a big 30-40%. Aerchain takes it a step further, letting you choose from many different sellers. You can find what you need quickly and easily, using detailed search options.
Setting the boundaries: Spending limits
Setting spending limits in a company can help control off-policy buying. Businesses can adjust these limits for different people and departments, so everyone only buys what they really need. With Aerchain’s AI, businesses can set approvals and budget limits for purchases. In this way, they can ensure that no purchase crosses the budget threshold.
The Final Word: Embracing Change to Overcome Maverick Spending
Unchecked maverick spending can lead to big problems like overspending, less accountability, and even legal issues. But, it is not an impossible problem to solve. With AI tools like Aerchain, businesses can manage their spending better and improve their bottom line.
Sourcing automation unlocks a more streamlined and consistent buying process. It does the heavy lifting by automating tasks like creating RFQs, selecting suppliers, and making purchase orders. This allows procurement teams to focus on strategic initiatives and long-term business goals.
AI sourcing automation is an undeniable necessity to combat maverick spend in today’s competitive landscape. Businesses can strengthen their financial health, avoid surprise expenses, and make their finance operations run more smoothly.
