Purchasing Cards: The Evolution Continues

Among the developments: expanded use, virtual cards and integration with e-procurement systems.

Purchasing card programs are mutating and evolving at a rapid clip, and procurement pros are becoming increasingly adept at finding new ways to leverage these highly adaptable tools. MTD Products Inc., a manufacturer of outdoor power equipment and owner of brands that include Cub Cadet, Troy-Bilt and Yard-Man, exemplifies one of the key forces propelling p-cards' ongoing evolution -- the drive to automate. The Cleveland-based organization implemented its p-card program four years ago to boost efficiency and tighten control over purchases of inexpensive items such as office supplies, according to Eddie Rain, manager of indirect materials and corporate services. Now Rain and his colleagues are moving to streamline the program's approval, recording and reconciliation processes. "We've had a big push to automate," he reports.

A large part of that effort has involved tying the p-card system more closely to MTD Products' general ledger. For example, Rain and his colleagues spent some time mapping merchant category codes (MCCs) to the company's G/L account numbers. If an employee uses the p-card at, say, an office supply store, the transaction is automatically coded to MTD Products' office supplies account.

The company currently channels about $1 million and 2,500 transactions through its p-card system each month, Rain says. "Our organization has benefited from reduced invoice processing and a reduced quantity of purchase orders created for small dollar transactions," he reports.

Those results are far from unique. In March, the Aberdeen Group Inc. and the National Association of Purchasing Card Professionals released the Purchasing Card Benchmark Report, a study of 170 companies with p-card programs. Seventy percent of these initiatives are either meeting or exceeding the goals specified in their original program charter, the report notes. Companies with p-cards use them, on average, for 77,000 transactions per year and an annual expenditure of about $6.6 million. The average purchase amount has grown between 15 percent and 21 percent each year for the past five years, according to Jeff Pikulik, Boston-based vice president of Aberdeen Group and author of the report.

At the same time, many of the surveyed program directors reported that their p-card initiative had stalled. "You find a lot of programs that reach premature plateaus," says David Cramer, senior vice president with Visa Commercial Solutions in San Francisco. For example, some organizations that have moved 5 percent of their purchases into their p-card program would like to add another 5 percent or 10 percent but experience difficulty doing so.

Procurement pros may be underestimating the tool's potential for big-ticket purchases. "Originally, p-cards were just an extension of T&E cards," points out Pikulik. "Now purchasing cards are one of the major purchasing vehicles and settlement options and are suitable for every category of purchases in some context." The Aberdeen Group study found that 89 percent of surveyed companies use purchasing cards to pay for office equipment and supplies, but only 19 percent use them to pay for consulting services.

Still, 20 percent of respondents said their organization is planning to add big-ticket expenses to the categories of goods and services that it regularly settles through its p-card. Many p-card managers are looking to take their program to the next level, according to Marcie Verdin, vice president of large market products, corporate payment solutions, with MasterCard International in Purchase, N.Y. "Companies are saying, 'It's time to ask if I'm getting the benefits I want,' " she reports.

Directors of leading-edge p-card programs are implementing virtual p-card capabilities, which enable them to settle transactions using account numbers, eliminating the use of a physical card. They're more tightly linking their p-card system to their e-procurement tool in order to automate the procure-to-pay process as much as possible. And they're reinforcing preferred supplier agreements to more effectively leverage purchasing volume and gain significant discounts.