Blog October 30th, 2023 Effective Reduction of Maverick Buying - 4 Solutions with Procurement Analytics

Rubina Hatziparassidis

In today's competitive business world, companies face constantly growing challenges, especially in the field of procurement. One of these challenges is so-called Maverick Buying – a problem that often goes unnoticed but can have significant impacts on the financial stability and efficiency of a company. Maverick Buying occurs when procurement transactions bypass the procurement department, are included too late, or existing contracts are not used. This can lead to uncontrollably rising costs and significant problems within the company. Below, we will delve into Maverick Buying in medium-sized enterprises and how Procurement Analytics can help reduce this problem.

What is Maverick Buying?

Maverick Buying, also known as "unauthorized procurement," refers to the act of buying goods and services outside of a company's established procurement policies and procedures. This often happens without approval from procurement managers or department heads and can lead to fragmentation of the procurement processes. Expenses are not centralized, resulting in increased costs, inefficient procurement workflows, and a lack of transparency.An important factor is also the lack of understanding of departmental operations about the procurement processes. In many cases, there is a lack of trained personnel with deep expertise, particularly regarding concepts like Total Cost of Ownership or C-parts management. Even with noble intentions, this can lead to uncontrollably rising costs and other problems. In order to strengthen the trust and understanding of departments in procurement, it is therefore crucial that departments are better informed by procurement.

Challenges so far

Unauthorized buying lead to companies having no full control over their expenses. It can be difficult to identify unwanted and unauthorized spending, making budgeting and cost control much more difficult. Furthermore, buying from unauthorized suppliers can lead to quality and reliability issues, as they may not meet the company's standards.

It is important to understand that there are several forms of Maverick Buying that need to be differentiated:

1. Procurement processes bypass the procurement department:

In this case, individual employees, often from other departments such as production or sales, independently procure goods or services. The procurement department is completely bypassed.

2. The procurement department is involved too late:

In this case, the procurement department is involved, but often at a late stage in the procurement process. The consequence is that contract conditions can no longer be negotiated optimally and the procurement department acts only on operational level.

3. Existing contracts are not used:

Departments fall back on existing suppliers, but do not use the pre-negotiated conditions. This almost always leads to higher costs.

EXAMPLE: To illustrate the losses caused by Maverick Buying, here is a simple example of a larger assembly (the specified procurement volume is purely fictional and chosen for this example):

_What happened here?

Both procurement and a department placed orders for the same high-quality product. While procurement accesses a together selected supplier, the department ordered from a different supplier and an unauthorized procurement transacted, about which the procurement department is not informed in most cases. Here, the unit costs are €125 thus €25 more than with an authorized Buy over the procurement department. For an order of 20,000 pieces, this amounts to €2,500,000. So, there is 20% more Procurement volume. If the department had ordered directly through the procurement department, €500,000 would have been saved (20,000 pieces x €25 = €500,000)._

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The Solution through Procurement Analytics

The power of Procurement Analytics lies in its ability to provide multiple solution paths to the challenges of Maverick Buying. Here are four key areas to reduce Maverick Buying and enhance the efficiency of your procurement processes:

Transparency and Data Access:

The Essentials module of SCALUE allows transparent capturing and categorization of procurement data. This provides companies with a clear overview of their procurement volume and helps identify deviations from procurement policies early. Transparency allows for precise monitoring of the entire procurement process and rapid identification of potential Maverick Buying incidents.

Supplier Analysis and Improvement Potential:

Analyzing supplier performance enables the identification of improvement opportunities. Using SCALUE Advanced your procurement management can evaluate suppliers in a data-driven manner and optimize collaboration to avoid maverick buying. By identifying and addressing weaknesses in supplier relationships, procurement compliance can be improved.

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Optimization of Procurement Strategies:

Through transparent insights into past price developments and acquired supplier data, your procurement team can best evaluate departments that may not adhere to internal ordering guidelines and engage in discussions with them. The use of procurement analytics enables you to provide data-based arguments for compliance with procurement guidelines and thus minimize Maverick Buying.

Cost control and impact on total cost:

Unauthorized spend can be identified and costs reduced by analyzing procurement data. Since all procurement related data from your ERP system(s) are considered in a single-point-of-truth approach, your procurement department gains the best possible overview of all spend. This way, efficient procurement paths can be found and overall costs can be reduced.

SCALUE Excellence offers automated process analysis for the entire purchase-to-pay process. Your procurement department can identify bottlenecks and weaknesses, prevent Maverick Buying, and optimize procurement processes. The intelligent visualization of internal processes enables the early detection and correction of process deviations, strengthening compliance with procurement policies.

Conclusion

Maverick Buying can present significant financial and operational challenges for medium-sized companies. Procurement Analytics provides a solid solution to address this issue. By analyzing transparent procurement data, companies can identify unauthorized purchases, better adhere to procurement policies, and overall optimize their procurement processes. Implementing Procurement Analytics is a crucial step in reducing Maverick Buying and developing more successful long-term procurement strategies.

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