Rogue Purchasing Can Hurt More Than Your NOI
9 MIN. READ
Facilities managers are tasked with increasing NOI, reducing expenses and improving efficiencies across their portfolios. Most look to grow revenue and find new sources of income to support their NOI initiatives. Often overlooked is incorporating an eProcurement system to ensure a complete and thorough review of the procurement process as well as identifying practices that adversely affect NOI.
One such practice is rogue spending, which can have detrimental effects on NOI and other aspects of your business. Discover how to prevent these practices and how your bottom line will benefit by implementing an eProcurement system.
What is rogue spending?
Rogue spending, sometimes called maverick spending, is a common practice when employees purchase supplies outside of the standard procurement policies in your company. Employees fall into bad habits and purchase from common and familiar sources (e.g., Amazon to get routine MRO supplies such as batteries, tools and cleaning solutions for their facilities).
The lack of visibility into these employee practices compounds rogue spending. When there is no oversight, these problems will fester, grow and ultimately negatively impact budgets and NOI. By using Raiven's (formerly Qmerit's) comprehensive yet simple procure to pay system, you can eliminate maverick spending and get the best pricing for your business.
Motivations behind rogue spend
Rogue spend will run rampant if not checked, with these three reasons being the primary motivators:
When there is an absence of an eProcurement system, employees will take the familiar path of least resistance. From the convenience of their computer, they can make quick purchases online and get the supplies they need with relative ease. They often do not realize that they are wasting money and potentially violating company policy.
Personal employee-supplier relationships
Sometimes employees will favor suppliers that they have used at previous jobs and have developed good relationships with. This is a common scenario seen across many companies.
Employees often promote and recommend suppliers that they have used previously, and in some cases, they may even be family members or close friends. This can present a conflict of interest scenario and may be unethical.
When employees support suppliers and vendors with which they have a personal relationship, this can result in a potential financial windfall for the employee. They may gain personal favor and incentives when ordering from these suppliers.
It is imperative for facilities managers to gain control of rogue spend motivations and implement Raiven's eProcurement system as soon as possible. While most employees do not have ill intentions, even their innocent mistakes can result in wasteful spending, policy violations and potentially unethical behavior. The vast majority of employees want to do the right thing - they just need guidance and proper systems to follow. Give that to them.
Consequences of rogue spending
When rogue purchases occur, there are several unknowns. Did the employee get the best per-unit pricing? Was the rogue purchase price better than your supplier price? Was shipping included?
Employees may think that the case of gloves they purchased from Amazon or Target online was a good deal, but if they bought the same gloves from your approved supplier, the price per unit would most likely be lower.
These little one-off rogue purchases will add up. If allowed to continue month over month, your budget and NOI will take significant hits - do not let it happen. This can ruin budgets and is deceptive since most of these purchases are small dollar amounts and do not typically appear on the radar of busy facilities managers.
Not having visibility into your purchasing program can lead to overspending, un-approved purchases and other bad behavior. The value of visibility into your processes cannot be understated and should be evaluated.
Establish guidelines, identify and mandate the use of selected and approved suppliers, and dedicate an individual or small team to conduct all purchasing for the company. That way, accountability will be easier to manage and address.
Stop allowing rogue purchases to enable bad behavior
If rogue purchases continue, be prepared for bad habits to take hold, all of which can be costly. Here are a few common sneaky habits to be aware of:
Do you get the feeling at times that supplies are disappearing faster than normal? You just ordered 12 cases of hand sanitizer and Clorox wipes, and now they are mysteriously gone. Maybe your employees are using them more frequently due to the pandemic, or maybe employees are skimming some of these items for their personal use.
It is never easy to confront the idea of employee misbehavior. You want to believe that all of your employees are honest and conduct themselves with integrity, but sometimes this is not the case. Human nature can be hard to tame.
Someone may think, "It is just a few bottles of sanitizer and a couple of packs of batteries. No big deal. No one will notice." Imagine just three employees with this attitude skimming throughout the year - it will add up. But who has time to police the office floor and watch for skimmers with searing eyes?
Credit card points and cashback
Many companies incentivize patronage with credit card points and cashback offers. This creates a precarious situation for unscrupulous employees.
They may feel that there is no harm personally benefiting from the routine purchases that they make for your company. They discover creative ways to link their personal accounts to the purchases they make for the company and reap the benefits. They accumulate cashback offers, sky miles and points, which can be extremely profitable for them.
This obviously is not fair and is unethical. Unfortunately, it occurs frequently and can be difficult to curtail if you are not paying close attention or if you do not have a procure to pay program instituted.
This is a common practice that takes place in almost all companies. It used to be normal, acceptable behavior.
Essentially, it is a way that suppliers and vendors pay back companies for their continued business. This can range from a monthly catered Mexican feast to fancy YETI coolers to box seats at a ball game. While this habit and practice will be hard to kill, you should deal with it head-on and set policies that prohibit the acceptance of these:
Procurement software is the answer
Establishing a centralized procurement program will immediately address the issues that rogue spend creates. This is an essential step in controlling rogue spending and all the ills that come with it.
Fortunately, setting up a procure to pay process is simple and cost-effective. With the help of Raiven Marketplace, facilities managers can expect to see increased savings and higher productivity.
Benefits of procurement software
Implementing a centralized procurement program (and utilizing Raiven's procurement software) offers a myriad of benefits. Let us examine a few.
Centralized buying enforcement
Having a dedicated person(s) responsible for all the purchasing in your company gives you greater control and visibility into the purchasing process. Unless you've implemented automated compliance technology like Raiven's browser extension, the fewer people you have purchasing routine supplies, the better. This will lead to less confusion, fewer duplicate orders, greater efficiency, and easier management of suppliers and vendors.
Gaining visibility into your purchasing pipeline is crucial for facilities managers to understand how purchases are made, how suppliers are performing, which vendors and contractors are in compliance, and how rogue spending appears. There is no need to fly blind when the software captures all this key information for you. Raiven's software makes it simple to track, rate and communicate with suppliers in real time.
Buying analytics and insight
Good data makes a difference. Understanding the various methods in which purchases are made, and analyzing all pricing details (such as price per unit, bulk rates, minimum supply orders and supplier performance) matters. This is useful information that can shape future procurement habits and aid in reducing expenses.
The beauty of procurement software is that it captures the relevant data you require and makes it readily accessible. With the aid of Raiven's software platform, automated procurement can produce several benefits for your organization, and it behooves the smart facility manager to research and implement it.
Regain visibility in your purchasing program
Analyzing spending practices in your company is vital to get a complete picture and understand the purchasing habits of your employees, as well as what products they are buying and which suppliers and vendors they are utilizing.
An eProcurement system will ensure full visibility into the supply chain from beginning to end, and it will:
Identify selected and approved vendors and suppliers.
Have negotiated contracted rates established.
Ensure legal compliance from suppliers.
Track performance from all suppliers and vendors.
Enable a smooth RFP and selection process.
Once established, it will simplify the entire procurement process, optimize it for efficiency and ultimately save you money. Moreover, the program will create an atmosphere that employees appreciate and enjoy.
Rogue spending can adversely impact your NOI. This is becoming more apparent in the industry, and companies are taking steps to curb this damaging practice. Rogue spending can erode corporate culture and values by enabling employees to participate in potentially unethical and inappropriate behavior.
You do not want your business to be known to be kick-back friendly or an easy target that can be influenced by cheap and common gifts. Establish credibility in your industry sphere, and be known for integrity and fairness.
Protect yourself and your company from potential legal trouble too. Getting tangled in legal risks that are borne out of unethical behavior from rogue employees can be embarrassing for facilities managers and building owners. No one wants this negative attention, so take measures to guard yourself and your business from legal trouble.
Protect NOI and automate your procurement
2021 will be a tough year for facilities managers and building owners. It is imperative to implement strategies to reduce expenses, increase visibility in the procurement sector, limit rogue spending and keep your company culture healthy.
Raiven has the software to make this happen. It will work seamlessly in your business and will be easy for employees to adopt and use. Ensuring that your routine purchases have the best-verified pricing, Raiven will give you greater visibility across your teams and will ensure vendor and supplier compliance.
Do not waste any more time. Contact Raiven today to schedule a demo.