Purchasing drives enhancements
Emphasis is on increased automation and more control.
By Susan Avery -- Purchasing, 2/6/2003 2:00:00 AM
Some General Electric business units are using a new technology called Optical Document Retention to electronically store and retrieve purchasing card receipts. Introduced about 18 months ago, the internally developed technology is used by card program managers within the business units to scan about 60,000 receipts per month. Optical Document Retention, which provides users with capability to review and audit the receipts, yields such benefits for GE as increased automation and more control of its card program, says Laurie Davis, business integration project manager, GE Corporate Payment Services, an issuer of the MasterCard Corporate Purchasing Card. GE also is the nation's largest user of purchasing cards, after the Federal government.
Organizations first began using purchasing cards in the late 1980s as a payment tool for such low-dollar indirect buys as office supplies and some MRO items which tend to generate a large number of transactions. Use of the cards, as marketed by card companies American Express, Visa and MasterCard and issuers such as US Bank, GE, Citibank and other financial institutions, promises to help buying operations improve internal efficiencies and reduce purchasing and accounts payable costs. To be successful, however, card programs must be carefully managed: Administrators are advised to set up limits to card use, such as asking cardholders to adhere to a preferred supplier list.
Over the years, program administrators have had some issues with the card companies: They've always seemed to want more control over cardholder buying activity in an effort to thwart misuse and fraud and increased reporting on card transactions (i.e., line item detail, taxes paid) for payment and reconciliation. For the most part, card companies have responded by creating programs that are increasingly meeting the needs of these purchasing organizations. In fact, statistics available from the National Association of Purchasing Card Professionals (NAPCP), show card use increasing from $47 billion in 2000 to more than $82 billion in 2002. Looking ahead, the group expects use to grow to nearly $190 billion by the end of 2005.
Still, purchasing managers who handle card programs continue to demand increased control and more automation, says Davis and others at GE Corporate Services. Customer surveys, close relationships of its account representatives with the company's clients and an annual user conference help reveal these trends.
GE, like other issuers and card companies, responds to buyer demands with new products and program enhancements. (While Optical Document Retention technology is not yet available commercially, GE plans to demonstrate it at its annual user conference to be held this spring in Sarasota, Fla.) In addition to increased control over programs and more automation, other buyer demands of card companies and issuers include use of a multi-card product (functionality of the purchasing, fleet and travel and entertainment cards in one card), improved integration with e-procurement systems and globalization (use of a card with similar features and functionality in more than one country). Still others include use of the cards as a payment tool for large dollar items such as capital equipment and services and use of stored value or "project" cards to pay for items purchased during a specific time limit such as those associated with buying supplies for a trade show or conference.
New products
From GE Corporate Services also comes its new ePcard XML. Used in conjunction with an e-procurement system, the card automatically extracts a PO number from the e-procurement system, appends it to the MasterCard transaction record and transmits it to the customer's accounting system for automated reconciliation.
At MasterCard International, Steve Abrams, senior vice president, Corporate Payment Solutions, and his team have seen from RFPs (request for proposals) received by the company in the past 6-9 months growing buyer interest in the company's multi-card product and use of purchasing cards by multinational companies in more than one country.
MasterCard customers also are looking to link their Corporate Purchasing Card programs with their company ERP systems. In response, MasterCard SmartLink software integrates purchasing information from purchasing cards with such ERP (enterprise resource planning) systems as SAP/R3. With the software, program managers can automatically collect purchasing data, improve transactions, generate invoices, merge data with the general ledger and download individual transaction information.
MasterCard Smart Data Online, which Abrams says will be enhanced in 2003, is a product that helps organize, consolidate, analyze and manage financial data from purchasing cards and other MasterCard products via the Internet. With the software, program managers can manage suppliers, monitor spending at cardholder and management levels, generate reports and integrate transaction data into existing accounting systems.
MasterCard also introduced last fall an electronic payment and information management service through the integration of its Corporate Payment Solutions into Xign Corp.'s Xign Payment Services Network. The new service provides increased management controls, buyer-approved electronic payments, enhanced data capture and data reconciliation. It supports a variety of settlement options including the MasterCard purchasing card. With the service, buyers can transmit POs electronically, receive electronic invoices from suppliers, pay electronically according to established rules, receive enhanced transaction data, and reconcile and integrate data into financial systems. For suppliers, it allows online invoicing, immediate access to the status of payments, acceptance of electronic payments, easier transaction reconciliation and enhanced transaction information.
A strategic tool
"We are starting to see some good resurgence in the growth of purchasing cards as companies look to enhance their e-procurement systems further," says Mike Dreyer, senior vice president, Commercial Solutions, Visa U.S.A. "They are viewing purchasing cards as a strategic payment tool." A recent study of procurement practices of more than 50 large and mid-size companies by Visa and Deloitte & Touche finds U.S. businesses are undergoing "a progressive migration to automate their entire procure-to-pay processes and are focusing on strategic sourcing continuously to enhance supplier relations."
Complementing Visa's traditional purchasing card program is its Visa Commerce service which provides buyers and suppliers with new levels of control and flexibility when making or receiving online payments. Visa Commerce allows buyers to determine when to initiate electronic payment, including deferring settlement of the payment based on pre-established terms with suppliers. Integrating seamlessly with procurement systems, the payment tool eliminates steps in the payment and reconciliation processes, such as sending payment requests and paying by check. Buyers receive enhanced transaction information, ability to receive payment requests from suppliers and other cash management services that can be customized by their financial institution. For suppliers, Visa Commerce allows online payment requests, immediate access to the status of payments online, acceptance of electronic payments, easier transaction reconciliation and enhanced transaction information.
For its part, American Express is completing a research project with Accenture that focuses on the cost-savings benefits of purchasing cards. The survey looked at companies with American Express Corporate Purchasing Card programs as well companies with MasterCard and Visa card programs.
Savings resulting from process efficiencies (one key selling point of all card programs) come to around $11 per transaction, according to the study's findings. With transaction average dollar amounts of $250, that comes to a 4% savings on the total value of the transaction. Looking specifically at programs that use the American Express purchasing card, which the study finds are roughly 35% larger than programs using the company's competitor's cards (because of its additional controls), finds one company avoiding the hiring of 44 FTEs (full time equivalent) in its accounts payables department because of use of the card.
Regarding such "softer" cost savings as sourcing effectiveness and compliance, the study finds American Express customers realizing a 21% improvement in compliance to sourcing policy and contracts. For its competitors, the figure is lower, at an 11% increase. Because of increased compliance, participants in the study report, on average, an 11.4% discount on such traditional purchasing card spend categories as office supplies, industrial supplies and PCs.
The study also measured administration efficiency, for which American Express is developing a "calculator" for its customers to benchmark performance in this area. Findings show that while card programs are realizing "significant value," the industry itself is still highly under-penetrated. Says Mac Schuessler, vice president, Global Corporate Purchasing Solutions, American Express, "There is still tremendous opportunity to capture more spend even in categories that you would think are traditional."
Recently, American Express extended an earlier arrangement with e-procurement service provider Ariba, which facilitates the process of placing orders, fulfillment, reconciliation, data management and program maintenance. Through the new agreement, users of the American Express corporate purchasing card will be provided with robust supplier support and line item detail (level 3 data) on card purchases.
"Our research finds a strong correlation between percentage of transactions and line item detail and satisfaction with card programs," says Schuessler, pointing out that users of the American Express corporate purchasing card program use the data in negotiations with suppliers. The company also is working on programs to support its customers who use SAP's e-procurement platform.
And in 2003, American Express is launching (first on its corporate card platform, then on its purchasing card platform) its Corporate Defined Expense Program. The new program allows users (online through the American Express @Work portal) to set a limit on the value of a card, which can be used for such purchases as relocation expenses. "It's great, because it's not a stored value card, so users don't have to prefund it," says Schuessler. "It's an additional control, which extends use of the purchasing card program."
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