To save more, distribute more cards, study says
Staff -- Purchasing, 5/18/2006 2:00:00 AM
Purchasing card use generates more than $28 billion in cost savings in North America each year. Use of the cards also helps companies reduce manpower needed to conduct some purchasing and accounts payable activities. It cuts procurement cycle time by 68% and helps with supply base consolidation. Other benefits include ability to buy goods in a timely manner as well as track supplier spending compliance with contractual terms. It eliminates the need for petty cash.
The list goes on. While purchasing operations are reaping these and other benefits from using pcards to pay for mainly low-dollar MRO-type items, no two programs are exactly alike, say Richard Palmer and Mahendra Gupta in the 2005 Purchasing Card Benchmark Survey Report. However, those that are most successful tend to have more liberal card distribution policies.
Best-performing pcard users report four times higher monthly pcard spending, driven by a broader distribution of purchasing cards across the employee base and, at the cardholder level, significantly more transactions at a higher average dollar amount.
Other best practices identified in the report show that the most successful users:
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Distribute on average, twice as many cards as organizations with underperforming programs. As a percentage of the employee base, best practice programs provide an average of 12.2% of employees with pcards.
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Are notably less likely to restrict pcard use to supervisors or purchasing personnel and more likely to allow line or manufacturing employees to possess a pcard.
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Are more likely to allow departments or business units to decide on how many cards should be distributed.
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Have transaction limits that are, on average, twice as high as low transaction capture pcard programs.
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Are more likely to customize monthly card spending limits depending upon individual spending responsibility or position.
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Are more likely to conduct data mining of pcard transactions to ensure policy compliance for the pcard program.
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Are more than twice as likely to require purchasing to refuse to process requisitions that could be bought on the pcard—and more than three times as likely to require accounts payable to send a memo reminding employees who requisition goods or services that these items can be bought with the pcard.
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Have a wider "allowable span of spend" and are more likely to use pcards for any given category of goods or services.
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Are significantly more likely to have an ongoing method of communicating pcard information to card holders and managers, use a website to answer questions and support administrator attendance at pcard user conferences.
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Are more likely to evaluate spending patterns of cardholders with a high number of disputed transactions and deactivate unused pcard accounts.
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Are more likely to restrict some pcard activity to preferred suppliers though the actual percentage of pcard spending with these suppliers is only modestly higher.
The 2005 report marks the fourth time Palmer and Gupta examine the pcard market. Information in the report is based on 1,288 responses from pcard-using organizations that are customers of 15 major financial institutions or members of the National Association of Purchasing Card Professionals (NAPCP). The authors designed the report to provide purchasing operations with tools to help streamline the procure-to-pay process and maximize benefits of pcard technology. For more information, go to: www.rpmgresearch.com
Key purchasing card usage statistics as of August 2005
| Source: 2005 Purchasing Card Benchmark Survey Report |
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| Monthly pcard spending | $1,297, 453 |
| Median monthly pcard spending | $259,483 |
| Monthly transactions per card | $1,831 |
| Spending per transaction | $263 |
| Pcard-to-employee ratio | 8.5% |
| Spending per employee | $156 |
| Active cards | 79% |
| Transactions under $2500 placed on card | 33% |
| Transactions of $2500 to $10,000 on card | 15% |
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