Overview: Solving the Maverick Spend Mystery

How do I identify it and why is it happening?

Spending that involves products and services bought off-contract is referred to as “maverick” or “rogue” spend. Because maverick spending occurs outside of the preferred procurement process, it’s invisible. Your goal is to find it and quantify it so that steps can be taken to bring it under control and convert it to savings. The most common reasons for maverick spending are:
(1) urgency: end users don’t think they can get what they need, when they need it, unless they go around the purchasing system, or (2) ignorance: the end user is unaware that there is a preferred supplier or a preferred way to buy what they need, or (3) other: the spender willfully ignores policies and procedures for any number of reasons.

Off-Contract Equals Lost Savings

Maverick spenders probably don’t realize that every dollar spent off-contract represents a loss for the company -- even if they believe the items were purchased at a lower unit price. Generally, vendors offer discounts, rebates, and other favorable terms to achieve preferred status. Buying from non-preferred vendors forfeits budgeted savings and impacts procurement’s performance. Identifying the source of maverick spending can have a wide range of benefits, including--

  • increasing the amount of spend under contract
  • improving contract compliance
  • analyzing supplier performance
  • identifying weaknesses in the procurement process
  • Solving the Mystery

    Why does it happen?

    Users may have special requirements that are perfectly legitimate but cannot be accommodated by the procurement process. Often these weaknesses are easily fixed once they have been identified. Once the “why” is understood, steps can be taken to remove obstacles that encourage system bypass and enhance system processes to make it easier to handle exceptions.

    Gather detailed data from as many sources as possible including:
    1. Accounts Payable System for Vendor, G/L, cost center, PO number, line item description, invoice ID, date paid, date received, payment type, line item description
    2. Purchase Order for Vendor ID, Vendor name, A/P account number, PO number, price x quantity (line item total), line item description amount due, status
    3. pCard for Vendor ID, Vendor name, MCC (merchant category code), line item description
    4. Vendor Invoices for Invoice ID, transaction date, status, customer name, customer ID, shipping method, currency ID, date of delivery, total amount
    5. Requisitions for Purchaser ID, price x quantity (line item total), requisition total
    6. Contracts for date range, vendor name, commodity, contract ID

    Where are the savings opportunities?

    Maverick spending can occur anywhere, but there are certain categories that are more prone than others. You may want to start with those categories first. Then have a look at how much in each category is spending with non-preferred suppliers.

    A simplified example:

    Sort G/L accounts top-down by spend.
    G/L Code Account Name Amount
    68412 travel 198,587
    65234 office supplies 68,299
    66456 repairs and maintenance 76,886

    Travel looks high. Check for off-contract spending.
    Display Vendors, top-down by spend, filtering by "GL=travel" and "preferred vendor=No"

    Vendor Amount Contract/Preferred
    British Air 100,220 No
    Frontier 50,013 No
    AA 25,478 No
    United 22,876 No

    British Air spend is highest. Let's find out who's flying them.
    Create a crosstab of vendor by cost center, filtering further by British Air:
    Ops Mktg CEO
    British Air 2,205 8,456 89,559

    Create a more detailed crosstab to get an idea of spend over time (filtered similarly):
    Ops Mktg CEO
    Jan Feb Mar Apr Jan Feb Mar Apr Jan Feb Mar Apr
    British Air 2,205 3,562 2,188 2,706 2,674 25,821 12,503 38,561

    Insight: As of February, the CEO's office has been spending large amounts with a non-preferred airline. Turns out this is because the company is opening offices in parts of the world that aren't served by a preferred airline. Negotiating a contract now with an airline that does service these areas could result in substantial savings.