Maverick spending blind spot revealed

18 July 2001
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19 July 2001 | Robin Parker

Poor communication between purchasing managers and other employees is the main cause of high levels of non-compliant spending on indirect goods, according to new research.

Over 90 per cent of purchasing managers surveyed by procurement outsourcing specialist Tomorrow First agreed that off-contract spending was a problem. Categories worst affected included travel and maintenance, repairs and operations.

Despite this, a third of those questioned for its report, The Corporate Squanderer: Maverick Spending in the E-procurement Age, published yesterday, said they did not communicate preferred supplier lists to staff.

Only 26 per cent of purchasing heads thought employees placed orders directly with external suppliers, but managers and administrators from the same companies told a different story: 74 per cent said they did.

About two-thirds of employees who knew their company had a preferred supplier list could not name suppliers for routine items. And nearly a fifth contradicted their head of purchasing about a list's existence.

Although 40 per cent of purchasing heads put the blame on middle managers for maverick spending, half admitted they were reactive to employees' indirect purchasing needs.

Equally worryingly, half could not estimate how much maverick spending cost their company every year. Of the remainder, none could be certain what the cost was. Estimates ranged from £20,000 to £250 million, with the average at £22 million, or 10-15 per cent of annual spend.

This lack of clarity needs to be addressed, said Alf Noto, chief operating officer of Tomorrow First. "Heads of purchasing seriously underestimate the challenge of maverick spending. They need to ensure that all potential spenders understand the preferred suppliers and the best deals," he told SM.

The report argued that e-procurement systems make non-compliant spending more visible through detailed management information. A third of purchasing managers in early-adopter companies questioned said compliance had improved after introducing a system.

But, in many, e-procurement was being used for three categories at most, added Noto. "Heads of purchasing will need to broaden its use," he said.

Research group Dynamic Markets carried out the survey, based on interviews with heads of purchasing, administrative and secretarial staff and managers at 50 companies with an annual turnover of over £200 million, between April and June.

* Further details about the report can be found at www.tomorrowfirst.com

SMjul2001

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