This guest blog was written by Dr. Tom DePaoli and originally posted in the Procurement Professionals LinkedIn group. It has been redistributed with their permission. Read more on Procurement Professionals LinkedIn group at: http://linkd.in/1uupe8p or Twitter: @ProcurementProf
Backdoor or maverick buying is a perplexing problem that plagues many purchasing organizations. The methods to counteract this behavior are highly dependent upon the cultural climate and ethical standards of your organization. There is no universal solution.
People’s behaviors are influenced by consequences. If there are no consequences for backdoor buying the behavior will continue and grow. Some of my suggestions are drastic, others are more reasonable. Purchasing professionals must use their judgment to select the appropriate actions that fit their particular organization.
An important aspect to solving this issue is to remain objective and to try to gather data on the costs of backdoor buying. These could include lost discounts, lost rebates, and extra transactional work by purchasing and others. Many purchasing organizations know the average transactional cost of a regular transaction with an approved supplier. Try to calculate the extra cost with an unapproved supplier. Always control your emotions when discussing this issue.
Here are some reasonable tactics to create an organizational atmosphere and climate that helps discourage backdoor buying. In my experience the biggest offender is usually the engineering department. So involve engineering in cross-functional supplier selection teams and standardization initiatives. Make them a stakeholder in approving suppliers. Get the vice president of engineering on board with OEM (Original Equipment Manufacturer) standardization and have them participate in OEM standardization processes.
Consider establishing a policy of no gifts or gratuities to be accepted from suppliers by both purchasing and all other employees (zero tolerance). This discourages lunchtime promises or promise buys to suppliers by non-purchasing employees. Another alternative is to have purchasing have their own modest budget to entertain, socialize and conduct work sessions with suppliers.
Get your compliance employees on board with your policy i.e., your legal department and accounting. Craft an approved supplier only purchasing policy and make it clear that unauthorized purchases will not be honored by accounts payable. Keep the list of approved suppliers visible and updated. Use your software safeguard controls to limit buying privileges and cross reference the approved supplier list. Many purchase cards can be limited to specific approved suppliers and or categories of goods. Meet with your approved preferred suppliers and ask them to use the grapevine to communicate any purchases from unauthorized suppliers directly to you. Most will gladly do this.
One of the most effective drastic actions occurred when I worked for a global chemical company. The company had just spent over $200 million on a worldwide ERP system. The CEO sent out a strong memo saying that all purchases must be made on the ERP system and only from the approved suppliers in the ERP system. Employees were required to use the new ERP system. The very first day four employees went off system to purchase some items from a non-approved supplier. The CEO personally fired them and publicized the results of the incident to all employees. Needless to say there were no more such purchases.
Do your networking and informal work before you institute your policy. Meet one-on-one with stakeholders or in small meetings to explain your reasons for your policy and get their buy-in before you roll it out.
Establishing a policy against backdoor buying requires some deft maneuvering by purchasing that correctly judges the culture of your organization. Instituting the appropriate policy will help reduce backdoor buying. More important, you must enforce the policy and reprimand employees who violate it. A backdoor buying policy unenforced, is both hollow and meaningless.