Despite having formal procurement or sourcing processes, some organizations have employees who engage in maverick purchasing—bypassing standard, accepted procedures to procure items individually. Maverick purchasing often occurs because an employee views the established procurement process as too complicated or a waste of time. According to APQC’s Open Standards Benchmarking in procurement for organizations with at least $500 million in annual revenue, bottom-performing organizations have maverick purchasing equal to 2.5 percent or more of their total purchases. This may not seem like a large amount, but for an organization with $1 billion in annual purchases, 2.5 percent represents $25 million, which is a significant amount.
To determine how maverick purchasing can affect an organization’s sourcing and procurement function, APQC looked at its Open Standards Benchmarking data from two groups with at least $500 million in revenue: those with less than 1 percent of their purchases obtained via maverick purchasing and those with 2 percent or more of their purchases procured via maverick purchasing. The results of the analysis indicate that order placement time and overall procurement cost all improve with less maverick spending.
Impact on Cycle Time
APQC’s research reveals that, despite the common belief that maverick buying enables employees to obtain materials faster, this purchasing method may result in slower order processing overall. So while one employee may find that going rogue benefits themselves, it can cause problems for all employees. At the median, organizations with higher levels of maverick purchasing need 16 hours more to issue a purchase order to a vendor.
In looking at why this happens, APQC finds that organizations with less maverick purchasing are also more likely to use vendors that have been vetted and approved. This typically means that procurement staff members have developed a relationship with the vendor and established processes to quickly issue purchase orders to that vendor. The use of approved vendors also means that organizations have already determined the reliability of those vendors, which can lead to faster and more complete deliveries.
Impact on Procurement Cost
In addition to slower cycle time, organizations with more maverick purchasing spend more on the procurement process overall. At the median, there is a $2.58 difference in the cost of procurement per $1,000 in purchases between organizations with 2 percent or more of their purchases made via maverick buying and organizations with less than 1 percent. For an organization with $1 billion in purchases annually, this represents a difference of more than $2.5 million dollars in the cost of procurement.
The lower procurement cost incurred by organizations with less maverick buying is likely related to the fact that these companies need fewer full-time equivalent employees (FTEs) in procurement. It makes sense that if more employees follow the process or if the process is driven by a system that requires compliance, then procurement professionals are spending less time chasing down rogue or maverick purchases that do not comply with the documented or accepted processes.
Take a Comprehensive Approach
APQC has found that, contrary to what some employees may believe, maverick purchasing does not necessarily result in faster or cheaper purchasing. And while it might benefit one employee in the short-term, it can be detrimental to the organization overall in the longer-term. Organizations should take a comprehensive approach to formalizing procurement processes and reducing maverick buying. They should adopt procurement methods that make it more difficult for employees to order products or services without following established channels. Electronic purchase order approval can be built into systems to ensure that appropriate vendors are used and that purchases are obtained at a reasonable price. Employee training and better communication within the organization regarding the importance of adhering to procurement processes can also reduce the incidence of maverick purchasing.
At the same time, organizations must consider what's driving employees to circumvent the established process to get what they need. It may be a lack of adequate employee training on procurement procedures or the processes may be overly-complex and not user-friendly. Organizations must consider all factors that can lead to increased maverick purchasing and take steps to address these factors so that procurement can continue to provide value to the enterprise beyond the bottom line.
For more data and details on this topic, check out the related article in APQC's Resource Library Maverick Purchasing Means Slower, More Costly Purchases. You may also want to read additional procurement-related content in our collections on Next-Generation Supplier Relationship Management and Procurement Talent Management and Skills for Future Success.