Are Your Purchasing and Budgeting Systems Encouraging Rogue Spend?
Rogue spend is often a sign that there are bigger issues in purchasing and budgeting that aren’t being addressed.
Let me outline a couple of recent stories that were shared with me to illustrate some underlying issues.
A company was opening a new facility. Unfortunately, the bathrooms were not ready for the opening and were not expected to be ready for several months.
There was no budget for this type of expense in the construction contract.
The manager of the facility did have money in his maintenance budget.
He approached their landscape contractor and asked if they could rent the portable toilets on their behalf. The contractor was told to bill them through as part of their maintenance services including their normal markup.
In the end, this expense doesn’t show up as a budget overrun on the construction. The facility maintenance budget is okay even if they were paying more than needed because of the contractor’s markup.
I suspect that there are other budget overruns on the construction project and the manager didn’t want another one added to the list.
I wonder how many other purchases have skirted the system in this company.
It was easy to bury the expense.
What would prevent the facility manager from having his personal residence maintained by the same landscape contractor?
Another company with multiple locations has grown dramatically.
Purchasing is simply overwhelmed.
They struggle to keep up with the demands that go along with opening new locations and fulfilling requests from existing ones.
The tool they are using has come under fire by their facility managers and suppliers because it is so complicated to use.
The purchasing manager estimates that each of his staff is spending 8 to 12 hours a week helping suppliers use the tool.
Other suppliers now decline to bid because it takes so long to submit.
To avoid the headache and delays of working through procurement with this complicated tool most of their facility managers have gone back to the old way.
They call three suppliers and ask for a best bid. Others award the business to favored suppliers without a purchase order.
Other “reasons” for rogue spend that have been shared with me include:
- Lingering quality issues
- Increases in late shipments and deliveries
- Service delays in large cities or remote locations
- Unexpected shortages in key products
These issues can have a much bigger impact on the bottom line than the examples I shared.
The procurement teams I have worked with that are the most successful enable stakeholders and business owners to meet their goals.
These companies have discarded complicated tools in favor of efficiency even if this requires spending money for a tool that will bolt on to their ERP system.
They have created internal portals that facilitate purchasing within the system.
It didn’t happen instantly but within 6 months the gains and return on investment were obvious.
Ask better questions, make changes and 2020 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life
Mike Jeffries