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Visa Procure-to-Pay Best Practices

1

Introduction

The Visa Procure-to-Pay Best Practices study indicates that leading companies have

adopted best practices that incorporate six key findings:

• Proactive, ongoing senior management sponsorship for Procure-to-Pay initiatives

• Collaboration to ensure communication and enforcement of Procure-to-Pay

policies and procedures

• Progressive migration to automating the entire Procure-to-Pay information

technology platform

• Aggressive Strategic Sourcing focus to continuously enhance vendor relations

• Comprehensive data aggregation and reporting to support management and

enable continuous improvement of their Procure-to-Pay function

• Commercial card objectives alignment with a company’s overall

Procure-to-Pay strategy

Visa and Deloitte developed 60 best practices in keeping with these findings to help

large and mid-size companies attain greater work efficiencies and cost savings in their

Procure-to-Pay processes.

The average study participant that has adopted all of these best practices saves an

average $1.76 million to $8.3 million in annual, indirect transaction processing costs

(does not include potential cost savings associated with vendor discounts or front-end

processing efficiencies).

These findings represent a continuation in the evolution and sophistication of

Procure-to-Pay Best Practices that were identified in the 1998 Visa Corporate Card and

Purchasing Card Best Practices Study.

SECTION I

Executive Summary

StudyOverview

Study Overview

As part of an ongoing effort to understand and improve the processes of business,

Visa Commercial Solutions commissioned Deloitte to conduct a comprehensive study of

procurement and payment best practices for companies nationwide.

Scope

Visa’s Procure-to-Pay Best Practices encompass the entire Procure-to-Pay

function, including Procure-to-Pay foundation, commercial card management, and the

end-to-end Procure-to-Pay process, from sourcing to back-end reporting. Travel and

Entertainment is included in this study as a separate section and falls under the overall

Procure-to-Pay process section.

Procure-to-Pay Study Scope Best Practices

Section I

Executive Summary

2

FoundationStrategy

Organization

Technology

Commercial

Card

ProcessPurchasing

T&E

Purchasing Card

Travel and Entertainment (T&E) Card

Fleet Card

Sourcing ReportingOrderPlacement

Payment &Settlement

Recon-ciliation

Control and Audit

3

Study Overview

Approach

Deloitte identified 52 large corporate and mid-size companies with Procure-to-Pay

practices. The selection criteria ensured distribution among revenue size, geography,

industry, Issuer, and company culture.

The number of study participants and their corresponding industry affiliations are

summarized as follows:

Communications 1 1

Consumer Business 6 7

Energy 2 0

Financial Services 4 3

Health Care 1 4

Manufacturing 6 11

Professional Services 2 4

INDUSTRY COMPANY

Large Market Middle Market

Total Revenues

of Surveyed Companies

50%Greater than

$1 billion

30%Less than

$500 million

20%$500 millionto $1 billion

67%AmericanExpress

29%Visa

4%MasterCard

24%AmericanExpress

43%Visa

33%MasterCard

Type of T&E Cards Used

by Surveyed Companies

Type of Purchasing Cards Used

by Surveyed Companies

StudyOverview

Identification of Best Practices

Deloitte identified 52 large corporate and mid-size companies considered to

have leading Procure-to-Pay practices. After distributing a detailed questionnaire to

all companies, they conducted 20 on-site interviews with select participants.

The questionnaire gathered quantitative and qualitative information, including:

• Understanding best practices, key drivers, enablers, challenges, anecdotal

information, user satisfaction ratings, service-level quality

• Macro-level statistics — dollar spend, average transaction on card, average dollar

size of transaction, vendor-negotiated discount rates

• Micro-level statistic — indirect activity cost and time (excluding overhead)

• IT/data requirements

Participants included procurement, Accounts Payable (A/P), travel managers,

buyers, commercial card administrators, and representative users to gain greater

insight into companies’ specific Procure-to-Pay functions and best practices.

This data-gathering effort led to the identification of 60 leading-edge practices

across four categories: Foundation, Commercial Card Management, Procure-to-Pay

Process, and Travel and Entertainment. Best practices for each category follow:

Foundation Best Practices

Section I

Executive Summary

4

FoundationStrategy

Organization

Technology

1. Articulate a Procure-to-Pay strategy with a short- and long-term vision

2. Proactively obtain ongoing senior management and business unit support

by sharing information

3. Conduct benchmarking to gain additional perspectives and strategic focus

4. Strategically position procurement and Accounts Payable in the organization

5. Ensure center-led management and control of critical Procure-to-Pay functions

6. Develop enterprise-wide procurement policies and procedures

7. Develop an internal communication plan to convey procurement policies,

procedures, and successes

8. Develop a comprehensive change management discipline

9. Develop an overall Procure-to-Pay technology strategy

10. Establish a business case for each technology investment and track your performance

relative to your business case objectives

11. Maximize automation of an end-to-end technology solution

12. Implement and leverage an e-Procurement solution

5

StudyOverview

Commercial Card Best Practices

CommercialCard

Purchasing Card

Travel and Entertainment (T&E) Card

Fleet Card

1. Determine commercial card product(s) based on needs of the organization

2. Source, select, and implement a Visa Purchasing card program

3. Source, select, and implement a Visa Commercial One card program

4. Align commercial card program objectives with your overall Procure-to-Pay strategy

5. Source, select, and implement a Visa Fleet card program

6. Obtain active senior management promotion of and involvement in the commercial card program

7. Establish center-led management and administration of the commercial card program

8. Develop and disseminate enterprise-wide commercial card policies and procedures

9. Incorporate a comprehensive commercial card training program

10. Establish Visa Purchasing/Visa Commercial One card issuance criteria for optimal distribution

to employees

11. Mandate and enforce use of Visa Purchasing/Visa Commercial One card for all eligible purchases

12. Maximize use of Visa Purchasing/Visa Commercial One card virtual accounts

13. Incorporate commercial cards into business continuity planning

14. Establish parameters for eligible Visa Purchasing/Visa Commercial One card transactions leveraging

appropriate controls

15. Investigate Visa Purchasing/Visa Commercial One card expansion to non-typical spend categories

to maximize benefits achieved

16. Share Visa Commercial One card performance and savings reports with senior management to

promote appropriate use of the card

17. Use Issuer or card provider analytical tools to review and improve your commercial card

program performance

18. Use Visa Fleet cards to track expenditures through both external and internal sources

Section I

Executive Summary

6

Study Overview

Procure-to-Pay Process Best Practices

1. Optimize number of suppliers by selecting and monitoring vendors through a formal vendor

management program

2. Incorporate Visa Purchasing/Visa Commercial One card acceptance into preferred vendor

contract terms

3. Utilize e-Sourcing tools such as e-RFX and e-Auctions to source suppliers and gain savings

on one-off items

4. Limit the number of approvals required to place an order

5. Minimize the use of paper purchase orders for all Visa Purchasing card-eligible purchases

6. Integrate the Visa Purchasing/Visa Commercial One card into the e-Procurement system as a

method of payment

7. When commercial cards are not used, employ three-way matching to reduce the number of

approvals required prior to payment

8. Replace manual check payments with electronic payments

9. Use the Visa Purchasing/Visa Commercial One card to pay invoices received in Accounts Payable

10. Develop solutions that support the reporting and payment of sales and use taxes

11. Work with your Issuer to receive commercial card statements electronically with cost centers

and G/L codes pre-defined to facilitate end-user reconciliation

12. Outsource high-volume, specialized payment processes

13. Determine control strategy

14. Monitor procurement performance via a scorecard that includes cost, quality, and time components

15. Gain a comprehensive view of spend by integrating data from multiple sources

e.g., e-Procurement, travel, ERP, Visa Purchasing cards

16. Leverage SIC and MCC codes for categorization of spend and purchasing data

ProcessPurchasing

T&E


Payment &Settlement

Recon-ciliation

Control and Audit

7

StudyOverview

Travel and Entertainment Card Best Practices

1. Institute a centralized travel management function

2. Develop and distribute company-wide travel policies

3. Coordinate event planning through travel management function

4. Source, select, and implement a T&E card program

5. Establish T&E/Visa Commercial One card issuance criteria for optimal distribution to business travelers

6. Mandate and enforce use of the T&E/Visa Commercial One card for all eligible purchases

7. Maximize use of T&E/Visa Commercial One card virtual accounts

8. Optimize the number of suppliers by selecting and monitoring vendors through a formal

vendor management program

9. Implement in-house Web-based booking tool

10. Establish well-defined expense report audit parameters

11. Standardize and pre-populate T&E/Visa Commercial One card expense reporting

12. Standardize and automate data interfaces between expense management and accounting applications

13. Capture, report, and analyze comprehensive, company-wide travel data

14. Implement post-trip exception reporting and distribute lost savings report

ProcessPurchasing

T&E


Payment &Settlement

Recon-ciliation

Control and Audit

Summary of Key Findings

Section I

Executive Summary

8

Market and Industry Applicability

The study findings indicate that the best practices are equally applicable for large

corporate and mid-size companies. Both large and mid-size companies have similar

goals and challenges in obtaining a leading Procure-to-Pay function. Differences among

companies exist in scale of implementation, ability to dedicate resources, and level of

technology implementation. How companies handle the implementation activities

depends on their size, organizational structure, and company culture.

The study further indicates that companies in the manufacturing industry have

been leaders in the adoption and use of innovative Procure-to-Pay best practices. The

necessary disciplines of supply chain management, sourcing, and efficient procurement

of goods and services are fundamental to their existence. Financial services and

consumer business companies are “fast-followers” in the adoption of best practices, as

they integrate manufacturing disciplines into their internal culture. Mid-size companies

can be viewed as followers of large corporate companies in the adoption of best

practices as solutions are proven to succeed and are scaled and priced appropriately.

Six Key Areas

The 60 best practices detailed in this study provide practical ways for companies to

achieve an optimized Procure-to-Pay function by addressing six key areas:

1. Proactive, ongoing senior management sponsorship for Procure-to-Pay initiatives

A consistent critical success factor from the 1998 study to the 2002 study

continues to be the need to obtain senior executive sponsorship for Procure-to-Pay

initiatives. For large corporate sponsorship, this could include business unit leaders

and executive management and at mid-size companies, sponsorship could be a direct

line to the CEO/CFO.

Achieving senior management sponsorship is necessary for receiving endorsement

of existing initiatives, encouraging compliance with policies, and increasing awareness

of procurement initiatives throughout the organization. In recent years, leading-edge

companies have become more innovative in achieving sponsorship by using relevant

and realistic ROI measures, sharing information, and actively communicating goals and

successes to senior sponsors and throughout the company.


Summary ofKey Findings

9

Senior management interest in the Procure-to-Pay process has increased

significantly due to economic conditions and an increased focus on cost containment, as

well as recent focus on employee security (in regards to travel).

2. Collaboration to ensure communication and enforcement of Procure-to-Pay policies and procedures

In recent years, procurement and A/P managers have come to view business units

as internal customers. This is a progression from the siloed and often adversarial

approach of the past, which yielded sporadic compliance to policies and procedures from

the business units due to a lack of understanding of the benefits resulting from a

uniform approach and consistent compliance.

Although compliance with policies and procedures continues to be a challenge, leading

companies are addressing the challenge by encouraging business unit partnership. Shared

objectives and performances measures have led to more formalized ties between business

units, resulting in increased compliance with policies and a reduced overall cost structure.

3. Progressive migration to automating the entire Procure-to-Pay information technology platform

While survey participants in previous studies conceptually understood and strived

for an automated Procure-to-Pay process, companies traditionally made “one-off”

decisions rather than focusing on a plan to implement an entire solution. In recent

years, e-Procurement technologies were implemented without the support of a realistic

business case and a plan for achievable return on investment (ROI). More recently,

leading companies have taken a more pragmatic approach to automation, focusing on

the implications to the entire end-to-end platform. To support information technology (IT)

initiatives, they set realistic and achievable ROI objectives. In addition, leading

companies recognize that the benefits to automation can only be achieved by

incorporating process changes as part of the solution. These companies employ

change management techniques to achieve user support and consequently optimize

the benefits associated with improved processes.

Mid-size companies are no longer excluded from receiving the benefits of increased

automation as IT solution providers are increasingly targeting mid-size companies by

offering cost-effective, focused, packaged solutions or innovative hosting models.

Section I

Executive Summary

10


4. Aggressive Strategic Sourcing focus to continuously enhance vendor relations

This is an increasingly important strategic priority for leading companies and a

powerful tool in cost-reduction efforts. While companies have traditionally attempted to

achieve discounts with vendors, they are learning that a Strategic Sourcing discipline is

the most value-added procurement activity. A 2002 Deloitte Research study on Strategic

Cost Reduction indicates a potential cost savings of 15 to 25 percent through a focused

Strategic Sourcing initiative. Strategic Sourcing offers the following benefits:

• Rationalizing the vendor base

• Maintaining stronger oversight of relationships with vendors

• Using the data to understand market share

• Pushing vendors towards deeper discounts and better service

Companies have used different approaches to Strategic Sourcing and vendor

management. Some companies are collaborative in their approach, while others

stipulate implementation of their standards. In either case, results have clearly shown

that focused supplier sourcing and management lead to significant bottom-line savings.

Leading companies continue to dedicate resources to this discipline, with a

noticeable change in strategy towards multi-functional negotiating teams (e.g.,

procurement, A/P, IT, and other key stakeholders) that focus on a corporate-wide view

of spend. Formal tools have been developed to assess vendor and commodity spend,

establish achievable sourcing targets, and support and monitor sourcing initiatives.

11


5. Comprehensive data aggregation and reporting to support management and enable continuous improvement of their Procure-to-Pay function

Leading companies understand that data aggregation and reporting is critical to

accomplishing any key activity. They also understand that reporting is not a function of

the quantity of reports, but a function of the ability to integrate and analyze their data.

These companies accurately define required reports, and use them to share information

across the business and to track performance to goals.

The sophistication of in-house systems (e.g., ERP, e-Procurement, reporting tools

offered by Issuers) has improved to allow companies to obtain greater spend detail from

internal systems. Integrating data from multiple sources has provided leading companies

with a clearer understanding of the reports needed to support procurement goals.

However, large and mid-size companies still rely on a significant amount of customization

to reporting systems and make extensive use of ad-hoc reporting to provide necessary

information.

6. Commercial card objective alignment with company’s overall Procure-to-Pay strategy

The study found that commercial card program success factors include:

• Integration of the commercial card as a payment vehicle into the overall

Procure-to-Pay strategy

• Comprehensive training programs that help employees understand the benefits

realized by the corporation through use of the commercial card

• Enforcement, consistent with the corporate culture, of the commercial card for

eligible commodities and purchases

• Development of issuance criteria that target employees who have reason to use

the commercial card rather than employing a broad distribution process that

would include employees who do not have a need for the card

Section I

Executive Summary

12


Emerging Procure-to-Pay Trends

The study also identified organizationally focused Procure-to-Pay strategic trends.

Today, corporations are working to coordinate A/P, procurement, and Strategic Sourcing

activities and are modifying their processes to improve information sharing. Center-led

management of these disciplines supports optimal vendor selection, negotiation, and

management.

The 52 companies that participated in this study provided detailed insights into their

current and future Procure-to-Pay goals. Study responses highlighted three emerging

Procure-to-Pay trends.

e-Auctions

e-Auction applications, if not already in use, will soon be deployed by a larger

percentage of the study’s survey participants. Seventeen percent of study participants

will implement an e-Auction solution in the next two years.

While e-Auctions will continue to play a role in procuring indirect and direct

commodities, companies have not developed Procure-to-Pay strategies that optimize use

of the commercial card as an e-Auction settlement option.

Benchmarking

Leading companies have created a group of “benchmarking partners.” This group

often includes companies outside of their industry as well as companies with which they

may have a complementary relationship, e.g., suppliers or vendors. Some companies will

use third-party companies to conduct “blind” benchmarking studies against their

immediate competitors. Additionally, leading companies participate in external

benchmarking studies, e.g., Forrester, IDC, Gartner, or ISM, on a periodic basis.

13


Internet Applications for Booking and Reporting Travel and Entertainment

Use of the Internet for booking travel and generating expense reports continues to

increase. Companies report anticipated process savings of 80 percent, as well as a

significant reduction in data entry errors. Study statistics indicate:

• 40 percent of companies surveyed have already implemented Web-based booking;

another 10 percent plan to in the next two years

• 26 percent of companies surveyed have implemented automated expense

reporting

• 36 percent of companies plan to implement an automated expense reporting

application in the next two years

Benefits from Implementation

Study participants that have adopted these key practices have achieved significant

quantitative and qualitative benefits, including the following:

• 80 percent of suppliers are under contract

• 90 percent of all spend with preferred vendors

• 75 percent of office supplies are purchased through e-Procurement

• 75 percent of e-Procurement orders are paid using the Visa Purchasing card

• 71 percent of payments are automated

• 98 percent compliance with audit criteria

• 90 percent of all trips booked through an in-house Web tool

• 29 percent discount on negotiated airline rates

The table below reflects the performance, challenges, and benefits of companies

based on their adoption of the six key best practices:

Section I

Executive Summary

14


Leading Company Key Practices

Proactive, Ongoing Senior Sponsorship

Level of Incorporation

Low-Adopter

Little or no senior sponsorship

No clear line of communication between procurement, A/P, and senior management

Inability to advance Procure-to-Pay initiatives

Common

Some senior sponsorship of key procurement initiatives

Infrequent communication (e.g., annually) with senior management

Limited advancement of Procure-to-Pay initiatives

Leading

Senior sponsorship of many procurement initiatives

Periodic upward reporting to senior management

Frequent communication between procurement, A/P, and business units

Advanced

Visible senior sponsorship of the overall Procure-to-Pay strategy and all related initiatives

Procurement and A/P department heads report directly to senior management

Quarterly progress review of goals and objectives

15



Collaboration,Communication, and Enforcement ofPolicies & Procedures


Low-Adopter

No policies and procedures and/or outdated or inactive policies and procedures

Procurement and A/P are siloed and do not cooperate

Departments are viewed as cost centers vs. business partners

Poor compliance with policies and procedures

Common

Policies and procedures exist with little executive support and visibility

Infrequent communication of changes to policy

Compliance is not actively monitored or enforced

Leading

Effective policies and procedures developed

Readily accessible by users

Annual review, modification, and communication of changes

Consistent feedback loop

Reports produced to track compliance

Some collaboration between procurement and A/P

Advanced

Senior sponsorship of policy and procedure development

Frequent communication across functions

Procurement and A/P work collaboratively with business units

Sharing of lost opportunity and cost avoidance informationwith business units

Alignment of performance objectives

Potential alignment of compensation and bonus to achievement of goals and objectives

Section I

Executive Summary

16



Progressive Migration to IT Automation


Low-Adopter

Manual data entry, few or no interfaces exist between legacy systems

Highly paper-intensive process

Common

Use of commercial cards to eliminate paper

Some adoption of integrated Accounts Receivable, General Ledger, and A/P

Mixed success in achieving automation

Little process reengineering and change management to support initiatives

Leading

ERP adoption with integrated financials and e-Procurement

Business case to support new business automation initiatives

Value of change management is recognized and used

Increased automation of invoice payment

Advanced

End-to-end Procure-to-Pay automation, including e-Auctions, e-RFX, EIPP

Detailed and achievable ROI measures used to prioritizefuture initiatives

Integration of virtual accounts to support e-Procurement

Outsourcing of platform and maintenance explored as viable option

Dedicated change management resources to support all initiatives

17



Aggressive StrategicSourcing Focus


Low-Adopter

No Strategic Sourcing effort

Buyers focus on processing purchase orders instead of sourcing

Procurement does not formally manage spend through preferred vendor lists, vendor scorecards, or department metrics

Multiple discounts negotiated for one vendor

Common

Decentralized and informal sourcing policies

Negotiation with some key vendors without centrally supported effort

Negotiated discounts poorly communicated to buyers

Frequent occurrences of multiple discounts per vendor

Leading

Focused Strategic Sourcing effort

Initial attempts to rationalize and reduce supplier base

Central, commodity-based approach to sourcing

Achievement and communication of significant discounts for key commodities

Advanced

Dedicated Strategic Sourcing function with integrated team

Significant reduction in rationalization of vendor base

Significant discounts negotiated enterprise-wide

Annual review and scorecard measurement of vendor performance and communication of findings with vendor and business unit sponsor

Section I

Executive Summary

18



Comprehensive Data Aggregation and Reporting


Low-Adopter

Difficulty capturing appropriate data from legacy systems

Data only captured from internal system

Use of rudimentary reporting templates

Use of vendor data is minimal or non-existent

Common

Some use of reporting system

Manual aggregation of data from multiple internal and external data sources

Inconsistent ability to capture and interpret relevant data for reporting purposes

Leading

Significant use of packaged or in-house reporting system

Significant leverage of data from integrated application suite

Well-defined, central data repository for aggregation of datafrom internal and external sources

Ability to define and create reports needed to support the Procure-to-Pay function

Advanced

Central, desktop, self-service reporting

Ability to integrate and analyze data from multiple sources

Information is current and accurate and provides executive-and managerial-level reporting

Ability to integrate data from new sources as they are implemented (e.g., e-Auction, EIPP)

19



Commercial CardObjectives Alignment with a Company’s Overall Procure-to-PayStrategy


Low-Adopter

Nominal Procure-to-Pay strategy

Indiscriminate distribution of cards

No periodic assessment of card use or spend limits

Lack of corporate guidance directing expansion of card use

Common

Laissez-faire management of card program; management is aware of card program and periodically assesses carduse, but management does not directly encourage use of the commercial card as a payment vehicle

Management may encourage use of card for MRO purchases only

There is no effort to make the card program a primary payment vehicle

Leading

Procurement, sourcing, and A/P acknowledge the commercial card as a primary payment vehicle

Suppliers are either mandated to accept the commercial card or are given a preferential weighting on vendor scorecards

All commodities are reviewed for inclusion in the commercial card program

Advanced

User goals are established based on spend limit, commodities purchased, and cost savings

Reports provide periodic snapshot of goal-to-date performance, i.e., cost savings reports

Procurement organization stipulates use of card as payment vehicle for specific suppliers

Buyers are evaluated on their movement of suppliers and commodities to the commercial card program

Integration of commercial card in automated procurement and Strategic Sourcing tools

21

The 60 best practices that follow are practical ways for companies to gain real-world

benefits from optimizing their Procure-to-Pay function. They are broken down into three

main categories: Procure-to-Pay Foundation, Commercial Card Programs, and Procure-to-

Pay Process. Travel and Entertainment is included as a separate section and falls under

the overall Procure-to-Pay process section.

Each entry outlines the market applicability and implementation steps for each best

practice. It also details specific success stories and trends regarding its incorporation

into company policy.

SECTION II

Best Practices

Section II

Best Practices

22

23

Procure-to-Pay Foundation

Summary

Procure-to-Pay Foundation describes the strategy, organization, and technology

components of the Procure-to-Pay process. The best practices described in this section

form the building blocks and essential requirements for companies to have advanced or

leading-edge performance. Regardless of size or sophistication, companies will not be

able to achieve best practice performance without a successful foundation.

Best practice companies have defined a near- and long-term vision for their Procure-

to-Pay process. Their procurement and A/P functions are aligned to execute this vision,

and they use technology as a key enabler to meet their goals.

Strategy

Best Practice 1

Best Practice 2

Best Practice 3

Organization

Best Practice 4

Best Practice 5

Best Practice 6

Best Practice 7

Best Practice 8

Technology

Best Practice 9

Best Practice 10

Best Practice 11

Best Practice 12

Articulate a Procure-to-Pay strategy with a short- and long-term vision

Proactively obtain ongoing senior management and business unit support by sharing information

Conduct benchmarking to gain additional perspectives and strategic focus

Strategically position procurement and A/P in the organization

Ensure center-led management and control of critical Procure-to-Pay functions

Develop enterprise-wide procurement policies and procedures

Develop an internal communication plan to convey procurement policies, procedures, and successes

Develop a comprehensive change management discipline

Develop an overall Procure-to-Pay technology strategy

Establish a business case for each technology investmentand track performance relative to business case objectives

Maximize automation of an end-to-end technology solution

Implement and leverage an e-Procurement solution

IMPLEMENTATION

ACTION STEPS:

1. Define a team of key

stakeholders, including

senior management,

to develop the overall

strategic planning process

2. Review previous

strategies and year-end

spend analyses to set

meaningful goals

3. Communicate strategy

with procurement and

A/P to achieve buy-in

Benefit Obtained: Cost Savings/

Process Efficiencies

Amount of Benefit: High

Rationale: Enables organization to identify

achievable cost savings goals and define a

“target” goal for achievement

Benefit Obtained: Vendor Management


Rationale: Sets goals for supplier rationalization

initiatives

MARKET APPLICABILITY: All Companies

Benefit Obtained: User Satisfaction

Amount of Benefit: Medium

Rationale: Communication of strategy encourages

support from key Procure-to-Pay stakeholders

Benefit Obtained: Control


Rationale: Sets guidelines for overall control

strategy

IMPLEMENTATION SUCCESSES and TRENDS

• One study participant publicly displays his company’s key Procure-to-Pay initiatives for the yearand his company’s progress to date in completing them. This has helped enable the companyto achieve its initial goals for the quarter.

• One best practice participant created a plan by business unit to detail how it would meet customer service requirements, increased control objectives, and reduced costs targets. This helped identify the appropriate goals for the company’s purchasing card implementation.

Companies should develop an overall strategy that defines the goals for the

Procure-to-Pay process. This strategy forms the overall blueprint for the company’s

process and is a component of the overall company strategy.

A successful strategy contains goals for overall spend, projected breakdown of

spend by commodity, spend by order mechanism, spend by payment type, cost savings

(either through activity-based costing or full-time equivalent [FTE] savings), and supplier

sourcing goals. The strategy also lists the tactical initiatives (both operational and

technological) that will enable these goals. This includes implementation and evaluation

of existing control mechanisms, new projects, and technology.

Goals are developed for the short-term (one to two years) as well as long-term (three

to five years). The advantage of developing the dual focus is that it enables companies to

prioritize their initiatives and helps provide direction for creating business cases.

The Procure-to-Pay strategy needs to be shared throughout the organization,

specifically with procurement, A/P, IT, and key business units. This will help secure the

support of key stakeholders in those functions and ensure that the organization works

toward common goals.

Strategy

Articulate a Procure-to-Pay strategy with a short- and long-term vision

Section II

Best Practices

24

Best Practice 1

Procure-to-PayFoundation

25

Best Practice 2


Leading companies have recognized that obtaining ongoing senior management

support (e.g., business unit lead, senior or executive vice president) for the processes

and technologies that the procurement function has designed enables procurement to

add significant value to the organization.

Companies have successfully maintained senior management support by developing

an ongoing communication of the activity and successes of their organization through an

executive-level report, which can contain the following:

• Process metrics: Purchase order volume and trend, invoice volume and trend,

travel and entertainment volume and trend, Visa Purchasing card usage and trend

• Savings metrics: Dollars saved through use of preferred vendors and negotiated

rates, dollars saved through Procure-to-Pay process changes (e.g., expanded use

of Visa Purchasing card, implementation of automated expense reporting)

• Lost savings: Dollars lost through non-compliance with procurement policies and

procedures (e.g., maverick spend, use of non-preferred vendors)

• Current initiatives underway: High-level descriptions of efforts and expected

benefits to generate awareness and gain ongoing support

Companies have used innovative methods to share this information with senior

management. This includes creating unique presentations, assigning business unit

liaisons, and actively communicating successes through internal newsletters.

In addition to simply communicating procurement successes, procurement

organizations have actually shared their savings with their internal business customers

to encourage further compliance with policies and procedures. For example, rebates

from achieving volume discounts with vendors are shared with the business units that

used those vendors.

continued on next page

Strategy

Proactively obtain ongoing senior management and business unit support by sharing information



Rationale: Frequent communication of savings from

compliance and lost savings from non-compliance

with procurement policies and procedures encour-

ages senior management to promote compliance

with procurement policies and procedures

Proactively obtain ongoing senior management and business unit support by sharing informationcontinued

IMPLEMENTATION

ACTION STEPS:

1. Develop cross-functional

team to form

senior management

communication initiative

2. Proactively identify

compelling and relevant

procurement metrics

and review with senior

managers to determine

appropriateness

3. Develop communication

initiative with related-

tools (e.g., webcasts,

report layouts)

4. Adjust initiative to reflect

feedback as received

5. Schedule periodic review

meetings with senior

management to share

information and ensure

active participation




Rationale: Frequent communication of

procurement successes and opportunities for

improvement provides senior management with

the incentive to continue support of cost-saving

procurement activities


Section II

Best Practices

26

Best Practice 2



• One organization tied management’s bonus objectives to achievement of procurement-relatedgoals. Because of this, the procurement department regularly reported its progress in meetinggoals and successes to the other business units in the organization.

• Another survey participant shared procurement performance numbers, such as cost avoidanceand cost savings, quarterly with his peers to obtain ongoing support of initiatives.

• One large corporate company’s head of procurement is a member of the senior managementteam and thus provides procurement performance information at weekly planning and statusmeetings with the company’s president.

• One-third of the study participants indicated lack of senior management support as asignificant barrier to card expansion.

27

Best Practice 3


Best practice companies conduct benchmarking on a regular basis — at least

annually — to assess the performance of their companies and gain additional insight into

innovative practices and opportunities for improvement.

Benchmarking should assess quantitative items such as direct cost to place an

order, cost to produce a check payment, supplier base metrics, and qualitative findings

(e.g., implementation and control best practices).

Leading companies have created their own group of “benchmarking partners.” This

includes companies outside of their industry as well as ones with which they have a

complementary relationship (e.g., suppliers or vendors). Some companies will use third-

party companies to conduct “blind” benchmarking studies against their immediate

competitors. Additionally, best practice companies participate in external benchmarking

studies on a periodic basis — these include commercial card-provider studies as well as

U.S. Government figures, Forrester, IDC, and NAPM studies.

In addition to the benefits gained by learning from other companies, benchmarking

studies can also be useful tools in promoting the success of the Procure-to-Pay function

to senior management or, potentially, in providing information to develop business cases

for key initiatives.


Strategy

Conduct benchmarking to gain additional perspectives and strategic focus

Section II

Best Practices

28

Best Practice 3


Conduct benchmarking to gain additional perspectives and strategic focuscontinued



Rationale: Enables user participation and ability

to benchmark user satisfaction

IMPLEMENTATION

ACTION STEPS:

1. Identify benchmarking

studies to participate in

as part of annual strategy

and allocate resources

(e.g., time and budget)

for participation

2. Solicit companies through

contacting peers, internal

networks, or trade groups

3. Allocate time to review

results of benchmarking

study, incorporate findings

into strategic initiatives,

and communicate results

to senior management

4. Attend conferences and

read industry publications

on a regular basis




Rationale: Helps set achievable cost savings goals




Rationale: Provides potential negotiation and

sourcing goals for company


• One best practice company has a list of benchmarking partners to use in conducting periodicstudies. The partners are companies with leading Procure-to-Pay reputations and have helped raisethe expectations and goals for the company. For instance, after learning that one company saved$11.6 million through e-Auctions, the company began a partnership with an e-Auction company.

• Another study participant increased the airline discounts the company receives from 15 percent to 20 percent by reviewing trade publications and T&E benchmarking studies to understand market conditions and negotiation best practices.

• One study participant uses internal benchmarking that enables employees to enter time activitydata on a monthly basis. This is used to calculate procurement and A/P productivity and helps himidentify areas for improvement.

• Two mid-size study participants participated in extensive benchmarking studies, including theHackett Study.

29

Best Practice 4


Leading companies have strategically changed their positioning of procurement and

A/P functions over the last two to three years. Traditionally, these two functions have

performed as separate silos within the organization. Best practice companies now

encourage a more collaborative relationship between the two departments in order to

optimize their Procure-to-Pay processes.

One key driver behind the change in this relationship is the new view of procurement

and A/P as internal service organizations. This has resulted from inclusion in a shared

services organization as well as the realization of their interdependency during Procure-

to-Pay reengineering initiatives such as Visa Purchasing card implementations, ERP

implementations, and Strategic Sourcing. These initiatives have helped procurement

and A/P demonstrate how they jointly enable the business units to achieve their goals.

Procurement and A/P often refer to other business units within the organization as

“clients” or internal customers. Conducting internal surveys or reviews with business unit

leaders to review service quality has now become common.

Procurement and A/P representation on cross-functional teams is now essential

for the success of most technology and strategic initiatives. Additionally, successful

companies have been able to use a combination of procurement, A/P, and business

unit personnel to focus on Strategic Sourcing and drive deeper negotiated discounts.

To enhance the service reputation of their functions, some procurement organizations

have assigned liaisons to work with individual business units to help set goals, provide

training, and evaluate new opportunities.


Organization

Strategically position procurement and Accounts Payable in the organization



Rationale: Collaboration on sourcing will drive

deeper discounts; procurement brings negotiation

and industry expertise, and A/P can provide

detailed analyses of spend data

IMPLEMENTATION

ACTION STEPS:

1. Ensure participation

of procurement and

Accounts Payable on

cross-functional teams

2. Ensure business

unit liaisons exist in

procurement and

A/P functions

3. Align success of

procurement and A/P

functions with meeting

overall business goals

4. Conduct internal

surveys with business

units to measure their

level of satisfaction

and effectiveness



Rationale: Users benefit from service-oriented

approach and will have greater adoption of new tools




Rationale: Enables central coordination

and monitoring of Procure-to-Pay function

and compliance with policies

Section II

Best Practices

30

Best Practice 4



• One study participant helped transform his company’s Procure-to-Pay function to leading byassigning procurement business unit liaisons. These liaisons worked with the business units toidentify opportunities for vendor reduction, negotiate deeper discounts, and improve use of thee-Procurement system.

• One study participant has his company’s sourcing initiative jointly led by procurement and A/P.Combining procurement’s negotiating acumen with A/P’s ability to produce accurate spendinformation has helped his company to reduce the time necessary to issue a request for proposal(RFP) by over 50 percent.

Strategically position procurement and Accounts Payable in the organizationcontinued



Rationale: Reduces confusion within the

organization by providing single points-of-contact

31

Best Practice 5


IMPLEMENTATION

ACTION STEPS:

1. Identify dedicated roles

and assignments in the

organization chart

2. Link employee bonuses

and performance ratings

with ability to meet

organization goals

3. Communicate name of

central points-of-contact

throughout the organization

4. Obtain senior management

sponsorship of company-

wide policies and

procedures

5. Validate reporting hierarchy

to ensure center-led

visibility of key reports




Rationale: Reduces duplication of functional roles

in the organization

MARKET APPLICABILITY: All companies, where a dedicated role may not be possible, a single point-of-contact should be assigned



Rationale: Use of central management enables

unified negotiations with suppliers



Rationale: Enables central distribution and

management of policies and procedures

Successful companies assign dedicated roles and responsibilities for their most

critical Procure-to-Pay functions: contract administration, expense management,

administration of designated commercial cards, and development of policies and

procedures. Other activities, such as requisitioning and buying, have become more

decentralized and dispersed throughout the organization as new initiatives are

introduced. This enables the procurement and A/P functions to focus on their most

critical value-added activities.

Another advantage of the center-led approach is that it allows for centralized

monitoring and control over the Procure-to-Pay function. Companies have an easier

ability to create centralized reports that can track company spending and compliance.

It also enables a uniform distribution and enforcement of policies and procedures.

Organization

Ensure center-led management and control of critical Procure-to-Pay functions


• 67 percent of study participants believe they have central management and administration oftheir procurement function.

• One study participant reports that he has been unable to maximize the benefits of his company’scommercial card program because one of his company’s business units uses different policiesand procedures to manage the card.

Leading companies document procurement policies and procedures to

communicate to their internal customers their recommended Procure-to-Pay processes.

A procurement policy should contain the following content:

• Mission statement and objectives of procurement function, including alignment

with company’s mission statement

• Procurement organization chart with contact information

• Sourcing and procurement guidelines

— Sourcing strategy

— Requisition of expense items

— Requisition of capital items

— Requisition of services

— Preferred vendors

• Approval rules

• Receipt and return process

• A/P process

• Procurement control and audit

• Use of commercial card

— Commercial card manager contact information

— Issuance criteria and process

— Cardholder agreement

— Usage guidelines

— Reconciliation process

— Payment process

On an annual basis, best practice companies review their policies and procedures

and modify as needed. Changes are then communicated to users and incorporated into

existing training.


Organization

Develop enterprise-wide procurement policies and procedures

Section II

Best Practices

32

Best Practice 6




Rationale: Designing and documenting procurement

policies and procedures that fit a company’s desired

level of control enables communication of require-

ments to ensure compliance

33

Best Practice 6


Develop enterprise-wide procurement policies and procedurescontinued

IMPLEMENTATION

ACTION STEPS:

1. Develop comprehensive

outline that covers all

relevant aspects of

Procure-to-Pay process

2. For each Policy section,

analyze current practices

and third-party research

regarding best practices;

determine preferred

processes based upon

company culture and

capabilities

3. Document the policies

and procedures

4. Continually reexamine

policies and procedure

and update as needed




Rationale: Procurement policies and procedures

detail standard practices designed to make a

procurement organization operate more efficiently;

users who learn about and follow these practices

take actions that enable procurement savings such

as use of preferred vendors



• 85 percent of survey respondents have documented procurement policies and procedures. 74 percent of those respondents had less than 5 percent of all purchases fail a formal audit process.

• All of the study participants who do not have formally documented policies and proceduresstated user inability to comply with procedures or failure to follow the approval process as thereasons why they failed audit. These items are the most common component of any policy andprocedure document.

To enable understanding and compliance with procurement policies and procedures,

the guidelines must not only be documented, but widely disseminated as well.

Most companies have their policies and procedures manual available on their

procurement department’s intranet site. Best practice companies have additionally

developed more creative ways to disseminate their policy information.

New users and new employees often receive procurement training during their

new hire orientation. This training can be delivered in person or via documentation

with contact numbers for follow-up. The documentation can be laminated or brightly

colored to ensure that it is recognizable to the employees. Best practice companies

also streamline the documentation to ensure that only pertinent information is included

in the training to the employee.

Recognizing that ongoing communication is necessary to provide information on

updates as well as to refresh users’ memories, some procurement functions provide an

email procurement newsletter or submit articles to a company newsletter. For example,

an article submitted at one company was a quiz regarding procurement policies.

Prizes were given to a small number of employees who submitted correct answers.

Finally, procurement organizations have found that promoting the hard savings

received from complying with policies encourages communication and further

compliance with policies and procedures. For example, by communicating not only the

benefits obtained by preferred supplier compliance but also the savings lost through

non-compliance, senior management is more willing to encourage their departments to

follow procedures.


Organization

Develop an internal communication plan to conveyprocurement policies, procedures, and successes

Section II

Best Practices

34

Best Practice 7


35

Best Practice 7


Develop an internal communication plan to convey procurement policies, procedures, and successes continued



Rationale: Designing and documenting procurement

policies and procedures that fit a company’s desired

level of control enables communication of

requirements to ensure compliance

IMPLEMENTATION

ACTION STEPS:

1. Initiate cross-functional

team of business units,

(e.g., human resources,

procurement, travel,

and A/P) to develop


communication plan

2. Track communication

success and implement

well-received methods

3. Develop process to

ensure that updates to


are communicated and

distributed in a timely basis




Rationale: Procurement policies and procedures

detail standard practices designed to make a

procurement organization operate more efficiently;

users who learn about and follow these practices

take actions that enable procurement savings,

such as use of preferred vendors



• 82 percent of survey participants have widely disseminated procurement policies and procedures.

• One survey respondent developed his company’s procurement policies and procedures via a multi-disciplinary team. This team regularly meets to revise policies as needed.

Section II

Best Practices

36

Best Practice 8


One of the biggest lessons that companies have learned from their previous

initiatives is the importance of change management. The ability to help educate, train,

and communicate new messages to users is essential for any new initiative to succeed.

Companies should develop a dedicated discipline to handle these activities. This

could be done as an expansion of the existing training department. Change management

activities should be staffed by people with training, marketing, and/or public relations

experience and should be included in all cross-functional initiative teams. The type of

change management activities should be tailored to the specific initiative.

Change management responsibilities include:

• Development of internal training manuals and courses

• Development of self-service and internal customer support

• Creation of internal marketing campaigns and key messages

• Assistance in determining the impact of an initiative on employees

• Identification of “Super Users” or business unit champions for each initiative

Ideally, the change management team could help develop a comprehensive and

ongoing Procure-to-Pay training and education program (e.g., classes and self-service

support) that would help employees understand and use new Procure-to-Pay tools.


Organization

Develop a comprehensive change management discipline

37

Best Practice 8


Develop a comprehensive change management disciplinecontinued



Rationale: Increases likelihood of adoption through

training and support

IMPLEMENTATION

ACTION STEPS:

1. Mid-size Companies:

Allocate resources for

change management in

strategic initiatives

2. Large Companies:

Identify change management

role in organization chart

3. Both Companies:

Identify and assign change

management roles




Rationale: Enables greater adoption of new tools

and technologies and therefore helps meet cost

savings projections in business cases

MARKET APPLICABILITY: A formal change management function would be more likely to be formed by a large corporate company. Mid-size companies should consider assignment of change management responsibilities to a designated person for each important initiative.



Rationale: Helps enable enhanced technologies

with systemic controls


• Two large corporate companies employed different change management strategies in support of the rollout of their e-Procurement systems. One study participant employed limited changemanagement activities (e.g., individual tutorials as needed) to support their deployment. As aresult, they estimate only $310,000 of spend has been placed through the system. The otherparticipant provided enterprise-wide training via computer-based training (CBT) and classroomtraining combined with strong internal marketing. They project $1 billion in spend through the e-Procurement system by the end of the year.

• One study participant cited lack of change management as the biggest reason why they were notsatisfied with their automated expense reporting implementation. The system has been in placefor over three years and still has not been adopted enterprise-wide.

Companies should have a focused technology strategy to complement the overall

Procure-to-Pay strategy. This strategy should describe how technology implementations

and enhancements could enable the achievement of the overall company goals.

Key components of the strategy should include the following:

• Key short- and long-term Procure-to-Pay technology initiatives with alignment

to specific Procure-to-Pay goals

• Vision for the current and future Procure-to-Pay platform, including integration

with new technologies and potential outsourcing opportunities

• Identification of benefits to be gained through the technology initiatives

• Framework for selection of technology partners and vendors

• Framework for development of Service-Level Agreements

• Proposed allocation of budget and resources

Using this strategy as a blueprint, companies can then prioritize their initiatives and

ensure maximum alignment with their goals. Additionally, necessary IT and outside

integration resources can be budgeted appropriately and Procure-to-Pay technology

initiatives can be executed effectively. Finally, the strategy can provide additional

direction for the creation of technology business cases.

As with the overall strategy, the technology strategy must be presented and

supported by key stakeholders in senior management, IT, procurement, and A/P.


Technology

Develop an overall Procure-to-Pay technology strategy

Section II

Best Practices

38

Best Practice 9


39

Best Practice 9


Develop an overall Procure-to-Pay technology strategycontinued



Rationale: Ensures buy-in of user community

on technology initiatives

IMPLEMENTATION

ACTION STEPS:

1. Leverage overall company

strategy, Procure-to-Pay

strategy, and existing IT

resources to formulate

technology component

2. Review previous year’s

strategy to determine

progress, identify gaps,

and ensure consistency

3. Create and review

strategy with key business

stakeholders to obtain

consensus and prioritize

technology initiatives




Rationale: Provides company with baseline

information to build business cases




Rationale: Helps provide guidelines for

selection of IT vendors, including capabilities

and service-level expectations



Rationale: Provides greater alignment of control


• One leading-edge company had IT representatives assigned to their procurement organization.This ensured that their e-Procurement and ERP implementations were aligned to meet thecompany goals.

• After reviewing their technology strategy with business users, one mid-size company identifiedthe need to have an ERP system. Creatively, they used an Application Service Provider (ASP) tohouse the system. This allowed them to have a cost-effective enterprise system to enable theirback-office initiatives, while not demanding extensive use of internal IT resources.

• One mid-size company used its IT strategy to help map its Procure-to-Pay technology investments.Following this blueprint, the company chose to hold off on immediate implementation of an e-Procurement system, as it would not have properly integrated with its existing platform andongoing initiatives.

Section II

Best Practices

40

Best Practice 10


Leading companies develop business cases for each of their technology

investments. The creation of a business case serves several purposes: helps align all

participants with the objectives of the investment, necessitates detailed understanding

of investment costs, and provides a communication mechanism to gain senior

management buy-in.

A business case will contain the following components:

• Investment description

• Cost of the investment: The timing of the payments should be detailed if not all

payments are required up front. Investment costs will likely include third-party costs

as well as internal project management costs. If known, any investment

capitalization should be indicated.

• Expected benefits from the investment: The benefits described can be both

qualitative and quantitative. Qualitative benefits include increased end-user

satisfaction and increased productivity. Quantitative benefits include either

anticipated cost reductions or cost avoidances. Cost reductions are savings off

of current costs, such as an increased supplier discount or reduced staffing

requirements. Cost avoidances are future costs that can be precluded as a result

of the new investment, such as future maintenance costs on existing technology.

• Cost/benefit cash flow analysis: a detailing by time period of the cash outflows

and inflows based upon the expected investment cost and benefits. This

information is typically analyzed to create financial risk measures. Financial

metrics utilized to analyze investments include net present value, return on

investment (ROI), and investment payback period.

Once a business case has been established and the investment made, companies

should track their actual performance relative to the planned measures indicated in the

business case. These performance comparisons should be communicated and

analyzed to help improve current investment performance and develop lessons learned

for future investments.


Technology

Establish a business case for each technology investment and track performance relative to business case objectives

41

Best Practice 10


Establish a business case for each technology investment and track your performance relative to your business case objectivescontinued



Rationale: Providing users with an understanding

of the benefits of new process or technology

investments usually results in higher compliance

IMPLEMENTATION

ACTION STEPS:


team of business and

technology employees

to analyze an investment

consideration

2. Detail investment

description and

anticipated costs

3. Calculate quantitative and

qualitative benefits that

the investment will enable

4. Analyze financial costs,

benefits, and risks where

appropriate

5. Monitor the actual

investment costs and

benefits and compare

actual performance to

projected performance

6. Analyze performance to

improve current and future

investment results




Rationale: The development of a business case

necessitates an understanding of investment costs

and benefits — that understanding, combined with

performance tracking, facilitates benefit

achievement as expectations and progress

against the expectations is clearly defined



• 50 percent of survey respondents set an ROI goal for their technology investments; 80 percent of those who set an ROI goal tracked their performance relative to their goal.

• One survey respondent developed a business case for e-Procurement that was approved basedupon a clear description of the investment’s costs and benefits. Benefits detailed includedreduced procurement FTEs and improved end-user productivity.

Best practice companies are moving in the direction of an entirely “paperless”

Procure-to-Pay process. This follows the trend that began with ERP, commercial card,

and e-Procurement implementations. Companies see that an increase in automation

provides significant cost savings through reduction of handoffs, decreased time to

perform activities, and increased control and user satisfaction.

A complete end-to-end technology solution would comprise of the following

components:

• Use of electronic auctions and vendor requests for sourcing

• Use of e-Procurement and ERP solutions for requisition and order placement

• Implementation of ghost account program in e-Procurement and ERP systems for

automated payment

• Internal Web-based booking system

• Electronic receiving via EDI, bar coding, or XML

• Automated interface between procurement and A/P and G/L systems

• Electronic feed of card-provided data

• Automated pre-populated expense reporting system

• Electronic Invoice Presentment and Payment (EIPP)

• Electronic payment of suppliers, including card provider

• Electronic desktop reporting

The ability to implement this solution in its entirety requires significant time and

resources. However, companies should adopt this vision as part of their technology

strategy and then prioritize the initiatives needed to progress to this vision. Examples

include the creative use of outsourcing components to an ASP and development of

electronic spreadsheet templates for catalogs and reports.


Technology

Maximize automation of an end-to-end technology solution

Best Practice 11


Section II

Best Practices

42

43



Rationale: Removes non-value-added activities

such as data entry

Best Practice 11


Maximize automation of an end-to-end technology solutioncontinued

IMPLEMENTATION

ACTION STEPS:

1. Develop an end-to-end

Procure-to-Pay platform

vision as part of the

Procure-to-Pay technology

strategy

2. Identify and prioritize

initiatives that will achieve

vision using ROI analysis

3. Incorporate initiatives into

overall technology strategy

4. Evaluate appropriate

options for implementing

initiatives and create

business cases

5. Validate presence of

processes to support

technology initiatives




Rationale: Companies could reduce transaction

costs significantly by eliminating paper

MARKET APPLICABILITY: All companies should have an automated end-to-end vision. However, some technologies, such as EIPP, may only be applicable to large corporate companies.



Rationale: Provides greater data capture and ability

to manage vendor spend


Amount of Benefit: HIgh

Rationale: Removes possibility of manual

“human error” from the function


• One company has been able to reduce per transaction costs from $9.00 to $0.89 through usageof an e-Procurement system.

• One study participant used an ASP to provide an e-Procurement solution that otherwise couldnot have been implemented within its internal IT department. The solution has been sosuccessful that 90 percent of all spend is placed through the e-Procurement application.

Best practice companies have successfully implemented e-Procurement software

to streamline and automate their procurement activities. e-Procurement software

applications and services are employee self-service solutions that support requisition,

approval routing, and order placement.

Several well-established software vendors offer complete e-Procurement packages,

including Ariba, Commerce One, Oracle, SAP, Clarus, PeopleSoft, and Works.

e-Procurement software implementations share three common success factors:

• Focus on ROI — Best practice companies not only develop a clear business case

but focus on tracking and meeting the goals established in their analysis.

• Phased Rollout Strategy — Best practice companies utilize a phased rollout

strategy. For example, some companies align deliverables by end date so a

number of major project milestones are met every 100 days. This phased

approach helps clients obtain quick wins, build momentum, and achieve

flexibility to respond to changes in business climate.

• Incorporate Change Management — Best practice companies make change

management-related items a priority. Successful implementations have involved

project sponsors and well-defined communication programs, as well as job-role

redefinition and training.

Successful implementers of e-Procurement software are able to achieve significant

procurement-related savings. Adopters of e-Procurement have been able to renegotiate

contracted rates down by 5 to 10 percent through improved contract compliance,

reduce order requisition costs from $114 per order to $31, on average; shorten

purchase and fulfillment cycles from 8 days to 2 days, and, in some cases, reduce

maverick purchasing by 50%.1


1 Aberdeen Group. “Indirect expense Management: Driving Bottom-Line Benefits.” November, 2001.

Technology

Implement and leverage an e-Procurement solutionBest

Practice12


Section II

Best Practices

44



Rationale: Reduces maverick spend

and human error

45



Rationale: Simplifies procurement process and

eliminates paperwork

Best Practice12


Implement and leverage an e-Procurement solutioncontinued

IMPLEMENTATION

ACTION STEPS:



technology employees to

analyze e-Procurement

investment consideration

2. Detail investment

description and

anticipated costs

3. Develop quantitative and

qualitative benefits that the

e-Procurement software

will enable

4. Conduct financial analysis

of costs and benefits

where appropriate

5. Present information to

gain senior management

approval for e-Procurement

implementation

6. Develop mechanism to

track the actual investment

costs and benefits and

compare actual performance

to projected performance

7. Develop change

management process,

including a well-defined

communication plan

8. Select and implement

e-Procurement software

9. Analyze performance to

improve current and future

e-Procurement results




Rationale: Significantly reduces procurement costs

and transaction times




Rationale: Eases vendor selection process and

increases data capture


• 85 percent of survey respondents who have implemented an e-Procurement system have beensatisfied with the results.

• 60 percent of survey respondents who have implemented an e-Procurement system have beenable to dramatically reduce the amount of time required to place an order.

Section II

Best Practices

46

47

Summary

Commercial cards are purchasing and payment vehicles used for a company’s

procurement, fleet, and travel and entertainment (T&E) expenditures. For the purposes

of this report, the term commercial card is used to encompass the entire business card

program, including Visa Purchasing cards, Visa Commercial One cards, Visa Fleet cards,

and Visa T&E cards. A commercial card program could include any combination of the

card types listed.

Companies can incorporate commercial cards as one component of their Procure-to-

Pay strategy. It is important to assess use of cards against other purchase and payment

vehicles to maximize the mix of methods used.

The best practices presented in this section contain information that is applicable to

all card programs as well as best practices specific to Visa Purchasing/Visa Commercial

One cards and Visa Fleet cards. T&E card-specific best practices are included in the T&E

best practices section.

Purchasing Cards

The use of cards as a purchasing and payment method can reduce purchase

transaction costs and settlement costs for organizations while substantially reducing

the need for purchase orders. Card statements, which contain multiple transactions per

statement, can substantially reduce the number of invoices and checks processed, and

electronic delivery of card statements further reduces transaction costs. End users are

often pleased with the ease of purchasing provided by a card versus generating and

manually reconciling purchase orders, receipts, and invoices. The primary benefit to

vendors is faster payment of purchases made through a commercial card.

Visa Purchasing card programs were initially introduced as a cost-effective way to

handle high-volume, low-dollar value transactions and to replace the need for petty cash

disbursements. Initial estimates showed that use of the card could reduce internal

transaction costs by approximately 65 percent ($81 to $28).2

As with any reengineering initiative, the success companies have achieved through

card programs has varied based on implementation. Best practice companies

aggressively have targeted appropriate categories for purchasing using the card and

internally have mandated the card and trained users. Leading companies are integrating

the program into their strategic initiatives, such as e-Procurement and Strategic

Sourcing, in order to maximize the benefits of the programs.

2 Lehigh University. Reducing the Transaction Costs of Purchasing Goods and Services. March, 2001

Commercial Card Program


Visa Fleet Cards

The Visa Fleet card program is an important tool for managing variable vehicle

expenses such as fuel, maintenance, and other operational expenses. But a Visa Fleet

card program can also provide valuable information to assist in driver monitoring and

cost allocation and reporting processes.

Implementing fleet card programs enables companies to:

• Gather unique fleet data to improve management reporting, e.g., odometer

readings, fuel purchase detail, vehicle identification number, mileage, time of

purchase. This data enables companies to track scheduled maintenance, mileage,

and compliance with procurement policies.

• Enhance vendor negotiations: By tracking fleet spending, management may

identify preferred vendors and use actual spending volume to negotiate discounts.

• Streamline accounting processes: Companies can remit single payments for all

fleet expenses instead of multiple purchase order invoices and/or expense

reimbursements.

• Monitor corporate policy compliance: Because Visa Fleet card reporting

consolidates all spend (including fuel type, scheduled maintenance, vehicle usage,

and preferred vendor thresholds), companies can monitor compliance with

corporate policies and progress toward negotiated volume thresholds. Exception

reporting can be generated to ensure that cardholders do not use Visa Fleet cards

to make personal or other unauthorized fuel purchases.

• Improve spending controls: Improved reporting and card controls are provided by

Visa Fleet card programs, such as restricting purchases by transaction or billing

cycle limits, fuel types, and MCCs.

• Eliminate use of employees’ credit cards for fleet-related expenses: Companies

can separate employee business and personal spending, free up available credit

by providing company-issued Visa Fleet cards, and facilitate expense reporting.

Section II

Best Practices

48

49


Program Foundation

Best Practice 1

Best Practice 2

Best Practice 3

Best Practice 4

Best Practice 5

Best Practice 6

Best Practice 7

Best Practice 8

Program Management

Best Practice 9

Best Practice 10

Best Practice 11

Best Practice 12

Best Practice 13

Best Practice 14

Best Practice 15

Program Reporting

Best Practice 16

Best Practice 17

Best Practice 18

Determine commercial card product(s) based on needs of the organization

Source, select, and implement a purchasing card program

Source, select, and implement a Visa Commercial One card program

Source, select, and implement a Visa Fleet card program

Align commercial card program objectives with company’soverall Procure-to-Pay strategy

Obtain active senior management promotion of and involvement in the commercial card program

Establish center-led management and administration of thecommercial card program

Develop and disseminate enterprise-wide commercial cardpolicies and procedures

Incorporate a comprehensive commercial card training program

Establish Visa Purchasing/Visa Commercial One cardissuance criteria for optimal distribution to employees

Mandate and enforce use of Visa Purchasing/Visa Commercial One card for all eligible purchases

Maximize use of Visa Purchasing/Visa Commercial One card virtual accounts

Incorporate commercial cards into business continuity planning

Establish parameters for eligible Visa Purchasing/Visa Commercial One card transactions leveraging appropriate controls

Investigate Visa Purchasing/Visa Commercial One cardexpansion to non-typical spend categories to maximize benefits achieved

Share commercial card performance and savings reports withsenior management to promote appropriate use of the card

Use Issuer or card provider analytical tools to review andimprove your commercial card program performance

Use Visa Fleet cards to track expenditures through bothexternal and internal sources

Leading companies select commercial card products that will help the company

meet its Procure-to-Pay goals and objectives. Companies must determine the following

when selecting commercial card products: Issuer (i.e., financial institution or other

Issuer), card provider (e.g., Visa, MasterCard, American Express), and card type

(e.g., Visa Purchasing card, Visa Fleet card, Visa Commercial One card, Visa T&E card).

Prior to implementing a card solution, best practice organizations analyze the costs

and benefits of each program, taking into consideration any product variations among

Issuers. The due diligence should assess the following:

• Issuer:

— Industry reputation

— Current relationship

— Financial arrangement

— Card management and administration tools available through Issuer, including:

- Templates to assist with implementation (e.g., policies and procedures)

- Integration of card data with financials or ERP

- Online account administration

- Online reporting capabilities

- Expense management tools

— Knowledge/experience of card sales personnel and ability to provide

consultative services

— Customer service levels: Service Level Agreements, proactive relationship

• Card Provider:

— Standard transaction cost for use of card (e.g., 2 percent versus 4 percent)

— Merchant acceptance: consider commodity and international acceptance

• Card Type:

— Multiple cards to cover purchasing, T&E, and fleet transactions

— Visa Commercial One card: single card that combines procurement with

T&E, Visa Fleet, and Visa Commercial One card features


Program Foundation

Determine commercial card product(s) based on needs of the organization

Best Practice 1


Section II

Best Practices

50



Rationale: Ensures that the card program meets

the needs of the end users

Best Practice 1

CommercialCard Program

Determine commercial card product(s) based on needs of the organizationcontinued

Visa Commercial One card programs have the following benefits: increased

negotiating leverage and streamlined relationship maintenance with the card provider;

reduced number of card accounts managed, particularly for companies with a high

degree of purchasing and T&E cardholder overlap; and streamlined card administration.

The Visa Commercial One card benefits must be balanced against the following

considerations: complexity of spending controls and reconciliation and single liability

structure requirement.

The following can enhance the success of a Visa Commercial One card implementation:

split liability/diversion billing by MCC code; single, unified method of allocating and posting

card transactions; streamlined receipt retention policies; and tax compliance process.

IMPLEMENTATION

ACTION STEPS:

1. Review goals and

objectives for the

commercial card program

2. Create cross-functional

team of key stakeholders

to participate in card

selection process —

at a minimum, include

both procurement and

A/P personnel

3. Develop request for

proposal (RFP) and

distribute to Issuers

4. Evaluate Issuer responses

against commercial card

goals and objectives and

select Issuer based upon

ability to meet those

goals and objectives




Rationale: Selection of the appropriate program

helps enable savings goals associated with Procure-

to-Pay initiatives




Rationale: Thorough review of card program

enables company to select a card that provides

needed vendor acceptance and delivers the most

detailed and accurate spend data



Rationale: Ensures that the selected card

program has the appropriate controls in place

51


• The top two reasons cited by study participants for selecting a particular issuer were: financialarrangement with Issuer and merchant acceptance.

Leading companies use a thorough sourcing process to select a Visa Purchasing

card program that will help the company meet its goals and objectives. Sourcing a Visa

Purchasing card program can occur at implementation of a new program or at a

transition point when the needs of the company change. Companies must determine

the following when selecting a card program: Issuer (e.g., financial institution or other

Issuer), card provider (e.g., Visa, MasterCard, American Express), and card type (e.g.,

Visa Purchasing card and Visa Commercial One card). Leading companies recognize

the following benefits through implementation of a Visa Purchasing card program:

• Integration of Visa Purchasing card data into internal MIS, Accounts Payable

(A/P), and General Ledger systems

— Streamlines data input

— Improves data quality and accuracy

— Automates mapping of transactions to cost centers

— Online access to cardholder account data

— Consolidation of spend for reporting purposes

(e.g., sourcing, exception reporting)

• Reduced transaction costs for purchasing and payment activities

— Reduces volume of purchase requisitions and purchase orders

— Automates payment to suppliers

— Enables consolidation of transactions for single payment to Issuer

• Increased cardholder satisfaction

— Streamlines procurement process

— Reduces requirement to fill out purchase requisitions and obtain approvals

for typical purchases

— Empowers user to make timely purchases

• Improved control over spend

• Maintains control through use of card restrictions and parameters on front-end

(e.g., credit limits)

• Increases visibility to potential non-compliant purchases through back-end

exception reporting

• Reduced petty cash and check requests, resulting in reduced costs associated

with processing and tracking petty cash and check requests


Program Foundation

Source, select, and implement a Visa Purchasing card program

Best Practice 2


Section II

Best Practices

52

53

Best Practice 2

CommercialCard Program Source, select, and implement a Visa Purchasing card program

continued

Leading companies develop specific and achievable goals and objectives for their

purchasing card programs. These goals and objectives should be consistent with

corporate culture and procurement policies. Best practice companies periodically review

the goals and objectives for continuous improvement purposes.

Prior to implementing a Visa Purchasing card solution, best practice companies

analyze the costs and benefits of each available program, taking into consideration

any product variations from one Issuer to another.

Companies compare purchasing programs based on the following factors:

• Merchant acceptance

• Current Issuer relationship

• Financial arrangement

• Industry reputation

• Card management and administration tools available through Issuer, including:

— Templates to assist with implementation (e.g., Policies and Procedures)

— Integration of card data with financials or ERP

— Online account administration

— Online reporting capabilities

— Expense reporting management tools

• Knowledge/experience of card sales personnel and ability to provide


• Customer service levels (e.g., Service Level Agreements, proactive relationship)

Companies compare purchasing cards based upon the following factors:

• Standard transaction cost charged for use of the card

(e.g., 2 percent versus 4 percent)



Section II

Best Practices

54

Source, select, and implement a Visa Purchasing card programcontinued

Best Practice 2




Rationale: Ensures that the card program meets

the needs of the end users

IMPLEMENTATION

ACTION STEPS:

1. Review goals and

objectives for the Visa

Purchasing card program





at a minimum include


A/P personnel


proposal and distribute

to Issuers


against Visa Purchasing

card goals and objectives

and select Issuer based

upon ability to meet those





Rationale: Sourcing for an appropriate card

program ensures the greatest possible cost saving





enables company to select a card that provides

needed vendor acceptance and provides greatest

data for vendor management and negotiations






• The top two reasons cited by study participants for selecting a particular Issuer were: financialarrangement with Issuer and merchant acceptance.

• 67 percent of study participants had implemented a purchasing card program to meet theobjectives of transaction cost reduction, settlement convenience, and user convenience.

55

Best Practice 3

CommercialCard Program Program Foundation

Source, select, and implement a Visa Commercial One card program

Sourcing a Visa Commercial One card program can occur when selecting a new

card program or upon deciding to reduce the number of card programs. Visa

Commercial One cards can be used for procurement, travel and entertainment, and

fleet expenses. Leading companies employ a thorough sourcing process for selecting a

Visa Commercial One card program, analyzing the program’s benefits, establishing

program goals and objectives, and determining the appropriate Issuer and card provider

that can best help the company achieve its specific objectives.

Best practice companies employing a Visa Commercial One card program have

recognized the following benefits:

• Increased efficiency and effectiveness of card management and administration

— Improved negotiating position and streamlined relationship management

with the card provider

— Reduced number of card accounts managed, particularly for companies

with a high degree of purchasing and T&E cardholder overlap

— Complete and detailed view of spend through access to aggregate and

individual cardholder account data

• Cardholder satisfaction

— User convenience from having one statement to reconcile

— No confusion of which card to use

• Reduced transaction costs for purchasing and payment activities

— Reduced volume of purchase orders and check payments

— Reduced petty cash and check requests, resulting in reduced costs

associated with processing and tracking the requests


Section II

Best Practices

56

Source, select, and implement a Visa Commercial One card programcontinued


considerations:

• Program liability structure works optimally with corporate liability

— Some Issuers can help facilitate split-liability, i.e., corporate liability for

purchasing transactions and individual liability for T&E transactions

— Detailed reconciliation process must be put in place to ensure any personal

expenses placed on the card are correctly accounted for and not paid by

the employer

• Spend will have to be categorized (procurement versus travel and entertainment)

to assist in estimation of sales and use tax obligations

— Spend categorization is usually done using information found in Merchant

Category codes (MCCs)

• Issuers may be able to provide greater product functionality on separate

card programs

• While Visa Commercial One card programs are intended to reduce the number

of cards in the hands of employees, in many cases, the same employees do not

make both T&E and indirect procurement purchases

Best practice companies develop specific, achievable, short- and long-term goals for

their Visa Commercial One card programs. They align these goals with their overall business

strategy and ensure that they are consistent with their procurement and travel policies.

Best practice companies periodically review these goals to ensure their achievement.

Leading companies analyze the costs and benefits of each available program, taking

into consideration product variations between Issuers (i.e., financial institutions or other

Issuer) and card providers (e.g., Visa, MasterCard).

Companies compare Issuers based on the following factors:

• Current bank relationships

• Financial arrangements


• Card management and administration tools:

— Templates to assist with implementation (e.g., policies and procedures)





— Program expansion tools

— Best practices benchmarking tools


Best Practice 3


57




enables company to select a card that provides the

needed vendor acceptance and provides greatest

data for vendor management and negotiations

Best Practice 3


Source, select, and implement a Visa Commercial One card programcontinued

• Knowledge/experience of card sales personnel and ability to provide


• Customer service levels (e.g., service level agreements, proactive relationship)

Companies compare card providers based upon the following factors:

• Merchant/supplier acceptance

• Standard transaction cost charged to merchants for transaction processing

IMPLEMENTATION

ACTION STEPS:

1. Establish goals and

objectives for the

Visa Commercial One

card program





at a minimum include


A/P personnel



to Issuers


against Visa Commercial

One card goals and

objectives and select

Issuer based upon ability

to meet those goals and

objectives




Rationale: Sourcing for an appropriate card

program ensures the greatest possible cost savings



Rationale: Having a Visa One card program

consolidates management and administration and

eliminates end-user confusion over which card to

use for which type of spend







• Three participating companies decided to implement a commercial one card solution todecrease employee confusion and take advantage of a standardized technological platform.Through an internal survey of end users, one of the companies determined that end users withmultiple card needs found it confusing to manage separate cards — i.e., trying to figure out whichcard to use. This in turn decreased the card’s appeal and resulted in lower card usage. The simplicity and convenience of its commercial one card program, however, increased thecompany's internal acceptance and satisfaction with the payment mechanism.

• As a result of an acquisition, one company was employing all card programs, includingpurchasing, T&E, Fleet and commercial one cards. Taking advantage of the opportunity toconsolidate and automate the preferred practices of the merged entities, the company found theone card program was an effective means of capturing total spend and intends to move all cardprograms to that platform.

• Two participating companies implemented a commercial one card in an effort to move all low-dollar invoices from invoices and purchase orders to card transactions. Satisfied with thebenefits of their commercial one card programs, the companies are looking for other spendcategories to migrate onto the card. For example, one company is currently looking at moving itsfleet expenditures onto the card.

Companies must first determine whether or not they have a need for a Visa Fleet

card program. Companies that have a pool of vehicles or provide company cars are

candidates for a Visa Fleet card program.

Leading companies that implement a Visa Fleet card program conduct a thorough

sourcing analysis to ensure that the selection of a Visa Fleet card will achieve program

objectives. Companies should consider the following when selecting a Visa Fleet

card program:

1. Assess fleet mix and use of that fleet mix:

• Allocation by vehicle: These companies tend to have a pool of vehicles that have

rotating drivers, perhaps due to shift work or high turnover. The drivers don’t have

personal resources to pay and companies do not want to distribute petty cash.

• Allocation by driver: These drivers are typically management/supervisors,

operations, or sales individuals that have access to a company vehicle. Companies

in this situation also consider expanding the spend permitted on the card beyond

the traditional fleet expenditures to include travel and purchasing needs into a

single card.

2. After completing the initial assessment of the company’s require-ments for a Visa Fleet card program, fleet managers should comparethe features and options available through the various card programs:

• Merchant acceptance: Merchant acceptance is not just an issue of user

convenience. With increased merchant acceptance, costs are reduced as drivers

have a greater ability to select the lowest price fuel and do not need to divert off

the travel path to get to a particular gas station.

• Cost of card or available discounts: Compare fees associated with cards and

available discounts (e.g., discount on price per gallon over a specified volume of

gas purchased).

• Data and reporting: Compare the reporting features available through various

programs and against Visa Fleet card program objectives. Issuer reports provide

the specific information necessary to perform accounting functions, manage

programs, ensure effective negotiations with vendors, and control and audit

expenditures.


Program Foundation

Source, select, and implement a Visa Fleet card program

Best Practice 4


Section II

Best Practices

58

59



Rationale: End users often find it easier to

use a Visa Fleet card, as there is no need to

process the purchase through an expense report

for reimbursement; high user convenience for

cards that have wide merchant acceptance

Best Practice 4


Source, select, and implement a Visa Fleet card program continued

IMPLEMENTATION

ACTION STEPS:

1. Review goals and

objectives for the Visa

Fleet card program




selection process — at a

minimum, include fleet

manager and procurement

and A/P personnel

3. Develop RFP and

distribute to Issuers





ability to meet those





Rationale: Optimizes maintenance schedules,

reduces excessive or inappropriate spending

MARKET APPLICABILITY: Companies With Fleet Vehicles



Rationale: Provides additional vehicle data for

use in vendor negotiations



Rationale: When cards are assigned to a single

vehicle, it increases ability to audit for

inappropriate usage — e.g., multiple fuel charges

in a single day to a single vehicle raises a flag

• Exception reporting: These reports are used to identify “exceptions” to fleet

policies, practices, and budgets by flagging potentially inappropriate use of the

Visa Fleet cards (e.g., volume of fuel per day exceeded).

• Program controls: Compare the controls available through programs (e.g., ability

to restrict spending by MCCs, ability to require input of an ID number each time

the card is used).


• One company used a card program that included reporting of fuel type. Three percent of itsvehicles required premium fuel; however, reporting demonstrated that 23 percent were actuallypurchasing premium fuel. This data enabled the company to reinforce policy, which directlyreduced unnecessary costs.

• One study participant selected its Fleet card provider based on merchant acceptance. Merchantacceptance was a priority because the company had estimated, based on the hourly wages of adriver, that each time its drivers had to locate an alternate gas station the cost was $33.Therefore, the company chose a Fleet card program with the largest number of gas stationsaccepting the card.

• Through implementation of a card program with broad merchant acceptance, this company wasable to reduce the need for drivers to divert off the travel path to refuel. This directly impactedthe cost of travel, as this company calculated that a 1 percent reduction in miles driven results in a $14.50 savings.

A commercial card program should be consistent with, and implemented as part of,

the company’s overall Procure-to-Pay strategy. Procure-to-Pay strategies typically have

the following objectives: reduce transactions costs, improve vendor management,

increase controls, and enhance user satisfaction. Best practice companies ensure

specific commercial card performance measures are in place to correlate to Procure-to-

Pay objectives. Measurements can include: purchase transaction cost, invoice payment

cost, spend on card, and user satisfaction data.

Additionally, the companies periodically review their card program objectives and

performance for continuous improvement purposes.

Program Foundation

Align commercial card program objectives with company’s overall Procure-to-Pay strategy

Best Practice 5


Section II

Best Practices

60



Rationale: Ensuring that commercial card program

goal setting and tracking is performed in conjunction

with Procure-to-Pay performance measures will

facilitate greater management control of objectives

IMPLEMENTATION

ACTION STEPS:

1. Review corporate/

procurement mission

and vision statement;

review current

Procure-to-Pay policy

2. Develop simple commercial

card goals and objectives;

highlight objectives that

can be modified as the

program evolves or as

business needs change

3. Ensure that goals are

measurable and attainable

(e.g., reduction in invoice

volume, increase in card

penetration, reduction of

number of suppliers)

4. Build in flexibility to allow

modification according

to specific division/unit/

country needs

5. Communicate goals and

drivers for each goal or

objective to cardholders

and managers

6. Track these goals for

continuous improvement

efforts; publicize successes




Rationale: Leveraging cards as part of an overall

company strategy assists companies in using the

most efficient and cost-effective method for

purchasing and payment



• One study participant had a strategic initiative to reduce the overhead cost of its transactionalprocurement functions and reallocate resources to other parts of the company. Throughimplementation of a purchasing card program, it was able to reduce A/P headcount by 75 percent from 135 to 45 personnel over a four-year span.

• Another study participant was able to meet its company’s productivity goals of reducing manualprocess of paper invoices by increasing the volume of transactions on the card by 40 percent,which enabled its A/P personnel to focus on more strategic activities.

61

Obtaining senior management (e.g., business unit lead, senior or executive vice

president) support of and involvement in the implementation, administration and

championing of the Commercial card program is often critical to maximize the card

program’s benefits. In fact, one-third of the study participants indicated the lack of

senior management support and involvement as the most significant barrier to card

expansion.

Companies have successfully obtained and maintained senior management

involvement in the program by educating them about card use benefits and by

identifying ways senior management can demonstrate their support for the program.

Best practice companies often ask senior management to demonstrate commitment

to the program through the following:

• Integration of card use into business planning: Establishing and tracking

business unit goals for Commercial card use jointly with procurement and the

business units

• Inclusion of card use goals in management bonus plan: Including goals for

Commercial card use within management’s financial rewards program

• Communication: Sending an email or memo to employees advocating or

mandating use of the card and detailing the benefits of the program

• Training: Participating in card program training to display support of and

involvement in the card program

• Card program enforcement: Supporting and enforcing the stipulations of

non-compliance according to program policies and procedures

Finally, some best practice companies have found that an organizational structure

which allows program administrator access to senior management, such as a dotted

line relationship from Accounts Payable to the CFO, can be very effective for obtaining

senior management time and support for the program.


Program Foundation

Obtain active senior management promotion of and involvement in the commercial card program

Best Practice 6


Section II

Best Practices

62

Best Practice 6


Obtain active senior management promotion of and involvement in the commercial card programcontinued

Visa Commercial One card programs have the following benefits: increased

negotiating leverage and streamlined relationship maintenance with the card provider;

reduced number of card accounts managed, particularly for companies with a high

degree of purchasing and T&E cardholder overlap; and streamlined card administration.


considerations: complexity of spending controls and reconciliation and single liability

structure requirement.

The following can enhance the success of a Visa Commercial One card implementation:

split liability/diversion billing by MCC code; single unified method of allocating and posting

card transactions; streamlined receipt retention policies; and tax compliance process.

IMPLEMENTATION

ACTION STEPS:

1. Develop a cross-

functional team to form

communication initiative to

share benefits of the card

program with

senior management

2. Identify areas in which sen-

ior management or busi-

ness unit involvement can

further promote or enforce

use of the card

3. Develop a plan for

senior management or

business unit involvement

(e.g., communication

through email,

involvement in training)



management to ensure

ongoing participation

and support




Rationale: Senior management and business

unit support of the card program encourages appro-

priate use of the card, resulting in anticipated card

program cost savings and process efficiencies




Rationale: Involvement of senior management and

business unit leaders in the card program

provides visibility into card program compliance and

discourages misuse of the card


• One large market company was able to obtain CFO involvement in card program communication.During card training, new hires were required to watch a video in which the CFO holds the cardand explains why it is necessary and beneficial to use it.

• The CFO at a high-tech manufacturer has communicated to all employees through an emailmemo that use of the Corporate card is mandated for all cardable purchases.

• One construction company was able to garner business unit support for the card programthrough constant interaction with site managers, utilizing:

— Articles in the corporate newsletter— User satisfaction surveys

63

Center-led oversight facilitates standardization of the commercial card program.

While card requirements and restrictions may vary slightly based upon business unit

procurement needs, the overall program will be consistent across the company. This

best practice approach reduces cardholder confusion and reinforces compliance with a

consistent corporate policy.

The majority of study participants reported centralized management of the

commercial card program. Development of commercial card policies and procedures,

vendor management and Strategic Sourcing, creation of training programs, and

program scorecard creation and management are activities performed centrally.

Large or geographically dispersed companies often have centralized oversight with

programs administered by location-specific representatives. These representatives are

typically responsible for the following: location-specific reporting, reconciliation, training

delivery, and response to end-user inquiries.

Program Foundation

Establish center-led management and administration of the commercial card program

Best Practice 7




Rationale: Improves employee awareness of appro-

priate personnel to contact for questions

and issues

IMPLEMENTATION

ACTION STEPS:

1. Position the commercial

card program in a

centralized function that

has visibility and access

senior management

2. Analyze the need for

centralized management

to be supplemented with

site-specific representatives

3. Communicate the appropriate

points of contact for the

commercial card program to

cardholders; make contact

list available on company

intranet and/or distribute

updates to cardholders




Rationale: Facilitates employee awareness and

understanding of commercial card program which

increases card usage




Rationale: Facilitates standardization of card

program; increases employee awareness of

program, which improves understanding of

program importance and potentially increases

spend placed on cards


• Several best practice companies directly attributed the success of their purchasing card programto having dedicated and attentive administrators. One company has credited its administrator formore than doubling the card distribution and usage (from 2,000 to 4,100 users) over a four-yeartime period.

• 65 percent of surveyed companies centralized the card program administration in procurementand 31 percent place it in Finance/Accounts Payable.

Leading companies document commercial card policies and procedures to

communicate the appropriate use of the commercial card to cardholders. The policy

should provide clear guidelines and be widely disseminated. Cardholders are more likely

to use cards for eligible purposes if they understand what the eligible purchases are

and how policy and procedural compliance fits with the overall company strategy.

Companies report a variety of reasons why they have implemented card programs,

and their policies reflect these objectives.

A commercial card policy should contain the following content by commercial

card type:

• Commercial card objectives

• Cardholder responsibilities

• Approving manager responsibilities

• Credit/transaction/spending limits

• Ordering process/eligible purchases

• Record-keeping/reconciliation

• Security and liability

• Auditing procedures

• Restricted transactions

• Dispute resolution

• Lost card procedures

• Cardholder agreement form

• Card activation

• Training


Program Foundation

Develop and disseminate enterprise-wide commercial card policies and procedures

Best Practice 8


Section II

Best Practices

64

65



Rationale: Clear guidelines empower cardholders

to use cards appropriately; use of cards is more

convenient than purchase orders

Best Practice 8


Develop and disseminate enterprise-wide commercial card policies and procedurescontinued

IMPLEMENTATION

ACTION STEPS:

1. Review corporate/

procurement mission and

vision statement; review

current Procure-to-Pay Policy

to understand how

a commercial card meets

policy objectives

2. Develop and disseminate

a policy to address the

commercial card program

selected, including the items

listed to the right

3. Review policy and update

periodically as needed




Rationale: Clear guidelines empower

cardholders to use cards appropriately,

ensuring expected savings are achieved




Rationale: Policies document and communicate

expectations and control mechanisms to

managers, administrators, and cardholders

Best practice companies develop training materials with relevant information and

mandate that employees receive appropriate commercial card training prior to card issue.

Strong policies and procedures must be established as the foundation for the

training effort. Fundamentals of a training program include goals, type of trainees,

content per trainee, and formats for delivery. The training goals should be matched

to trainee type:


Program Management

Incorporate a comprehensive commercial card training program

Best Practice 9


Section II

Best Practices

66

Trainee Type

Executive

Super User

Approver

Cardholder

Trainee Definition

Designated to be a senior vice president or above

Heavy use of card for purchasing with reconciliationapproval responsibilities

Infrequent need to requisition;primary role to be approval of requisitions

Use of card for purchasing, with little approval capability

Trainee Goals

Card program awareness

Detailed commercial card policies and procedures training

Overview of commercial cardpolicies and procedures anddetailed training on approvalprocesses

Overview of commercial card policies and proceduresand detailed training on eligible purchases

67

Best Practice 9


Incorporate a comprehensive commercial card training programcontinued

Other training materials can include Quick Reference Cards that summarize the

critical training topics and are posted at employees’ desks.


There are multiple training delivery formats. Best practice companies analyze

each format and determine the appropriate mix for the organization and trainee types.

Delivery formats include: virtual training (e.g., webcasts), classroom training, and

self-study. Each delivery format has its advantages and disadvantages.

Delivery Format

Virtual

Self-study (computer

based-training)

Classroom via train the trainer

Advantages

• Enables virtual classroomsetting

• Enables deep buy-in and accountability

• Scalable and repeatable

• Low cost

• Ensures consistent presentation of materials

• Best for geographically dispersed organizations

• Scalable and repeatable

• Low cost

• Training facility not required

• Can be completed attrainee’s own pace

• Enables center-led design and decentralized execution of training program

• Enables face-to-face interaction

• Preferred style of learning

Disadvantages

• Presents new learning style

• Requires knowledge ofintranet technology

• Assumes companies have intranet

• Requires trainee to independently access and complete the training

• Eliminates face-to-facehuman interaction

• Expensive

• Not easily repeatable

• Potential for inconsistent presentation of materials

• Requires training facilities

Section II

Best Practices

68

Incorporate a comprehensive commercial card training programcontinued

Best Practice 9


IMPLEMENTATION

ACTION STEPS:

1. Identify trainee types

2. Match training content and

delivery modes to each

trainee type

3. Execute training program

4. Review the training program

for effectiveness (policy

compliance) and relevance

(end-user evaluations)

5. Periodically update training

program according to

changes in policies and

procedures


• A survey respondent had a dedicated purchasing card training program and directly linked this tothe successful penetration and expansion of the card program, as cardholders understood thebenefits and were empowered to use the card.

• One survey respondent directly attributed increased purchasing card usage to incorporatingpurchasing card training into its new-hire training program.

• During training, one company distributed a “Pink Book” that contained its procurement policy.This brightly colored manual was used as an easily recognizable, quick-reference tool forunderstanding how to use the card.



Rationale: Empowers employees to comply with

policies




Rationale: Reduces costs through compliance




Rationale: Increases the likelihood of choosing

approved vendors



Rationale: Increases the likelihood that

established policies and procedures will be used

69



Rationale: Ensuring that appropriate personnel

have cards improves satisfaction with procurement

process; individuals who do make purchases appre-

ciate the convenience of the card

Best Practice 10


Leading companies ensure that Visa Purchasing cards are distributed appropriately.

These companies develop criteria for distribution of cards that are consistent with

company culture, policies, and spend parameters for card-eligible purchases. Issuing

cards to the right people and encouraging use of the cards is key to the success of a

Visa Purchasing card program.

Distribution of cards should be wide enough to ensure all regular purchasers of

card-eligible purchases have a Visa Purchasing card or have access to a department-

designated card. Best practice companies identify designated buyers who will use the

card on a frequent basis, typically called “super users.” Super users are individuals who

may be responsible for all purchases for a business unit or facility. In addition, they may

be the primary point-of-contact for a particular type of purchase (e.g., furniture, event

planning, computers). These users often become the largest supporters of the card and

can encourage issuance to additional users. In order to identify regular purchasers,

conduct a review of purchase orders, petty cash distributions, and check requests.

IMPLEMENTATION

ACTION STEPS:

1. Develop criteria for

distribution of cards that

is consistent with company

culture and policies; review

purchase orders, petty

cash distributions, and

check requests to identify

typical purchasers at your

organization

2. Distribute criteria for

card issuance as part

of procurement and

purchasing card policies

3. Distribute cards to

“super users” and other

identified purchasers

4. Solicit feedback from

cardholders and managers

to ensure appropriate

distribution; e.g., if a

cardholder is regularly

making purchases for

another employee,

that employee may

require a card

5. Review activation reports

to identify individuals who

have not activated cards

after issuance; these

individuals are likely to be

Visa Purchasing card-

eligible items through

other methods. Particular

attention should be paid

to this during rollout of

a new card program,

as there may be some

resistance to change




Rationale: Distribution of cards to those who

regularly purchase items ensures that the

maximum number of eligible purchases go

through the cards, reducing transaction costs

associated with purchase orders and petty cash




Rationale: Increases control by placing cards in the

hands of the appropriate employees


• Survey respondents reported that identification of the appropriate purchasers — and distributionof purchasing cards to those individuals — directly led to the success of their card programs.

• Leading companies regularly review inactive card and card activation reports to identify cards that are not being used. Companies reported that this information was used to identify individuals who did not need cards, needed additional education on use, or neededencouragement to transition to a new process.

• One company that gave cards to designated users was able to move 100,000 transactions frompurchase orders to purchasing cards.

Program Management

Establish Visa Purchasing/Visa Commercial One card issuance criteria for optimal distribution to employees



Rationale: Increases compliance with criteria for

placing eligible spend on commercial card

IMPLEMENTATION

ACTION STEPS:

1. Regularly communicate

which purchases are

eligible for purchasing

on Visa Purchasing cards

2. Review purchases made

through other methods

(e.g., purchase orders)

to determine whether

purchases should have

been made on a card

3. Notify cardholders and/or

management when

purchases should have

been made through a

Visa Purchasing card

4. Communicate benefits of

and successes associated

with use of cards




Rationale: Increased use of the card for eligible

purchases reduces transaction costs associated

with those purchases and overall program costs


Best practice organizations mandate and enforce use of commercial cards.

Consolidating eligible spend onto Visa Purchasing cards improves the organization’s

ability to achieve cost savings and control maverick spend.

Companies should decide how to enforce compliance to their prescribed use of the

purchasing cards. Some companies strongly encourage usage through education and

compliance reporting, while other companies mandate usage and charge those

business units not in compliance with the cost of purchase order generation. Some

companies have elected to reward business units by passing cost savings back to the

business unit. Each company must determine how best to encourage Visa Purchasing

card usage for eligible transactions based upon their culture.

Program Management

Mandate and enforce use of Visa Purchasing/ Visa Commercial One card for all eligible purchase

Best Practice 11


Section II

Best Practices

70


• Survey results indicate that 68 percent of the respondents either mandate or strongly encouragethe usage of their purchasing cards to maximize savings.

• One survey participant distributed purchasing card spending goals to all business units togenerate competition to increase eligible spend placed on the card.

• Another survey respondent reported that encouragement and communication worked with allbut one business unit. To force compliance, the procurement department declined to pay theinvoice and forwarded it to the business unit to figure out how to pay the vendor.

• One survey participant declined purchase requisitions for items that met criteria for purchasewith the purchasing card. This significantly reduced the number of purchase orders beingprocessed at the company and increased eligible spend on the purchasing card.

• Mid-size companies have reported that declining check requests and decreasing petty cash onhand have resulted in increased use of commercial cards for eligible purchases.

• One company mandated use of the commercial card for all eligible spend. If cardholders did notfollow policy, they were given a warning after the first violation and then incurred increasingcharges back to their business units for each additional violation.

71

Best Practice 12


Virtual accounts are commercial cards associated with one department or vendor,

regardless of the particular end user making the purchase. The two most common

examples of virtual accounts are ghost accounts and department cards. Ghost accounts

are master accounts with no associated physical card. A department card is a plastic

card that is assigned to a specific group within the company. With both cards, purchases

are charged to an individual commercial card account number, which can only be

accessed by designated purchasers.

Best practice companies leverage virtual accounts as part of their overall Visa

Purchasing card strategies. Consolidation of spend onto virtual accounts reduces

administration of purchase orders, various card programs (e.g., virtual accounts can be

substituted for supplier cards), and multiple card statements.

Examples of spend categories that are typically handled through virtual accounts:

• Recurring charges through service companies, such as monthly bills for shredding,

cleaning, telephone/pager services, rent, and utilities

• Services, such as temporary services, catering, and copier maintenance

• Events planning expenses, such as hotels and transportation for marketing or

training functions

• Capital items for projects, such as technology equipment

Ghost accounts are a particularly effective and efficient method of payment for

e-Procurement purchases, as they provide settlement convenience: a single Electronic

Funds Transfer (EFT) payment for multiple charges instead of numerous individual

checks. Ghost accounts should be set up for each e-Procurement supplier with high

levels of spend. For both e-Procurement and standard purchasing, this approach

minimizes administrative work because the company will manage fewer accounts,

compared to establishing an account for each buyer.

For ghost accounts, the vendor typically maintains the card number at its location to

be charged at time of each purchase or on a monthly basis. Ghost accounts reduce the

risk of late payments, reduces burden on A/P to pay recurring monthly bills, and

increases vendor satisfaction with timely payment.


Program Management

Maximize use of Visa Purchasing/Visa Commercial One card virtual accounts

Section II

Best Practices

72



Rationale: Eases both the order placement and

payment processes; increases vendor satisfaction

through timeliness of payments

Maximize use of Visa Purchasing/Visa Commercial One card virtual accountscontinued

IMPLEMENTATION

ACTION STEPS:

1. Evaluate current spend

and identify suppliers or

commodities to target for

virtual card programs

2. Leverage Issuer

experience to implement

and manage a virtual card

program

3. For current suppliers,

coordinate transition to

ghost accounts

4. Determine data

requirements and

communicate to vendor(s)

5. Finalize requirements for

reconciliation purposes

and communicate to

purchaser/cardholder




Rationale: Use of ghost accounts reduces time for

reconciliation and settlement of transactions




Rationale: Maintaining a single vendor and/or

commodity on a ghost account allows for improved

tracking of spend with the supplier(s)



Rationale: Use of back-end audit maintains the

controls on these purchases; improved controls can

be achieved through reporting on the card account

(e.g., companies can review monthly charges for

variance and month-to-month

variance); enables greater management of

departmental or commodity-based spend

Best Practice 12



• Half of the survey respondents use virtual accounts.

• One study participant has significantly leveraged use of the ghost account program for allpossible recurring expenditures, including catering, telephone, cellular phone, pagers,shredding, and maintenance that significantly improved the reconciliation process and vendornegotiations by placing all spend with each vendor on a single account. The transition alsoresulted in a significant reduction in the number of invoices and purchase orders.

• One survey respondent implemented e-Procurement and ghost accounts with designated vendors(e.g., computer provider). Ghost account use facilitated issue resolution and expedited payment.

73

Best Practice 13


Leading companies incorporate continuity planning into all business operations

and leverage commercial cards as part of their plan. Business disruption causes may

be minor (e.g., system outage) or catastrophic (e.g., natural disaster), yet the use of

commercial cards as part of this process can facilitate continuing business

operations. Visa Purchasing cards and T&E cards can be alternate forms of purchase

and payment for transactions and additionally be used as a cash management tool or

for immediate access to credit. Credit limit increases may necessitate coordinating

with your Issuer.

Study participants regularly reported use of commercial cards to remedy

unexpected circumstances.

Program Management

Incorporate commercial cards into business continuity planning



Rationale: Enables employees to use Visa Purchasing

cards to handle unexpected business events; reduces

employee stress with resolving these issues

IMPLEMENTATION

ACTION STEPS:

1. Include use of commercial

card in contingency

planning documents as

an alternate form of

purchase and payment

2. Detail commercial card

use in the event of a

business disruption in the

commercial card policy

3. As part of communication

of Visa Purchasing card

successes, tips, and

updates, include use of

card to resolve continuity

or emergency issues




Rationale: Reduces need to process emergency

cash advances and check requests




Rationale: Enables employees to manage business

needs despite unforeseen circumstances


• One New York City-based study participant reported that use of its commercial card allowed it tofacilitate business continuity when the events of September 11 impacted its purchasing andpayment technology infrastructure.

• At one company video equipment did not arrive in a timely fashion for use at a marketing event — employees were able to lease video equipment locally using a purchasing card and the marketing event continued as planned.

One of the most critical steps in establishing a Visa Purchasing card program is to

define well-thought-out parameters, such as identification of the appropriate commodity

and spend limits that encourage ease-of-use but allow for appropriate control.

Leading companies clearly define eligible commodities and spend targets for

Visa Purchasing card use. Companies surveyed differ by the commodity types eligible

for their card programs. Commodity-type allowance ranges from only office supplies, to

all indirect spend of a certain dollar value, to all capital and expense items. Companies

also differ by their established card spend targets, ranging from all items under $250

to all items under $5,000.

To determine the appropriate purchasing parameters, a company should undergo a

spend-analysis process. To begin, companies should analyze their A/P data to identify

spend patterns such as average spend and number of transactions by commodity.

Where possible, high-volume transactions or recurring transactions should be

transitioned to purchase through the card program. Companies should also analyze

current approval requirements (e.g., signature approvals, purchase requisitions) for

commodities and dollar amounts, to determine the items for which back-end audit

procedures can be leveraged to maintain controls. Finally, leading companies leverage

Issuer experience and knowledge in determining eligible purchases.

Once the commodities for card usage are determined, a spend target should be set.

Spend targets should be set at a dollar amount that enables cardholders to purchase

items that are frequently purchased in their eligible commodity groups.

Organizations should set credit limits that strike a balance between control and

ease-of-use. No single credit limit will be appropriate for every organization. Even within

organizations, different business units and levels of employees may have different credit

limits associated with their individual card accounts. Initial setting of credit limits should

incorporate an analysis of monthly purchase volumes, so the cardholder will be able to

purchase as required. Limits should be reviewed and adjusted on a periodic basis.

Finally, best practice companies optimize use of MCC blocking: they ensure that

appropriate purchases are not declined due to an MCC block but also restrict purchases

that are outside of company policy, such as purchases at jewelers or casinos.


Program Management

Establish parameters for eligible Visa Purchasing/Visa Commercial One card transactions leveragingappropriate controls

Best Practice 14


Section II

Best Practices

74

75



Rationale: Clear guidelines empower the

cardholders to use cards appropriately

Best Practice 14


Establish parameters for eligible Visa Purchasing/Visa CommercialOne card transactions leveraging appropriate controls continued

IMPLEMENTATION

ACTION STEPS:

1. Review spend and number

of transactions for each

commodity, division, and

role. Review current spend

and commodities on cards

2. Identify the high-end

dollar amount for typical

purchases; identify the

dollar amount for most

frequent purchases

3. Select commodities and

dollar amounts to target

for card program

4. Set card spend targets for

the various commodities,

divisions, and/or roles;

card spend targets should

be slightly higher than the

cost of the most frequent

purchases




Rationale: Conducting a thorough analysis of

spend to be placed on purchasing cards ensures

that goods and services are purchased through

the most cost effective method




Rationale: Spend parameters provide clear

guidelines for what items should be purchased

through cards


• One mid-size manufacturing company established a purchasing card spend target for allmanufacturing purchases up to $1,000. This step significantly reduced the number ofrequisitions processed by each manufacturing facility.

• Another study participant established spend targets of $1,000 within the manufacturing facilityand $5,000 for engineers, as the engineering group regularly purchased larger dollar items.

• One large corporate company places 60 percent of its procurement transactions, accounting for12 percent of its $11.4 billion of annual spend, on its purchasing card.

• Another large corporate company places 49 percent of its $30.5 billion of annual spend on itspurchasing card.

• One company reviewed credit limits monthly during pilot and rollout and transitioned to quarterlyreview on an ongoing basis.

• One study respondent identified that procurement increases in the summer, so limits weretemporarily increased for that period of time.

The use of cards as a payment method can reduce purchase transaction costs and

settlement costs for organizations. Companies tend to focus on using cards only for

high-transaction, low-dollar items. While use of cards for this purpose provides

significant benefit, companies should also investigate expansion of use into other

spend categories, including recurring payments (e.g., phone, utilities), temporary

services, and computers.

To identify the spend categories that will provide the greatest benefit through

transition to a card program, look at ongoing vendor relationships and select vendors

with whom you have high transactions/spend or recurring payments. Issuers can assist

with analysis of A/P file, vendor targeting, and incorporation of data. Issuers also

provide services to help companies identify which suppliers within the company’s

vendor base already accept cards as a form of payment.

Recognizing the advantage of using Visa Purchasing cards as a payment method,

leading companies often require that their preferred vendors accept Visa Purchasing

cards as a form of payment. Companies also may use the following creative techniques to

encourage card acceptance: Identify large local companies that have implemented cards

and investigate use of the same vendors; develop a consortium relationship and leverage

the combined purchasing power of the group to encourage vendor acceptance of cards;

and incorporate card acceptance in the request for proposal (RFP) or bid process.


Program Foundation

Investigate Visa Purchasing/Visa Commercial One card expansion to additional spend categories to maximizebenefits achieved

Best Practice 15


Section II

Best Practices

76

77



Rationale: Employees often find purchasing items

with cards easier and faster than completing a

requisition to generate a purchase order

Best Practice 15


Investigate Visa Purchasing/Visa Commercial One card expansion to additional spend categories to maximize benefits achievedcontinued

IMPLEMENTATION

ACTION STEPS:

1. Review categories of

spend to identify target

areas for transition to card

program (e.g., recurring

charges, services,

temporary services,

projects, raw materials)

2. Request Issuer

conduct a supplier/

merchant matching to

identify which of your

vendors accept payment

by credit card to identify

additional commodities for

transition to card program

(i.e., The Visa Supplier

Matching Service)

3. For those vendors who

do not currently accept

cards as a method of

payment, request that they

begin to accept payment;

if necessary, use creative

methods detailed to

the right




Rationale: Increases ability of Visa Purchasing cards

to reduce transaction costs by eliminating additional

purchase orders and processing of paper invoices




Rationale: Placement of additional spend

categories on cards enables reporting by vendor

through card program



Rationale: By increasing the volume and

commodities purchased through the card,

companies achieve greater visibility to spend

and increased control in those areas


• One mid-size company leveraged its significant spend with local vendors to require theiracceptance of cards for payment.

• One company used its card program to expand spend to recurring payments for phone services,pager services, copier maintenance, shredding, coffee, flowers, catering, etc. Due to thefinancial success of this initiative, management continues to investigate opportunities to expandspend and has incorporated the requirement for acceptance of commercial cards in RFPs.

• Survey responses illustrate spend for a variety of commodities:

— Two mid-size manufacturing companies use the card for over 75 percent of hardware/software purchases

— One large corporate finance company uses the card for 100 percent of spend with temporaryemployees and contractors

— One large corporate services company uses the card for 80 percent of spend on packagingand shipping

Leading companies have recognized that fostering ongoing senior management

support (e.g., business unit lead, senior or executive vice president support) through

regular communication of card program performance can maximize benefits of the

card program.

Companies have successfully maintained senior management support by

developing regular and ongoing communication of the activities and successes of

the card program through an executive-level report, which can contain the following:

• Process metrics: Purchase order volume and trend, invoice volume and trend,

travel and entertainment volume and trend, Visa Purchasing card usage and trend

• Savings metrics: dollars saved through expanded use of the commercial card

• Lost savings: dollars lost through non-compliance with card policies and

procedures (e.g., maverick spend, low-dollar check payments)

• Current initiatives underway: high-level descriptions of efforts and

expected benefits

Companies have used innovative methods to share this information with senior

management. This includes creating unique presentations, assigning business unit

liaisons, and actively communicating successes through internal newsletters.

In addition to simply communicating successes, organizations have actually shared

their savings with their internal business customers to encourage further compliance

with policies and procedures.


Program Reporting

Share commercial card performance and savings reports with senior management to promote appropriate use of the card

Best Practice 16


Section II

Best Practices

78

79

Best Practice 16


Share commercial card performance and savings reports with senior management to promote appropriate use of the cardcontinued

IMPLEMENTATION

ACTION STEPS:


team to form

senior management

communication initiative

2. Proactively identify

compelling and relevant

card program metrics

and review with senior


appropriateness

3. Develop communication

initiative with related-tools

(e.g., webcasts, report

layouts)

4. Adjust initiative to reflect

feedback as received



management to share

information and ensure

active participation




Rationale: Frequent communication of successes

and opportunities for improvement provides senior

management with the incentive to continue

support of cost saving card program activities




Rationale: Frequent communication of savings

from compliance and lost savings from non-

compliance with card program policies and

procedures encourages senior management

to promote compliance


• One organization tied management’s bonus objectives to achievement of procurement-relatedgoals. Because of this, the procurement department regularly reported its progress relative togoals and successes to the other business units in the organization.

• Another survey participant shared procurement performance numbers, such as cost avoidanceand cost savings, quarterly with his peers to obtain ongoing support of initiatives.

• One large market company’s Head of procurement is a member of the company’s seniormanagement team and thus provides procurement performance information at weekly planningand status meetings that include the company’s president.

• One study participant’s card program administrator provided to the Director of Finance a monthlyreport that contained major projects, training status, and department successes and savings.

Best practice companies use program expansion analysis tools and reporting

solutions offered by their card provider or Issuer to enhance the performance of

their commercial card programs. Card providers and Issuers offer a range of tools to

their clients to assist in the ongoing identification of savings opportunities and in

information management such as card program performance. These tools can be

categorized as follows:

• Online card program reporting tools can help companies make more informed

business decisions, streamline operations, and improve their bottom line.

Such tools often offer standard reports and customized reporting capabilities

that facilitate:

— Spend analysis

— Program administration

— Travel management

— Tax reporting

• ROI tools allow companies to estimate the financial benefits from implementing

or expanding a card program. These tools aid in quantifying the benefits of card

program growth, such as net process savings, which reflect any costs associated

with the implementation or expansion of the program

• A/Panalysis tools determine opportunities to grow the card program by identifying

vendors and spend categories in which card potential is not being met. Such tools

give a company a view of its spend and areas for card growth by looking at:

— Current spend by payment method

— Current check spend with card-accepting merchants,

categorized by transaction size

— Current card program compliance by vendor, business unit, or cost center

• Benchmarking tools assist companies in comparing the performance of their

Procure-to-Pay functions and commercial card program against best practice

companies to identify opportunities for strategic and tactical improvement


Program Reporting

Use Issuer or card provider analysis tools to review and improve your commercial card program performance

Best Practice 17


Section II

Best Practices

80

81



Rationale: Reporting tools allow a company to

review spend with key suppliers and use this

information for effective negotiations

Best Practice 17


Use Issuer or card provider analysis tools to review and improve your commercial card program performancecontinued

IMPLEMENTATION

ACTION STEPS:

1. Meet with the Issuer

to discuss the tools

offered by the Issuer

and card provider

2. Work with the Issuer to

evaluate areas of the card

program requiring support

and identify which tools

assist in addressing

those needs

3. Work with the Issuer

to implement and

utilize the tools

4. Set quantifiable goals for

realizing the opportunities

identified by the tools

5. Continue ongoing

communication with the

Issuer to track progress

against the goals

6. Conduct periodic reviews

to identify new vendors to

target for expansion




Rationale: Reporting tools can simplify accounting

processes by enabling system integration of

transaction data; such tools can also reduce the

manual process of card statement reconciliation.

Card program analysis tools aid in identifying

potential process savings associated with card

program expansion




Rationale: Visibility into cardholder spend is

increased through use of card reporting tools,

in particular through analysis of exception reports.

A/P analysis tools can track business unit

compliance with card program policies by

identifying spend mandated/strongly encouraged

for card use that is being paid by check


• One middle market company wanted to expand its card program in order to replace manualpayment processes with electronic and was able to use the results of the A/P analysis tool toidentify card program expansion targets to bring its spend on the card to its desired 25 percentof total spend benchmark.

• One large market manufacturing company implemented an initiative to pay all transactionsunder $1,000 with a card. The company wanted a mechanism to track compliance with itspolicy. It was able to use the A/P analysis tool to identify the business units that had the greatestcompliance success and those with the greatest leakage. The company was able to educatethose with the greatest leakage about the policy to increase compliance.

• ROI tools can typically quantify process savings from $15 to $70 per transaction due to cardexpansion based on how efficient processes are.



Rationale: Enhances the ability to manage

suppliers and negotiate better pricing by keeping

closer record of fleet spending through reporting

IMPLEMENTATION

ACTION STEPS:

1. Assess need to track

internal expenditures

if a maintenance facility

or fuel pumps are

maintained internally

2. Coordinate with Issuer,

fuel supplier, and

equipment vendor

(e.g., manufacturer of

fuel pump) to set up

acceptance of the Visa

Fleet card through

internal sources

3. Establish a fee-based

relationship for internal

purchases (e.g., monthly

fee or per-transaction fee)

and fee percentage for

external purchases

Benefit Obtained: User Satisfaction/



Rationale: Vehicle operators find it easier to use a

Visa Fleet card for payments rather than use a T&E

card and process an expense report for the fuel or

maintenance purchase. Maintenance providers find

the use of a Visa Fleet card is simpler than traditional

paperwork used to allocate the cost to the vehicle

MARKET APPLICABILITY: Companies with fleet vehicles and internal maintenance and/or fuel facilities



Rationale: Provides a single tool for the internal

accounting of costs associated with the operation

and maintenance of a vehicle

Traditionally, Visa Fleet cards are used for transactions at external vendors.

However, many companies also have vehicle maintenance and operating needs that

are met through internal sources (e.g., company-owned fuel pumps). Typically, these

transactions are tracked through internal processes.

To address this concern, leading companies are implementing a process to use

Visa Fleet cards for purchases of fuel and maintenance from internal company sources.

For example, if a company has a business unit that provides maintenance on company

vehicles, this is a cost that should be allocated to the vehicle. This forward-thinking

approach enables companies to capture and track the true total cost of operating and

maintaining a vehicle through the Visa Fleet card program.

An additional benefit is the ability to maintain company-owned, unmanned fuel

pumps. These internal fuel pumps can be set up to accept only the Visa Fleet card.

Again, the total cost of the fuel used for operating the vehicle will also be captured.

Program Reporting

Use Visa Fleet cards to track expenditures through both external and internal sources

Best Practice 18


Section II

Best Practices

82


• One company reports tracking external and internal fleet expenditures with the fleet card and the associated benefits of the comprehensive data it provides on each vehicle. Only one reporting tool is now required to analyze the total cost of ownership and operation of each vehicle.

• One study participant set up an internal repair shop for vehicle repair. The fleet card was used as the method of payment for internal repairs and provided significant assistance with internalaccounting for that repair shop.

Summary

The Procure-to-Pay process section describes the innovative practices that

companies use to support and enhance their procurement and payment functions. How

companies design and manage their process activities is critical to optimizing the

benefits of their Procure-to-Pay initiatives.

The process section covers all activities in the following areas:

• Sourcing

• Order placement

• Payment & settlement

• Reconciliation

• Control

• Reporting

Leading companies create value-added vendor relationships that meet their crucial

business requirements. They benefit from selection and monitoring of preferred vendor

relationships, design of beneficial contract terms, and interaction with suppliers using

new processes and technology such as e-Auctions.

Companies streamline their goods and services ordering process through practices

such as reducing the number of required approvals and decreasing the number of

purchase orders generated for orders. Through automation of the receipt and payment

of goods and services, companies have achieved benefits and efficiencies in payment

and settlement.

When reconciling invoices and statements, leading companies have automated

the receipt and validation of invoices and designed an optimal tax liability strategy.

These activities are supported and checked by a thorough and efficient process and

spend controls.

Leading companies ensure the effectiveness of their overall program and process

functions through the use of comprehensive data capture and reporting techniques.

This enables them to monitor their overall Procure-to-Pay function and seek opportunities

for improvement.

Procure-to-Pay Process

83

Section II

Best Practices

84

Procure-to-PayProcess

Sourcing

Best Practice 1

Best Practice 2

Best Practice 3

Order Placement

Best Practice 4

Best Practice 5

Best Practice 6

Payment & Settlement

Best Practice 7

Best Practice 8

Best Practice 9

Reconciliation

Best Practice 10

Best Practice 11

Best Practice 12

Control

Best Practice 13

Reporting

Best Practice 14

Best Practice 15

Best Practice 16

Optimize number of suppliers by selecting and monitoringvendors through a formal vendor management program

Incorporate Visa Purchasing/Visa Commercial One cardacceptance into preferred vendor contract terms

Utilize e-Sourcing tools such as e-RFX and e-Auctions tosource suppliers and gain savings on one-off items

Limit the number of approvals required to place an order

Minimize the use of paper purchase orders for all purchasing card-eligible purchases

Integrate the Visa Purchasing/Visa Commercial One card into the e-Procurement system as a method of payment

When commercial cards are not used, employ three-waymatching to reduce the number of approvals required prior to payment

Replace manual check payments with electronic payments

Use the Visa Purchasing/Visa Commercial One card to payinvoices received in Accounts Payable

Develop solutions that support the reporting and payment ofsales and use taxes

Work with your Issuer to receive commercial card statementselectronically with cost centers and G/L codes pre-defined tofacilitate end-user reconciliation

Outsource high-volume, specialized payment processes

Determine control strategy

Monitor procurement performance via a scorecard thatincludes cost, quality, and time components

Gain a comprehensive view of spend by integrating datafrom multiple sources (e.g., e-Procurement, travel, ERP, Visa Purchasing cards)

Leverage SIC and MCC codes for categorization of spend andpurchasing data

85

Best Practice 1


Leading companies have centrally administered, corporate-wide vendor

management programs to guide selection and ongoing management of vendors.

The program they design is often the cornerstone of a Strategic Sourcing effort.

Strategic Sourcing was the most frequently cited Procure-to-Pay initiative underway

by our survey respondents. Seventy-seven percent of respondents believe that they can

improve their Strategic Sourcing activities.

The interest in Strategic Sourcing is likely due to an understanding of the savings

potential of a well-designed and executed vendor management program. Our research

indicates that 78 percent of those companies, who have at least 70 percent of spend

under contract, believe that they are able to achieve significant supplier discounts. Those

companies that do not believe they achieve significant supplier discounts have only 37

percent of spend under contract.

Best practice vendor management programs consist of the following components:

• Vendor management program objectives:

— Strategic (e.g., number of contracts, use of minority- and woman-owned

businesses)

— Financial (e.g., percent of spend under contract, annual spend savings

per year)

• Contract term guidelines (e.g., when to utilize volume guarantees, contract length)

• Preferred vendor criteria:

— Product criteria (e.g., product performance, parts)

— Service level criteria (e.g., order replenishment turnaround,

maintenance timing)

— Fully loaded cost of doing business with a vendor (e.g., freight, taxes, etc.)

— Vendor automation criteria (e.g., ordering, invoicing, reporting)

— Collaboration expectations (e.g., order tracking, inventory levels, demand

forecasting, input into product design process)

— Commercial card acceptance

• Vendor performance monitoring and reporting against key criteria


Sourcing

Optimize number of suppliers by selecting and monitoring vendors through a formal vendor management program

Section II

Best Practices

86



Rationale: One objective of vendor management is

to obtain end-user vendor service expectations and

then monitor and report on user satisfaction with

preferred vendors’ performance

Optimize number of suppliers by selecting and monitoring vendors through a formal vendor management program continued

IMPLEMENTATION

ACTION STEPS:

1. Interview key stakeholders

to define company

objectives, scope, expected

benefits, and work plan

to support the vendor

management program

2. Present vendor

management program

charter to senior executives

to obtain program buy-in



(e.g., A/P, procurement,

other procurement groups)

to develop vendor

management program

components

4. Once the program

components have been

determined, select initial

commodity types to target

for spend, supplier

analysis, and potential

contract negotiation

5. Continue to extend

analysis and vendor

rationalization effort

to additional commodity

types according to defined

vendor management

program objectives;

monitor existing preferred

vendor performance




Rationale: Enables supplier rationalization that

can increase supplier discounts and reduce cost of

“spot-buy” sourcing activities and maverick spending




Rationale: A corporate-wide, centrally organized

vendor management program is the critical

component to successful vendor management



Rationale: By having a well communicated and

disseminated program in place, companies increase

controls by ensuring employees make use of the

company-approved vendors, limiting rogue spending

Best Practice 1



• 79 percent of survey respondents determine their company’s preferred suppliers centrally,allowing them to understand aggregate supplier usage and improve negotiation efforts andvendor performance.

• One survey respondent changed the name of their procurement organization to Strategic Sourcingand Contracts to represent their focus on delivering value-added activities to their company.

• Several survey participants utilize cross-functional, commodity type-specific teams ofprocurement resources, business resources, and, where appropriate, third-party experts to conduct supplier analysis, rationalization, and contract negotiation.

• One large corporate survey participant has gained senior management and end-user support for vendor consolidation by demonstrating clear, substantial savings.

• One survey participant has the goal by year-end to consolidate 80 percent of its spend with1,500 vendors. Additionally, this company conducts annual Vendor Days to educate and align its vendors to the procurement goals for the year and vendor performance expectations.

87

Best Practice 2


IMPLEMENTATION

ACTION STEPS:

1. Include Visa Purchasing

card/Visa Commercial One

card acceptance in

preferred vendor selection

criteria

2. Review with vendors

rationale for the

requirement that they

accept Visa Purchasing/

Visa Commercial One cards

3. Finalize details of card

utilization and reporting

requirements

The utilization of cards as a payment method can reduce purchase transaction

costs and settlement costs for organizations. Card purchases do not require a

purchase order and payment of card statements, which have multiple transactions

per statement, can substantially reduce the number of paper invoices processed.

Additionally, end users are often pleased with the ease of use of a card versus the

requirement to generate a purchase order. The primary benefit to vendors is faster

payment of card purchases.

Recognizing the advantage of using Visa Purchasing cards as a payment method,

leading companies often require that their preferred vendors accept Visa Purchasing

cards as a form of payment. Also, where appropriate, they often work through the

details of vendor acceptance of virtual accounts, which are accounts set up in order to

charge transactions with one supplier/commodity-type to one account regardless of the

end user making the purchase. Finally, companies work with vendors to define the

transaction information, such as Level III data, that would like to receive from the

vendors to supplement their reporting and sourcing needs.

Sourcing

Incorporate Visa Purchasing/Visa Commercial One cardaccount acceptance into preferred vendor contract terms



Rationale: End users often find purchasing items

with cards much easier and faster than completing

a requisition to generate a purchase order




Rationale: Utilization of Visa Purchasing cards

reduces transaction costs by eliminating the creation

of purchase orders and processing of paper invoices




Rationale: Vendor spend data is more accessible

through Visa Purchasing cards and/or commercial

one card is accessible


• 50 percent of the survey respondents who electronically requisition goods use the purchasing card as a form of payment for those orders. On average, they pay 30 percent of their transactions with a card.

• The three most frequently cited objectives of a purchasing card program by survey participantswere transaction cost reduction, settlement convenience, and user convenience. Implementationof these best practices facilitates achievement of these objectives.

• Several survey participants had the vendor commercial one card embedded in their order entrysystem, which provided further settlement convenience.

Leading companies are beginning to utilize e-Sourcing tools to automate and

improve their Strategic Sourcing process. The greatest benefits achieved through

e-Sourcing are reduced pricing of up to 30 percent, decreased vendor negotiation cycle

time, improved product/service quality, and improved decision-making. Seventeen

percent of survey respondents indicated that they have implemented an e-Marketplace/

e-Auction capability and an additional 22 percent responded that they plan to make

such an investment in the next two years.3

e-RFX tools automate and streamline the process of negotiating new supplier

agreements and renegotiating existing contracts. These tools handle more than just an

electronic request for quotation (RFQ) — they enable buyers to manage the creation,

packaging, and dissemination of RFQs, requests for proposals (RFPs), or requests for

information (RFIs) to prospective bidders. They also enable buyers to negotiate product

specifications and other terms and conditions to compare their responses to select the

best deal.

e-Auctions can be utilized to acquire new goods or dispose of excess inventory or

assets. Reverse auctions let organizations set a price ceiling they are willing to pay for

goods or services, which suppliers then can bid down, against each other, to fulfill.

Commerce networks — also known as e-Marketplaces, e-Markets, or e-Procurement

hubs — are Web-based business centers or sections of online business communities

designed to manage catalog content, broker transactions, and facilitate communication

between buyers and suppliers.

Commonly known e-RFX and e-Auction tools in the marketplace today include

Ariba’s Enterprise Sourcing, Commerce One’s Auction, B2e Markets’ B2eSourcing,

Clarus’ Auctions, and FreeMarkets’ QuickSource.


3 Aberdeen Group. “e-Procurement: Finally Ready for Prime Time.” March, 2001

Sourcing

Utilize e-Sourcing tools such as e-RFX and e-Auctions to source suppliers and gain savings on one-off items

Best Practice 3


Section II

Best Practices

88

89



Rationale: Drive improved quality and

product availability

Best Practice 3


Utilize e-Sourcing tools such as e-RFX and e-Auctions to source suppliers and gain savings on one-off itemscontinued

IMPLEMENTATION

ACTION STEPS:

1. Develop a business case

to project potential savings

and understand investment

that can be afforded

2. Define company objectives

for use of online RFX and

auction capabilities

3. Research commerce

networks and software

vendors to understand

their pricing, product

capabilities, and service

as compared to company’s

requirements

4. Select the process

and tool that will meet

company’s objectives

and ROI targets

5. Pilot selection with less

complex RFQs and/or

purchases

6. Expand the program

based on a channel

analysis that determines

which products and

services lend themselves

to selected online models




Rationale: These tools often achieve better pricing

by enabling uniform price comparisons across

suppliers and increasing competition as a result

of a broader reach; additionally, procurement

productivity is enhanced by reducing administrative

time spent on creating and issuing RFQs and

negotiating with suppliers


Benefit Obtained: Accountability


Rationale: Enable better vendor selection

decisions by imposing a structured process

to vendor negotiation



Rationale: Automation provides better control

through bid comparisons and bid management


• Of the survey respondents that indicated they have implemented e-Marketplace/e-Auctioncapabilities, 38 percent of them are very satisfied with the technology, with the remainder beingsomewhat satisfied largely because they were still in a pilot phase of their implementation.

• One large corporate survey participant has used e-Auctions as a replacement for some one-offpurchase order transactions. They estimate that they will save $400 million using this practicenext year.

Leading companies design an approval process that balances the requirement to

exercise procurement controls with the desire to minimize the cost of a transaction.

Survey participants indicated that receiving approvals was the most time-intensive

activity when placing an order.

Companies often decide that low-dollar purchases ordered from an approved

vendor’s catalog do not need additional approvals during the ordering process.

However, large-ticket purchases and specialty items, such as IT equipment, often

require additional approvals due to their dollar size and unique characteristics.

With respect to Visa Purchasing card transactions, companies typically do not require

approvals prior to placing an order with the card and prefer to reconcile the card

statements on the back end by reviewing exception reports for non-compliance.

Ultimately, each company must match its approval process design to its culture.

Our research has shown that typical authority levels are:


Order Placement

Limit the number of approvals required to place an order

Best Practice 4


Section II

Best Practices

90

Type of Purchase

Indirect goods via a purchase requisition

IT purchases

Service contracts

Purchasing card transactions

Authorized Amounts

Up to $500

Up to $2,000

Up to $50,000

Up to $300,000

Over $300,000

Over $500

Up to $2,000

Up to $100,000

Up to $300,000

Over $300,000

Set by card parameters

Authority Levels

None required

Manager

Director

Vice President

CFO, CEO

IT Manager

Manager

Director

Vice President

CFO, CEO

All contracts over $20,000 must be reviewed by Legal.

Not applicable, although cardholder’s supervisor isrequired to sign all reconciled card statements.

91



Rationale: End users desire that their orders be

delivered to the vendor promptly

Best Practice 4

Procure-to-PayProcess Limit the number of approvals required to place an order

continued

IMPLEMENTATION

ACTION STEPS:

1. Review or document

current approval processes

2. Perform an analysis that

balances the need for

efficiency with the level of

control desired, e.g., review

average dollar value of

transactions, materials

purchased, capitalized

items, etc.

3. Conduct analysis to

determine opportunity to

revise approval process

4. Develop training around

revised approval process

that includes the business

justification for the change

5. Roll out the new process

and review/update on

regular basis




Rationale: Optimizing the number of approvals can

reduce the cost of placing an order with a vendor

by approximately $7 to $8 dollars4




Rationale: Designing an approval process with

appropriate checks and balances ensures the

desired control is included in the process

To accelerate the approval process, best practice companies often create approval

business rules in their electronic procurement and requisition systems to enable

automated and efficient approval workflows. Based on the requisitioner and item type,

these business rules are able to determine which approvals, if any, are required. These

rules should be updated regularly and/or linked to a human resources system that

holds the most up-to-date, pre-approved spend levels by person, usually based upon

titles and departments.

Additionally, while many spending authority limits are determined by level,

companies will give those persons in their departments who frequently order goods,

typically an administrative assistant, higher spending limits so that they can order for

their entire department.

4 Gartner Group. e-Procurement: A Blueprint for Revolution or Hype? February, 2000


• No approvals were required by survey respondents:

— for purchases under $100, 44 percent

— for purchases under $500, 33 percent

— for purchases under $1,000, 21 percent,

reducing the cost to process purchases at these companies.

• Many of the study participants do not require procurement department approval when an item isordered from a preferred vendor and has the appropriate number of business unit approvals.Procurement is only involved if items desired require sourcing, reducing the overall approvaleffort and streamlining the procurement process.



Rationale: End users find the process of using a Visa

Purchasing card much faster and easier than com-

pleting purchase orders; end users feel empowered

to quickly obtain goods necessary to do their jobs

IMPLEMENTATION

ACTION STEPS:

1. Examine current spend

payment-type; develop

a recommendation for

purchases that are better

placed on the card due to

their volume, vendor, or

dollar amount

2. Determine best way to

achieve compliance with

recommended card use,

based on company culture

3. Communicate purchasing

card usage policy to

end users

4. Monitor and report on

purchasing card usage,

including exception

reports: same account,

same vendor, same day;

lost savings; etc.

Continue to encourage

policy compliance




Rationale: Utilization of Visa Purchasing cards

reduces the costs associated with purchase order

creation and invoice processing by 65 percent


Research indicates that an order placed using a paper purchase order costs

$81.23, whereas an order placed via a Visa Purchasing card only costs $28.27.5

Recognizing the tremendous cost savings through placing orders on Visa Purchasing

cards, many companies have tried to minimize the use of purchase orders for

purchasing card-eligible purchases.

To minimize purchase orders, companies must first determine which transactions

are Visa Purchasing card-eligible. Some companies make this decision based upon

commodity type, while others determine this based upon the dollar size of the

transaction and/or the frequency of a certain transaction type.

Companies must also decide how to encourage compliance with the prescribed

use of the Visa Purchasing card. Some companies strongly encourage usage through

education and compliance reporting, other companies mandate usage and charge

those business units not in compliance with the cost of the purchase order generation.

Each company must determine how best to encourage Visa Purchasing card usage for

eligible transactions based upon its culture.

Order Placement

Minimize the use of paper purchase orders for all purchasing card-eligible purchases

Best Practice 5


Section II

Best Practices

92


• Recognizing the savings from reducing purchase orders through increased purchasing cardusage, one survey participant has mandated card usage for all purchases under $5,000. Toenforce compliance, the A/P department will identify non-compliant purchases and send a letterto those purchasers, warning that future non-compliant purchases will not be paid.

• Another survey participant, who mandates purchasing card usage for those purchases less than $500, will charge the non-compliant cost center the cost of a purchase order on the second non-compliant purchase and thereafter.

• A survey participant who has not established any purchasing card usage guidelines tracks andreports on purchasing card usage by department. Each department’s leader has a target level ofpurchasing card usage within their management bonus plan. It is up to that department leaderto determine how to meet the usage requirement.

5 Lehigh University. Reducing the Transaction Costs of Purchasing Goods and Services. March, 2001.

93

Best Practice 6


Best practice companies strive to achieve end-to-end Procure-to-Pay process

automation. These companies implement e-Procurement software to streamline and

automate their requisition, approval routing, and order-placement activities.

To automate the payment of an electronically ordered product or service,

companies can integrate the Visa Purchasing/Visa Commercial One card as one

effective method of payment. Card integration can be more efficient than check

payments as process steps such as invoice receipt and processing, manual

reconciliation, and check printing can be eliminated.

Best practice companies generally implement ghost cards (account numbers not

associated with a physical card) with their e-Procurement software. These cards are

assigned to a specific department or, more commonly, a specific vendor.

Below is a typical process companies have used to integrate the Visa Purchasing/

Visa Commercial One card into their e-Procurement system:

• Consult with the Issuer to format the card transaction file for integration into the

e-Procurement system; the card transactions will enter the system as if they were

electronic invoices

• e-Procurement vendors paid by card should be advised not to mail a

paper invoice

• As payment information is received, the system will mark the order and payment

as reconciled if the invoice amount is within a specified dollar or percentage

threshold of the purchase order (to account for shipping and taxes)

In addition to process efficiencies, using Visa Purchasing/Visa Commercial One cards

to pay e-Procurement purchases reduces risk of late payment to vendors and assists in

vendor management as spend by supplier can be consolidated on one card account.


Order Placement

Integrate the Visa Purchasing/Visa Commercial One card into the e-Procurement system as a method of payment

Section II

Best Practices

94



Rationale: Assists with spend data capture by

vendor through payment with ghost cards assigned

by supplier

Integrate the Visa Purchasing/Visa Commercial One card into the e-Procurement system as a method of paymentcontinued

IMPLEMENTATION

ACTION STEPS:

1. Determine e-Procurement

suppliers to investigate for

payment via card through

the system



technology employees

to analyze the costs

and benefits of card

payment to the selected

e-Procurement suppliers

3. Present analysis to senior

management for approval

of integrating the card as

a form of payment into the

e-Procurement system

4. Notify suppliers of the

decision to pay via card

5. Develop a joint

implementation plan

with the Issuer

6. Implement use of the Visa

Purchasing card with the

e-Procurement system

7. Train e-Procurement

buyers on the new

payment process

8. Track actual savings

relative to plan and

adjust as needed




Rationale: Significantly reduces payment

process costs




Rationale: Enforces card payment for electronic

purchases

Best Practice 6



• Of the survey respondents who have implemented an e-Procurement system, on average,27.5 percent of their spend on e-Procurement software is being paid by card to reduce paymentprocess costs.

• One large market company has set up ghost accounts by vendor to pay for electronically procuredgoods. In doing so, it has been able to gain improved visibility into spend by vendor and to enablegreater sourcing savings.

95

Best Practice 7


In an automated environment, best practice companies conduct three-way

matching between the purchase order, the packing slip, and the invoice. If all

documents match within a designated threshold, the invoice is authorized for payment.

This minimizes the time A/P spends reviewing invoices, enables the department to

manage by exception, and significantly reduces manual activity associated with invoice

and receipt retention.

The vendor should send A/P the invoice electronically. Leading companies are

beginning to explore the viability of an Electronic Invoice Presentment and Payment

(EIPP) solution as well as e-Receiving packages. Central or desktop receiving should

have entered the packing slip into the system and resolved any delivery issues at the

time of receipt. The purchase order initiated the transaction via an e-Procurement or

ERP and should already be in the system.

Some enabling tools for three-way matching include:

• e-Procurement

• ERP systems (e.g., procurement and A/P functions)

• Bar coding

• Scanners to create electronic invoices and receipts



When commercial cards are not used, employ three-way matching to reduce the number of approvals required prior to payment

Section II

Best Practices

96

When commercial cards are not used, employ three-way matching to reduce the number of approvals required prior to paymentcontinued

Best Practice 7




Rationale: End users do not have to solicit

signatures prior to payment

IMPLEMENTATION

ACTION STEPS:

1. Incorporate formal

receipt and three-way

matching into policies

and procedures

2. Train end users and

Procure-to-Pay employees

on formal receipt and

receiving

3. Track internal and

vendor three-way

matching performance




Rationale: Reduces settlement and payment

cycle time




Rationale: Vendor scorecard metrics often measure

delivery and matching performance, including

percent of POs that could not be matched to invoice,

delivery timing, quantity discrepancies, etc.



Rationale: Ensures that invoices paid are valid


• One survey respondent used bar coding integrated into the company’s ERP system to facilitatereceipt and three-way matching.

• Two study participants reported use of scanners for documentation of receipts. For one company,this enabled the electronic transmission of receipts, which improved the processing time ofreceipts. The other company processed a large number of expense reports each month — as aresult, there were significant cost savings through reduced document storage needs.

97

Best Practice 8


Best practice companies minimize the effort spent on manual payments. eMarketer

estimates that processing an invoice manually costs approximately three times as much

as an automated payment. Additionally, automated payments help increase cash flow,

reduce transaction costs, and facilitate managing exceptions.6

Mid-size and large corporate companies can automate payments by:

• Creating a software feed into an Excel invoice template

(e.g., QuickBooks, MS Money)

• Using ghost accounts dedicated to suppliers

• Implementing ACH/EFT

• Implementing EIP

• Utilizing EDI or XML


Replace manual check payments with electronic payments

IMPLEMENTATION

ACTION STEPS:

1. Review vendors, invoices,

and payment methods

from A/P and G/L ledgers

2. Identify appropriate

vendors for electronic

payments; factors for

inclusion are number of

transactions, size of

transactions, supplier

sophistication, and

complexity of payment

terms (e.g., multi-currency)

3. Determine appropriate

type of automated

payment mechanism

4. Implement solution.

Monitor success and

continue to review

opportunities for

increasing electronic

payment partnerships




Rationale: Replaces expensive and time-

consuming methods of payments; improves

cashflow management




Rationale: Strengthens vendor relationship by

providing funds immediately and increasing

technology touchpoints


• Survey findings indicate that 26 percent of payments are currently automated.

• Gartner estimates that 40 percent of B2B payments will be automated by 2004.7

• eMarketer estimates that online invoicing costs $1.65, while manual payments cost $5.00.8

• One survey respondent has automated 70 percent of payments, which represented best-in-class.

6 eMarketer. The Electronic Payments Report. October, 2001.

7 Gartner Group. e-Procurement: A Blueprint for Revolution or Hype? February, 2000.

8 eMarketer. The Electronic Payments Report. October, 2001.

Many companies are realizing the benefits associated with Visa Purchasing/

Visa Commercial One card use in the A/P department. Those benefits include

improved company compliance to commercial card program policy and increased

process efficiencies.

Best practice companies establish guidelines for commercial card use and work to

ensure compliance to policy. Card-use policy typically includes the definition of spend

types and purchase amounts most appropriate for payment with the card. Companies

also develop a list of suppliers that are strongly encouraged or mandated for card use.

This list can be developed by providing the Issuer with a list of suppliers that can be

analyzed through Visa’s Supplier Matching Service to identify those suppliers that

accept commercial card payment.

Companies distribute their commercial card use policies to all cardholders, but in

order to prevent “leakage” and increase compliance with policy, many companies are

identifying and paying, within A/P, invoices that should have been paid by the card.

For the purchase order-based purchases, A/P also provides the buyer, if they are a

cardholder, with card policy information to re-educate them on how to use the card or,

if they are not a cardholder, with information on how to obtain a card.

The cards used in A/P departments are typically department cards that are

assigned to an individual such as the A/P manager or an A/P technician. The monthly

spend limit may be higher than that of average cardholders to allow for the higher

volume of spend anticipated on the card. In addition to more traditional spend types,

A/P departments also use the card to pay for spend categories such as hardware,

software, MRO, temporary services, and telecommunications.



Use the Visa Purchasing/Visa Commercial One card to pay invoices received in Accounts Payable

Best Practice 9


Section II

Best Practices

98

99



Rationale: Allows A/P to increase policy

compliance and re-educate cardholders on

appropriate card use, without requiring

cardholders to pay the received invoice with the

card themselves, which may delay payment

Best Practice 9


Use the Visa Purchasing/Visa Commercial One card to pay invoices received in Accounts Payable continued

IMPLEMENTATION

ACTION STEPS:

1. Develop and distribute

commercial card use

guidelines

2. Measure compliance with

policy; determine if card

use guidelines can be

better met through having

a card in A/P

3. Identify the individual to

whom to assign the card;

design control parameters

such as monthly spend

limit, MCC restrictions, and

card use audit process

4. Implement the A/P card

by establishing the account

and conducting cardholder

training

5. Determine whether or not

followup with buyers will

occur to encourage use

of the card at the time

of purchase

6. Periodically review card

use guidelines in A/P;

update policies accordingly




Rationale: Increases process savings through

displacement of check payments




Rationale: Encourages A/P to more closely

monitor and improve card compliance


• One survey participant established a ghost card in A/P to reduce the number of one-time vendorset-ups, decrease working capital pressures, and increase card policy compliance.

• A software company has one cardholder and one ghost card in A/P. The ghost card is used topay three vendors: promotional items, office supplies, and catering. The plastic card is used forinvoice payments under $1,000 in support of the company’s mandate that every transactionunder $1,000 be paid with the card.

• One study participant has implemented 50 ghost accounts; each account is used for purchasesfrom a specific supplier. This has provided a low-cost method to increase card spend and hasfacilitated the capture of enhanced transaction data.

Leading organizations understand and manage their businesses within the

labyrinth of tax regulations imposed by local, state, and federal jurisdictions.

Understanding anticipated tax liabilities is a key factor in developing sound ROI

evaluations, business case assessments, and managing overall spend. As companies

implement automated procurement processing technologies and adopt commercial

card products and programs it is also an appropriate opportunity to implement solutions

that support the reporting and payment of sales and use taxes. In this survey,

businesses reported using software solutions like Vertex, TaxWare, and InfoSpan to

collect and manage tax-related information.

Best practice companies endeavor to understand the liabilities associated with

underpayment.

The most successful tax strategies ensure collaboration between commercial card

program and corporate tax administrators. Generally, the most accurate and auditable

results have been obtained in programs where taxes are calculated without cardholder

involvement.

Leading organizations develop a tax compliance methodology that combines

the amount of electronic transaction data delivered to the program administrator

with assumptions regarding the tax consequences of certain types of purchases.

For example, some programs assume that if the transaction data shows that the

cardholder and vendor are located within the same state, the transaction was

correctly taxed. Programs make this assumption because in most jurisdictions the

vendor would charge tax unless presented with a valid exemption certificate.

Tax determinations between cardholders and out-of-state vendors rely on a variety

of approaches, such as enhanced transaction data to substantiate tax paid or certain

characteristics of the out-of-state vendor. After eliminating the exempt transactions and

transactions where sales tax was paid, use tax is accrued on the remaining

transactions. Commercial card transaction receipts are retained until the state’s

authority to audit expires.

Finally, best practice companies implement a process that documents the

transactions where sales tax was collected by the vendor, identifies purchases of items

exempt from tax, and calculates the use tax accrual on taxable purchases where tax

was not charged by the vendor.


Reconciliation

Develop solutions that support the reporting and payment of sales and use taxes

Best Practice 10


Section II

Best Practices

100

Best Practice 10


Develop solutions that support the reporting and payment of sales and use taxescontinued

IMPLEMENTATION

ACTION STEPS:

1. Partner with corporate tax

to understand procurement

tax liability

2. Implement a tax-tracking

mechanism and train

users

3. Continually monitor

program compliance

and adjust accordingly




Rationale: Tax record-management processing and

appropriate tax accrual calculation




Rationale: Provides visibility over tax liability

101


• 86 percent of study participants have implemented strategies and accounting systems designedto expedite tax reconciliation and accrual and move responsibility away from the individualemployee. These companies no longer consider reconciliation of sales and use tax a time-intensive activity.

• One study participant worked with the company’s corporate tax department to design a purchasing card statement and receipt retention process that augmented the company’sexisting sales and use tax compliance and reporting capabilities. Through accurate reportingand thorough record keeping, the company has been able to effectively estimate and pay itstaxes and comply with IRS regulations.

Best practice companies streamline the reconciliation process by minimizing the

time spent receiving statements and allocating transactions to G/L codes and cost

centers. Companies can work with their Issuers to determine the best mechanism for

automating this process according to their specific needs.

Automated statement delivery enables cardholders to receive statements faster

and in a format that can be more easily updated than statements sent by mail. Typically,

to receive a statement electronically, companies will do one of the following:

• Download an electronic statement from the Issuer’s web site

• Receive the data via email

• Receive data feeds according to a predefined schedule or based upon

transaction volume

To further automate the reconciliation process, companies predefine a G/L code

and cost center code for the card payment transaction. Predefinition assists

cardholders in reconciliation by providing a “best guess” allocation that cardholders can

adjust as needed prior to submitting a statement for approval.

G/L code predefinition rules can be based on criteria such as vendor name,

cardholder and, most commonly, merchant category code. Cost centers are typically

predefined based on the cardholder. As business units/cost centers may allocate the

same type of spend to a different G/L, the G/L predefinition mapping can be specific to

a business unit or cost center. Companies should work with their Issuers to implement

the predefinition mapping best suited to their needs, as well as to design a

maintenance schedule of the rules.


Reconciliation

Work with your Issuer to receive commercial card statements electronically with cost centers and G/L codes pre-defined to facilitate end-user reconciliation

Best Practice 11


Section II

Best Practices

102



Rationale: Facilitates cardholder reconciliation

efforts

Best Practice 11


Work with your Issuer to receive commercial card statements electronically with cost centers and G/L codes pre-defined to facilitate end-user reconciliation continued

IMPLEMENTATION

ACTION STEPS:

1. Determine and implement

an automated statement

delivery mechanism with

the Issuer

2. Work with Issuers to

develop G/L code and

cost center mapping

and incorporate it into

electronic statement

information

3. Incorporate the revised

reconciliation process

into cardholder training

and card procedures

information




Rationale: Reduces the amount of time spent on

card payment reconciliation and reduces errors

associated with manual processing




Rationale: Ensures allocation of the correct

G/L codes to track spend and improve the

budgeting process

103


• 54 percent of surveyed companies have implemented automated delivery of electronic cardstatements to minimize the most time-intensive activities reported: buyer reconciliation andassignment of cost center.

• Several survey respondents linked predefinition of codes with success of reconciliationautomation efforts and purchasing card programs.

• Implementation of an automated reconciliation system facilitated the management of spendthrough a commercial one card program.

• One survey respondent that predefined G/L codes reduced invoice payment transaction costsfrom its computed industry benchmark average of $2.50 to $1.90.

Best practice companies understand their core competencies and find that certain,

non-strategic business activities can be outsourced cost effectively. Outsourcing can

yield the following benefits:

• Improve company focus on strategic activities

• Gain access to world-class capabilities and consistent best practices

• Reduce or control operating costs

• Increase availability of capital funds

• Gain access to short-term resources

• Obtain assistance for a function that is specialized or difficult to manage

Outsourcing is a strategic management tool for organizational change. It is a

long-term business strategy that should be developed with a clear sense of the

competencies that make the company unique and give it strength in the market,

such as the skills and expertise that allow a company to create unique, leading-edge

products and services.

Outsourcing is simply the “make versus buy” decision that organizations have

always had to make. Today, however, the number and capability of external suppliers

has exploded, offering specialized solutions for every conceivable aspect of a

company’s operations. Additionally, technology has made it easier than ever to integrate

the operations of separate companies into a cohesive and seamless whole. Finally,

increased competition has forced every organization to re-examine and challenge every

aspect of its operations.

A successful outsourcing strategy identifies functions and activities for which the

company has neither a critical strategic need nor special capability and then makes

smart, strategic decisions to source it from a leading provider. Best practice companies

have examined their payment core competencies and often outsource management

functions, including:

• Freight consolidation

• Check printing

• Invoice scanning

• Temporary services


Reconciliation

Outsource high-volume, specialized payment processes Best

Practice 12


Section II

Best Practices

104



Rationale: Increases the importance of vendor

management since a business process is no longer

in-house

Best Practice 12

Procure-to-PayProcess Outsource high volume, specialized payment processes

continued

IMPLEMENTATION

ACTION STEPS:

1. Define core competencies

and potential areas to

outsource

2. Create a business case

that defines outsourcing

goals and outlines impact

on organization

3. Select outsourcing

vendors; include service

level agreements and

fee ceilings

4. Determine if personnel

can be redeployed

5. Reengineer processes

to include outsourced

function

6. Conduct change

management program

to gain acceptance

7. Proactively manage

vendors to ensure

they provide defined

service levels




Rationale: Can result in significant cost savings for

high-volume or specialized functions




Rationale: Enables a specialist to focus on its core

competency

105


• One survey respondent outsourced freight payables. Outsourcing enabled greater leverage and discounts received with freight spend and ensured that all freight billings were valid.

• Additional Deloitte research and client work indicates that best practice companies outsourcemanagement of invoicing and payment for temporary services, where use of contingentworkforce is high.

Best practice companies define a consistent control strategy that increases

visibility and minimizes fraud, while ensuring these control and audit goals are aligned

with company needs and overall strategy.

High-profile bankruptcies have highlighted the importance of internal audit and

independent review of procurement, A/P, and individual business units. Corporate

culture should support the ability to question the appropriateness of company practices.

A control strategy should include the following components:

• Types of transactions to be reviewed

• Groups responsible for review

• Acceptable thresholds/exception triggers and profiles

• Frequency of audits

• Sampling methods (e.g., statistics sampling)

• Proper authorizations and verifications

• Record retention

• Compliance reporting

• Tax issues

The strategy should balance visibility, effort required, and processing efficiency.

Controls can provide significant impact in an organization. Aberdeen estimates that

maverick spend accounts for 10 percent of purchases in an organization. For a billion

dollar company that purchases $400,000,000 in goods and services, $40 million of

spend can occur outside of controls.9

9 Aberdeen Group. Indirect Expense Management: Driving Bottom-Line Benefits. November, 2001.

Control

Determine control strategyBest

Practice 13


Section II

Best Practices

106

IMPLEMENTATION

ACTION STEPS:

1. Define the control strategy

2. Ensure policies and

procedures embody the

control strategy, including

procurement, purchasing

card, and A/P policies

3. Educate end users on

control policies

4. Monitor and evaluate

compliance



Rationale: Enables increased visibility to spend

data and business practices



• Although 73 percent of companies surveyed listed employee misuse as a top three controlconcern, at 65 percent of companies surveyed this was addressed through implementation ofaudit policies that have checks in place for original receipts, approval signatures, and employeemisuse, which improved companies’ audit capabilities.

• Two mid-size companies reported improved controls through use of card reporting tools for audit.

Best Practice 14


107

Best practice procurement departments monitor and improve performance using

various cost and process measures. Metrics help drive behavior and should be clear,

measurable, and actionable. Performance targets should be achievable and based

upon internal and external benchmarks. Some categories include:

• Department measures, such as strategic goals of department and percent of

company spend impacted by procurement

• Cost measures, such as dollars saved and percent of vendors rationalized

• Quality measures, such as purchase orders matched and number of complaints

• Time measures, such as cycle time for sourcing

These metrics can be used to create a comprehensive scorecard to capture

transaction costs, measure performance against goals, and identify opportunities for

improvement. Additionally, communication of goals and progress motivates employees to

achieve goals.

Reporting

Monitor procurement performance via a scorecard that includes cost, quality, and time components

IMPLEMENTATION

ACTION STEPS:

1. Define appropriate

metrics for procurement

and its practitioners —

this can include category

metrics, such as overall

department, cost,

quality, and cycle-time

2. Define targets using

internal and external

benchmarks — targets

can include items

such as achieving

budget objectives, user

community satisfaction,

rationalization of vendors,

percent of spend on

negotiated contracts,

and percent

of on-time delivery

3. Monitor and evaluate

performance




Rationale: Monitors company savings




Rationale: Allows the company to manage by

information versus beliefs


• One survey respondent creates an annual scorecard with five to eight metrics that measureproductivity, sourcing effectiveness, and service. The company develops scorecards with externalbenchmarks and reviews them on a quarterly basis with senior management, driving continuousimprovement.

• One survey respondent creates a business plan every year that includes scorecard measures forcustomer service, control objectives, and cost savings targets.

Leading procurement organizations consolidate commodity spend data available

through multiple sources. A/P data often provides the most detailed spend reports.

Leading companies leverage additional data available from vendors, Issuers, and travel

agencies to ensure a comprehensive view of spend for vendor negotiation and

reconciliation purposes.

Companies can consolidate spend data via the following tools:

• Access and Excel databases

• A/P, G/L, and purchase order reporting tools

• Data mart/data warehouse

Once data is consolidated, companies can use data analysis to identify trends,

manage vendors, and ensure compliance with procurement policies.



Rationale: Provides a holistic view of the

procurement process

IMPLEMENTATION

ACTION STEPS:

1. Understand payment

data sources (e.g.,

e-Procurement, travel, ERP,

commercial card, etc.)

2. Define the information that

should be consolidated by

understanding information

available through A/P

as well as information

available from vendors,

travel agents, and Issuers

3. Select the data

repository to consolidate

data sources

4. Combine data into

repository

5. Determine reports

necessary to analyze

findings




Rationale: Enhances Strategic Sourcing efforts by

examining comprehensive data




Rationale: Provides visibility over all sources

of spend


• One survey respondent initiated its Strategic Sourcing efforts by creating a spend analysis. The spend analysis integrated data from multiple sources and formed the foundation for itsStrategic Sourcing successes.

Reporting

Gain a comprehensive view of spend by integrating data from multiple sources (e.g., e-Procurement, travel, ERP, purchasing cards)

Best Practice 15


Section II

Best Practices

108



Rationale: Provides comprehensive, standardized

data summaries

Best Practice 16


Best practice companies use SIC and MCC codes to classify spend and provide

summarized reporting. Issuers and vendors provide this information with commercial

cards to facilitate reconciliation with G/L codes. Companies often associate SIC codes

with vendors and MCC codes with transactions in their ERP systems to provide a view of

commodity-level spend.

IMPLEMENTATION

ACTION STEPS:

1. Define spend

classification method

1. Partner with Issuers,

vendors, and other

external vendors to

receive SIC and MCC

information

1. Incorporate SIC and

MCC information into

the ERP system or spend

data repository

1. Analyze spend and

card use using SIC and

MCC codes



Rationale: Assists in classifying and consolidating

vendor spend data


109


• One survey respondent added SIC codes to its vendor file in a Strategic Sourcing initiative. It enabled the company to reduce RFP time by 50 percent.

Reporting

Leverage SIC and MCC codes for categorization of spend and purchasing data

Section II

Best Practices

110

Summary

Travel and entertainment (T&E) is considered to be the second largest controllable

indirect spend in an organization and possibly the most visible.10 Travel management can

be complicated because of diverse issues, such as rate structures, negotiated rates, last-

minute bookings, geographically dispersed travelers, and varying travel patterns.

Consequently, use of travel management programs is on the rise. As travel volume

increases, the importance of managing travel and its associated issues escalates.

Although many of the same principles of effective Travel and Entertainment

management have remained the same, such as use of T&E card programs to help

manage spend and generate time and cost savings, there have been noticeable changes

in overall T&E strategy. Current market conditions have had a significant impact on

business travel. Many companies are reevaluating their business travel needs and are

leveraging new communication-based technologies to reduce the need to travel for

training and internal meetings. Many companies have also instituted major T&E policy

changes on a short-term basis, such as requiring pre-approval for all business travel.

Companies have begun to encourage increased travel-related self-service by employees

through implementing in-house, Web-based booking tools and meeting-planning

software.

The relationships between companies and suppliers have also changed significantly

over the past three to five years. Airline vendors are beginning to examine their fee and

commission arrangements with travel agents. Companies have enhanced their ability to

negotiate discounts through improved ability to capture spend data and move market

share to other vendors. Companies have also begun to take advantage of the weakened

economic state of many of the leading air, hotel, and car vendors and reopened contract

negotiations. Conversely, vendors are more carefully monitoring company volume

guarantees.

The best practices described in this section encourage companies to have a travel

management discipline that will be successful regardless of changing economic

conditions. The best practices stress the implementation of sound fundamentals in

travel management and organization and include innovative yet practical tools to enable

companies to achieve additional cost savings and benefits.

10 What CFOs and other finance managers can do to bring expenditures back down to earth.CFO.com, Boston: December 18, 2002.

Travel and Entertainment (T&E)

111

Travel andEntertainment

Section II

Best Practices

112

Organization

Best Practice 1

Best Practice 2

Best Practice 3

Card Program

Best Practice 4

Best Practice 5

Best Practice 6

Best Practice 7

Sourcing

Best Practice 8

Order Placement

Best Practice 9

Control

Best Practice 10

Reporting

Best Practice 11

Best Practice 12

Best Practice 13

Best Practice 14

Institute a centralized travel management function

Develop and distribute company-wide travel policies

Coordinate event planning through travel management function

Source, select, and implement a T&E card program

Establish T&E/Visa Commercial One card issuance criteria for optimal distribution to business travelers

Mandate and enforce use of the T&E/Visa Commercial Onecard for all eligible purchases

Maximize use of T&E/Visa Commercial One card virtual accounts

Optimize number of suppliers by selecting and monitoringvendors through a formal vendor management program

Implement in-house, Web-based booking tool

Establish well-defined expense report audit parameters

Standardize and pre-populate T&E/Visa Commercial One cardexpense reporting

Standardize and automate data interfaces between expensemanagement and accounting applications

Capture, report, and analyze comprehensive, company-wide travel data

Implement post-trip exception reporting and distribute lostsavings report

Best Practice 1


Best practice companies have centralized the travel management function to

achieve the following benefits:

• Improve travel coordination efforts

• Enhance negotiating strength

• Ensure consistent development and application of travel policy

• Streamline communication with vendors

• Increase user satisfaction from a centralized service

• Ensure consistent and comprehensive reporting

The majority of study participants reported centralized travel management. At a

minimum, the development of travel policies and vendor negotiations and management

should be centralized. Other activities that can be centralized include:

• Travel policy management

• Travel policy communication (e.g., newsletters, web site)

• T&E card administration

• Management of travel agent(s) of any type:

— Outsourced

— In-house

— Location-specific

• Management of in-house travel web site

• Customer service management (e.g., reservation booking, responses to inquires)

• Travel and entertainment reporting


113

Organization

Institute a centralized travel management function



Rationale: Improves employee awareness of appro-

priate personnel to contact for questions and issues

Institute a centralized travel management function continued

IMPLEMENTATION

ACTION STEPS:

1. Identify the size and scope of

travel volume (e.g., number

of travelers, city pairs)

2. Determine travel

management activities and

reporting structure and divide

responsibilities according

to required skills

3. Staff the travel management

function with individuals

who are knowledgeable in

the travel industry to ensure

the greatest benefits are

achieved through the

program; alternatively, train

those responsible for the

travel management function

on travel industry-specific

reporting, tools, negotiation

techniques, and processes

to ensure staff have

expertise necessary to

perform successfully

4. Determine and develop

common tools to support the

travel management function

(including vendor database,

card management policies,

data extracts from ERP

system to track spend,

dedicated web site, and

travel index/guides)




Rationale: Centralized travel and consolidation of

spend reduces costs and improves discounts




Rationale: Improves vendor relationships and

enhances management of travel vendors;

information collected in this function supports

the contract negotiation process



Rationale: Improves the ability to track and

analyze travel spend at centralized location


• 70 percent of our survey participants have a centralized travel management function. Two-thirdsof the participants have this function reporting to the Finance or procurement departments.

• One study participant transitioned to centralized travel management, which consolidated spend andallowed the company to decrease the number of travel agencies servicing the company to one. Themove to a single travel agency reduced rates and streamlined the vendor relationship effort.

Best Practice 1


Section II

Best Practices

114

Best practice companies develop company-wide T&E policies and communicate

them in ways that maximize compliance. The policy should be clear, easily accessible,

and widely disseminated. Enhancing travelers’ understanding and buy-in to the policy

improves compliance, diminishes policy-related conflicts at the point of booking, and

increases benefits associated with compliance. Leading companies ensure that T&E

policies are aligned with overall Procure-to-Pay objectives and are actively endorsed by

senior management.

Travel policies should contain the following topics:

• Objectives

• Summary responsibilities

• Travel approval process

• Designated travel agency

• Air travel policies

• Auto travel policies

• Rental car travel policies

• Other out-of-town expense policies

• Other business expense policies

• Reimbursable expense guidelines

— Air travel

— Car rental

— Personal vehicle use

— Lodging

— Meals/business entertainment

— Spousal travel expenses

• Non-reimbursable expenses

• Reimbursement process

• T&E card

— Cardholder benefits

— Cardholder responsibilities

— Credit limits, restrictions/

controls

— Liability associated with

the card

— Restricted transactions

— Dispute resolution

— Lost card procedures

— Cardholder agreement form

— Card activation

• Policy violations

• Safety and security measures


Organization

Develop and distribute company-wide travel policyBest

Practice 2


115



Rationale: Improves employees’ ability to access

travel policy requirements and restrictions; empowers

employees to make appropriate travel decisions

Develop and distribute company-wide travel policycontinued

IMPLEMENTATION

ACTION STEPS:

1. Develop a policy that is

consistent with company

culture and needs by

reviewing current policies,

surveying employees to

gain user insights, and

reviewing current travel

spend data (e.g., hotels,

airlines, rental car

agencies, and cellular

phone carriers)

2. Gain senior management

approval and participation

to demonstrate corporate

sponsorship

3. Present the policy in a

user-friendly format that

guides travelers through

the entire process; include

answers to frequently

asked questions (FAQs)

4. Make the travel policies

available through new hire

orientation; maintain the

travel policies on a

company intranet

5. Communicate updates to

the policy and related

successes of the program

on an ongoing basis; issue

periodic traveler tips that

focus on key elements of

the T&E policies




Rationale: Increases compliance with use of pre-

ferred vendors, thereby leveraging the established

discounts and increasing the ability to maintain or

gain additional discounts through those vendors




Rationale: Increases compliance with use of

preferred vendors, providing travel management

function with greater ability to assess vendor pricing

performance and greater leverage with vendors to

improve performance and pricing (e.g., concierge

services, upgrades, travel incentives)



Rationale: Provides employees with understanding

of travel restrictions, mandates, and policy updates;

employees that are aware of and understand

policies are more likely to follow them


• Three study participants noted that regular communication of travel “tips” for non-complianceareas improved employee compliance with the policy (e.g., in email or through companynewsletters).

• One mid-size study participant not only reviewed and updated his company’s travel policiesperiodically, but also communicated the changes to travelers. This review and communicationprocess resulted in a reduction of the travel budget by one-third over the last three years, whichequated to a reduction from $9 million to $6 million.

Best Practice 2


Section II

Best Practices

116

Best practice companies ensure that the travel management group incorporates or

acts as a business partner with other corporate organizational entities with sizeable T&E

spend including sales and marketing, recruiting, and training.

Coordination between company event decision-makers and the travel management

function will ensure travel-related vendor contracts and benefits — such as travel discounts,

reduced fares, and reduced accommodation fees — are incorporated into all business travel

and event decisions. Coordinated efforts ensure that all event planners understand travel

management issues and policies, while giving the travel management function added

visibility over all travel spend, exposing additional negotiation opportunities.

Tools that can further facilitate event planning include:

• Appropriate use of commercial cards (e.g., increased credit limits for sales and

marketing, recruiting, and training)

• Event planning automation tools by vendors such as Certain Software, CEO

Software, Inc., Cvent Inc., Dean Evans & Associates, and Isis Corp.

Organization

Coordinate event planning through travel management function

Best Practice 3


117

IMPLEMENTATION

ACTION STEPS:

1. Identify the size and scope of

the organization’s other travel

planners (e.g., event planning

may be a responsibility under

travel management or may

require dedicated staff work-

ing in coordination with travel

management)

2. Determine the optimal level

of coordination between

travel/event related activities

(e.g., contract reviews and

negotiation, budgeting/

forecasting of travel spend,

reporting, etc.) and travel

management, including the

reporting required to support

the coordination effort

3. Communicate the need to

coordinate events through

travel management in the

travel policies

4. Train those responsible for

the coordination effort



Rationale: Ability for event planners to leverage

Travel Management and/or Travel Agency expertise




Rationale: Information collected from all travel-relat-

ed functions creates greater leverage for contract

negotiations with travel vendors to reduce costs




Rationale: Increased vendor relationship

management possible and ability to apply

spend toward quotas for discounts



Rationale: Improved ability to track event

planning and other unique travel spend as a

subset of overall firm travel spend; increases

ratio of spend through preferred vendors


• One survey participant arranged all conferences through the travel function — this enabled the company to capture hotel and airline spend data and incorporate it into contract negotiations,improving his position to negotiate better pricing.

• One survey respondent has plans to implement event planning software that will enableemployees and guests to enroll in a conference and link with the in-house Web booking for airlineand hotel reservations, enabling better coordination, directing travelers to preferred vendors, andreducing time spent booking travel.

Travel and entertainment (T&E) cards are a very effective tool for managing travel-

related spend, reducing cash advances, and providing travelers with an easy, fast, and

safe method of payment while on the road. Even for businesses with low volumes of

travel, T&E cards should be considered. Leading companies recognize the following

benefits through implementation of a T&E card program:

• Reduced cash advances, resulting in improved cash management and reduced

costs associated with processing and tracking cash advances

• Integration of T&E card data into internal MIS, expense reporting, Accounts

Payable (A/P), and General Ledger (G/L) systems

— Streamlined expense report administration

— Reduced expense report cycle time

— Improved travel data quality and accuracy

• Improved traveler convenience and safety

— Decreased concerns regarding funds while traveling

— No need to use personal cards for travel

— No need to carry large cash advances while traveling

— Online access to cardholder account data

• Improved access to funds for international travel

— Converts funds to U.S. dollars on T&E statement

— Reduces currency conversion rates as card transaction rates are typically

better than those available at stores providing this service

— Cash access provides money in local currency

Leading companies develop specific and achievable goals and objectives for their

T&E card programs. These goals and objectives should be consistent with corporate

culture and travel policies. Best practice companies periodically review the goals and

objectives for continuous improvement purposes.

Leading companies utilize a thorough sourcing process to select a T&E card

program that will help the company meet goals and objectives set for the program.

Sourcing a card program can occur during the implementation of a new program or at a

transition point when the needs of the company change. Issuers are vendors and

should be included in the standard vendor reviews to ensure that they continue to

provide services that meet program objectives.


Card Program

Source, select, and implement a T&E card programBest

Practice 4


Section II

Best Practices

118

Best Practice 4

Travel andEntertainment Source, select, and implement a T&E card program

continued

Prior to implementing a T&E card solution, best practice companies analyze the

costs and benefits of each available program, taking into consideration any product

variations from one Issuer to another.

Companies compare T&E programs based on the following factors:


• Current relationship

• Financial arrangement


• Card management and administration tools available through Issuer, including:

— Templates to assist with implementation (e.g., Policies and Procedures)





• Knowledge/experience of card sales personnel and ability to provide consultative

services

• Customer service levels (e.g., Service Level Agreements, proactive relationship)

Companies compare T&E Issuers based upon the following factors:

• Standard transaction cost charged for use of the card



119

Best Practice 4


Section II

Best Practices

120



Rationale: T&E cards provide significantly improved

travel convenienceIMPLEMENTATION

ACTION STEPS:

1. Review Travel Policy and set

goals and objectives for the

T&E card program; consider

any cultural implications

(e.g., employee desire for

reward programs)





at a minimum, include

procurement, travel

management, and A/P

personnel



to Issuers





ability to meet those goals

and objectives

5. Leverage Issuer

experience and expertise

for implementation of the

T&E card program (e.g.,

policies, recommended

reports)




Rationale: Allows for the most efficient and cost

effective method of purchasing and paying for travel-

related services; card programs reduce need for cash

advances, which improves cash management and

reduces processing and tracking costs; also provides

improved efficiency in expense report processing and

expense management




Rationale: Implementation of a T&E card provides

improved data quality and accuracy for vendor

management and negotiations



Rationale: Card programs facilitate a degree

of control through card features and through

back-end audit and exception reporting


• 69 percent of our survey respondents have implemented a T&E card program. The primaryreasons for selection of the Issuers were merchant acceptance followed by reporting capabilities.

• Six of the survey participants reported that one of the greatest benefits of the card program wastraveler convenience, as travelers did not have to wait for cash advances to begin travel.

• Several companies reported that transitioning to T&E cards provided them with improved dataaccess for vendor negotiation purposes.

Source, select, and implement a T&E card programcontinued

Leading companies ensure that T&E cards are distributed appropriately. These

companies develop criteria for distribution of cards that are consistent with company

culture, policies, and spend parameters for card eligible purchases. The use of T&E cards

can reduce costs associated with processing cash advances and check requests.

Some companies distribute T&E cards to all travelers and others distribute cards

only to regular travelers. To identify individuals who require T&E cards, companies

review cash advance requests and expense reports. Companies should also review

travel volume and needs of various business units (e.g., sales) and roles when

identifying travelers. T&E cards can be a significant benefit to employees who may not

have an established credit history.

For employees who do not travel regularly (typically only once a year or less) or for

recruits/interns who may be involved in limited short-term travel, companies may want

to investigate the use of virtual accounts or central billing accounts to handle airline,

hotel, and car rental costs.

Card Program

Establish T&E/Visa Commercial One card issuance criteria for optimal distribution to business travelers

Best Practice 5


121

IMPLEMENTATION

ACTION STEPS:

1. Develop a criteria for

distribution of T&E cards

that is consistent with

company culture and

policies; coordinate with


profile of a typical traveler;

review expense reports and

cash advances to identify

individuals who should

have T&E cards

1. Prior to any travel for a non-

cardholder, managers should

determine whether the

employee will have ongoing

travel responsibilities — if the

employee does, then the

manager should consider

issuing a T&E card to the

employee

3. Regularly review inactive

T&E card reports; determine

whether employee is using

his/her own card to pay for

travel-related expenses; if so,

encourage use of the card;

if not, reevaluate the need

for the employee to have

the card



Rationale: Improves travelers’ ability to pay for

travel-related expenses, reduces travelers’

concerns over access to funds while traveling,

and alleviates need for travelers to use personal

funds or credit for business travel




Rationale: Encourages all travel-related expenses

to be purchased with the T&E card, reducing

transaction costs associated with cash advances

and check equests




Rationale: Optimal distribution of T&E cards

increases eligible spend on the cards, providing

improved reporting of actual travel spend for

vendor management



Rationale: Increases control through consolidation

of spend — allows for improved reporting and

reconciliation of travel spend


• Best practice companies have increased their issuance of T&E cards by monitoring expensereports and identifying travelers who pay exclusively out-of-pocket. A majority of the companiessurveyed reported that use of T&E cards significantly reduces the need for cash advances.

• One company issued cards to all employees who needed to travel and mandated use of the card.That company was able to achieve a 29 percent discount on its $3.5 million travel spend.

IMPLEMENTATION

ACTION STEPS:

1. Develop policies

and procedures as a

foundation to compliance

2. Mandate T&E card use

and communicate benefits

to cardholders

3. Encourage card use by

training cardholders on

proper use

4. Regularly communicate

benefits and successes of

the T&E card program

5. T&E card administrators,

travel managers, and/or

Accounts Payable should

monitor compliance; review

expense reports to identify

exceptions; leverage

exception reporting tools

available through Issuers

6. Based on culture, distribute

non-compliance reporting

to non-compliant traveler,

direct supervisor, and/or

management

7. Based on culture, take

steps to enforce use for

continued non-compliance




Rationale: Increases compliance, reducing travel

costs and trip planning effort; reduces the level of

effort required to gather travel spend information




Rationale: Can help strengthen vendor

relationship due to increased use, and improved

data can be used for future contract negotiations



Rationale: Enables company-wide, centralized

visibility to spend data and supports effective

reporting for audit and control purposes


• A large corporate study participant mandated and enforced use of the corporate T&E card,increasing spend on the card and enabling reduced fees through the Issuer. On average, surveyparticipants that mandated T&E card use also appeared to achieve higher discounts throughtravel vendors. For air travel, the average discount was 26 percent compared with 13 percent forcompanies that did not mandate T&E card use.

• Of the survey participants that mandated T&E card use, only 20 percent felt the need tocontinue to provide cash advances. Of the survey participants that did not mandate use of theT&E card, 55 percent continued to fund cash advances to their employees.

• A mid-size company mandated use of the corporate T&E card for all airfare to reduce controlconcerns associated with travel booked but not taken. Through implementation of this program,the company achieved better tracking of unused travel and was able to reduce thousands ofdollars of unused airfare credit.

Best practice companies mandate and enforce use of T&E cards. Consolidating

travel payments into a single-payment vehicle improves a company’s ability to capture

and analyze data for vendor negotiations and compliance reporting (e.g., tracking of

progress against volume guarantees and use of preferred vendors). T&E card use also

facilitates automated pre-populated expense reporting. Additionally, use of a T&E card

helps minimize the need for cash advances. One-third of the survey participants

mandated usage of their T&E cards.

Companies use a variety of techniques, based upon their corporate culture, to

enforce use of the card. A typical method is distribution of exception reporting to non-

compliant travelers and their supervisors. Some companies reported that employees

are given initial warnings for non-compliant behavior (e.g., email, voice mail, in person).

Should the traveler continue to spend outside of policy, the company would not

reimburse those expenses.

Card Program

Mandate and enforce use of the T&E/Visa Commercial One card for all eligible purchases

Best Practice 6


Section II

Best Practices

122

Best Practice 7


123

Virtual accounts are commercial cards associated with one department or vendor,

regardless of the particular end user making the purchase. The two most common

examples of virtual accounts are ghost accounts and department cards. Ghost accounts

are master accounts with no associated physical card; the account number is typically

maintained with a single vendor. A department card is a physical card that is assigned to a

specific group within a company. In both cases, purchases are charged to an individual

commercial card account number, that can only be accessed by designated purchasers.

Best practice companies use virtual accounts as part of their overall T&E card

strategy. For example, companies set-up ghost accounts with their contracted travel

agents for T&E spend, most commonly airline spend, and they use department cards to

cover T&E spend for infrequent travelers or non-employees, e.g., contractors or recruits.

The advantages of T&E virtual accounts include:

• Convenience for those who have not yet received a T&E card or do not meet the

company’s guidelines to receive a T&E card, such as:

— New hires/recent college graduates

— Potential hires

— Contractors

— Foreign employees/new immigrants

— Employees who are infrequent travelers based on annual T&E spend or

number of trips per year

• Reduction of costs associated with individual employee reimbursement

of travel spend

• Elimination of employee burden to cover travel expenditures during the period

between when they are incurred and reimbursed

• Reduction of late payments to the vendor or Issuer

Best practice companies receive and pay virtual account bills centrally.

They establish controls to validate purchases or reconcile card statements through

department/employee verification of their expenses. These companies also mandate the

use of virtual accounts and ensure that travelers and the travel agency understand the

company’s travel and expense policies, preferred suppliers, and negotiated rates.

Best practice companies use and consolidate the virtual account card data with

other T&E data (e.g. from the travel agency, hotels, car rental agencies, and other

internal reporting systems) in order to get a complete view of spend for improved

reporting and negotiating power with vendors.


Card Program

Maximize use of T&E/Visa Commercial One card virtual accounts



Rationale: Eases both the order placement and

payment processes; increases vendor satisfaction

through timeliness of payments; and decreases

employee debt burden

Maximize use of T&E/Visa Commercial One card virtual accountscontinued

IMPLEMENTATION

ACTION STEPS:

Department Cards

1. Evaluate current T&E spend

and T&E buyer profiles

2. Identify groups of T&E

purchasers to which to

assign department cards

(e.g. by department,

function, or related

activities, etc.)

3. Use Issuer experience to

implement and manage

T&E department cards

4. Transition current

purchasers/cardholders

to T&E department cards

5. Determine data

requirements and


6. Finalize requirements

for reconciliation purposes

and communicate to

purchasers/cardholders

Ghost Accounts

1. Evaluate current T&E spend

and identify categories to

target for ghost accounts

2. Use Issuer experience to

implement and manage

T&E ghost accounts at

vendor(s)

3. Set-up current purchasers/

cardholders on T&E ghost

accounts at vendor(s)

4. Determine data

requirements and


5. Finalize requirements for

reconciliation purposes

and communicate to

purchaser/cardholder




Rationale: Use of ghost accounts reduces time

for reconciliation and settlement of transactions




Rationale: Maintaining a single T&E expense on

a ghost account allows for improved tracking of

spend with the supplier



Rationale: Use of back-end audit maintains

the controls on these purchases; improved controls

can be achieved through reporting on the card

account (e.g., companies can review monthly

charges for variance and month-to-month variance);

enables greater management of departmental

or travel spend


• In addition to issuing individual T&E cards for frequent travelers, one company has set up 85virtual travel accounts with its contracted travel agent for each of its departments. These virtualtravel accounts pay for the air travel of each department’s infrequent travelers, includingemployees with less than $500/year of T&E expenses. By setting up these virtual accounts, thecompany is able to control T&E expenses centrally and manage the T&E card program moreeffectively by concentrating on high-spend users.

• Two mid-market companies have issued T&E cards for non-air travel and require all air travel tobe booked through the company’s virtual travel account with its contracted travel agent. Thesecompanies have benefited from central control, real-time access to travel data, and end-usersatisfaction. End users are relieved of the debt burden of air travel expenses.

Best Practice 7


Section II

Best Practices

124

Leading companies have a centrally administered corporate-wide travel and

entertainment vendor management program to guide selection and ongoing

management of vendors. A vendor management program is often a cornerstone of a

Strategic Sourcing initiative, which focuses on supplier, base rationalization, and

discounted rate achievement.

Best practice travel vendor management programs consist of the following

components:

• Establish travel vendor management program objectives:

— Strategic (e.g., improving services to traveling employees through advanced

reporting and reconciliation tools)

— Financial (e.g., percent of spend under contract, annual spend savings

per year)

• Develop contract term guidelines (e.g., contract length, volume guarantees,

and how to optimize monitoring efforts — analyze current travel, city pairs,

hotels — consider negotiating volume guarantees when switching from one

provider to another)

• Establish preferred vendor criteria:

— Service level (e.g., 24/7 availability, emergency assistance,

on-call consultation)

— Fully loaded cost of doing business with a vendor (e.g., freight, taxes)

— Vendor automation (e.g., ticketing, invoicing, reporting)

— Collaboration expectations (e.g., fare evaluation, hotel service and compara-

tive cost assessments, dining recommendations, corporate event planning)

• Develop vendor scorecards and targets for travel suppliers — including travel

agency — and implement vendor performance monitoring


Sourcing

Optimize number of suppliers by selecting and monitoring vendors through a formal vendor management program

Best Practice 8


125



Rationale: One objective of vendor management is

to obtain feedback from end users on vendor service

expectations and then monitor and report on user

satisfaction with preferred vendors’ performance

Optimize number of suppliers by selecting and monitoring vendors through a formal vendor management program continued

IMPLEMENTATION

ACTION STEPS:

1. Analyze traveler

preferences, company

travel trends, common

geographic destinations,

company travel policies,

and projected travel

budgets to prepare

baseline requirements

2. Develop and present travel

vendor management

program charter (company

objectives, scope, expected

benefits, and work plan) to

senior executives to obtain

program buy-in



to develop travel vendor

management program

4. Develop change

management program

that introduces and

provides assistance

to internal participants

5. Perform ongoing spend

and supplier analysis

6. Continue to evaluate

vendor management

program objectives

and monitor existing

preferred vendors




Rationale: Enables supplier rationalization that can

increase supplier discounts and reduce cost

of “last-minute” booking and reservations




Rationale: Corporate-wide, centrally designed

vendor management provides a structure for

measuring and monitoring vendor performance



Rationale: Optimizes travel costs and selection

of preferred vendors and facilitates management

of vendor performance


• Survey respondents were able to achieve an average airfare discount of 17 percent, with areported range of 5 to 29 percent.

• Best practice companies track and maintain comprehensive data for travel vendor negotiations.Study participants reported the ability to achieve significant discounts by tracking nights stayedat hotels and city pairs for air travel. These companies used this data to guarantee volume andto monitor status of volume throughout the year.

Best Practice 8


Section II

Best Practices

126

Over the last few years, online procurement has increased significantly, especially

with respect to travel-related purchases. In 2000, U.S. online consumers were believed

to have purchased $12.2 billion of leisure travel over the Internet (68 percent of which

was airline tickets). By 2004, Forrester Research predicts that $28.9 billion will be

spent online for travel. As employees and companies have become more comfortable

with using the Internet for booking travel, many companies are moving to online travel

booking of business travel as a company policy.

Best practice companies are turning to Web-based travel booking tools, applications

that companies implement on an intranet site or through a travel agency (e.g., GetThere/

Sabre, Apollo). Implementation of an in-house, Web-based travel reservation tool can

improve a company’s ability to balance and manage business travel requirements with the

traveler’s personal preferences. Web-based application selection criteria should include:

• Reporting capabilities

• Ease of integration

• Ease of use

The software can be modified based on company policy. Rules are built into the tool

that can restrict users to specific vendors or allow users to evaluate vendor offerings

that benefit budget and/or travel schedule. As reservations are completed, Web-based

applications can require the completion of reason codes to explain an expenditure that

is outside of company policy.

Benefits of implementing an in-house, Web-based booking tool include:

• Provides better positioning to discontinue time-based contracts (e.g., annual

travel management service contracts) and transition to transaction-based

contracts with travel agencies

• Enables user self-service/user empowerment

• Improves use of preferred travel vendors

• Reduces cost of service and maintenance

• Enables travel agents to provide high value-added services such as complex

travel and travel modifications

• Improves access to travel and entertainment data

By 2004, Forrester Research predicts that $28.9 billion will be spent online for travel.11


11 Forrester Research. Travel Data Overview: On-Line Leisure Travel Soars Even Higher. August, 2001.

Order Placement

Implement in-house Web-based booking toolBest

Practice 9


127



Rationale: Empowers users as they are able

to manage their travel requirements within

corporate guidelines, budget requirements,

and personal preferences

Implement in-house, Web-based booking toolcontinued

IMPLEMENTATION

ACTION STEPS:

1. Define reservation

management processes

and policies for travelers

2. Develop definition of how

the company will utilize,

pay, and manage selected

travel agency services

3. Define Web-based tool

application requirements

(e.g., reporting capabilities,

ease of use, ease of

integration, adaptability of

rules for company policy)

4. Select and implement

Web-based booking tool

5. Develop plan for use of

information retrievable

from the tool and tie to

sourcing activities (e.g.,

tracking volume, spend

by vendor, city pairs)

6. Develop a training

program that explains

the application features,

functions, and operation

requirements

7. Analyze performance

to review adoption rate

and develop initiatives

to increase




Rationale: Reduces cost of travel agency

relationship, facilitates vendor rationalization

and management, and allows users to select

most cost-effective options




Rationale: Aggregation of travel spend improves

ability to manage vendor relationship



Rationale: Company can restrict users to specific

vendor relationships; facilitates ability to create

exception reports


• 40 percent of companies surveyed have implemented an in-house, Web-based booking tool. An additional 10 percent plan to implement one in the next two years. 80 percent of those who implemented one were either very satisfied or somewhat satisfied with their selected tool.

• On average, companies that utilize an in-house, Web-based booking tool have been able to book53 percent of their transactions through the tool.

• One study participant reported reducing travel agency transaction costs from $45 for telephone-assisted booking to $15 per online transaction by implementing a Web-based booking system.

• One company achieved its goal of booking 60 percent of travel through an internal, Web-basedbooking system within the first few months of implementation. The company used a variety oftechniques to encourage the shift to the Internet, including publication of reduced transactionfees, distribution of lost savings reports, distribution of non-compliance reports, anddevelopment of incentive programs (e.g., randomly awarding airline tickets to employees whobooked through the Web-based tool).

Best Practice 9


Section II

Best Practices

128

Best Practice 10


129

IMPLEMENTATION

ACTION STEPS:

1. Define audit strategy,

including exception triggers

2. Create policies and

procedures that embody

the audit strategy,

including procurement,

T&E, and A/P policies

3. Train auditor on audit

strategy and procedures

4. Monitor and evaluate audit

strategy and execution




Rationale: Statistical sampling significantly reduces

processing costs, while catching and reducing

“maverick” spend




Rationale: Improves the efficiency and accuracy of

the control process; added controls allows the

organization to proceed without undue fears of mis-

use or fraud


• 65 percent of study participants have an audit strategy that targets employee misuse, accurate approval signatures, and original receipts using statistical sampling as well as adefined dollar threshold.

Auditing T&E information is vital for measuring compliance to travel policies. Best

practice companies define clear audit parameters to ensure timely, efficient, periodic

reviews are made to evaluate the compliance or non-compliance with T&E policies.

Along with being clearly defined, audit policies should align with the overall

organization’s strategy. Audit staff should be trained to effectively execute audits.

The audit strategy should include the following components:

• Department responsible for review

• Acceptable thresholds/exception triggers and profiles

• Frequency of audits

• Sampling methods (e.g., statistical sampling)

• Proper authorizations and verifications

• Record retention

• Compliance reporting

• Correction at point of audit

The audit strategy should balance visibility, effort required, and processing efficiency.

Control

Establish well-defined expense report audit parameters

Best practice companies seek out ways to minimize low-value tasks of their

employees. One of the most time-consuming administrative tasks required of traveling

professionals is travel expense reporting. According to Aberdeen, the average employee

spends about 30—45 minutes to complete a manual expense report, with a cost of

approximately $45 to process it on the back end. An automated report, pre-populated

with card data on the other hand, can be completed in 10—15 minutes (a 67 percent

improvement from manual reporting) and reduce the processing costs by 80 percent.

Additionally, the system helps reduce reconciliation errors associated with manual data

entry and encourages T&E card use compliance.12

In order to reduce the costs associated with expense reporting, companies have

begun to implement automated expense reporting systems. These systems provide an

automated form that can be accessed from the user’s desktop and allow for integration

with the data feed from the T&E card provider.

When the user accesses the system, he receives an expense report that has been

pre-populated with T&E card data. Fields are created for allocation to cost centers and

entry of out-of-pocket expenses. After completion, the form is electronically routed using

workflow rules (included with the system) for automated manager approval and

subsequent delivery to the Accounts Payable department for reconciliation and

reimbursement. Receipts are forwarded to A/P in a separate envelope.

Twenty-six percent of companies surveyed have implemented an enterprise-wide,

pre-populated expense reporting solution, which is better than the nine percent industry

average. While automated expense reporting is viewed as an innovative T&E best

practice, it has not been as widely adopted as predicted. This low adoption has been

attributed to other Procure-to-Pay solutions such as e-Procurement, Strategic Sourcing,

and ERP implementations that have eclipsed automated expense reporting in priority.

Additionally, the market for automated expense reporting solutions was less mature

than it is today and did not provide companies with an extensive amount of functionality

required to justify the implementation. The results of the survey indicated that

companies will begin to adopt these tools more rapidly going forward.


12 Aberdeen Group. Expense Management Automation. March, 2001.

Reporting

Standardize and pre-populate T&E/ Visa Commercial One card expense reporting

Best Practice 11


Section II

Best Practices

130



Rationale: Users appreciate the ease, convenience,

and time-savings of pre-populated expense reports

Best Practice 11


Standardize and pre-populate T&E/ commercial one card expense reportingcontinued

In addition, compared to five years ago, the number of companies offering expense

reporting solutions has grown dramatically. ERP and e-Procurement vendors have

developed automated expense reporting solutions and marketed them as “second-wave”

initiatives. Other third-party products have developed strategic alliances with card

providers and software companies to provide more robust functionality.

Mid-size companies that do not necessarily have the resources to spend and

implement an expense reporting solution have explored cost-optimal alternatives such

as outside hosting of the expense reporting package or creation of in-house, automated

expense templates.

IMPLEMENTATION

ACTION STEPS:

1. Evaluate third-party

expense reporting

packages for ability to

meet functionality and

integrate with existing

platform

2. Work with Issuers to

receive automated feed,

define cost center codes,

and create workflow rules

3. Pilot expense reporting

package within a business

unit to optimize solution

and build initial momentum

4. Develop and deliver

comprehensive training

program to ensure

user acceptance and

satisfaction with

the product

5. Roll out expense reporting

package, including

comprehensive training




Rationale: Significantly reduces cycle time,

data input, and input errors




Rationale: Pre-population of data increases control

over data and reduces possible data input errors

131


• In addition to the 26 percent of study participants that have already implemented an enterprise-wide expense reporting solution, 36 percent plan to implement one in the next two years.

• One large corporate participant reported the average time to complete a pre-populated,automated expense report is two minutes — this is a 93 percent improvement from the industryaverage for completing a manual report.

• 100 percent of the companies that implemented an enterprise-wide solution expressedsatisfaction with their products and the associated cost savings.



Rationale: Improves timely reimbursement

IMPLEMENTATION ACTION

STEPS:

1. Map data requirements

(e.g., cost center, employee

information, spend

information) to ensure

accurate interface

1. Develop and thoroughly

test interface prior to

deployment

1. Work with audit department

to develop new process for

reviewing and improving

expense reports




Rationale: Reduces cycle time, manual data input,

and potential for errors




Rationale: Reduces mistakes generally attributed

to human error


• 58 percent of study participants listed manual entry of expense data into the A/P system as oneof the most time-intensive activities during the reconciliation process.

Leading companies have developed automated interfaces between their expense

management applications and their ERP or accounting applications. This step

significantly streamlines the reconciliation process by removing the time-intensive

activity of manually entering expense report data in the A/P and G/L systems.

The automation of this interface is often done in collaboration with the implementation

of an automated expense reporting solution.

Understanding what was spent, the entity or cost center responsible for the

expense, the timing of the expense, and the management of the payable is a significant

step in encouraging cost-management collaboration between the accounting and travel

management functions. Well-planned and tested interfaces reduce errors and

processing time, enable timely payment, and provide decision-makers a view of

consolidated and consistent information.

Although the need to audit for approvals and original receipts will still exist, the

focus of the audit will shift from validating accurate data entry to ensuring appropriate

cost allocation of expenses.

Reporting

Standardize and automate data interfaces between expense management and accounting applications

Best Practice 12


Section II

Best Practices

132

Best Practice 13


133

Best practice companies identify the appropriate internal and external sources for

travel data to facilitate comprehensive data management. Access to comprehensive

data is critical to effective vendor negotiations and Travel and Entertainment policy

compliance tracking.

Information sources include:

• Travel agency

• T&E card

• Expense reports

• Vendors (e.g., hotels, airlines)

• Web-based booking tool

Companies should capture travel data in a central data location. The data should

consist of per-trip information on costs, vendors, dates, and locations. It should be

collected in an easy-to-analyze format, which includes the ability to sort by different

variables. For some companies, this may be as simple as aggregating the data into a

Microsoft Excel spreadsheet. Mandating and enforcing use of a single travel agency

or T&E card provides improved access to data in a single repository.

Data can be used for vendor negotiations, continuous improvement, and exception

reporting. Common analysis may include a review for patterns and exceptions in areas

such as:

• Airline city pairs

• Spend with T&E suppliers

• Airline credits with each airline

• Top volume suppliers during a given period of time

• Cash advances taken through T&E card for companies that permit cash access

on cards

• Merchant Category Code (MCC) exception reporting


Reporting

Capture, report, and analyze comprehensive, company-wide travel data

Capture, report, and analyze comprehensive, company-wide travel datacontinued

IMPLEMENTATION

ACTION STEPS:

1. Identify all internal and

external sources of data

(see information sources

above); meet with all travel

planners to identify any

other travel data collection

resources

2. Work with sources to

retrieve data (e.g., data

feeds, spreadsheets,

queries)

3. Consolidate data into

single reporting mechanism

(this will depend on

technological sophistication

and format of the data)

4. Determine cost-effective

method for continuous

update of data (e.g.,

may range from weekly

download and merge to

fully integrated system)




Rationale: Comprehensive data enables greater

ability to negotiate discounts, reducing overall

travel costs to the firm




Rationale: Comprehensive information will

better support vendor negotiations and vendor

consolidation



Rationale: Enables the firm visibility to

comprehensive spend data and supports effective

reporting, allows for the evaluation of travel

compliance by region, business unit, period,

or policy, and improves decision-making


• Study participants that consolidated data from multiple sources averaged a 19.6 percent discounton airline rates. This is significantly greater than the overall study average of 9.7 percent.

• One study participant transitioned to mandated use of the T&E card for all travel-relatedexpenses, which enabled greater visibility to comprehensive spend data from a single location,thereby improving spend information and analysis capabilities. Where additional detail wasrequired, the company leveraged data supplied through the Travel Agency.

Best Practice 13


Section II

Best Practices

134

Leading organizations use exception reporting to track, communicate, and resolve

non-compliance issues. “Maverick” or “rogue” spend by employees can significantly

impact costs as non-compliant spend does not take advantage of negotiated rates.

A post-trip report contains information about expenses incurred for completed

travel (by business unit, traveler, etc.) over a given time period. The travel management

function should review reports to monitor expenses and lost savings and, as needed,

investigate policy violations. By tracking post-trip information, organizations are able to

track non-compliance and deliver related lost savings information to non-compliant

individuals and their managers to encourage compliance.

Reconciliation

Implement post-trip exception reporting and distribute lost savings report

Best Practice 14


135

IMPLEMENTATION

ACTION STEPS:

1. Define critical metrics

for post-trip reporting

(e.g., travel expenses by

business units, hotels,

airlines, car rentals

used, etc.)

2. Track metrics using

reporting system

determined by available

technology and reporting

sophistication

3. Utilize exception reporting

to identify travelers who

are violating policy

4. Communicate with

violators to determine

underlying causes (e.g.,

frequent flyer miles,

last-minute booking, etc.)

5. Train non-compliant

employees on travel

policies (e.g., show lost

savings report, develop a

quick-reference card for

travel policies, etc.)

6. Track individuals’ non-

compliance over time for

additional communication

and follow-up




Rationale: Reduces costs over time as compliance

improves by exposing lost savings and encouraging

compliance




Rationale: Communication of costs and benefits

improves compliance over time


• Approximately half of the survey participants utilize post-trip exception and post-trip lost savingsreports.

• Two large corporate companies utilized internal, Web-based booking systems, which requiredemployees to type in reasons for booking travel outside of company policy; reporting through theWeb-based tool was used in non-compliance reporting.

• Another large corporate company generated and distributed non-compliance reports amongbusiness units to encourage compliance.

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