Understanding the Equation: Reduced Maverick Spend + Increased Diverse Spend = Increased Savings

Understanding the Equation: Reduced Maverick Spend + Increased Diverse Spend = Increased Savings

Controlling maverick spend – which we will define in a moment – is challenging for finance professionals and, especially, for a growing organization. For companies struggling with this problem, know that you are not alone – there are plenty of other businesses that have come to realize maverick spend leads to cost savings leakage and prevents sourcing teams to fully realize the cost savings associated with a negotiated contract.

Not only that, but if employees are purchasing from unauthorized vendors, it could lead to additional risk, to say nothing of the additional work for purchasing and Accounts Payable AP teams maverick spend could lead to.

What is Maverick Spend

Also known as “rogue spend,” maverick spend is defined as the external vendor spend action that doesn’t follow cast-in-stone purchasing policies. Here’s what we mean by that: Let’s say a sourcing team did a great job of negotiating a 35-percent-off office supplies contract with its office supplies vendor and that contract had some discounts baked in based on the volume of the purchase. Now, instead of buying from the selected vendor, employees purchase office supplies from a different vendor and, generally, at a higher price.

Since these employees are not purchasing from preferred vendors, it generally leads to less volume with the preferred vendor – and hence less cost-savings.

From our professional experience, the five main reasons for maverick spend are:

  • De-centralized purchasing
  • Lack of strong purchasing controls
  • Lack of product standardization
  • High indirect spend
  • Type of business

Understanding Diverse Spend

The other piece of this equation we started the article with, “diverse spend,” is the amount of money companies spend with diverse-owned business enterprises (Minority, Women, Veteran, Disabled, LGBT, Small Business Enterprises). To help promote diversity and inclusion, many businesses today maintain yearly supplier diversity programs by identifying and doing business with a range of diverse organizations.

So how does this fit into the aforementioned diverse spend equation?

Companies that are leaders in diverse supplier spend are significantly more efficient in every category of electronic purchasing and invoicing. In addition to more electronic transactions, they also experience faster invoice approvals, faster order processing, more preapproved spend and significantly higher annual retention rate (20-percent higher, on average).

With higher rates of preapproved spend come more employees buying from contracted vendors, getting negotiated savings and complying with internal controls and policies — which all helps avoid unnecessary spend, reduce risk and fraud and provide visibility into how a business is spending against its budget.

In addition to cash savings, greater rates of electronic transactions speak to how much farther along these companies are in their digital transformation, which, in turn, helps save paper and reduce carbon footprint.

Where We Come In

As you may have guessed by now, there are a number of benefits to controlling maverick spend. For iQuantum’s part in this equation, our procurement trifecta helps gain better control on maverick and other spend approaches – while increasing overall savings.

Our approach enables companies to:

  • Normalize, categorize and consolidate spend data in one single location
  • List approved vendors for different categories with accurate data normalization per business needs
  • Accurately analyze all spends by category and understand if vendors are preferred or not
  • Incorporate and track complete vetting and compliance processes while identifying non-vetted and/or non-approved vendors
  • See a complete spend report with breakdown of the maverick and non-maverick spend by category
  • Much more

Some Parting Thoughts

iQuantum’s SRM solution provides complete performance and sustainability/compliance scores, enabling buyers to reduce maverick spend by selecting approved vendors for required goods and services – all with better performance and suitability/compliance scores to help make better buying decisions.

To learn more about how to reduce tail spend and our approach to maverick spend savings, visit our website at iquantum.ai.

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