Re-Energizing Your Stalled Purchasing Card Program
Stephanie A. King
Stephanie A. King, President, CPR Consulting, Inc., Livermore, CA 94550, 510/371-6100.
82nd Annual International Conference Proceedings - 1997
Overview. Purchasing card programs have proliferated during recent years, some with greater success than others. Those that have failed to meet performance objectives have generally neglected the basics of implementing purchasing cards. Those that have met objectives are now looking for ways to exceed them. This discussion looks at solutions to both needs.
The Dilemma. Hundreds of companies have implemented credit card purchasing programs since their introduction four years ago. Many have easily hit their performance goals, such as significantly reducing the number of purchase orders and invoices processed by Purchasing and Accounts Payable. But some organizations can't seem to move beyond these goals to realize the full potential of this unique purchasing tool.
Worse yet, a number of companies with purchasing card programs can't come even close to their program objectives, even after full implementation, or are stuck in a perpetual pilot. While the reasons for the latter situation will vary by company, there is generally one common characteristic of card programs which are stalled in first gear--they didn't follow tried-and-true methods for preparing, designing, and rolling out their implementation.
Back To The Basics. In these cases, returning to the basics is the only way to attain program objectives. Surprisingly, however, many companies don't even have objectives, usually because they've failed to perform some essential data analysis before proceeding with implementation. There are three key pieces of information you need to start out with: how many of your purchasing transactions fall into the small-dollar category (as defined by your implementation team), which of your suppliers are providing those small-dollar purchases to you, and which employees are making most of these small purchases.
Knowing how many small transactions you have seems simple enough, but it's a data point many purchasing professionals don't know when asked. Yet how can you know where you want to go with your program if you have no idea where you are now? If you haven't established this baseline piece of information, go back and do it now.
If you do have your baseline data and haven't reached your objectives, it may be that you've set unrealistic goals. Take your data analysis one step further. Look at your small transactions and weed out those that would be inappropriate for card use. While these will vary by company, they are typically items such as capital equipment, raw materials, and travel expenses. Once you've subtracted these transactions from your total small transactions, you'll have a realistic number of purchases to target for card use.
If you've done all your transaction analysis and are still falling short, remember that most card programs take about one-and-a-half years to achieve the targeted number of card transactions and thus reduction in P.O.s. While it's admirable to set a goal of eliminating 100% of your small transactions in the first 6 months of your implementation, experience shows this is generally not the case.
Know Your Suppliers And Cardholders. The second key piece of information many implementation teams overlook is which suppliers you're making your small purchases from and which of these accept the card you're using. There are two reasons this becomes important in any card program. First, you need to know who these suppliers are so you can educate them about your program. Many organizations plunge knee-deep into what amounts to a quantum change in your supplier relationship without ever telling them what you're doing. Depending on how you structure your program, some of your suppliers may need to change their own processes to accommodate card purchases. If you make it difficult for your suppliers to accept your card, you'll have a hard time achieving your targets.
Second, you should always provide your cardholders with a preferred supplier list--existing suppliers who accept your card. While the intent here is not to restrict your cardholders to these suppliers, you do want to make it as easy as possible for them to use the card. Giving them a sourcing list goes a long way towards preventing cardholder dissatisfaction.
Finally, many programs never get off the ground because the wrong employees have been selected as cardholders. This again is something that should be focused on during the data analysis phase of your implementation. First, go back and see which employees or departments have been making most of your small purchases. These are your "first-tier" cardholders--high-volume purchasers. Next, look for employees who may not make as many small purchases but for whom a card would be very useful. Among those who might fall into this category are marketing staff (cards can be used to pay for ads and promotional items), employees who set up your company's booths are trade shows, or meeting planners.
Loosen the Reins. Beyond poor data analysis, what else may be contributing to underachieving card programs? The most common is probably over-controlling, either by tightly restricting suppliers your cardholders may use or by setting spending limits too low. Ease up on both--it's frustrating for cardholders and can significantly hold down card use.
Similarly, if you're trying to charge each individual transaction to a unique expense account, either by point-of-sale data capture or back-end editing, rethink your strategy. Chances are all your small purchases in total add up to less than 5% of your supplier expenditures. Why kill yourselves--and your programs--gathering detail on such a small percentage of what you're spending? Consider limiting this practice to a small number of suppliers or types of purchases where it makes sense--either because of the nature of what you're buying or the dollar amount. Then charge all the rest of your card purchases to a default expense account and leave it at that.
Energize And Advertise. Finally, there are two elements lacking in most unsuccessful card programs--senior management support and a public relations campaign.
The importance of senior-level support cannot be underestimated for purchasing card programs. You may have completely analyzed your transactions, worked superbly with your suppliers, been moderate in controlling and administering your program, and have the most appropriate employees as cardholders. But if you don't have top management vocally supporting the program, your chances of failure are high. Not only should they be completely committed to what you're doing, they should make it clear to all management that participation in your card program is a requirement, not an option. Better yet, successful participation in the program should be a performance measurement.
What if you don't have this key component? Pull your resources together, do your data analysis, and show senior executives just how much time, money, and resources are being wasted with your standard purchasing process. Arrange for them to talk with peers at other companies which have successful card programs. Show them the cost and time savings you anticipate, flow chart your current process so they can see for themselves just how bad it really is. And once you have them on board, enlist them as an integral part of your public relations effort.
Launching a card program is not unlike launching a new product--you can have the most exciting new product but if no one knows about it, it'll never sell. Orchestrate a marketing campaign for your card program from early on that focuses on its benefits, for the corporation, your suppliers, and your employees. As your program progresses, advertise your successes, share cardholders' suggestions for new uses of the cards or new suppliers they've found. Use email, voice mail, company newsletters, employee meetings--whatever gets the word out best at your organization. The idea here is that the more employees who know about it, the more will want to be cardholders, and the more small transactions will transfer out of Purchasing and onto the cards.
Stretch Your Targets. Once you've reached your initial program goals--or if you're already there--what can you do to reach beyond them to continue increasing the number of small transactions you eliminate from Purchasing and Accounts Payable? Consider trying some of these approaches that have resulted in big payoffs for other companies:
- Ghost accounts--these are supplier-managed credit card accounts that allow all employees to "use" a card without actually having one in hand. A typical example is with office supplies. Set up your office-supply vendor with a card account and whenever any employee purchases office supplies, the amount is automatically charged to the supplier's card account. Employees don't need to know the account number. And if you want to charge each employee's department for their purchases, have the supplier upgrade its card software to accept a customer reference code for each purchase.
- Back-end payment tool--buyers negotiate a blanket purchase order as usual. But each time a release is made against the blanket, use a card to pay, thus eliminating individual invoices for each shipment.
- Change purchasing policy--establish a minimum dollar amount for purchase requisitions that your buyers will handle. If it falls below that minimum and is an item or service suitable for card purchase, send the requisition back to the employee, along with a card application form.
- Eliminate petty cash--you shouldn't need it anymore with a fully implemented card program.
- Use your purchasing cards to purchase service and spares from capital equipment suppliers
- Use the cards for non-production inventory--for items which you currently have in satellite storage facilities. This will reduce your inventory carrying costs.
- Use the cards to track asset life cycles--assign a card account to each piece of equipment and use the card reports to track service and maintenance costs.
- Set up card accounts for specific projects--to track expenditures on each R & D project, for example. Some companies issue a new card account for each trade show they participate in.
- Issue cards to contractors--to avoid "cost plus" on material acquisition costs
- Use charge card "checks" with suppliers who don't accept cards--utility and facilities lease payments.
- Charge requesting departments a processing fee for invoices or requisitions that could be on a card.
Revisiting the basic elements of successfully implemented card programs will help turn yours from a plodder into a sprinter. Getting creative in how you use your cards will turn it into a long-distance runner.