3 ways rogue spending erodes cost management

September 9, 2015 Tradeshift Editorial Team

Whether you call it “maverick” or “rogue” spending–or something unrepeatable–one of the biggest procurement headaches is an employee who simply won’t play by the rules. It’s not that they’re intentionally out to make life difficult for the procurement team, but they may not understand just how much their cavalier attitude towards suppliers, POs, and contract negotiations hurts the bottom line.

According to The Hackett Group, the most common instigations of maverick spend are: Lack of timeliness in the approval process, lack of understanding about when to use an eProcurement solution, a cumbersome process and lack of support. All of these tipping points lead to rogue spend, which causes three crucial problems for procurement professionals:

Problem # 1: Maverick spenders miss out on your negotiating experience

Everyone likes to think they’re a little smoother than they are. Procurement professionals see this every day. No matter how tough-nosed or in the loop a buyer thinks they are, if they don’t have the high-level visibility and experience of the procurement department, they won’t get the best deal.

Employees who buy on their own and go around procurement are a major issue. For example, if a Boeing factory in Seattle is running low on an engine part, the plant manager will go through Boeing procurement to get restocked. But what if the same plant is running out of pens, coffee, and notebooks? That manager might take his corporate card and swing by the store on the way in to work the next morning. Seems harmless enough, but he’s just gone rogue. Now what if every manager at this large multinational behaved this way? All these tiny pinpricks in the procurement dam add up and can’t be plugged. That’s how massive amounts of spend ends up being rogue.

Problem #2: Maverick spenders eat away your margins

If buyers go around procurement because they don’t want to wait or follow procedure, it steadily erodes the overall savings procurement is providing–not to mention the goodwill of the boardroom. This means one of the core metrics procurement is judged on is in the control of people who may not value it as highly.

Considering the majority of companies are nowhere near having all their spend under management, it’s not unrealistic to think that 20% or more of total spend is going towards purchases that could have been cheaper. This can add up to millions of dollars per year in larger companies.

Problem #3: Maverick spenders make your reporting harder and less accurate

If a large portion of spend is coming out of the wrong account or being put on a company card to be reconciled later, procurement’s ability to report on their results becomes much more time consuming. The fact data needs to be pulled from many different sources means something is more likely to be missed. It’s also a drain on revenue for procurement employees to devote hours toiling away on spreadsheets that could be spent more productively elsewhere.

These problems all relate back to frustration with current procurement tools and processes. These shortcomings aren’t procurement professionals’ fault, but they’re the ones they’re forced to deal with them as they work to improve their cost management KPIs. The times are changing though. Tradeshift is coming to procurement and envisioning a solution that puts everyone on the same side. We want procurement to be happy and employees to be able to do their jobs.

In the course of our research, we spoke to procurement experts and invited them to vent their frustrations. Check out what they had to say about rogue spending:

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About the Author

Tradeshift connects buyers, suppliers, and all their processes in one global network. We help you transform the way you work with suppliers today – and adapt to whatever the future brings.

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