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A Look at Managing Purchasing Card Programs

JPMorgan Chase Commercial Card Solutions sent along the following article about how to take full advantage of purchasing card programs. "Companies around the world have implemented purchasing card programs to help reduce processing fees and simplify the way they do business. But once a PCard program is in place, what can a company do to increase volume and further drive efficiencies and savings? Jim Nelson, Senior Product Consulting Manager for JPMorgan Chase Commercial Card Solutions, recently sat down with purchasing card coordinators from three very diverse industries to learn what tactics users are taking to increase their PCard volume and adoption rate."

Participants in the discussion included:
  • Mike Neff, purchasing card coordinator at H&R Block, the world’s largest tax services provider. Approximately 350 H&R Block employees are participating in the company’s purchasing card program that was implemented in 2005.
  • Caroline Dossey, purchasing card coordinator at CMS Energy, Michigan’s largest gas and electric utility. CMS Energy has issued purchasing cards to more than 3,000 employees, many of which are gas or electric technicians and repair personnel. The company applies approximately $20 million in spending to purchasing cards each year.
  • Phil Carrano, purchasing card coordinator for Arizona State University. In 2006, ASU captured approximately $35 million in total purchasing card spend, a 30 percent increase from last year. The program logged more than 113,000 transactions last year.

Jim Nelson: What are some of the best ways to grow your program?

Caroline Dossey: When CMS Energy first initiated its purchasing card program, cardholders had greater freedom to purchase items from the vendors of their choosing. Our department now is better leveraging our vendors by consolidating spend with some of our top suppliers. Approximately 25-30% of our spend is now made through our preferred supplier base. We are educating our cardholders to select from this smaller pool of vendors in order for us to maximize discounts. Even though there are more vendor restrictions in place, our cardholders’ productivity and access to goods has not been hindered.

Mike Neff: Many of H&R Block’s cardholders don’t fully participate in the preferred e-procurement methods and processes in place for PCard usage, so we still receive a large number of invoices. To combat this issue, we take a look at the spend that has gone through our financial and A/P systems. What spend is not being applied to PCard? We identify which people are not actively using the PCard for purchasing, then reach out to educate them. Approximately 86% of our transactions are less than $5,000, so it is important to shift as much as this activity onto the PCard and continue to cut processing time and costs out of our payables function.

Jim Nelson: What role has vendor management played in growing your program?

Phil Carrano: Arizona State University advertises a list of preferred vendors on its internal procurement web site. Our cardholders have access to our vendors’ web sites and our negotiated contract pricing. Instead of spending the time and energy to work through the P/O process, cardholders can order an item online without prior approvals and have the item delivered more quickly. For an example, a computer ordered through the P/O process may take three weeks, while one bought online with a PCard can only take five days to arrive.

Jim Nelson: How essential is senior management endorsement of your card program?

Mike Neff: Senior level approval and involvement is essential to the program’s success. It is important to reach out to senior management and provide them with a snapshot of the savings they can expect to see as a result of better processes, better controls, and better negotiated agreements with suppliers. Senior management also can help your program improve. They can sign off on policies, mandate change or influence the use of certain vendors. For example, many of our purchasing cardholders were making office supply purchases using their T&E card, cash or POs. This needed to change. It holds more weight and influence if a message comes from senior management stating that all office supplies are to be purchased from our preferred vendor using PCards only.

Jim Nelson: What other innovative approaches have you used to help grow your program?

Phil Carrano: We have a strategic alliance with Staples for all of our office supplies. Users make orders from StaplesLink.com, then all the financials are downloaded to our store director and she pays for the bill with her PCard. Everything that goes through Staples is done on a PCard and then billed out to each individual department So whether a department has its own PCard or not, we are capitalizing all office supplies on one card.

Caroline Dossey: We have a similar agreement with OfficeMax, but we use Merchant Category Code (MCC) blocking on the card which prohibits our cardholders from purchasing office supplies from any other stores. In addition, some cards are not set up for the purchase of office supplies. Authorization must be given in advance. Another useful application has been with our storm cards, which are issued to two field leaders in each headquarters. There is limited blocking. These cards can be used during storm emergencies, to put people up in hotels, for cash advances and for meals. We’ve also set up headquarter cards with one of our appliance repair part vendors. When one of our technicians orders parts, their technician number is logged into the card software system and matched back in so we can identify each transaction by individual purchaser. We then have one coordinator in each headquarters office reconcile this activity online.

Mike Neff: Our office supply vendor also is Office Max. We are looking at setting up a ghost card or Office Max-specific card so that when users go through our e-procurement process, instead of Office Max billing us through EDI or electronic invoice or into our AP system, they have that Ghost Card number to charge. Another example, our HR department has a special purpose purchasing card used for recruiting expenses. So when we have potential associates come on site for interviews that we pay for, we put them on that card.

Jim Nelson: What are the methods you use to communicate the program to your cardholders?

Mike Neff: We use our intranet site to promote card usage and provide key background information online. The site contains information such as forms, policies and quick reference documents. When cards are ordered, an email is sent to the cardholder, pointing them to this educational web site. Occasionally, we create PDF documents addressing specific card issues.

Phil Carrano: In addition to promoting the program on our web site, we have been producing a monthly newsletter since 1993 called “PCUTS – Purchasing Card User Tips”. We also maintain an archive of past issues online. Examples of topics addressed include updated policies and procedures, FAQs, lists of restricted items, tips on fraud prevention, training class schedules, and other reminders. Readers have responded well to this newsletter.

Jim Nelson: What strategies do you use to gather cardholder feedback?

Phil Perano: At Arizona State University, we created a PCard advisory board that is comprised of 15 users from across the university, including representatives from our services, education, athletics and research departments. We meet on a quarterly basis with a representative from our card issuer, JPMorgan Chase, to provide feedback and strategize on how to better grow and leverage the program. The program has been successful as different voices from across the university feel invested and are being heard.

Caroline Dossey: In addition to conducting surveys with our card coordinators and cardholders, we host refresher training sessions and hold an open forum every other year to share ideas and suggestions for growth and improvement. It also is important to continually network and communicate with your industry peers to exchange new ideas and share innovations.

Mike Neff: Our program is only about one year old. Six months after the initial deployment, we did a survey of our pilot group and incorporated their thoughts and suggestions into how we managed the subsequent roll-out of the program to all of our cardholders. As feedback came in, we found that cardholders wanted to be further educated on certain aspects of the program, such as reconciliation, so we designed webcasts or conference calls to address those particular issues. As our cardholder base gets larger, we may start conducting electronic surveys, as our surveys have been paper-based thus far.

Jim Nelson: What is your top suggestion for growing a card program?

Phil Carrano: As I already mentioned, I would say end-user involvement. People want to have a say, but you most also proactively educate and communicate. There will be less chance of misuse of card. Keep the lines of communication open.

Caroline Dossey: Training and communication is of utmost importance. Also, maximize your vendor relationships to get the discounts and educate your cardholders to use those preferred vendors. Only then will you achieve significant cost benefits.

Mike Neff: The key to success is to understand your cardholder population and your source of spend. As a result of our program, we have greater insight into our spend and can strategize as to what other categories of spending should go onto our PCard.

About JPMorgan Chase

The Treasury Services business of JPMorgan Chase is a top-ranked, full-service provider of innovative payment, collection, liquidity and investment management, trade finance, commercial card and information solutions to corporations, financial services institutions, middle market companies, small businesses, governments and municipalities worldwide. With more than 50,000 clients and operations in 36 countries, JPMorgan Chase Treasury Services is one of the world's largest providers of treasury management services. JPMC TS is a division of JPMorgan Chase Bank, N.A., member FDIC.

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