Rogue spend is the bane of many procurement departments, sometimes accounting for up to 80% of all of a company’s invoices. But it doesn’t have to be that way. Unmanaged tail spend—also known as “maverick spend”—is the result of employees deliberately ignoring procurement processes or the misalignment of procurement policies with the everyday practices of purchasers within the organization. Either way there is a solution to expensive and risky rogue spend. By implementing a purchasing system that automates the procure-to-pay process (P2P), organizations can reduce rogue spend while also making purchasing more efficient and cost-effective.
P2P automation—how does it work?
Procure-to-pay systems help organizations improve their overall supply chain and cost management by providing oversight and visibility throughout the transaction life-cycle, providing comprehensive insight into both cash-flow and financial responsibilities. Most of the organizations that use these systems centralize their procurement departments or set up shared services that everyone in the company can use to conduct their procurement.
With a P2P system, everyone in the organization—from the end user to accounts payable—have responsibilities for a part of the procurement process, from purchasing items to handling invoices to monitoring and budgeting spend. The systems they use for every step in the process are integrated—sharing data and improving efficiencies that effectively eradicate rogue spend.
At every step of the way automation helps move procurement along, eliminating the likelihood of unmanaged spend by streamlining the sourcing process and helping the organization’s buyers do more with less effort.
Entire sourcing events can be automated from vendor identification to inviting bids, to scoring the responses. For instance, once a buyer creates a requisition in a P2P system, vendors will be recommended automatically. Once invited vendors submit quotes, those quotes can also be processed and evaluated automatically. Then, once the buyer awards the bid, the vendors can be notified automatically as well. Every step that is automated, frees buyers from needing to concentrate time and effort on manual tasks.
Benefits of procurement automation
How does procurement automation reduce rogue spend? It’s really about two things: visibility and ease of purchasing.
Visibility comes from the data generated from a digitized and automated procurement process. When every step of a purchase—from RFP to awarding bids—is automated, the data generated helps procurement professionals not only track activity through the process, but also aggregate the data to find improvements for the company as a whole.
Automating laborious, repetitive tasks helps streamline the steps required to make a purchase. When the whole procurement process is streamlined, purchasing becomes so much easier for everyone. In such a smooth-running P2P system with fine-tuned automation it’s less likely that mavericks will feel the need to go “off book” to find and purchase the items they need.
The greater visibility breeds increased integrity not only for every transaction, but also the system as a whole. Analyzing the procurement data from an automated P2P system can help organizations negotiate better deals with their suppliers and tighten the grip on spending their rogue spending.
The benefits of automation are significant.
One of the reasons why rogue spend is so costly is because it is inefficient. Potentially dozens—or thousands in a large company—of purchasers in an organization might be buying the same item from many different vendors, at wildly different prices and terms. But if all those orders were bundled under one supplier or consolidated into one order, then the cost-savings can be meaningful.
One study found that organizations which use digital procurement tools decrease annual expenditure by around 5% to 10%.
[Read more: Automation: The bots are coming to help you]
Getting started with procurement automation
If you were already thinking about automating your procurement process—and there’s plenty of reasons why you should—managing tail spend is a good place to start. But the first thing to do has nothing to do with technology. Automating procurement requires a behavior change in your company's employees and buyers.
Rogue spend, remember, happens when buyers within your organization don’t know the correct procedures. So, the first step is to help them understand the risks and costs of maverick spend, and provide them with the reasons for following your organization’s procurement policies.
Once they understand the ‘why,’ give them the ‘how’: Train them to use your P2P process and software.
Yet it’s important to understand that not every procurement process is a good candidate for automation. Those that are more complex, require multiple layers of decision-making and evaluation, and are strategically important to your organization, are best handled by members of your procurement team. But sourcing events that are low in complexity, and are high in standardization and volume are perfect candidates for automation.
Rope in your rogues and mavericks with the power of automation. For more advice on reducing unmanaged tail spend, check out Fairmarkit’s blog, The Source.
