63% of organisations researched by The Aberdeen Group placed ‘reduced cost of processing purchase orders and cheque payments’ as their primary goal for implementing a Purchase Card Program”, Julian Curtiss, Managing Director of Transaction Technology Solutions, told SmartProcurement.
Figure 1: Top Pressures Driving Purchasing Card Initiatives
A further 56% of organisations, as researched in the Aberdeen eProcurement: Trials and Triumphs Report, cited the same primary goal for implementing eProcurement systems.
Figure 2: Top Pressures Driving eProcurement Initiatives
This is evidence that the costs of processing purchase orders and payments are presenting a challenge to all organisations. Certainly, given the current economic climate, all organisations will be seeking new ways to eliminate unnecessary and wasteful costs.
“Whilst most investigations within these organisations tends to focus on the overall ‘Purchase-to-Pay’ cycle cost, very little time is spent understanding where, within this process, the actual costs lie. Research conducted by Transaction Technology Solutions over the last eight years over a cross section of large South African organisations reveals that 23% of the overall costs lie in the ‘Purchase…’ section of the process and that 67% lies in the ‘…to-Pay’ section”, Curtiss continued.
Figure 3: Percentage Cost of Each Element in the ‘Purchase-to-Pay’ Process
Many organisations have implemented eProcurement and Purchasing Card solutions with the intention of achieving cost savings and efficiencies in the Purchase-to-Pay cycle. The business cases associated with these implementations have generally focused on delivering process cost efficiencies and reducing the input costs of indirect commodities through consolidating volume and driving compliance to supply agreements and policies. However, as a result of the relative impact of the different technologies on the process, the overall results have varied.
Figure 4: Average Cost Savings Resulting from Purchasing Technologies
Purchasing Cards have traditionally outperformed eProcurement in the Invoice and Payment elements of the process, whilst eProcurement has outperformed Purchasing Cards in the Ordering elements of the process. There are obvious reasons behind this, namely:
- eProcurement is more effective at ensuring that the correct line-item is purchased from the correct supplier at the correct price. Traditional Purchasing Cards did not address this as its pre-purchase controls were limited to ensuring only the correct supplier category and spend limits. This is managed with Purchasing Cards’ post-purchase controls, however, risk averse purchasing and financial managers have always preferred to manage these elements in the pre-purchase phase, especially listed and public service entities concerned about Sarbanes Oxley and the Public Finance Management Act (PFMA) and Preferential Procurement Policy Framework Act (PPPFA).
- Purchasing Cards are unparalleled in its impact on the Invoice and Payment element of the Purchase-to-Pay process. As illustrated in Figure 4, it delivers 63% of savings to the invoice management process, largely as a result of the effective removal of low value invoices. Further, it delivers 55% of cost savings to the payment process as a result of eliminating the higher volume of low value payments by consolidating the payment of all these invoices down to one payment to the bank. When considering that 67% of the overall process costs lie in invoice management and payment, Purchasing Cards dramatically over-achieves eProcurement when it comes to delivering cost savings.
Until September 2008, what is detailed above was the status quo.
According to Curtiss, all this is about to change as a result of the launch of the homegrown solution, C-Solve Enterprise, from Integrated Commerce Solutions (Pty) Ltd.
Integrated Commerce Solutions has, for the last 10 years, specialised in procurement, travel and payment technology, implementation services and solutions to Card Associations, Commercial Card Issuers and Corporate Organisations.
“Since early 2000, Integrated Commerce Solutions customers approached eProcurement settlement by attempting to integrate Purchasing Cards and Electronic Funds Transfer systems with eProcurement systems.
This generally led to increased cost to the already belabored suppliers, due to the already high costs of eProcurement to the suppliers.
Integrated Commerce Solutions decided to change the paradigm and instead developed a purchase order processing front-end to their existing settlement technology. This puts the organisation in control of both the ordering of specific commodities as well as the actual payment thereof from a single system. The result is a quicker, more secure, more cost-effective and more functionally rich technology than anything available in this market or elsewhere in the world. Purchasing Cards and C-Solve Enterprise, when combined, outperform eProcurement in every element of the Purchase-to-Pay cycle”, Curtiss concluded.
Figure 5: Projected Cost Savings Resulting from the Combined Use of Purchasing Cards and C-Solve Enterprise
This dramatically changes the rules of the game. For many years the Achilles heel of Purchasing Cards was its inability to manage the pre-purchase control of specific suppliers and line-items, and manage item prices. Other than that it has always been a superior technology. C-Solve Enterprise removes this limitation, and in doing so, makes it the best eProcurement technology available in South Africa. Every purchasing and financial manager seeking to drive out unnecessary and wasteful costs has to consider implementing this solution.
Article submitted by Julian Curtiss, Managing Director of Transaction Technology Solutions.
Julian Curtiss can be contacted at the details below:
Tel: +27 83 413 5737