Strategies to Limit Backdoor or Maverick Buying

Tom DePaoli suggests that backdoor or maverick buying is a perplexing problem that plagues many purchasing organisations. The methods to counteract this behaviour are highly dependent upon the cultural climate and ethical standards of your organisation. There is no universal solution. People’s behaviours are influenced by consequences. If there are no consequences for backdoor buying the behaviour will continue and grow. Some of my suggestions are drastic, others are more reasonable. Purchasing professionals must use their judgement to select the appropriate actions that fit their organisation.

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 organisations 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 organisational 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 standardisation initiatives. Make them a stakeholder in approving suppliers. Get the vice president of engineering on board with OEM (Original Equipment Manufacturer) standardisation and have them participate in OEM standardisation 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, socialise 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 unauthorised purchases will not be honoured 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 unauthorised 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 publicised the results of the incident to all employees. 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 manoeuvring by purchasing that correctly judges the culture of your organisation. 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.

Creating a Winning Culture in your Business

So, what does it mean to create a winning culture in your business?

For CEO’s and business leaders it means creating a culture that inspires employees to innovate and achieve. It means creating a culture where employees collaborate to make a difference for customers every day. Lastly it means creating a fertile environment for learning, growth and celebrating our accomplishments. So what steps can your business take to make that happen?

Here are ten steps that provide a road map to success:

  • Know who you are – Creating the culture starts with defining your businesses purpose and knowing your mission
  • Identify what works and what doesn’t work – Ask managers and staff, use a survey and create an action plan from the results that involves everyone in changing and improving the culture
  • Build trust – Use open communication with everyone in the business, share ideas and focus on how everyone can connect with the organisation’s mission statement
  • Empower and appreciate your employees – Use strategic rewards and recognition to recognise employees, celebrate the good things they do and empower them to create
  • Conduct a benefit review – Review utilisation, costs, and upsides. Once you’re certain your benefits make sense, communicate the why to your employees
  • Identify your values – What sets your culture apart from other businesses, align your company’s personality, mission and values. Embrace things employees identify with that are uniquely yours
  • Always look for ways to simplify, innovate and improve – Make being a great place to work part of your culture, always strive for continuous improvement in everything you do
  • Give your employees permission to have fun! – Remember it’s the little things that take a culture from being great to being outstanding
  • Encourage brainstorming and creativity in all your teams – Provide opportunities for employees to learn and grow, inspire them to do great work and give them input into what they do
  • Have clear strategic goals – Follow a plan, share it with everyone, involve the whole organisation and get them on board, get everyone working in the same direction and to a common goal

What does it Take to be the Steve Jobs of Procurement?

Sitting in the office Monday morning, Kanika Sharma, Zycus was trying to recall names of famous CEOs. The names that came to my mind were Steve Jobs, Larry Page, Mark Zuckerberg, Indira Nooyi and many more. What made Steve ‘The Steve Jobs’ a legend, a person driven purely by innovation, perfection, simplicity and belief in his dreams? This was followed by the question of what one can do to be the ‘The Steve’ of Procurement.  

Be the Steve!  

Innovate. In old times, innovation was usually associated with a mission of accelerated growth. But in present times, it is a prerequisite for simply staying competitive and maintaining past growth rates. This revised perspective of the purpose of innovation represents a profound break from the past, one requiring pervasive changes in every business services organisation, including procurement.

Example: Rick Hughes, Advisor to C-Suite Executives on Supply Management and Strategic Engagements. As a CPO for P&G, he took on what was already an active internal cost management program at P&G, but helped to instil a new, company-wide system that focused on what was measurable and deliverable. He streamlined processes in the supply chain as an alternative to asking suppliers to cut their margins. Most notably, Hughes was known for creating an important link with P&G’s Chief Marketing Officer, despite the suggestion that marketing and purchasing don’t play nicely together. This innovative approach of Hughes helped P&G with better return on marketing and advertisement investments.  

Simplicity is the key. As Jobs always played it – ‘Simple,’ it is advisable for us to play it simple. Rather than using too much technical jargon, let’s try to explain the processes, systems and solutions in a simpler and easier way so that it can be understood by a person from a non-procurement background.

Example: Stijn van Els, CEO (designate) QP/ Shell Petrochemical joint venture. He previously worked as Executive Vice President, Contracting and Procurement at Shell. As supply markets fluctuate continuously, he and his team must precisely anticipate market movements and develop the right approach to source goods and services in a way that is more profitable and competitive. They came up with Enterprise Category Management. In this practice, regional employees around the globe reported ideas directly to the Shell C&P team, which is coordinated by Stijn. He kept it simple so that employees, even with non-procurement backgrounds, could contribute to the exercise, thus improving savings. 

Look for misfits. Steve once said “Here’s to the crazy ones, to the misfits, the rebels, the troublemakers, the round pegs in square holes…” We are too obsessed with procurement professionals, procurement advisors, and procurement analysts; totally ignoring the misfits around us. The day when we will start appreciating the ideas coming from cross-functional minds we will certainly move a step ahead in this journey.

Example: Leslie Campbell, Member Board of Directors at Bideawee. She worked as a CPO at Reed Elsevier from 2007 to 2012. During her tenure she worked to build an open relationship with her team and suppliers to discuss areas that needed development. Being an advocate of importing talent from non–procurement backgrounds, because she believed that they could acquire the necessary knowledge. Her belief that these employees will become strong ambassadors for the procurement process, while adding cross-functional experience, turned into a reality for Reed Elsevier.

So, what does it take to be the Steve?

 My conclusion…

  • Be the innovator
  • Be the initiator
  • Always keep it simple, and
  • Appreciate the misfits 

Mixing up the ‘like us and the not like us’ will help us to understand what it takes to be the ‘Steve of Procurement.’