Procurement card program standardizes buying processes
By Staff -- Purchasing, 11/18/1999
Many purchasing organizations still suffer from using several procurement systems and multiple processes within their companies. One way to standardize systems and reap significant cost savings is by the use of procurement cards.Minnesota Power, a diverse services company in Duluth, Minn., approached U.S. Bank Corporate Payment Systems in an effort to better manage expenses, integrate multiple payment processes, and provide a convenient but effective tool for employees in the field. They decided to use an integrated procurement card solution that combines the flexibility of a travel card with the convenience of a purchasing card.
Where they were
Minnesota Power and its subsidiaries had multiple procurement systems in place, which included fuel cards, a travel & entertainment system, a case advance system, and paper purchase orders. In 1995, the company reevaluated current systems in an effort to develop a more cost-effective and less complicated way to handle employee spending, since so many of its employees traveled or worked at client sites.
A "reengineering task group" was formed, consisting of purchasing, accounting, audit, and legal departments. The group realized that small-dollar purchases--those less than $1,500--were taking up 80% of buyers' time, while only accounting for 20%-25% of the company's overall spend.
John Roed, procurement analyst at Minnesota Power, says, "We would have a man in the field who would need to replace his chain saw. Before our current program, he would have to get a buyer to handle the requisition. The buyer would have to research pricing, and a purchase requisition and purchase order would have to be filled out before our worker could get the tool. Obviously, this was not the most efficient way to get the job done."
"Now, the same worker would use a procurement card to purchase a new chain saw and get on with his job."
Testing the solution
The new procurement card program began with a three-month pilot program, which gave 60 employees throughout the organization an integrated procurement card. The card is a U.S. Bank Corporate Card, set up with corporate liability. Employees use the card to buy everything from airline tickets and hotel expenses to supplies and dinner on the road. By the end of the pilot program, employees who had not been issued a card were asking for one.
The program was launched companywide in January 1996; it has proven to be extremely effective. Buyers have been able to dramatically cut back on non-value-added administrative time spent on small-dollar purchases. Also, the lengthy process and expense of processing purchase orders has been reduced significantly. Because employees can make their own travel arrangements, Minnesota Power was able to virtually eliminate its travel booking department. And suppliers are happy because they're getting paid in a much timelier manner.
Training was crucial
A key to the successful implementation of the card program was early training for all card-carrying employees. Two employees conducted on-site training for all cardholders over a six-month period and also developed training materials to equip employees with all needed information.
Another key to success of the card program was full support of senior management, which enabled the reengineering task group to develop well-defined policies that included consequences for any employees who misused the card.
Minnesota Power's program now includes nearly 800 cardholders. The company now is exploring additional applications for the card to further increase efficiencies.
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