Commercial Cards: Logic and Control in the Supply Chain
Supply chain consolidation is one of the most effective ways of achieving organisational agility – as the growth in e-procurement and supply chain management systems testifies. However both these systems, by their very nature, cannot incorporate the typical range of an organisation’s paper-based transactions.
For international enterprises operating in a truly global environment, identifying the supply chain can be very difficult. Although technology has undoubtedly improved supply chain management, it has also provided the means for diversifying and complicating it. A company’s location is now almost irrelevant when providing or purchasing goods, which for most businesses results in a complex network of supply and demand.
In order to be competitive successful organisations have mastered this complexity when it comes to their core product or service. For example manufacturers and retailers have established advanced processes to procure the raw goods or component parts required to run their business. Whereas these core parts of the supply chain are enforced by strict agreements and sophisticated software, the indirect elements are still often left to a far more ad hoc or arbitrary decision-making process. Yet they can prove to be a substantial cost centre. Consider the different hotels, restaurants, phone calls and taxi fares that a traveller uses in a single business trip. This makes the supply chain hard to calculate and control. Yet travel and entertainment (T&E) expenses are typically the second largest controllable costs after salaries.
Equally maintenance, repair and operations (MRO) costs can be very expensive because of the idiosyncrasies of departmental purchasing arrangements. These indirect supplies are frequently purchased by people who are not authorised to do so and who do not necessarily stick to any existing formal processes. This can be problematic enough for organisations based in a single location. But for multinationals with offices worldwide it represents a significant amount of unmeasured – and therefore uncontrolled – expense. Behind this, of course, is an equally uncontrolled supply chain.
So instead of having the detailed information they need to manage working capital, financial controllers are left with a grey area, with some details only coming to light months after the transactions have occurred. Control requires visibility, and visibility entails having data that is timely, flexible, accessible and complete.
Commercial card programmes deliver this information, generating line-item and folio-level details up to consolidated global transaction data. This enables organisations to analyse purchasing patterns quickly, efficiently and accurately. All information can be centrally available so financial controllers have a comprehensive view of global spending and hence all the direct and indirect elements of their supply chain.
Moreover, it provides a sound basis for vendor negotiations – securing improved rates in return for a place on the approved suppliers list – and thus consolidates the number of providers used. Policy controls can ensure that this list is adhered to.
It has long been accepted that e-procurement delivers significant advantages, but with large swathes of corporate spend outside their remit, the benefits can only be limited at best. Commercial cards can bring traditional paper-based expenses under the influence of the wider e-procurement system.
By integrating with existing systems, card programmes can maximise a company’s investments and deliver further advantages. For example, card programmes can provide automatic data feeds into accounts payable software and online ledgers. Consolidation with the financial modules of enterprise resource planning (ERP) systems and automated expense management software can reduce costs further by eliminating time consuming manual processes and enhancing data accuracy – creating an additional level of streamlining to the management of the supply chain.
By combining the power of purchasing cards – typically used for MRO expenditure – with the T&E corporate cards, organisations can see even greater benefits. By offering one platform for spend through consistent technology and unified formats, these combined ‘One’ cards offer even greater opportunities for cost containment and reduction in the supply chain.
To ensure the potential benefits of commercial cards are realised, there are a number of essential features that users should look for. The first of these is international reach. In order to unify the global supply chain, the card supplier should have a demonstrably strong and comprehensive presence in each region where the cards would be used. The programme needs to be available to all critical employees regardless of location, and therefore must support a wide range of currencies and languages. The alternative is to operate a number of location-specific programmes, which simply brings us back to the original problem – diverse sources of information on the supply chain, lack of visibility and control and an inability to consolidate data.
Equally, the chosen card needs to have a high acceptance level – if it can only be used in a selected number of restaurants, for example, executives will invariably use their own cards in the alternatives – and the company is back to paper-based reimbursement methods, limited amounts of transaction data and an unofficial supply chain running alongside its formal one.
In addition, the ability to integrate with existing internal financial management and procurement systems is vital. A card programme that does not operate as part of the wider finance system creates a break in the seamless transfer of data and makes it much harder to manipulate and analyse. Again, the result is fractured knowledge in the supply chain due to the loss of real-time functionality.
Finally the more detailed data you have to work with, the more you can learn. It therefore follows that the more information a card programme supplies, the greater control over the supply chain you have. Companies should be able to choose how they view their data rather than having this dictated to them by the card issuer. Consequently, flexible and adaptable reporting tools are essential.
Implementing a commercial card programme can be a major change for any organisation. But selecting the right one can provide the essential link in the management of the supply chain by creating a channel of communication between the point of purchase and centrally managed financial reporting systems. In doing so they are a vital tool in achieving the control and consolidation of the supply chain that companies so desperately need.