Purchasing card programs have long been touted as an effective means of helping companies reduce operational costs by streamlining the expense procurement process.
A recent study by Deloitte & Touche Consulting Group confirmed this, further revealing specific corporate practices that facilitate even greater cost reductions.
Commissioned by Visa, the study captured the best practices used to save money and time at 18 major corporations in the United States and United Kingdom. Fifty-two percent of the participants-which included 3Comm, Bayer, Eli Lilly, Walt Disney Studios, Guinness, and Intel-have used Visa purchasing card programs.
The report, published in August, could help other firms accelerate the effectiveness of their purchasing card efforts by incorporating ideas that have proven successful.
Arguably, the most significant of the 37 best practices identified in the study was marketing the program concept. The survey found companies that developed a communications plan for building awareness and momentum throughout the organization had greater acceptance and use of the cards. Among the promotional tools used to build awareness were bulletin boards, key chains, mouse pads, and contests.
One firm, recognized by its card issuer as one of the most successful rollouts, created a monthly newsletter featuring program accomplishments. This was an incentive for potential users to sign up for the card.
Common to virtually all the successful programs was solid management sponsorship. Executive support is critical throughout the program, but especially at launch.
There should be an identified "program champion," and he or she should have the clout to carry support into actual use. A company that achieved a 99% target usage rate used a memorandum from the chief financial officer to urge employees to get behind the program. Successful companies got senior managers on board at the outset, and kept them informed with regular briefings about the program's achievements every six months or so.
Another of the best practices was the development of program objectives. Goals were often set in terms of reducing per-transaction cost or invoice volume, and increasing card penetration or the number of suppliers. Early in the interview process, it became clear that companies with superior card programs could be distinguished from companies with mediocre ones by their ability to quote very specific metrics against which they judged their success. Many companies even went so far as to tie these objectives to the program administrator's performance measures.
Only one company of those surveyed actually mandated card use, though most put required use among their top wish-list items. More than two-thirds of the companies in the study "strongly encouraged" use of the purchasing card. Some companies encouraged card use by charging back the cost differential to divisions still using more expensive paper-based purchase orders. By tracking purchase order usage on a per-cost-center basis, the program's administration can contact those not fully using the card to solicit their participation.
Among best-practice participants, 77% did not limit cardholder usage by prohibiting use at certain merchants, a practice known as merchant- category-code blocking. Instead, they favored a back-end audit to identify inappropriate purchases. Typically, when companies initiate a program, they focus on controls as a safety net. However, the study showed that card- blocking measures deterred employee usage overall, thus limiting cost savings.
Switching from a paper-based to a card-based purchasing system raises issues of control. However, companies generally found they had more control with a purchasing card program. A consolidated picture of employee purchases, in lieu of individual forms, made it easy to see what purchases were being made and which cost centers were making use of the purchasing card. The systems facilitated greater communications by aggregating payments from individual vendors across the organization.
Best-practices companies reported low incidence of fraud or inappropriate use. The problems that did occur showed up as readily in a statistical sample as in a full audit. Nearly 40% of study participants routinely perform sample audits, and of these, only 1% of the statements fail (about the same fail rate as companies that audit every statement). Thus, based on 10 minutes per audit-the study average-a company that audits one in 10 statements instead of every one can reduce audit costs from $314,000 to $31,000, a savings of $283,000.
For companies that have not initiated a purchasing card program, Visa is developing diagnostic software that will help present a customized business case to senior management. With the software, companies will be able to fill in a template with specific statistics representing their company's purchasing patterns, and then determine the benefits of implementing a purchasing card program. The software will be available from issuers by the end of October.