Setting Procurement Policies to Control Spend

Setting Procurement Policies to Control Spend

  • Post published:July 20, 2022
  • Post category:eProcurement
  • Reading time:5 mins read

“I know we have a process for purchasing items, but I already found someone selling it at a cheaper rate. Doesn’t this help the company save money?”

Many employees may not understand the issue with the statement above, but procurement and finance teams know: maverick spend is an issue for many companies.

Maverick (or Rogue) spending comes from expenses that do not follow the company’s procurement policies. With maverick spend, it eats into budgets and cuts away profits, leaving your organisation exposed to operational risk. This also often ends up costing the company more in intangible costs, along with audit woes and broken vendor relationships.

Rogue deals, even small ones, quickly add up. So, if you want to reduce operational risks and drive up profits, providing procurement policies to help control spending is a good way to start.

Here are 7 ways to control spending within your company –

1. Analyse Your Spend

Start by identifying the purchases that are happening outside of your defined processes. Break down your spending to see how much was spent in rogue deals (including costs associated with additional man hours needed to reconcile and pay vendors), and who were the main drivers of these purchases.

Compare these costs to what it would have cost if stakeholders had followed the process so you have a detailed analysis of why maverick spend is hurting the company.

2. Provide Clear Procurement Policies

Put together a clear expense policy document to help employees understand and work within the guidelines for spending. Procurement policies could cover details related to strategic sourcing, contracts, reimbursement or even day-to-day items like office supplies.

A well-defined spending guide allows finance and procurement teams to manage overall spending, while giving clarity to the team on what are the boundaries of these policies. This helps set the process and team up for success to hitting your spend goals.

3. Create A Process for Special Purchases

At the same time, we would almost always have to account for a few cases where the process could not be adhered to e.g. in cases where there are no existing suppliers in the approved list who could fulfill the order, or it is an urgent purchase where the existing supplier is unable to fulfill the order.

To avoid uncontrolled maverick spending, providing a process which details protocol for staff members to follow in such instances gives them proper guidelines on how to purchase without going rogue.

4. Provide Training

Maverick spend also comes from employees circumventing current procurement policies because they find it cumbersome and not user-friendly, or they are unaware of the additional costs involved with what they are doing.

In such cases, procurement and finance teams could educate and train teams on their procurement policies, sharing benefits of the process and why reducing maverick spend is a responsibility shared by everyone in the organisation. To drive buy-in on your procurement processes, help them understand that:

  • Following procurement policies allows everyone in the company to work more efficiently
  • No matter how small the purchase, maverick spend hurts the organisation financially

5. Hold People Accountable

After processes and training are put in place to educate and guide employees, they must also take responsibility for their purchases.

Everyone in the company should be conscientious of following procurement policies when spending company money, and managers should know when and where purchases for their departments are being made. And in cases of special purchases, both end users and managers should also know the protocol so procurement and finance would still be able to efficiently process these purchases.

6. Close Procurement Gaps

Sometimes, maverick spend could be the cause of procurement challenges and frustrations faced by employees. If employees are finding it difficult to purchase necessary items needed for their work, they may justify their out-of-process purchase because it helps them become more efficient in their work. 

By digging deeper into their experiences and the pain points they face, procurement and finance teams can better understand why maverick spending is happening within the organisation, and refine procurement policies that work to reduce maverick spend and improve procurement efficiency.

7. Consider Adopting eProcurement Software

If you are currently doing things manually, consider implementing an eProcurement System to ensure procurement policies are adhered to, and at the same time drive procurement efficiency and reduce maverick spending.

eProcurement Systems ensures all users in the organisation follow processes and workflows defined by procurement and finance teams, providing a clear overview and corporate governance for the organisation.

Budgets and Contracts can also be managed and shared through the system so employees know to use pre-negotiated price lists, and managers can track budget spend in real time.

Conclusion

In conclusion, reducing maverick spend is a responsibility that is borne by everyone in the company. Procurement and finance teams can help to manage this by providing clear, well-defined processes and training employees to understand the importance of reducing maverick spend so they would not feel the need to seek alternatives.

In addition, adopting an eProcurement system like TenderBoard digitalises and automates workflows that helps to disseminate information throughout the company, and ensures corporate governance at every step of the way.

What are you doing in your organization to control maverick spending?