If the terms Maverick, Rogue, and Tail are far too common in your discussions about company spend, you’re not alone.
Managing company spend should be more than a procurement priority; it should be a whole company priority. To manage it correctly, the procurement and finance teams need to be properly enabled to analyze, understand, and educate the business.
How Does the Money Get Away?
In general, unmanaged spend is any expenditure by corporate decision makers outside of the procurement guidelines and infrastructure. The risk tolerance for this kind of spend should be carefully considered, especially if a company’s guidelines and infrastructure have been proven to work over time.
Procurement guidelines and infrastructure are built for the large purchases that are more high profile and vital to the company. Unmanaged spend usually slips through the cracks with small purchases. Smaller purchases are given more leeway, and some employees may even be able to make decisions on little things with complete autonomy. The problem is that these “little things” add up over time, and if the employee, division, or department has become used to moving money without reporting, the aggregated unmanaged spend becomes significant.
The Reasons for Unmanaged Spend
It’s important to note that while unmanaged spend can sometimes mean corruption or purposeful obfuscation, most often, it’s just the result of bad habits. Here are some of the most common reasons for unmanaged spend:
- Employees believe their individual spending is unimportant to overall company spend.
- The process for recording small transactions is annoying or not present at all.
- Decision makers are focused only on large purchases, not on smaller ones.
- The company believes that its unmanaged spend remains the same over time and lacks data to show otherwise.
- Procurement professionals are not enabled and equipped to manage spend across department lines, regardless of scale.
- The contracts for the company are not updated and centralized, creating duplicate orders or overlapping orders.
- Vendors are not updated continuously to be best-in-class.
From Unmanaged to[ward] Managed
You may never have holistic visibility on unmanaged spend. However, the longer the trend goes unchecked, the bigger it will become. Most companies successfully start the transition from unmanaged to managed from the bottom up.
Organizing high volume/low value transactions is essential to creating more visibility in spend and eventually moving into an automated system. There are many technologies to help automate this process, most notably the “P card” (procurement/purchase card). However, this is still a separate system which needs to be somehow integrated into your primary system in order to deliver a holistic view on spend.
Another layer of control can be achieved through putting all low value purchases in an e-catalog. If the company sees that the purchase of a particular item is becoming more frequent, the company should identify a preferred supplier and add that item to the catalog.
Additionally, the company should also create a central hub for contracts. This puts all of the vendors under the watchful eye of the new system. Once contracts are centralized, overlapping orders can be flagged.
From the Bottom to the Top, and Back Again
Whatever you choose to do, centralization and consolidation should be two key themes in any attempt to wrangle unmanaged spend across the organization. Unmanaged spend is an aggregated issue and the company needs to be able to analyze it at that aggregated level in order to properly address it.
Once an organization understands that, it quickly becomes apparent that everyone at every level must buy in. Unmanaged spend exists horizontally across the organization, so to aggregate and address it, a horizontal approach that touches all functions within the organization is needed.
Unfortunately, this is where most companies stall out. They face difficulty in building cross-functional support to address an issue that some don’t see or don’t full appreciate.
Every company will have a different journey from this point; however, when the focus goes beyond the classic “command and control” and delivers ease-of-use, a better overall process, and a smoother end-user experience, then cross functional buy-in becomes much easier. Now, getting unmanaged spend under control becomes a celebrated “Digital Transformation”.
With Capriza ApproveSimple, users get a consolidated worklist of all their approvals from the business’s existing applications, and the business gets an aggregated view of their approvals control environment. This modern SaaS approach to corporate decision making equips the corporate back-office with dashboards and analytical tools to monitor and assess the efficacy of their decision-making controls, across all their existing applications, while also putting the decision points directly in users’ pockets or at their desk. Users get consumer-grade ease-of-use and the organization gets enterprise-grade security. If you’re interested in taking the next step to manage spend, contact Capriza.