Maverick Spend Versus Agreed Procurement Deals

  In many organizations umbrella agreements (or group deals) are deployed for key commodities. Examples such as stationery/office products are all too common, although these sorts of deals can cover virtually all types of products or services.


The process for group deals is straightforward, the contract is centrally negotiated, often at preferential prices/rates (based on total group spend) https://www.sourcing-force.com/. Staff can then utilize the deal, typically by quoting an agreement number - meaning that everyone within the company can take advantage of the contract.


These sorts of deals can be established for all sorts of commodities and products and can be very effective at leveraging spend in a dispersed organization with de-centralized procurement function.


While this sounds simple enough in practice you'd be surprised as to how many organizations find themselves with group deals in place that are not fully utilized.


Group deals are often struck by leveraging the spend of the overall company with a single (or small number of suppliers) and then rationalizing (exiting) other suppliers within the commodity group. Catalogues, price lists or online portals are then provided to the buying community facilitating the transactional element of the process.


Emotive purchasing


While these sorts of commodity agreements are all well and good - where deals are centrally struck and then promulgated throughout the organization the already existing supplier relationships and activity is overturned - it's often all too common for localized procurement to ignore the central deal and continue to use the existing supply chain - common arguments are


a) I can get that cheaper from my old supplier

b) The quality isn't as good as my old supplier

c) The service isn't as good as my old supplier


Missing the point?


Central group deals will typically endeavour to get the best deal - overall. This may mean that certain prices for certain parts may not be as keen as others in the market (meaning some business units might lose out) but overall the deal is in the best interests of the buying company. Quality and service are important and when promoting group deals - communication should state clearly where to go if problems occur (the communications should also make it clear who administers the contract from the perspective of the buying organization)


Maverick Spend


Maverick spend refers to expenditure on a given commodity outside of the central deal. For example we have a procurement deal established for the provision of IT equipment - this deal is established with ABC Company. Any spend, for this commodity, made with another supplier should be considered maverick spend.


Maverick spend should be monitored in order that corrective action can be established. Its important to get to the bottom of why the maverick spend is occurring - it could be because they don't know the deal is in place so it's important to not jump to the wrong conclusions to begin with!


Getting adequate,and timely, data to monitor maverick spend can be problematic - for organizations without a dedicated spend management system this data is often best obtained from the bought ledger function providing a breakdown of expenditure by supplier - these suppliers can then be grouped by product type providing the data required. This type of data can be convoluted to capture and maintain (especially true of disparate organizations) so it's best to plan how this part of the process will be carried out.


Summary


Centrally negotiated supplier agreements, leveraging group spend, can deliver real cost savings and associated benefits. However simply putting them in place is not usually enough - constant monitoring of company spend and managing maverick spend is equally important if the procurement team are to realize the full potential.


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