2007 Banking Colloquium
Workshop No. 2 Best Practices in Building
Efficient Procurement Card Programs

• Adobe Acrobat Version [PDF 485Kb]

North American Positioning

As North America’s leading commercial card issuer, BMO Financial Group and its BMO ePurchasing Solutions (BMO) division, successfully manage card programs and procurement technology for over 100,000 businesses across North America

exceeding expectations - every payment, every time.

A Penny Doubled a Day for 30 Days vs. $100,000 Today

The Pencil Purchase Dilemma

"The cost to purchase the pencil is often greater than the cost of the pencil itself."

BMO can help ERASE the "Pencil Purchase Dilemma" and exceed your payments expectations – every payment, every time.

Program Benefit

Bottom-line Impact of Spend Reductions - Example

Theme

“Successful procurement involves addressing organization, process, and technology hurdles.”

Best Practices for High Performance - Organization

• Have a higher level of top management support.
• Have an ongoing method of communicating purchasing card information to cardholders and managers.
• Centralize some activities:
  • Spend analysis – to identify enterprise-wide savings
  • EIPP – to streamline process of invoice capture, reconciliation and payment and reduce DSOs
  • Contract management – to facilitate compliance and optimize contract value
• Both Centralize and decentralize others:
  • Sourcing – tools and best practices centrally; sourcing events decentralized to category experts
  • Purchasing card and eProcurement – choose single vendors for enterprise, deploy by unit and geography
  • Services procurement – deploy department by department, using global platform

Best Practices for High Performance - Process

• Analyze AP check payments to identify merchants who are to be encouraged to accept purchasing cards and compare supplier list against the BMO’s list of card-accepting merchants.
• Leverage purchasing card spending data as a basis to request higher discounts from vendors.
• Restrict some or all of their purchasing card activity to “preferred vendors” and reduce the number of suppliers in the Accounts Payable master.
• “World Class Companies rely on 46% fewer suppliers than typical companies” – The Hackett Group

Best Practices for High Performance - Process (continued)

• Review purchase requisition traffic to identify employees who need cards (organizations distribute, on average, twice as many cards and provide an average of 12.2% of employees with purchasing cards).
• Customize monthly card spending limits depending upon individual spending responsibility or position.
• Increasing the transaction spending limit has a “multiplier effect”.

Source: 2005 Purchasing Card Benchmark Survey Results, R. Palmer & M. Gupta

Best Practices for High Performance – Security & Controls

• Fraud: Charges applied to a card by an unauthorized user, or charges made deliberately by an authorized user for a non-business purposes.
• Misuse: Charges made by an authorized user for a business related expense, outside of the user’s purchasing authority, or outside of the Acquisition Card’s Policy and Procedures.
• Total (all organizations) purchasing card misuse accounts for 0.034% of purchasing card spending ($340 of misuse for every $1 million of purchasing card spending).
• Government agency purchasing card misuse accounts for 0.006% of purchasing card spending ($60 of misuse for every $1 million of purchasing card spending).

Source: 2005 Purchasing Card Benchmark Survey Results, R. Palmer & M. Gupta

Best Practices for High Performance – Security & Controls (continued)

• Directive controls are designed to cause a desirable event to occur Policies & Procedures
  • "New Cardholder" Information Packages
  • Training
• Mitigating or Compensating controls are controls used to offset a missing control (e.g.. supervisory review in absence of segregation of duties, variance reports in place of transaction processing controls, etc.)
  • Each according to their situation

Best Practices for High Performance – Security & Controls (continued)

• Preventative controls are controls that are built into, and not onto the system (e.g.. passwords, authorization requirements, etc.)
  • Card Credit Limits (Monthly, Daily, Per Transaction)
  • Card Blocking (MCC, Supplier, Country, etc)
• Detective controls are controls that are deferred to the end of the process.
  • Exception Reports
  • Account Statements
  • Internal Audits

Best Practices for High Performance – Internal Audits

• As with any purchasing methodology, regular internal audits and random sample audits are necessary to identify and contain incidents of misuse
  • 49% of identified misuse is revealed by internal audits

Annual frequency of audit of cardholder spending by internal audit or accounting

Source: 2005 Purchasing Card Benchmark Survey Results, R. Palmer & M. Gupta

Best Practices for High Performance - Technology

A mix of solutions often apply differently based upon the nature of procurement and sourcing.

1. eProcurement w/PCard
2. eProcurement w/ EIPP
3. ERP w/ PCard
4. ERP w/ EIPP

Other considerations include:

• supplier count
• volume per supplier
• suppliers’ margins
• data requirements

Best Practices for High Performance - Technology (continued)

An integrated technology solution will support the Value Circle.

1. Needs Analysis
2. Commodity Strategy
3. RFX
4. Supplier Selecting & Contracting
5. Requisition
6. Approvals & Controls
7. Order Processing
8. Receiving & Routing
9. Invoice & Payment
10. Cost Allocation
11. Supplier & Cardholder Account Management

Where to start?

• Begin by understanding exactly where you are now.
• Consider what’s best, and target where you plan to go.
• Explain, and quantify, the benefits to the key sponsors.
• Determine the guidance and support that you need.
• Partner with Best in Class Providers.

Thanks for your valuable time!