What is rogue spend?
Before talking about rogue spend, it’s important to first understand tail spend.
Tail spend is the name given to the 80% of transactions that make up 20% of an organization’s spending. Depending on the size of the organization, there can be thousands of purchases in the tail, and organizations can often find millions of dollars of savings once they begin to examine it all.
Within tail spend, there are five subsegments, according to Spend Matters:
1. One-off, one-time “spot” buys
2. Off-contract maverick or rogue spend
3. Commercial cards
4. Expense reimbursement
5. No-PO invoices and “after-the-fact” POs
While all of these subsegments are important, it’s critical to understand what rogue spend is because it is often an organization’s most overlooked problem within the tail and, therefore, one that needs the most oversight to find critical savings for organizations.
In this post, we’ll define what rogue spend is, show real-world examples of ways to identify it, and then discuss three key steps to effectively manage it to yield time and monetary savings, as well as mitigate risk.
What is rogue spend?
When an organization has a procedure in place for buying goods and services, but an employee buys them outside of those parameters, whether intentionally or not, that purchase is called a rogue spend. It is also known as “maverick spend.”
How to identify rogue spend
The following two examples are easy ways to spot rogue spend, though it is not limited to these.
Example 1. ABC Org has a new contract with a local office supply company from which ABC will buy all its paper. ABC employee Sandra buys 10 reams of paper from a chain store instead of the local company because she can get the paper immediately instead of having to wait until tomorrow – even though she doesn’t need it until next month. She’s aware of the contract and that it will cost more to buy it from the chain store, but she disregards the procedure because she never liked it in the first place.
Example 2. ABC Org employee Charles picks up the phone to call a plumber with whom he has a friendly relationship, but who doesn’t provide reliable service, is more expensive and may or may not have insurance. ABC has a contract with another plumber that provides excellent service, has a better fee and whose insurance has been verified. Charles, though, doesn’t know about ABC’s contract and is just trying to get the work done.
These examples reveal two flaws in the organization’s system. 1) ABC has no oversight or consequences in place for Sandra’s intentional disregard for its protocols, so she will continue with her flagrant maverick spending; and 2) ABC has not communicated its process for how vendors are onboarded, so Charles will continue to call his friend for work, unaware that his employer would rather use someone else.
Organizations should care deeply about wrapping their arms around solving the rogue spend problem because it’s costing them time and money and putting them at risk. By identifying root causes of rogue spend like these, organizations can begin to find a solution to managing it.
Tips for effectively managing rogue spend
Though transactions in the tail are low-dollar compared to an organization’s more expensive purchases, such as a hospital’s new MRI machine, they quickly add up to one big thing if not managed properly: money down the drain.
Here are three tips to get started on managing rogue spend.
1. Manage your tail spend. To effectively manage rogue spend, you need to tackle your overall tail spend. As noted at the beginning, rogue spend is just one subsegment of the tail, and tail spend should be examined and addressed as a whole.
2. Communicate expectations, enforce consequences. Charles doesn’t know what he doesn’t know. Reevaluate how you communicate procedures, because employees should never wonder how something should be done. Then, make sure employees like Sandra know there are consequences for not following the rules.
3. Seek professional help. A university is in the business of educating people. A hospital is in the business of healing people. A managed service provider like Versatex is in the business of managing tail spend. Addressing rogue spend and tail spend can save an organization millions of dollars. Some organizations consider investing in software to help, but here are three reasons why software alone won’t cut it.
Rogue spend is simply one problem in an even bigger problem of organizations’ unmanaged tail spend, and it can be solved under the right conditions and with the right help.
The team at Versatex is comprised of veterans in the supply chain and procure-to-pay industries who know how to successfully manage tail and rogue spend, historically saving organizations between 9-14% annually. Curious about what Versatex can do? Click here.