Maverick Spending is Your Friend: Don’t Chase It, Ride It Pierre Mitchell - May 29, 2013 6:12 AM | Categories: Commentary | Tags: Best Practices, Incendiary Tidbits, L1, Spend Management I have always considered myself a bit of a maverick (even though the term was sullied by Sarah Palin). I mean, the main character in “Top Gun” was Lt. Pete Mitchell, and as such, friends and colleagues at some of my previous employers have given me this nickname. I don’t mind. I think we need mavericks. Mavericks are good. Mavericks shake up the system, and they point out where the system needs change and improvement. This could not be more apt than in procurement. The conventional procurement wisdom is that maverick spending is bad and that we need to shut down the mavericks. I don't buy it. I actually think that maverick spending is good. What?! Yes: it’s good. Why, you ask? Maverick spending is a gold mine for understanding failures in the procurement system (with a big “S”). It’s absolutely a critical KPI: in order to reduce it, you have to not only define it (which can be more complicated than you think), but also identify all of the root causes that impact it. Those causes cannot be just ascribed to malfeasance and renegade requisitioners. Rather, they can lead to a better understanding of procurement processes that have failed in terms of stakeholder management, sourcing, P2P, etc. These root causes are kaizens, and wonderful opportunities to pursue. But let’s talk about the definition of maverick spending before we get into the root causes. Maverick spending is usually defined as off-contract spending. Some firms define it in a similar vein as spending with non-preferred suppliers. But the devil is in the details. Here are a few questions to ask: Is using any preferred supplier OK, or must the right supplier for the right spend category be used? If so, at what level on a multi-level category tree should this be established? What happens when a category doesn't fall neatly into one node on a taxonomy? For IT outsourcing, is it IT, or is it outsourcing? If both (or either), how do I model it? Is maverick spending binary? If I have a few preferred suppliers in a spend category, or even multiple contracts from one supplier, and the requisitioner is using a less favorable contract, is it maverick? How about if the preferred vendor doesn’t meet the needs of the requisitioner, but an approved supplier is available? Is it completely maverick? Not maverick? Somewhat maverick? How about if there’s a formal approval workflow (e.g., non-preferred travel partners)? Is the approved non-preferred selection maverick? Should compliance be determined at the item level? If I determine that, should I use Grainger for safety goggles and have negotiated a 20% standard discount, will I allow someone to get a NASCAR branded pair with that same discount if the budget owner doesn’t mind (e.g., as an employee perk)? This is a philosophical issue and will vary by company. So is there only one ‘right’ approach? Should I include the transactional compliance in my reporting? If use a p-card to buy the same item from the same supplier on-premise, but it was on a catalog that should have been settled via ACH, is that part of the maverick spending calculation? If I have multiple contracts because I split sourced the market basket wisely to optimize the spend, do I now have to define the compliance rules based on geography, business unit, role, user, dollar amount, custom category attributes, etc.? If so, my contract compliance reporting has suddenly become very complex. Just the definition of contract compliance forces a discussion regarding trade-offs of user choice/satisfaction, efficiency (including monitoring/tracking), controls, savings capture, etc. It also highlights the detail of data you’ll need to capture if you are going to do maverick spending reporting and realized savings reporting. Plus it’ll force the issue of how well contracts are modeling these compliance requirements and also how you are tracking costs (cost models, cost drivers, cost pools, etc.) and their impacts on budgets. Contracts are becoming increasingly sophisticated, and contract compliance reporting and realized savings reporting is just not keeping pace. I’ve yet to find a single company that can do maverick spending at a level of detail that explicitly deals with all the complexities that I just listed. Such reporting is not simple OLAP off of simple spend cubes. There is a programmatic aspect to deal with all the rules. Also, I have not even included a broader picture of spend compliance that factors in regulatory compliance, transactional compliance, supplier compliance, internal SLA compliance, etc. – nor how contract compliance performance relates to other sets of metrics such as stakeholder satisfaction, process efficiency, etc. We will deal with these issues in the second part of this series on Spend Matters PRO. If you are a practitioner or a provider working with the practitioner that has supported this level of complexity, please contact me privately to show me what you have done. I will offer a free month of Spend Matters PRO access to anyone who can manage these nuances, and hopefully done before the maverick spend actually occurs. In the next edition of this series, we will dive into all of the root causes that affect maverick spending that themselves are not compliance issues but, rather, broader procurement and spend management issues that should be addressed (i.e., did we properly engage stakeholders on requirements, did we apply collaborative sourcing techniques? Did we design an effective P2P process? Did we make it easy to do the right thing?). We’ll find that the so-called mavericks are in fact prospectors that will lead us to gold. Voices (5) freddy: 10.10.2015 at 11:53 pm Hi, I am a from Argentina and I take the idea of using maverick spending to learn. Like the oriental philosophy of understanding what part of the process encouraged the buyer to be a maverick instead of taking him down straight away. In my opinion, maverick spending is good or bad depending on what half of the glass of water you see. The one about a failed process or an opportunity to improve it. Reply Pierre Mitchell: 29.05.2013 at 5:15 pm Mozart, all these questions were basically scenarios and issues posed to me over the years from practitioners who were wrestling with how exactly to measure maverick spending in a world where internal contract compliance is defined by more than just preferred vendor x in category y. So, no, I’m not inventing them. I know that A&D and healthcare are not exactly pinnacles of best practice, and perhaps the Flash Gordon reference is carbon dating you to 1954, but your really should get out more and open your mind. I have worked in supply chain for 25 years and hundreds of procurement organizations. You? All I’m doing is posing the same questions about what defines contract compliance so that if the compliance rules are getting more complex and you want to measure it, you should have a way to do so AND recognize that maverick spending is not just do to your invented perception of employee malfeasance, but rather a failure of the system that you helped create in the first place. If you can’t even recognize the problem, nor take any accountability yourself for it, nor even allow an open discussion on the topic, then I can only feel sorry for you. Mozart, it’s not personal, but it may be time to play a Requiem for your outdated thinking. If you want to contact me directly, or be more specific in your critique, that’d be helpful. Reply Mozart: 29.05.2013 at 3:02 pm This is a stellar example of nonsense that is invading all segments of supply chain. The writer is inventing scenarios, and arguments that have no bearing in reality. In my over 20 years of experience in all facets of supply chain in environments ranging from GE Aviation and Honeywell Aerospace and multibillion dollar healthcare entities to small (less than 100 employees0 manufacturing companies I have yet to encounter an environment which invites accountability with such pointless, unnecessary and wasteful arguments forcing expense of precious time, resources and energy. Anyone risking such reckless pursuit in Jack Welch’s or Larry Bossidy’s world of management would be out the door in a Flash Gordon moment. Reply Stan Berteloot: 29.05.2013 at 6:54 am Interesting article indeed. I believe that maverick spending is often caused by lack of goods or inadequate tools. Either you don’t find what you want among what’s on offer or your tool don’t let you find it. This is too often the case in business travel sourcing. Some companies including mine, KDS have come up with a tool that lets employees buy where they want. KDS Flex T&E just track all the spend for CSR and financial purposes. Reply Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email.