Understanding Unmanaged Spend

Unmanaged spend, also known as rogue spend or maverick spend, refers to organizational expenditures that occur outside of established procurement processes. This type of spending poses significant risks to an organization's financial health and operational efficiency.It can manifest in various forms:Rogue or Maverick Spend: This occurs when employees deliberately bypass procurement processes or when there is a misalignment between procurement policies and everyday purchasing practices.Indirect Spend: Purchases of goods and services that are incidental to a company's primary offerings, such as office supplies or janitorial services. This category can easily become unmanaged if not carefully monitored.It presents several risks to organizations:Financial Impact: Companies are leaving significant cost savings on the table by neglecting to address unmanaged spend. Studies show that organizations can achieve 10-15% savings across tail spend when adopting best practices.Competitive Disadvantage: Failing to address unmanaged spend while competitors do so can put a business at a significant disadvantage.Cultural Issues: Ignoring unmanaged spend can foster a culture of mediocrity or even institutional dishonesty, potentially hindering growth opportunities and creating an uninspiring work environment.Operational Risks: Unmanaged spend can lead to purchases that have not been properly vetted, potentially exposing the organization to compliance issues.

The Scale of Unmanaged Spend

The impact of this kind of spend on organizations is substantial. As much as 20% of an organization's overall spend can be unmanaged. For a company with an annual spend of $3 billion, this could mean $600 million in uncontrolled and unregulated expenditures.Benefits of Managing Spend. Addressing unmanaged spend can yield significant benefits:Cost Savings: Companies can achieve immediate savings of 10-15% when addressing unmanaged spend for the first time, with an additional 2-5% savings each year thereafter14.Improved Efficiency: By reigning in unmanaged spend, companies can optimize resources and increase productivity.Risk Reduction: Proper spend management reduces price risks, time risks, and operational risks associated with uncontrolled purchasing.

Strategies to Combat Unmanaged Spend

To effectively address unmanaged spend, organizations can implement the following strategies:

  • Increase Visibility: Establish a clear view of all organizational spending through data cleansing and normalization.
  • Risk Stratification: Identify which areas of spend to prioritize based on potential cost savings and value addition.
  • Consider Industry Dynamics: Factor in industry-specific considerations when defining and addressing unmanaged spend.
  • Implement Automation: Introduce automated sourcing platforms connected to P2P or ERP systems to streamline the procurement process.
  • Formalize Purchasing Processes: Establish clear guidelines and expectations for different spending categories.
  • Improve Data Management: Centralize data gathering to break down silos between departments.
  • Utilize Purchasing Cards: Implement purchasing cards to automatically track transaction details and streamline the ordering process.

By implementing these strategies, organizations can bring more spend under management, leading to significant cost savings, stronger supplier relationships, and reduced financial risks.

The Levelpath Difference

At Levelpath, we don’t just provide a software solution; we provide a customer commitment in the form of a partnership. Our success team is dedicated to empowering procurement with the knowledge, tools and support they need to stay curious and continually drive procurement transformation. From initial workspace setup to advanced customization and beyond, the Levelpath community is there every step of the way.To learn more about how Levelpath can help your organization move faster, uncover risks earlier, and keep people focused on the more strategic work, request a demo today.