Maverick spending occurs when you purchase goods or services outside of approved procurement channels. These purchases may originate from non-contracted suppliers or be made without proper approvals. You will face higher costs and lose control over spending when this occurs.
Maverick spending issues are common in many organizations, especially when procurement policies are weak or employees find easier but non-compliant methods to make purchases. Maverick spending disrupts cost control, creates compliance risks, and reduces data visibility.
You need to address this problem early, as uncontrolled spending often escalates over time. By ignoring it, you face higher expenses, supplier confusion, and gaps in reporting.
Understanding the causes, risks, and solutions enables you to take effective action. With the right policies, tools, and training, companies can effectively manage maverick spending and enhance procurement efficiency.
Causes of Maverick Spend
Several factors contribute to maverick spending, and most are linked to weak policies or inadequate oversight.
- Unclear Procurement Policies: When rules are vague, employees often choose their own suppliers, failing to adhere to company guidelines.
- Poor Supplier Management: If supplier lists are outdated or not well communicated, employees may contact non-approved vendors.
- Employee Non-Compliance: Some workers ignore procedures because they believe following them takes more time.
- Inefficient Systems: Companies that rely on manual processes or outdated software often fail to monitor spending effectively.
Organizations with complex structures are at greater risk. For example, a multinational company may have employees located in various regions. If procurement rules are not standardized, employees may select local suppliers outside contracts.
Maverick spending also occurs when procurement teams fail to communicate the benefits of approved supplier contracts. Employees may think there is no harm in small, unapproved purchases. Over time, these small purchases can lead to significant cost overruns.
Risks and Impact on Businesses
Maverick spending creates both financial and non-financial risks. It disrupts control, inflates expenses, and hides spending data, leaving businesses exposed to compliance risks and supplier challenges.
The following are risks and the impact of maverick spending:
Increased Costs
When you buy from suppliers that the company has not approved, you often pay more than needed. You miss out on special discounts, bulk deals, and contract rates already set with trusted vendors. This extra spending accumulates over time, resulting in the company paying more than planned and reducing the savings from negotiated agreements.
Compliance Issues
Buying outside approved channels puts the company at risk of breaking its own rules, tax laws, or industry regulations. These actions can bring penalties, audits, or legal cases that waste both time and money. Compliance failures also harm the company’s reputation, making it more difficult to win contracts, retain licenses, or establish trust with regulators and partners.
Supplier Relationship Damage
Bypassing approved suppliers damages long-term business relationships. Trusted suppliers may lose confidence when employees fail to adhere to agreed-upon contracts. Over time, this weakens the partnership and can lead to suppliers refusing to offer better terms, faster service, or exclusive deals. Once trust is broken, suppliers may treat the company as less critical, leading to higher costs or limited support.
Loss of Data Visibility
Unrecorded purchases stop managers from seeing a clear picture of company spending. Without proper tracking, leaders cannot build accurate budgets or predict future costs. This lack of visibility also prevents procurement teams from identifying savings, enhancing vendor performance, or mitigating risks. Hidden spending makes it harder for the company to control costs and plan effectively.
Example: A company has a contract with a supplier for office supplies. An employee instead buys from a local shop. This not only incurs additional costs but also prevents the procurement team from accurately tracking actual spending.
Over time, these risks reduce efficiency and trust within the organization. They also prevent businesses from achieving long-term savings.
Examples of Maverick Spending
The following are a few examples of maverick spending:
- An employee orders laptops from a local shop instead of the approved supplier.
- A team buys marketing services from a non-contracted vendor because it is faster.
- Staff members use personal credit cards to purchase travel tickets, bypassing company travel policies.
In each case, the company loses control over its spending, risks incurring higher costs, and faces problems with data tracking. These examples show how small actions can create significant challenges for procurement teams.
How to Identify Maverick Spending
Identifying maverick spending involves reviewing financial data, monitoring supplier lists, and verifying that invoices align with approved purchases for enhanced visibility and control.
By following the methods below, you can find maverick spending for your business:
Spend Analysis
You must carefully review all spending records to ensure that employees purchase only from approved suppliers. By analyzing financial data, managers can spot unusual purchases that break contract terms. This process helps control costs, ensures compliance, and prevents wasteful spending that harms business goals.
Purchase Order Monitoring
You should track purchase orders closely and compare them with the approved supplier list. This check ensures that employees do not purchase from unapproved vendors. Monitoring purchase orders also enhances compliance, mitigates risks, and ensures spending remains within company policies and budget guidelines.
Invoice Tracking
You must match every invoice with the corresponding purchase order and supplier agreement. This practice helps confirm that all purchases are authorized. Tracking invoices in this manner protects against fraud, prevents errors, and provides managers with clear visibility into spending, enabling them to make informed decisions.
Strategies to Control Maverick Spending
You can control maverick spending with a mix of policies, training, and technology.
- Implement Clear Procurement Policies: Define clear guidelines for purchasing to ensure transparency and accountability. Communicate them across departments so employees know exactly how to order goods and services.
- Train Employees: Employees must understand the benefits of using approved suppliers, including cost savings and reduced risk. Training builds awareness and improves compliance.
- Utilize eProcurement Software: Digital procurement tools streamline the purchasing process, making it easier and faster. They reduce manual errors and automatically guide employees to approved suppliers.
- Strengthen Supplier Relationships: Collaborate closely with suppliers to offer more favorable terms, discounts, and enhanced service levels. Employees are more likely to use approved suppliers if they see value.
- Monitor and Enforce Compliance: Regular audits and real-time dashboards help track spending behavior. Companies must act promptly when unauthorized spending is detected.
- Provide Incentives for Compliance: Recognize departments that follow procurement rules. Positive reinforcement can motivate teams to stay aligned with company policies and values.
By combining these strategies, you can reduce waste, increase efficiency, and build long-term cost savings.
Benefits of Reducing Maverick Spending
When companies control maverick spending, they gain many benefits:
- Cost Savings: Reducing maverick spending helps companies save money. Employees buy through approved suppliers and use negotiated contracts, which secure better pricing and discounts.
- Stronger Compliance: Controlling maverick spending ensures employees follow company policies, tax laws, and industry rules. This reduces the risk of fines, penalties, and legal trouble.
- Better Supplier Relationships: When businesses adhere to approved suppliers, they foster trust and establish long-term, mutually beneficial partnerships. This results in better deals, faster support, and more reliable service.
- Improved Data Visibility: Tracking all purchases through approved channels provides precise spending data. Managers can forecast budgets, plan strategies, and make smarter financial decisions.
- Higher Efficiency: Standardized buying processes reduce delays and confusion. Employees spend less time managing off-contract purchases and focus more on productive, strategic work.
FAQs
1. What is maverick spending in procurement?
Maverick spending refers to employees purchasing goods or services outside of approved procurement channels, which often results in higher costs and compliance issues.
2. Why is maverick spending harmful?
It harms businesses by increasing costs, violating compliance rules, reducing data visibility, and weakening critical supplier relationships that are essential for long-term success.
3. How can companies identify maverick spending?
They can identify it using spend analysis, monitoring purchase orders, and matching invoices with supplier contracts through e-procurement tools and automated dashboards.
4. What causes maverick spending in organizations?
Common causes include unclear procurement rules, weak supplier management, employee non-compliance, and manual systems that fail to track spending correctly or efficiently.
5. How can businesses prevent maverick spending?
They prevent it by training employees, creating clear procurement policies, utilizing eProcurement tools, monitoring compliance, and consistently building strong supplier relationships.
Summary
Maverick spending may seem insignificant at first, but it can create serious risks over time. This leads to higher costs, compliance issues, and strained supplier relationships.
Companies that take action can prevent these issues. With clear policies, training, and digital procurement systems, organizations reduce unauthorized purchases and improve control.
Controlling maverick spending is not just about saving money; it’s also about maintaining control over expenses. It also improves efficiency and builds stronger supplier partnerships. Every company that wants growth should focus on reducing this hidden cost.
Further Reading:
I am Mohammad Fahad Usmani, B.E. PMP, PMI-RMP. I have been blogging on project management topics since 2011. To date, thousands of professionals have passed the PMP exam using my resources.
