Purchasing cards (p-cards) are making major in-roads into corporations. Used by businesses for procurement with various suppliers, p-cards are marketed heavily with promises of remarkable cost savings. Once seen as a limited-use, small-dollar product best suited for controlling petty cash, these cards are increasingly used by organizations of all sizes in many industry sectors. Today p-cards are used for more sophisticated treasury and procurement purposes.
Widespread corporate process automation and strategic sourcing have led to demand for corresponding automation of the purchase-to-pay cycle. Purchasing cards fit in well with these initiatives by improving controls and cutting administrative costs.
P-card Growth Spurt
U.S. purchasing card volumes have increased more than 25% for the last several years. This growth has been accompanied by success stories of improvements in spending controls (better reporting, informed vendor negotiations, limitations on use to selected merchant categories), cost savings, and even in realizing issuer-funded rebates on spending.
The growth in savings and in the number of active programs might lead one to expect that implementing a purchasing card solution would be neither controversial nor difficult. However, it is normally the subject of significant debate. As a result, a program may be challenging to implement.
Our experience with end-user corporations and purchasing card issuers is that some organizations achieve enviable results with the p-card, but many fall short of expectations. Lost opportunity lies not in the products themselves, but in the execution. There are certain characteristics that distinguish successful program launches from disappointing ones. In this article, we will highlight some of the most critical success factors related to maximizing the returns of a p-card program:
1. Active Executive Sponsorship and Mandatory Participation: This promotes cooperation throughout the process and helps maximize returns.
2. Thorough Preparation: Understanding existing p-card data and procurement processes, as well as current stakeholder views and interests, is essential.
3. Competitive Selection: Card issuers are willing to compete for business. An informed selection process helps in securing a capable partner and competitive terms.
4. Deliberate Implementation: A well-planned program launch in logical stages allows for needed improvements.
Executive Buy-in & Mandatory Participation
It has become a bit of a cliché that senior-management buy-in is critical to making change happen. But with p-cards, it is an absolute necessity. Organizations of all sizes tend to resist change, particularly one that smells of bureaucracy. In the worst-case scenario, a purchasing card project may be seen as a nightmare for an entrenched supply-chain bureaucracy. It changes processes from purchase through accounts payable, makes a wealth of information readily available to business-unit managers who may start to ask embarrassing questions, and threatens to reduce headcount (and the associated power and status) in the manual, labor-intensive payables unit.
Even in the best of situations, a p-card project will add temporary workload to the staff designated to carry out the project. Without executive sponsorship, the entire process from preparation through implementation is at risk of delay, disorder and ultimately derailment through passive and active resistance as well as general fatigue. Furthermore, sponsorship must be truly senior, visible and active in order to make converts of actively resisting stakeholders, and to convince passive ones.
It’s not enough to ghostwrite a few executive memos to the purchasing and payables managers, or worse, to just have them provide periodic “status updates” that vanish beyond the event horizon of the executive in-basket. The executive sponsor must be proactive and inquisitive, go beyond the routine aspects of day-to-day management and reporting, ideally by being an involved participant in as many aspects of the process as possible.
The federal government’s General Services Administration purchasing card program owes much of its success to a White House directive mandating the program. Today the program generates $16 billion in spending and $1 billion in administrative savings.
Prepare Thoroughly
Before embarking on a p-card initiative, do your homework. This involves gaining a thorough understanding of the organization’s current purchasing dynamics, including everything from the buyers, payment media and processes used from start to finish. It includes quantities, vendors and suppliers used, controls, audit requirements and procedures – along with any unique tax, legal or regulatory issues.
This step must be reasonably accurate and, almost more importantly, must be understood and agreed to by all stakeholders - especially in finance/accounts payable, procurement, and audit.
The overview must review current purchasing processes, payments are made and to whom (purchase order/invoice process, payment mechanism), how payments are reviewed, approved and audited, and how technology (enterprise resource planning [ERP] and other) supports the current process as well as how it could support a p-card. Analysis might include segmenting annual purchase order/invoice volumes by size range (items below $100, $500, $1000, $2000, etc.), or examining total number and dollar size of payments to each vendor. Vendors may be grouped according to frequency of use.
Traditionally, organizations ripe for a p-card have large volumes of small-dollar payments and scads of vendors paid only a few times. That said, there’s a move by corporations to link their p-card programs with ERP and vendormanagement initiatives as companies recognize the benefits of the streamlined, paperless process with a guaranteed payment in fewer days.
The relatively straightforward processes of data collection and process mapping should be augmented by an assessment of other unique organizational attributes. Organizational dynamics may affect a p-card program, and before initiating a selection process, a company should consider the following questions:
Sales Mindset: Are business units evaluated based on revenue growth or expense reduction?
Centralized vs. Local Procurement: Can business units (in a geographically diverse company) cultivate local suppliers and vendors?
Support Service Standardization: Are business units all using the same procurement system? Are accounts payable, finance and tax functions centralized and uniform?
Business Unit Autonomy: Would a centrally promulgated p-card program conflict with a tradition of local independence and decision-making?
Technological Sophistication: Are procurement, payables and expense reporting automated enterprisewide?
Audit Culture: Will audit personnel be comfortable with exception reporting?
Armed with data, agreement and understanding of the issues and organizational dynamics among the various stakeholders, it becomes easier to prepare a convincing business case that can cement executive buy-in and convert skeptics.
Competitive Selection
Purchasing cards are woven into the fabric of an organization. Unlike consumer cards, where switching issuers is simple and common, selecting a commercial card provider involves a more extensive commitment than just introducing a new piece of plastic with the company logo on it.
The purchasing card package will involve reporting, account and card management, interfacing with the procurement/purchasing process, and cardholder training. It may also entail acute changes to existing vendor/supply chain management, accounts payable, audit/tax, and cost allocation functions.
It is usually a chore to get the product in place. So picking the right provider is key, since the company will be with them for a period of time.
A competitive and thorough request-for-proposal process (RFP) is the best way to get the right supplier. While it’s tempting to price shop, or to simply rely on your current banking relationships for their product (and ultimately they might be the right choice), a well-designed process where issuers know they are competing yields the best result. Examples of effective RFP process elements include:
A detailed RFP that incorporates key details unearthed during the preparation step. Provide issuers enough information to elicit their best, most-comprehensive proposals. Tell issuers who the key suppliers are and how much the company spends and how the procurement process and systems work. Identify how the organization is structured and who will be using cards. Incoming proposals will be more detailed, but they will also be more differentiated.
A competitive process invites capable, experienced candidates with clients similar to your company. Keep the process cutthroat as long as possible by conducting it in stages. If you can, hold final negotiations with two parties to prevent last minute surprises.
Evaluation criteria should be prioritized appropriately given earlier findings and the local situation. Publish these criteria in the RFP. Criteria could include:
o Economics – Not only explicit issuer terms such as rebates and bonuses, but also the estimated downstream impact of their product’s effect on the company’s procurement process. Don’t just price shop; look at the full cost as best it can be estimated.
o Conversion/Implementation – Require issuers to submit their implementation plans as part of the RFP response, and compare not just the timelines, but details such as the degree of support they require from the company and their experience with similar efforts.
o Features and Functionality – Don’t dismiss bells and whistles for ease of cardholder use. It won’t work if no one likes it. Focus on the reporting and interface features of the issuer’s system which enable the economic improvement noted above.
o Service levels, References and Reputation
o Strategic Fit – This is an executive criterion encompassing elements such as broader corporate banking relationships.
Executives and empowered stakeholder managers in the evaluation team, to ensure a decision that balances disparate objectives. (Relying exclusively on your corporate sourcing attorneys will be regretted.)
Creative contract terms offering incentives that motivate ongoing cooperation by rewarding both parties for success.
Deliberate Implementation
Once the anointed issuer has been selected, the real work of making it happen in the organization begins. A “plug-and-play” approach will result in limited internal acceptance, fewer cards in use, less spend on the cards, reduced ability to realize the benefits of issuer incentives spending controls, a disappointed issuer. There are as many implementation paths as there are programs, but there are some common keys to a successful effort. These include:
Executive support – For all the reasons listed earlier.
Focus – A dedicated team that is given the resources to succeed.
Inclusion – Team members from multiple involved stakeholder units, including the units receiving and using cards, audit, technology, the implementation team from the issuer, and others.
Accountability – Team members and their managers should be held responsible for success.
Feedback – Effective means for the executive, team members and responsible managers to coordinate efforts, evaluate progress and communicate plans.
Phased Approach – Incremental rollout maximizes potential for an early and public success as well as allowing subsequent efforts to incorporate lessons learned.
Supporting Corporate Policies – Guidelines that reinforce and promote card use including policies and procedures.
Monitoring Processes and Guidelines – Make sure that the measurement of usage, issues, and opportunities for improvement (including vendor volumes) are put in place. The p-card product, when done right, is an effective tool for managing and effecting payments, reducing costs, and ensuring control.
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