E-commerce to boost purchasing card
By Jianfeng Pei -- Purchasing, 10/5/2000 6:00:00 AM
The Internet and e-commerce are creating both opportunities and challenges to purchasing cards.
Most participants at the third annual Purchasing Card Conference, held recently in Las Vegas, believe that use of purchasing cards will grow with the rapid development of e-procurement. But some experts caution that the future for purchasing cards is still not clear.
More than 140 representatives from about 60 companies participated in the annual purchasing card conference and vendor exposition, which was organized by Gunn Partners, an international consulting and research firm with offices in Boston and Geneva.
Most participants at the conference believe that the Internet and B2B e-commerce will stimulate the use of purchasing cards because it is the best payment method for e-procurement at this time. Just as consumers can easily shop online with credit cards, the purchasing card is the ideal choice for organizations to settle transactions on the Internet.
Tony Piwowarski, North American disbursements system manager, Weyerhaeuser Co., expects the use of purchasing cards to surge as the company integrates the p-card program with online buying and cataloging. At present, about 14% of purchases at his company are settled with purchasing cards. He expects this percentage to rise to 40% in the next 18 months as the company increases online procurement.
"The purchasing card is rapidly becoming the preferred payment method for B2B solutions," says Steve Kopp, director of events at Gunn Partners. "It is the easiest way to settle transactions online right now. Other choices are too complex and more expensive than the p-card."
But some experts are not so sure about the future of purchasing cards.
"It will depend upon which supply chain management model will predominate B2B e-commerce," says Richard Palmer, a professor at the University of Tennessee.
Palmer says that if supply chains shrink as buyers seek to streamline their purchasing and capture larger price discounts by consolidating supply sources and channeling more business to a small group of preferred suppliers, use of purchasing cards will decline. If this happens, he says the p-card will play only a small role in B2B e-commerce.
"If supply chains expand as the power of the Internet eliminates old barriers, buyers will find a host of new suppliers willing to bid for their business," says Palmer. "Purchasing cards will be a convenient payment vehicle."
Terry Murphey, director of commercial card, Visa U.S.A., agrees with Palmer. "In the short term, use of purchasing cards will increase because the p-card is an easy way to do online transactions," he says. "But it is still not clear what will happen in the long run."
At the conference, some companies, including Chevron, Weyerhaeuser, Koch Industries, mitre and Heilig Meyers Furniture, presented their programs to integrate p-cards with the Internet and e-commerce.
Purchasing cards were introduced to the corporate market in 1991 and witnessed rapid growth in the following years. In 1999, total purchases in the United States with p-cards were estimated to be between $35 billion to $40 billion. The U.S. market potential is expected to be $300 billion to $400 billion. "There is still a lot of room for p-cards to grow," says Palmer.
Many companies have adopted purchasing-card programs in recent years in a bid to cut purchase costs and improve efficiency. Some of these programs are very successful, but some are not. To find out the reason, Palmer examined 56 p-card programs, all of which are at Fortune 500 companies.
Through the comparison of successful and unsuccessful programs, Palmer found that successful programs have a significantly higher number and percentage of employees with a card. Card holders in these companies also use the card 40% more frequently than those in unsuccessful programs.
A major concern with p-card programs is "how to control the card," says Palmer. The biggest problem with unsuccessful programs is that these companies tend to overcontrol the card and limit the number of card users. "They are more concerned about controlling the amount spent for goods and less concerned about the cost to acquire goods," says Palmer. "Inordinate concern over small-dollar MRO spending can cause a company to miss opportunities to increase administrative efficiency with the card."
Successful programs are characterized by wide dispersion of cards, relaxed spending limits, wide categories of spending options and aggressive training activities. "These companies trust their employees and give the card to everybody that needs it," says Palmer.
One weakness of purchasing cards is that detailed purchase information is not available. "With the Internet and Level III line-item technology, this problem can be solved," says Kopp of Gunn Partners.
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