purchasing and travel card programs nsaa/nasc joint middle management conference kurt albertson...
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Purchasing and Travel Card Programs
NSAA/NASC Joint Middle Management Conference
Kurt Albertson
Director of Advisory Services
April16th 2008
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Statement of Confidentiality and Usage Restrictions
This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group.
Copyright © 2008 The Hackett Group, World-Class Defined and Enabled. All rights reserved.
Agenda
The Hackett Group
Corporate Card Programs Purchasing Card Programs Travel Card Programs Summary of Key Points
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The Hackett Group Defines and Enables World-Class Performance
The use of our intellectual capital enables our clients to implement change to affect their ability to attain and sustain world-class performance
– We provide strategic advice and implementation assistance based on 4,000 benchmarks with leading global companies
– Our implementation tools allow our clients to achieve results from proven best practices of world-class companies
Our recommendations address both efficiency and effectiveness of world-class performance
Our efforts have delivered over $90 billion in sustainable cost savings and $25 billion of improved cash flow improvement through REL, our working capital group for clients across the globe
Operating in the Americas, Europe and Asia, we have served clients in 66 countries
Our unique intellectual capital is unparalleled in driving successful performance improvement
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Members of Hackett’s Advisory Programs Gain Access to Leading Practitioners, Best Practices, Metrics and Insights
To enable client change initiatives, Hackett provides continuous Advisory Services which extends Hackett intellectual property and senior advisors directly to executives and project teams to speed adoption of proven practices, compress planning cycles and mitigate risk
Hackett’s Advisory Programs include the following components:• Access to experienced Senior Business Advisors• Annual onsite Executive Briefing• Best Practice Research• World-Class Performance Metrics• Best Practice Knowledge and Online Repository• Peer-to-peer Learning Opportunities
Hackett Advisory Programs include
If interested in learning more about The Hackett Group’s Advisory Programs please contact us at 888-8HACKETT or visit www.thehackettgroup.com
• Procurement Executive & Operations (includes P2P) • HR Executive
• Finance Executive • Financial Operations (includes P2P)
• IT Executive
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The Hackett Group Identifies Leading Performers by Empirically Defining both World-Class and Top Performer Status
World-ClassDefines leading performers within a Function
Top PerformerDefines leading performers within a Process
Hackett Value Grid™ Hackett Performance Continuum
Procurement HR
IT Finance
Accounts Payable Payroll
Credit & Collections Planning/Budgeting
Agenda
The Hackett Group Corporate Card Programs
Purchasing Card Programs Travel Card Programs Summary of Key Points
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Corporate Card Programs Leverage by Organizations Can Have Varying Scopes
Travel Card– Travel and Entertainment expenses
Fleet Card– Vehicle-related expenses
Purchasing Card– All other expenditures
One Card– All spend categories covered by T&E, Purchasing, and sometimes Fleet cards
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Combined Card Programs for Travel and Purchasing are Used by About a Quarter of Organizations
The Hackett Group T&E Benchmark, 2008
Factors to consider regarding One Cards: Would administrative/IT costs be reduced? Do employees carry multiple cards? Can your company accept some level of
reallocation? Is policy compliance a significant problem? Is your company comfortable w/ tax
compliance issues? Is your company willing to withhold from an
employee’s paycheck? Does your provider have the technology to
support a One Card?
Agenda
The Hackett Group Corporate Card Programs Purchasing Card Programs
Travel Card Programs Summary of Key Points
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Outsourcing some of the Purchase-to-Pay process: A third-party operated system to control and pay for lower risk purchases
A consolidated central bill: automatically paid once each period
A card used to buy operating supplies, office purchases, and lower-dollar, non-strategic goods & services
A “supercharged” charge card, with enhanced controls and information not found with ordinary cards
What are Purchasing Cards?
It is Not: A credit card (no interest or borrowing), Like cards we as consumers have used, or Without significant control
It is Not: A credit card (no interest or borrowing), Like cards we as consumers have used, or Without significant control
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The Business Case for Purchasing Cards and Why Organizations Use Them to Support Their Processes
Costs Staff time to build and administer the program Sometimes out-of-pocket fees for costs may be incurred for
MIS, consulting, etc. Cash flows is often altered dependent on typical payment
terms
Risks More than a 3-way match but less than check requests or
non-PO transactions
Benefits
Reduced cycle time and effort for users to acquire goods Preauthorized limits automatically enforced Reduced purchase order / invoice volumes and related staff
time process costs Information to manage the supply base Cash rebates from card issuer
86%
75%70%
42%35%
Reduce the number of invoices
Streamline the purchasing of one-off type transactions
Achieve rebates
Streamline payment to high-volume suppliers
Streamline payment of E-procurement based transactions
Primary objectives of purchasing card program(percent of all participants)
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Top Performing Organizations Standardize on Commodity Directed Optimized Purchase-to-Pay Transaction Flow Paths to Optimize Process Performance
CommodityFamily
(1)P-Card
InvoiceOnly
(3)Purchase
OrderInvoice
Reciept
(2)Contract
(4)Purchase
Order
RecieptPurchase
OrderInvoice
Invoice Options
· System Recurring
· Supplier Submitted
Receipt Options
· Dock Receipt
· Desk Top Receipt
Maps toSpecific
OptimizedTransactionFlow Path
3-Way Match
Exception Process
Least Efficient
Four Optimized Transaction Strategy Flow Paths
Pay
Pay
Pay
RequisitionOr System Triggered
Request
Invoice Options
· Supplier Submitted
· PO Flip
Pay
Enabled With Electronic Tools To Manage
Requisitioning, Business & Procurement Approvals, PO Dispatch, eInvoicing, and Electronic Payments
Purchasing Cards are typically utilized for lower risk and lower control categories of spend
PO + InvoiceHighly Controlled Process
PO + Receipt (ERS) or
3-Way Match
Highly Controlled Process PO + Receipt (ERS)
or 3-Way Match
Simple Process
Pcard
Recurring Invoice
Simple Process
Pcard
Recurring Invoice
Contract Supported
Invoice Only
process
Contract Supported
Invoice Only
process
High
Low
High
CommodityRISK
FACTOR
CONTROL
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Top Performing Organizations Leverage Purchasing Cards More Replacing a Less Efficient PO Process and Less Controlling Non-PO Process
The Hackett Group Procurement Benchmark 2007
Information from Hackett’s 2007 AP, Procurement, and Pcard Benchmarks and includes labor and outsourcing cost. Analysis is based on an assumption that there are 2.57 line items per Transaction
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Top Performers Leverage the Purchasing Card for Only about 5 Percent of their Total Indirect Spend
35%
19%
7%
1st Quartile Median 3rd Quartile
Purchasing card transactions as a percent of total low-dollar transactions
2.1%
5.3%
10.0%
Non-Top Performer Top Performer First Quartile
Purchasing card spend as a percent of total indirect spend
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Higher Transactional Spend Limits Help Drive a Higher Level of Spend and Improve Overall Process Efficiency By Eliminating Transactions
Average Purchasing card transaction amount
Purchasing card spend limit per transaction
$1,000
$2,500
$4,500
Non-Top Performer Top Performer First Quartile
$334
$237
$135
1st Quartile Median 3rd Quartile
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There is Substantial Gap in How Much it Takes to Manage Purchasing Card Programs and Those with Lower Costs will Reap More Benefits
Total Cost to Process a Purchasing Card Line Item(Labor, Outsourcing, Technology, Overhead)
$0.92
$2.03
$5.24
1st Quartile Median 3rd Quartile
The Hackett Group Purchasing Card Benchmark, 2007
Efficiency Opportunity
For an Organization Processing 500,000 line items a year there is an opportunity of over $2 million in cost reduction from moving from 3rd quartile to 1st quartile
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A Significant Contributor to This Efficiency Gap is a Difference in Productivity and Labor Costs Which Make up 79% of Total Cost
$46,899
$61,895
$78,894
1st Quartile Median 3rd Quartile
Compensation per FTE(Fully Loaded)
192,000
91,000
32,000
1st Quatile Median 3rd Quartile
Transactions per Card Administration FTE
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Categories Which Require a More Formal Purchasing Process are Not Normally Good Candidates for Purchasing Cards
The Hackett Group 2007 Purchasing Card Benchmark: Percent of CompaniesOffice supplies PostageSubscriptions, books Medical suppliesMaintenance supplies GasolineReproduction services, supplies AdvertisingTools, hardware Professional service feesFlowers, employee gifts Construction materialCleaning supplies Service contracts (no liability issues involved)Conference / meeting fees Contract / temp laborRepair services InventoryMemberships Utility billsFood services (other than for travel) Service contracts (liability issues involved)Office equipment Personal computersOvernight delivery EntertainmentProfessional education Hazardous materialsComputer peripheral equipment Inbound freight (collect)Auto parts Travel expensesLab supplies Relocation expensesSoftware Fixed assets
Commonly put on P-Card Sometimes put on P-Card Not Commonly put on P-Card
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Sponsorship for Purchasing Card Programs Varies Significantly As Does the Targeted Cardholder
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There are a Number of Key Controls for a Purchasing Card Program and These are Supported by Policy, Visibility and Enforcement
Assignment of cards
Per transaction and statement limits
Category/merchant blocking
Manager review and approval of statement and receipts
Verification of statement approval and receipt submission
Audits based on flags and sampling
Card retirement processWell Defined and Communicated Policy
System Functionality to Provide Visibility
Consistent Enforcement
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While Fraud Involving Purchasing Cards are Highly Publicized, Occurrences of Fraudulent Activity are Normally Low
0%
2%
5%
1st Quartile Median 3rd Quartile
Percent of audited statement that contain errors or omissions
5%
12%
24%
1st Q Median 3rd Q
Percent of purchasing card statement that are audited
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Organizations Should Look at a Blend of Methods for Selecting Statements to Audits Based on Certain Flags
26%
7%
29%
13%
26%
0% 1% to 10%11% to 50% 51% to 90%91% to 100%
Percent of transactions that require no adjustment to account code
55%
19%
7%
19%
Random statistical sample
Total cost by cardholder
Cardholder
Type of purchase
Method of selecting statements for audit
Agenda
The Hackett Group Corporate Card Programs Purchasing Card Programs Travel Card Programs
Summary of Key Points
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There are Multiple Types of Programs to Consider, But Best Practice is an Individual Bill/ Company Pay Based on Expense Report
Benefits of Individual Bill/ Company Pay Based on Expense Report
• Encourages timely submission of expense reports
• Travel is not out of pocket for expenses
• Only charges that are claimed on expense report are reimbursed
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Most Organization Recognize the Importance of a Well Defined Travel Policy and Expense Reimbursement Process to Controlling Expenses
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Travel Spend per Air Mile and Travel Spend per $1000 Revenue are High Level Metrics Often Tracked by Organizations
Travel spend per air mile
$0.60
$1.07
$2.00
1st Quartile Median 3rd Quartile
Travel spend per $1000 revenue
$3.87
$8.08
$12.90
1st Quartile Median 3rd Quartile
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We See that First Quartile Organizations are Significantly More Efficient at Processing Expense Reports than Others
6.28
2.35
4.551.27
2.63
3.08 4.72
1.360.57
First Quartile Median Third Quartile
Staff Cost/ report Technology Cost/ report Other Cost/ report
$5.01
$8.34
$13.46
Cost to process an expense report Expense reports per processing FTE
16,111
10,318
5,461
1st Quartile Median 3rd Quartile
56%
28%
16%
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An Efficient Expense Reimbursement Process Should Not Require Significant Investment from Travelers
Estimated number of minutes to create and submit an expense report (domestic trip)
20
30
58
1st Quartile Median 3rd Quartile
Receipt Requirement Threshold
$25 $25
$50
1st Quartile Median 3rd Quartile
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The Majority of Organizations have Migrated to an Electronic Reservation System although there is an Opportunity to better Leverage Web-based Applications
Hackett T&E Process Benchmark, September 2007
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Organizations are Rapidly Moving Towards a Paperless Process which Drives Down Cost and Increases Productivity
Hackett T&E Process Benchmark, September 2007
Paper versus electronic processes
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The Travel Booking and Expense Report Creation Processes have Traditionally Been Managed as Two Distinct Processes
Travel Booking Process
Expense Report Process
An Emerging Practice is to Manage as and End-to-End Process
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Organizations are Leveraging Imaging and Workflow for Improving the Efficiency of the Process and Moving towards Electronic Receipts in Lieu of Paper
Hackett T&E Process Benchmark, September 2007
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Typically, Organizations Should Target Full Audits for Less than 10 Percent of Their Total Expense Reports
7% 5%17%
10%
100%
20%
5%
10%
50%
Fully audited Receipt compliance Policy compliance
First Quartile Median Third Quartile
Percentage expense reports audited
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A less than 10 Percent Audit Rate is Predicated on a Controlled Process with Minimal Errors
5%
10%
20%
1st Quartile Median 3rd Quartile
Percent of audited expense reports that contain any type of error
1%
3%
5%
1st Quartile Median 3rd Quartile
Percent of expense reports actually returned to originator
Agenda
The Hackett Group Corporate Card Programs Purchasing Card Programs Travel Card Programs Summary of Key Points
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Overall Observations
One Card solutions can create efficiencies for some organizations Purchasing Card programs are normally aimed at streamlining the end-to-end
purchasing and payables process and creating rebates A well defined audit program should aim at less than 10 percent of statements
fully audited Integration of the travel booking and expense report creation process is an
emerging practice Managing travel spend should be a key objective of the T&E process Automation of the T&E process is the norm today The use of electronic statements in lieu of paper receipts is an emerging
practice