Reining In Maverick Buyers

Computerworld - They weren't bad guys. The 18% of Kennametal Inc.'s employees who ordered PCs or paper clips locally, outside the purchasing office's control, thought they were doing the right thing. But these so-called maverick buyers were big spenders -- too big.
"They weren't doing anything wrong but simply what they felt was the best way to source," says Jim Cebula, director of global purchasing and travel at the $1.8 billion Latrobe, Pa.-based tool maker, which has 50 manufacturing plants and 13,000 employees worldwide.
Intentions aside, the mavericks needed reining in because they weren't getting the volume discounts and efficiencies that come from consolidating spending with preferred suppliers under negotiated contracts. Kennametal didn't know how much it was spending, or on what, or with whom.
So the company began streamlining purchasing operations, bringing in "spend management" tools and services from Ketera Technologies Inc. in Santa Clara, Calif. "The spend [analysis] allowed us to understand where we hadn't concentrated our spend in a given category ... and who wasn't buying on contract," Cebula says.
Through gentle encouragement, Cebula now has 80% of employees buying off the nationwide office-supplies contract. And he can analyze purchases by category. For example, he could break out computer purchases and separate laptops from servers.
Kennametal experienced a 150% return on investment from its spend management effort in the first year, although Cebula acknowledges that will be hard to repeat. And instead of chasing lost invoices or maverick buyers, the company's purchasing staffers can now handle more value-added work, such as negotiating better prices or finding new suppliers.
In far too many companies, the traditional purchasing department handles only 20% to 25% of spending, with the rest handled by other departments, says Tahseen Ali, CEO of Verian Technologies Inc., a spend management software vendor in Charlotte, N.C. And the data about spending tends to be stored in various departmental silos, instead of being aggregated and properly managed.
The analytic portion of spend management software pulls expenditure data from financial and ERP systems and sorts it by category. (While it's possible to extract such financial data from existing systems manually, that's a lengthy, costly and error-prone process.) With this aggregated data, companies can reduce the number of suppliers and payment methods, identify off-contract spending and generally consolidate contracts on a corporate (and sometimes global) level.
Gaining Visibility
"Companies buy spend management or spend analytics to get visibility into what they're spending. The next step is to improve that process," says Michael Dominy, an analyst at The Yankee Group in Boston.