The economic ravages of COVID-19 are still being assessed, but it’s fair to say that its impact on businesses of all sizes has been significant. From disrupted supply chains to unforeseen spikes and contractions in demand for goods and services, one-half of all procurement organizations have been forced to redirect their efforts from cost reduction to supply chain adjustments.
It’s uncertain whether the worst financial fallout is behind us, so organizations are doubling down to minimize rogue spending and promote profitability. Many businesses will continue forecasting cash flow shortages in the near future, so eliminating unnecessary expenditures is paramount to survival.
What is Rogue Spending?
Rogue spending, aka maverick spending, is the unpredictable spending of resources that happens when employees go outside of preferred supplier relationships or otherwise ignore established procurement and audit protocols. Rogue spending is one of the biggest drains on a company’s bottom line, so directors and managers must improve workflows and train employees to play inside procurement rules. Below, we’ve identified tools and tactics for an effective spend management strategy to help procurement teams gain control over their employee spending.
Why Rogue Spending Happens
Rogue spending by employees is rarely deliberate or ill-intended. Here are three reasons why it happens:
- Employees do not understand the procurement process — workflows are intimidating for employees who don’t use them regularly.
- Employees find the procurement process too time-consuming.
- Employees find better prices outside the approved vendor list, not understanding the internal costs of expense reimbursement and invoice and payment processing.
Best Practices for Spend Management
The good news is there are many ways procurement departments can control rogue spending. Let’s look at just a few:
- Identify maverick spending. You can’t manage what you can’t measure — procurement managers and CFOs need visibility into spend activity. A thorough spend analysis is the first step in an effective spend management strategy.
- Limit employees’ use of credit cards. Restrict P-card usage to specific vendors, merchant categories, and dollar amounts. While the original goal of P-cards was efficiency and a lighter workload for procurement teams, P-card use is hard to manage and measure — which is why many companies are doing away with them altogether.
- Set rules on who can set up new vendors. Establish a well-defined process for onboarding new suppliers. Whether selected for a one-off project or ongoing inventory fulfillment, all stakeholders should be thoroughly vetted and approved before any purchases are made to them.
- Use technology to simplify the procurement process. A 2019 report revealed that organizations who implemented a new eProcurement system that integrated with their enterprise resource planning (ERP) systems reported:
- 52% improved visibility into spend data across the organization
- 50% improved spend control and security
- 23% less rogue spending
Visibility is the keystone of an effective spend management strategy. An automated eProcurement system that integrates with your ERP system will provide transparency into employee spend data for procurement departments and CFOs. One of the most effective e-Procurement systems is found in procure-to-pay software because it comes equipped with PunchOut catalogs and workflows for approving department spending and vendors.
Benefits of PunchOut Catalogs
PunchOut catalogs offer an integrated connection to your procure-to-pay system and ERP, all while limiting employee purchases to pre-approved goods and services. Because of their design, PunchOut catalogs, aka PunchOut websites, enable “self-service” purchasing for employees, all within a single platform.
PunchOut catalog software improves the speed and efficiency of company purchasing and helps control employee spend through visibility, spend management processes, tight vendor approval controls, centralized purchasing, and more. This:
- eliminates redundancy and manual processes
- improves inventory control
- avoids invoice delays
- prevents duplicate payments
- leverages consolidated spending to reduce prices and purchasing costs
- controls inventory
In addition, employees can access a user-friendly platform, which allows them to see product availability, vendor discounts, and shipping costs all in real-time. This broad view, especially when offered within a modern interface, encourages high employee adoption rates and cost savings.
Automation and Workflows with PunchOut Catalogs
Automation delivers real-time data to organizations, reducing processing costs by up to 85 percent. Furthermore, it provides effective data aggregation, which enables procurement organizations to:
- Stop maverick purchase orders (POs) at their source, eliminating off-contract purchases and unused services
- Conduct a thorough spend analysis across the organization
- Ensure that departments are buying approved products at pre-negotiated rates from approved vendors
- Improve process efficiencies
It’s hard to assign precise costs to process inefficiencies, but automation does enable significant savings that go straight to an organization’s bottom line. Efficiencies include reducing costs for PO handling, invoice capture, and invoice handling. Other efficiencies include reducing Accounts Payable (AP) and procurement administrative support needs and audit costs.
To accomplish your goals, choose procure-to-pay software solutions with the following features:
- PunchOut catalogs
- Built-in monitoring tools
- Robust routing rules for approvals
- Data analytics and reporting
- Spreadsheet exporting
- A single, comprehensive dashboard
Built-in monitoring tools control costs and reduce tedious tasks and paperwork for procurement teams. Meanwhile, robust routing rules let you add in any corporate approval requirement you can imagine and build a steal-proof, efficient approval process. Deep data analytics also provide real-time insights—allowing your procurement teams to view your KPIs and metrics in one single dashboard and manage and optimize any business area.
The COVID-19 pandemic pushed procurement leaders to the brink, requiring them to shift priorities from saving money to protecting financial viability, resolving disrupted supply chain management, and finding new and better ways of working. Controlling employee spend is just one component of that tall order for procurement, but it can have a lasting impact on a company’s bottom line. By leveraging technology like procure-to-pay software, procurement departments can meet new challenges and solve legacy procurement issues.
Ready to reduce employee spend through automation? Make PunchOut catalogs an integral part of your ERP. Get a demo.