purchasing and travel card programs nsaa/nasc joint middle management conference kurt albertson...

Purchasing and Travel Card Programs

NSAA/NASC Joint Middle Management Conference

Kurt Albertson

Director of Advisory Services

April16th 2008

Document Name – Click on top-level Slide Master to change© 2007 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Statement of Confidentiality and Usage Restrictions

This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group.

Copyright © 2008 The Hackett Group, World-Class Defined and Enabled. All rights reserved.

Agenda

The Hackett Group

Corporate Card Programs Purchasing Card Programs Travel Card Programs Summary of Key Points


The Hackett Group Defines and Enables World-Class Performance

The use of our intellectual capital enables our clients to implement change to affect their ability to attain and sustain world-class performance

– We provide strategic advice and implementation assistance based on 4,000 benchmarks with leading global companies

– Our implementation tools allow our clients to achieve results from proven best practices of world-class companies

Our recommendations address both efficiency and effectiveness of world-class performance

Our efforts have delivered over $90 billion in sustainable cost savings and $25 billion of improved cash flow improvement through REL, our working capital group for clients across the globe

Operating in the Americas, Europe and Asia, we have served clients in 66 countries

Our unique intellectual capital is unparalleled in driving successful performance improvement


Members of Hackett’s Advisory Programs Gain Access to Leading Practitioners, Best Practices, Metrics and Insights

To enable client change initiatives, Hackett provides continuous Advisory Services which extends Hackett intellectual property and senior advisors directly to executives and project teams to speed adoption of proven practices, compress planning cycles and mitigate risk

Hackett’s Advisory Programs include the following components:• Access to experienced Senior Business Advisors• Annual onsite Executive Briefing• Best Practice Research• World-Class Performance Metrics• Best Practice Knowledge and Online Repository• Peer-to-peer Learning Opportunities

Hackett Advisory Programs include

If interested in learning more about The Hackett Group’s Advisory Programs please contact us at 888-8HACKETT or visit www.thehackettgroup.com

• Procurement Executive & Operations (includes P2P) • HR Executive

• Finance Executive • Financial Operations (includes P2P)

• IT Executive


The Hackett Group Identifies Leading Performers by Empirically Defining both World-Class and Top Performer Status

World-ClassDefines leading performers within a Function

Top PerformerDefines leading performers within a Process

Hackett Value Grid™ Hackett Performance Continuum

Procurement HR

IT Finance

Accounts Payable Payroll

Credit & Collections Planning/Budgeting

Agenda

The Hackett Group Corporate Card Programs

Purchasing Card Programs Travel Card Programs Summary of Key Points


Corporate Card Programs Leverage by Organizations Can Have Varying Scopes

Travel Card– Travel and Entertainment expenses

Fleet Card– Vehicle-related expenses

Purchasing Card– All other expenditures

One Card– All spend categories covered by T&E, Purchasing, and sometimes Fleet cards


Combined Card Programs for Travel and Purchasing are Used by About a Quarter of Organizations

The Hackett Group T&E Benchmark, 2008

Factors to consider regarding One Cards: Would administrative/IT costs be reduced? Do employees carry multiple cards? Can your company accept some level of

reallocation? Is policy compliance a significant problem? Is your company comfortable w/ tax

compliance issues? Is your company willing to withhold from an

employee’s paycheck? Does your provider have the technology to

support a One Card?

Agenda

The Hackett Group Corporate Card Programs Purchasing Card Programs

Travel Card Programs Summary of Key Points


Outsourcing some of the Purchase-to-Pay process: A third-party operated system to control and pay for lower risk purchases

A consolidated central bill: automatically paid once each period

A card used to buy operating supplies, office purchases, and lower-dollar, non-strategic goods & services

A “supercharged” charge card, with enhanced controls and information not found with ordinary cards

What are Purchasing Cards?

It is Not: A credit card (no interest or borrowing), Like cards we as consumers have used, or Without significant control

It is Not: A credit card (no interest or borrowing), Like cards we as consumers have used, or Without significant control


The Business Case for Purchasing Cards and Why Organizations Use Them to Support Their Processes

Costs Staff time to build and administer the program Sometimes out-of-pocket fees for costs may be incurred for

MIS, consulting, etc. Cash flows is often altered dependent on typical payment

terms

Risks More than a 3-way match but less than check requests or

non-PO transactions

Benefits

Reduced cycle time and effort for users to acquire goods Preauthorized limits automatically enforced Reduced purchase order / invoice volumes and related staff

time process costs Information to manage the supply base Cash rebates from card issuer

86%

75%70%

42%35%

Reduce the number of invoices

Streamline the purchasing of one-off type transactions

Achieve rebates

Streamline payment to high-volume suppliers

Streamline payment of E-procurement based transactions

Primary objectives of purchasing card program(percent of all participants)


Top Performing Organizations Standardize on Commodity Directed Optimized Purchase-to-Pay Transaction Flow Paths to Optimize Process Performance

CommodityFamily

(1)P-Card

InvoiceOnly

(3)Purchase

OrderInvoice

Reciept

(2)Contract

(4)Purchase

Order

RecieptPurchase

OrderInvoice

Invoice Options

· System Recurring

· Supplier Submitted

Receipt Options

· Dock Receipt

· Desk Top Receipt

Maps toSpecific

OptimizedTransactionFlow Path

3-Way Match

Exception Process

Least Efficient

Four Optimized Transaction Strategy Flow Paths

Pay

Pay

Pay

RequisitionOr System Triggered

Request

Invoice Options

· Supplier Submitted

· PO Flip

Pay

Enabled With Electronic Tools To Manage

Requisitioning, Business & Procurement Approvals, PO Dispatch, eInvoicing, and Electronic Payments

Purchasing Cards are typically utilized for lower risk and lower control categories of spend

PO + InvoiceHighly Controlled Process

PO + Receipt (ERS) or

3-Way Match

Highly Controlled Process PO + Receipt (ERS)

or 3-Way Match

Simple Process

Pcard

Recurring Invoice

Simple Process

Pcard

Recurring Invoice

Contract Supported

Invoice Only

process

Contract Supported

Invoice Only

process

High

Low

High

CommodityRISK

FACTOR

CONTROL


Top Performing Organizations Leverage Purchasing Cards More Replacing a Less Efficient PO Process and Less Controlling Non-PO Process

The Hackett Group Procurement Benchmark 2007

Information from Hackett’s 2007 AP, Procurement, and Pcard Benchmarks and includes labor and outsourcing cost. Analysis is based on an assumption that there are 2.57 line items per Transaction


Top Performers Leverage the Purchasing Card for Only about 5 Percent of their Total Indirect Spend

35%

19%

7%

1st Quartile Median 3rd Quartile

Purchasing card transactions as a percent of total low-dollar transactions

2.1%

5.3%

10.0%

Non-Top Performer Top Performer First Quartile

Purchasing card spend as a percent of total indirect spend


Higher Transactional Spend Limits Help Drive a Higher Level of Spend and Improve Overall Process Efficiency By Eliminating Transactions

Average Purchasing card transaction amount

Purchasing card spend limit per transaction

$1,000

$2,500

$4,500

Non-Top Performer Top Performer First Quartile

$334

$237

$135



There is Substantial Gap in How Much it Takes to Manage Purchasing Card Programs and Those with Lower Costs will Reap More Benefits

Total Cost to Process a Purchasing Card Line Item(Labor, Outsourcing, Technology, Overhead)

$0.92

$2.03

$5.24


The Hackett Group Purchasing Card Benchmark, 2007

Efficiency Opportunity

For an Organization Processing 500,000 line items a year there is an opportunity of over $2 million in cost reduction from moving from 3rd quartile to 1st quartile


A Significant Contributor to This Efficiency Gap is a Difference in Productivity and Labor Costs Which Make up 79% of Total Cost

$46,899

$61,895

$78,894


Compensation per FTE(Fully Loaded)

192,000

91,000

32,000

1st Quatile Median 3rd Quartile

Transactions per Card Administration FTE


Categories Which Require a More Formal Purchasing Process are Not Normally Good Candidates for Purchasing Cards

The Hackett Group 2007 Purchasing Card Benchmark: Percent of CompaniesOffice supplies PostageSubscriptions, books Medical suppliesMaintenance supplies GasolineReproduction services, supplies AdvertisingTools, hardware Professional service feesFlowers, employee gifts Construction materialCleaning supplies Service contracts (no liability issues involved)Conference / meeting fees Contract / temp laborRepair services InventoryMemberships Utility billsFood services (other than for travel) Service contracts (liability issues involved)Office equipment Personal computersOvernight delivery EntertainmentProfessional education Hazardous materialsComputer peripheral equipment Inbound freight (collect)Auto parts Travel expensesLab supplies Relocation expensesSoftware Fixed assets

Commonly put on P-Card Sometimes put on P-Card Not Commonly put on P-Card


Sponsorship for Purchasing Card Programs Varies Significantly As Does the Targeted Cardholder


There are a Number of Key Controls for a Purchasing Card Program and These are Supported by Policy, Visibility and Enforcement

Assignment of cards

Per transaction and statement limits

Category/merchant blocking

Manager review and approval of statement and receipts

Verification of statement approval and receipt submission

Audits based on flags and sampling

Card retirement processWell Defined and Communicated Policy

System Functionality to Provide Visibility

Consistent Enforcement


While Fraud Involving Purchasing Cards are Highly Publicized, Occurrences of Fraudulent Activity are Normally Low

0%

2%

5%


Percent of audited statement that contain errors or omissions

5%

12%

24%

1st Q Median 3rd Q

Percent of purchasing card statement that are audited


Organizations Should Look at a Blend of Methods for Selecting Statements to Audits Based on Certain Flags

26%

7%

29%

13%

26%

0% 1% to 10%11% to 50% 51% to 90%91% to 100%

Percent of transactions that require no adjustment to account code

55%

19%

7%

19%

Random statistical sample

Total cost by cardholder

Cardholder

Type of purchase

Method of selecting statements for audit

Agenda

The Hackett Group Corporate Card Programs Purchasing Card Programs Travel Card Programs

Summary of Key Points


There are Multiple Types of Programs to Consider, But Best Practice is an Individual Bill/ Company Pay Based on Expense Report

Benefits of Individual Bill/ Company Pay Based on Expense Report

• Encourages timely submission of expense reports

• Travel is not out of pocket for expenses

• Only charges that are claimed on expense report are reimbursed


Most Organization Recognize the Importance of a Well Defined Travel Policy and Expense Reimbursement Process to Controlling Expenses


Travel Spend per Air Mile and Travel Spend per $1000 Revenue are High Level Metrics Often Tracked by Organizations

Travel spend per air mile

$0.60

$1.07

$2.00


Travel spend per $1000 revenue

$3.87

$8.08

$12.90



We See that First Quartile Organizations are Significantly More Efficient at Processing Expense Reports than Others

6.28

2.35

4.551.27

2.63

3.08 4.72

1.360.57

First Quartile Median Third Quartile

Staff Cost/ report Technology Cost/ report Other Cost/ report

$5.01

$8.34

$13.46

Cost to process an expense report Expense reports per processing FTE

16,111

10,318

5,461


56%

28%

16%


An Efficient Expense Reimbursement Process Should Not Require Significant Investment from Travelers

Estimated number of minutes to create and submit an expense report (domestic trip)

20

30

58


Receipt Requirement Threshold

$25 $25

$50



The Majority of Organizations have Migrated to an Electronic Reservation System although there is an Opportunity to better Leverage Web-based Applications

Hackett T&E Process Benchmark, September 2007


Organizations are Rapidly Moving Towards a Paperless Process which Drives Down Cost and Increases Productivity


Paper versus electronic processes


The Travel Booking and Expense Report Creation Processes have Traditionally Been Managed as Two Distinct Processes

Travel Booking Process

Expense Report Process

An Emerging Practice is to Manage as and End-to-End Process


Organizations are Leveraging Imaging and Workflow for Improving the Efficiency of the Process and Moving towards Electronic Receipts in Lieu of Paper



Typically, Organizations Should Target Full Audits for Less than 10 Percent of Their Total Expense Reports

7% 5%17%

10%

100%

20%

5%

10%

50%

Fully audited Receipt compliance Policy compliance

First Quartile Median Third Quartile

Percentage expense reports audited


A less than 10 Percent Audit Rate is Predicated on a Controlled Process with Minimal Errors

5%

10%

20%


Percent of audited expense reports that contain any type of error

1%

3%

5%


Percent of expense reports actually returned to originator

Agenda

The Hackett Group Corporate Card Programs Purchasing Card Programs Travel Card Programs Summary of Key Points


Overall Observations

One Card solutions can create efficiencies for some organizations Purchasing Card programs are normally aimed at streamlining the end-to-end

purchasing and payables process and creating rebates A well defined audit program should aim at less than 10 percent of statements

fully audited Integration of the travel booking and expense report creation process is an

emerging practice Managing travel spend should be a key objective of the T&E process Automation of the T&E process is the norm today The use of electronic statements in lieu of paper receipts is an emerging

practice

purchasing and travel card programs nsaa/nasc joint middle management conference kurt albertson...

Documents

executive slide

hackett group te benchmark

combined card programs

toplevel slide master

hackett intellectual

prior written consent

working capital group

leading performers