Realising Digital’s Full Potential in the Value Chain
BENEFITS OF e-PAYMENTS
1. PUBLIC SECTOR
In collaboration with Appropriate Fit Procurement
Delivering the Benefits of Procurement
Cards in the UK Public Sector
2. Table of Contents
1 Introduction 2
• Delivering Public Services in Today’s Economic Environment 2
• The Challenges Facing Procurement Today 3
• The Role of Procurement Cards in Procurement and 3
Purchase-to-Pay Strategy
2 Programme Management 6
3 Segmentation 7
• Segmentation by Customer Characteristics 7
• Segmentation by Commodity 8
• Selling the Concept and Delivering Benefit 9
4 MasterCard® Products 12
• inControl 12
• Smart Data OnLine 12
• Information Hub 12
• MasterCard Optimiser 13
• VAT Recovery Service 13
5 Conclusion 14
1
3. 1 Introduction
Providing world-class public 1.1 Delivering Public Services in Today’s Economic Environment
services in a challenging
economic climate Public sector organisations in the UK are under increasing pressure to
provide better services to stakeholders in terms of quality, value, prompt
In the current economic payment, security, transparency and personalisation. In addition, there
environment, an efficient is a clear requirement to improve efficiencies to support a high level of
procurement process can be sustainable service delivery and, in the current economic climate,
instrumental in driving efficiency organisations are expected to do this with fewer resources in real terms.
improvements and reducing cost.
The Operational Efficiency Programme (OEP) report, published
alongside the Budget for 2009, forms a key part of the Government’s
drive to achieve greater efficiency savings across public spending. The
report suggests potential savings of £15 billion by 2013-14 compared
with 2007-08 spending, of which £6 billion is to come from collaborative
procurement.
Previously, the European Union’s 2010 eGovernment Action Plan called
for improvements in integrated eServices provided by governments to
the public. The Plan states that electronic procurement and invoicing
can result in savings in total procurement costs of 5% and reduce
transaction costs by 10% or more.
The importance of procurement in driving public sector improvements
can also be seen from the Procurement Capability Reviews (PCRs)
carried out by the Office of Government Commerce (OGC). The PCRs
have been used to assess how far UK government departments meet
the demanding procurement standards required to deliver value for
money services, now and in the future. The reviews highlight the need
for an overarching procurement strategy, especially where organisations
are decentralised and fragmented. The OGC also advocates the use of
procurement cards within government departments as a step towards
achieving process efficiency savings.
Procurement cards were originally developed to modernise and improve
the efficiency of an organisation’s low-value procurement process.
However, they should now be seen as part of a solution that goes
beyond low-value orders.
In addition to fulfilling purchasing and payment requirements,
procurement cards bring optimal benefits when used as part of an
overall procurement and payments strategy.
1 Operational Efficiency Programme: Final Report, April 2009, p28
2 2010 eGovernment Action Plan: Accelerating eGovernment in Europe for the Benefit of All, Commission of the European
Communities, April 2006
Delivering the Benefits of Procurement Cards in the UK Public Sector 2
4. Procurement cards have a role 1.2 The Challenges Facing Procurement Today
to play in the end-to-end
procurement process The OEP report states that whilst the UK public sector has ‘the potential
to become an extremely powerful purchaser,’ in general procurement of
Procurement cards are not just common goods and services is fragmented; management information on
about low-value order processing government expenditure is regarded as poor; and the procurement
but are an important contributor to environment as a whole is seen as complex and uncoordinated.
overall efficiency and
Public sector organisations are also seen to be challenged by a lack of
effectiveness.
skilled resources and a lack of structure in strategic supplier relationship
management processes.
‘(The) GPC III complements the
e-Procurement process and Despite these challenges, with a non-pay expenditure in excess of £200
should not be regarded billion, the UK public sector holds tremendous potential for improvement
separately. Maximum benefits using procurement card services. A key element of success is to
available through using GPC will establish a clear and overarching procurement strategy that takes into
be more quickly realised and account market and category segmentation and in which procurement
maximised if you treat the project cards are viewed as an important component of the overall
as a re-engineering of the purchase-to-pay (P2P) strategy.
purchase to pay process.’
– GPC Best Practice Guide, Procurement cards enable an organisation to achieve process
Buying Solutions online efficiencies, provide better management and accounting information,
enhance supplier relationships and contribute to a sustainable
procurement environment. Rather than merely a low-value order tool,
procurement cards are seen as having an important role within a suite
of P2P tools directly contributing to an organisation’s efforts to achieve
the efficiency savings targets set by the public sector agenda.
The e-payments and smart payments arena has dramatically changed
with exciting new products that can contribute significantly to the
percentage of payments processed electronically. Physical cards no
longer require to be issued. A step change has taken place through the
development of limited controlled payment numbers. Compliance - a
major contributor to the delivery of savings from procurement - can now
be driven through e-payments.
1.3 The Role of Procurement Cards in Procurement and
Purchase-to-Pay Strategy
Procurement cards have been around for over 15 years – the first
purchasing card was used in the early 1990s in the UK – and they have
been used traditionally to improve efficiencies in an organisation’s
low-value procurement process.
The original Government Procurement Card (GPC) framework
agreement was launched in October 1997 by HM Treasury for use by
Central Civil Government, its agencies and non-departmental public
bodies. The rationale behind the GPC was to enable authorised staff to
conduct low-value transactions quickly and to consolidate large numbers
of invoices from multiple suppliers into a single monthly invoice, thus
removing process costs and improving management information,
resulting in a saving of £28 per transaction.
3
5. Procurement card benefits Although GPC usage has risen over the last ten years, the capacity for
growth remains high. The GPC ‘is the most sustainable and successful
The procurement card is a procurement solution in use by government today’3 and there is still
strategic tool that provides clear room for improvement. Buying Solutions’ new frameworks (GPC III)
benefits to customers, suppliers represent a major increase in possibility.
and the economy.
Following the initial implementations of ERPs, e-marketplaces and
Process efficiencies e-procurement there is now a greater maturity across the UK public
• Faster delivery of goods and sector on purchase-to-pay solutions. Having invested substantially in
services, consolidated invoices, ERPs and e-procurement, public sector organisations are now looking
improved cycle times to secure greater efficiencies from their investments by integrating with
• Better information – automated other ‘eSolutions’.
audit trail for accounting and
Procurement cards can be a beneficial tool in addressing many of the
procurement systems; timely
key focus areas in the UK public sector agenda. For example, the
and accessible management
Glover Review states that, in ‘Accelerating the [Small and Medium Sized
information
Enterprise] SME economic engine’, there is a need for public sector
• Improved cashflow and liquidity organisations to work in an innovative, inclusive manner for a more
for SMEs through prompt transparent procurement process. SMEs constitute more than 99% of
payment businesses in the UK, employ 59% of the private sector workforce and
• Increased compliance with make up 52% of business turnover4. A critical issue for SMEs is
contracts cash-flow and liquidity: across the UK, they now face a £26 billion late
payment problem – a 40% increase from 2008 figures – and a
Cost reduction staggering additional £7.4 billion of overdue late payments5.
• £28 saving per transaction of a Procurement cards make a difference as a speedy payment
procurement card payment over mechanism.
a traditional invoice payment
New research from commercial credit reference agency Graydon UK
• Cashable savings from
suggests that the government pledge to ease the cashflow problems
negotiated pricing and rebates
faced by small firms through the payment by government departments
• Discounts to customers in of trade invoices, in 10 rather than 30 days, is taking longer than
return for early payment expected to take effect. The survey, conducted in March 2009, reveals
• Reduced procurement costs that just 1% of small businesses questioned, which are currently
from using the Buying Solutions supplying government agencies, are now receiving payments due to
Framework Agreements them within the pledged 10-day period.
In addition With the average payment in the UK currently standing between 30 and
• Economic benefits – prompt 60 days, these results indicate that the majority of SMEs consider that
payment can be equivalent to a government departments are still no different to others in the market, in
cash injection to kick start the terms of payment procedures.
economy
Further afield, European businesses spend a minimum of €25 billion on
• Sustainability – an efficient chasing late payments from consumers and businesses each year.
procurement system ensures a Research by leading credit management services company Intrum
sustainable procurement Justitia shows that European governments could provide a €65 billion
environment. stimulus to their home economies by simply paying invoices owed to
suppliers in full and on time. This could prove a real lifeline to European
businesses and in particular SMEs, who are fighting for survival in these
challenging times.
3 Focus on e Procurement – Purchasing Power, Government Opportunities Magazine June 2007
4 Glover Review: Accelerating the SME economic engine: through transparent, simple and strategic procurement,
November 2008, p7
5 Independent research conducted by Continental Research
Delivering the Benefits of Procurement Cards in the UK Public Sector 4
6. The social care system in the UK has also recently been under scrutiny,
with increasing demands for more effective and efficient service delivery.
One response to the challenge of consistent and fair funding for social
care has been the advent of personal budgets and the personalisation
of care in the health sector would involve paying the individual budget
onto a prepaid card, rather than into a bank account. Analysis of prepaid
opportunities suggests potential time savings of up to 135 days per year
and cost savings of up to 21%.
The case for using procurement cards in an overall P2P strategy is
strong but the take-up has been disappointing. Despite the rise in
usage of procurement cards since they were first introduced and their
potential to improve efficiency, the real benefits have rarely been
maximised. The secret to a successful implementation is to adopt three
key strategies – an implementation approach grounded in effective
programme management, segmentation in launch and roll-out and the
deployment of the right products for the right outcomes.
MasterCard’s solution to the
SME issue
MasterCard provides an effective
solution as a global e-enabled
payment platform to accelerate
prompt payment, cash-flow and
liquidity for UK SMEs.
MasterCard can facilitate
payment to SMEs in two to four
days – exceeding the UK
government commitment of 10
days – thereby improving
cash-flow and liquidity, and
reducing the administrative costs
of chasing late payments whilst
providing time savings to SMEs.
5
7. 2 Programme Management
For a procurement card implementation to be successful and
sustainable, it is crucial for there to be strong programme management
from the outset. Criticism of some e-procurement implementations is
that they are ‘perpetual pilots’ that never fully infiltrate into the
organisation as a whole.
A solid programme management approach involves clearly defined
plans, milestones, target benefits and risk management and regular
review of performance.
An example of a successful P2P programme management approach to
implementation can be found in the eProcurement Scotl@nd
programme:
Figure 1: Best Practice Case Study: eProcurement Scotl@nd
The eProcurement Scotland (ePS) programme is an example of a successful
procurement transformation programme that focuses on three key elements:
• A transformation approach: The implementation of the eProcurement Service
has been deployed as a large scale change programme with the eProcurement
technology as the enabler.
• Collaboration: The eProcurement service has been used as a vehicle for
collaboration that began with the sharing of supplier adoption resources and
catalogue content. This has developed into organisations working together and
exploiting opportunities of ‘better buying’. This will be enhanced further by the
introduction of the ePS collaborative catalogue management system currently
being introduced to allow content to be easily shared nationally and across
sectors.
• Sustainability: Focus has always been on the delivery of long-term benefits and
not on quick fixes.
“eProcurement Scotl@nd is one of the most comprehensive and successful
e-government initiatives in the world.”
John Swinney, Finance Minister, February 2008
Delivering the Benefits of Procurement Cards in the UK Public Sector 6
8. 3 Segmentation
The UK public sector is fragmented and varied in terms of size,
expenditure and ambition, therefore the need for market and commodity
segmentation is important in the effective use of P2P solutions. There is
no ‘one-size fits all’ strategy and different organisations with varying
levels of expenditure and varying procurement strategies will need
different routes to market. It is therefore necessary to perform a market
and commodity segmentation analysis to develop different methods of
implementing a procurement card system to find the best fit for an
organisation.
3.1 Segmentation by Customer Characteristics
Figure 2 below illustrates the role of segmentation in identifying the
most effective method of implementing procurement cards within an
organisation’s procurement strategy. This has come out of a number of
workshops held with issuing banks that see segmentation as follows:
Figure 2: Performance and development framework
High
1 2
Expenditure
Low
3 4
Low High
Level of Ambition
The horizontal axis shows the ambition of an organisation in terms of
investment in e-procurement, high-level sponsorship and support
services, whereas the vertical axis shows the size of expenditure.
Traditionally, as a purchasing tool, procurement cards have featured in
the bottom left quadrant despite having applicability across the board.
Procurement card users can be segmented into the four quadrants as
shown in the diagram. An organisation with large expenditure but low
ambition (Quadrant 1) will require senior level sponsorship and a strong
business case for a procurement card implementation.
7
9. With greater ambition, an organisation with high levels of expenditure
(Quadrant 2) should build procurement cards into its overall P2P and
e-procurement strategy. This type of organisation would advocate
continual improvement and have an ever-increasing interest in
purchase-to-pay solutions, making it an ideal platform for an optimal
roll-out of a procurement card strategy.
When an organisation has a smaller level of expenditure and low
ambition (Quadrant 3), it would initially be looking for simplicity, ease of
implementation and a self-service product. Therefore a more traditional
or basic procurement card implementation will be of benefit.
However, low expenditure need not be a barrier to organisations with
high ambition (Quadrant 4), as they could collaborate with other
organisations to optimise benefits from a procurement card strategy.
3.2 Segmentation by Commodity
An organisation typically has a mix of low- and high-value orders and
contracts and procurement cards have generally been used for
low-value order processing. Whilst these will bring quick savings, the
real benefits will be seen from looking at the overall return on
investment of implementing a procurement card system as part of a
sourcing strategy.
To maximise the benefits of procurement cards, a clear purchase-to-pay
channel strategy has to be in place, making effective use of both
procurement cards and other e-Procurement solutions for different
categories of expenditure.
By characterising and prioritising commodities according to volume and
expenditure, an organisation can identify the areas in which
procurement cards can be most beneficial.
The Spikes Cavell and MasterCard e-enabled payment Information Hub
allows for detailed spend and supplier analysis, which can help with
deploying procurement cards within an organisation, and this will be
discussed in more detail in Section 4.
The way in which goods and services are bought can also affect the
procurement strategy deployed by an organisation. For example, some
goods may be purchased by users in remote and variable locations,
such as maintenance engineers, TV production crews or social workers.
In these cases, procurement cards can be allocated with specific
budgets and preferred suppliers, to eliminate bureaucracy and save
time.
There is benefit to be derived from using a procurement card as a
purchasing tool in the bottom left hand corner of the grid amongst other
P2P tools as illustrated in Figure 3.
There is even more to be gained in taking a channel management
approach, which is commodity based and places the purchasing card
as part of both the overall P2P strategy and the individual category
strategy as illustrated in Figure 4.
Delivering the Benefits of Procurement Cards in the UK Public Sector 8
10. Figure 3
Bottleneck Strategic
High
Marketplaces e-Collaboration
Punch-
Out Buying
e-Tender Consortia
Market
Complexity e-Catalogue
Internet e-Auction
Buying
P-card
Low High
Routine Leverage
Business Impact
Figure 4
Sourcing Tools Buying Channels
Potential Suppliers Order from Suppliers
e-Auction P Cards
Sustainable Best Value
Category Management
e-Procurement
Catalalogue
e-Tender
e-Procurement
Non-catalalogue
Major
ERP
Projects
Identify Secure Contract Deliver
Best Best with Best
Value Value Suppliers Value
3.3 Selling the Concept and Delivering Benefit
Procurement cards can be successfully implemented within public
sector organisations regardless of size and ambition. The flexibility of
procurement cards means that organisations can use different
implementation strategies to find the best fit.
With a basic or traditional implementation, an organisation can roll out
procurement cards in isolation for specific categories of expenditure.
Typically used for low-value orders, this type of implementation will
reduce the number of invoices and cut transaction costs.
9
11. Figure 5
ts
enefi
ng B Strategic
Increasi Purchase-to-Pay
Commodity Go
Gold
Implementation
Basic
Implementation Sil
Silver
Bronze
Collaboration
Programme Management
For a commodity-focused implementation, procurement cards are built
into the sourcing strategy of an organisation. Where there is a high
volume of transactions, procurement cards can reduce the number of
purchase orders and invoices in the procurement process.
The benefits of procurement cards will be optimised when introduced as
part of an organisation’s overall purchase-to-pay strategy alongside
other e-procurement solutions. Procurement cards integrate well into
e-procurement systems and financial back-end systems, and this
feature means that the benefits will translate into all areas of the
procurement strategy. An important factor to note is that each of these
strategies has to be underpinned by strong programme management to
ensure a successful, sustainable implementation.
Figure 6: Collaborative implementation in Wales
Value Wales Procurement launched the Welsh Purchasing Card (WPC) programme
to provide the Welsh public sector with an alternative purchase-to-pay process,
designed to deliver significant cost savings by removing the need for purchase
orders and processing of invoices.
The WPC was successful not only because it was managed as a programme, but
also due to the understanding of segmentation. Value Wales Procurement had a
uniquely strong focus on growing the scheme’s supplier network, which has
increasingly enhanced its appeal with public sector organisations. For example,
while the programme was initially only used for low-value, high volume
transactions, such as procurement catering or office supplies, as the supplier
network has grown, the card can now be used to procure higher value items as
well, such as tarmac and stone for highways maintenance.
Another key element to its success was the deployment of the right product –
MasterCard:
“All public sector organisations in Wales that have adopted the WPC scheme over
the past two and a half years have specifically chosen the MasterCard solution.”
Alan Oram, Value Wales Procurement
Delivering the Benefits of Procurement Cards in the UK Public Sector 10
12. Whilst the ideal for procurement cards is to move away from
transactional buying, organisations may choose to implement one or
more varying strategies depending on size, ambition and commodity
type. Thus an eco-system with a complete suite of solutions is critical for
flexibility and to encourage uptake of the product.
An organisation should build elements of collaborative procurement into
its strategy, regardless of the type of implementation. By working
together with other organisations to reduce the cost of implementation
and to maximise savings and benefits, it can achieve efficiencies
through economies of scale, better contract management and standard
processes.
11
13. 4 MasterCard Products
MasterCard has the right The right products are crucial to a successful implementation.
products to address the MasterCard provides two innovative services – inControl and Smart
current and future needs of the Data Online, as well as a shared Information Hub. These products meet
market current government requirements for control, security, traceability,
flexibility and personalisation as well as for supplier and spend
information.
4.1 inControl
MasterCard® inControl™ is an innovative platform that offers an array
of advanced authorisation controls, intelligent transaction routing
capability and robust alert functionality designed to enable issuers to
provide enhanced levels of security, control, data capture and
traceability on every purchase.
inControl also provides the capability for limited-use account or virtual
card numbers, which reduce the risk of primary-account fraud.
4.2 Smart Data OnLine
MasterCard®Smart Data OnLine™ service provides users with 24/7
on-line access to all transactions for complete security, as well as
on-line management of card purchases. This also includes detailed
transaction information, which can be delivered through both standard
and customised reporting. Smart Data OnLine can be specifically
configured to the requirements of each user organisation thus allowing
them to create their own review/authorisation workflow, account coding
capability and data file exports suitable for loading into local accounting
systems.
4.3 Information Hub
The Spikes Cavell and MasterCard e-enabled payment Information Hub
provides detailed purchase-to-pay transactional analysis by UK regions,
sectors and by commodity category and services spend. This analysis
assists in identifying where the various procurement card products can
be applied, through which business cases for payment card deployment
can be produced.
Importantly we are now able to analyse core or common suppliers
across the 12 regions of the UK and foster collaboration amongst public
sector organisations to enable a more focused merchant acquisition
activity.
The Information Hub will provide information with which to identify
opportunities for further performance improvement and maximise the
investment in the P2P programme.
Delivering the Benefits of Procurement Cards in the UK Public Sector 12
14. 4.4 MasterCard Optimiser
The MasterCard Optimiser is an intuitive web-based diagnostic tool that
allows organisations to identify and measure strategies for improving
new or existing corporate and P-card programmes. It takes only 20
minutes to use and produces a customised report including an analysis
of current usage patterns and opportunities to expand the roll-out and
increase the delivery of benefits.
4.5 VAT Recovery Service
In partnership with Meridian, the MasterCard platform provides the
ability to identify easily how much VAT has been paid and estimate how
much might be recovered. It provides a simplified process to handle the
VAT recovery on behalf of organisations. The reports provided are
HMRC certified.
13
15. 5 Conclusion
In the current climate, numerous government initiatives have been
launched to drive public sector improvements. Procurement is seen as a
key area in which these improvements can be manifested.
Procurement cards are a robust, proven tool and can bring significant
benefits to public sector organisations regardless of size or ambition.
Procurement cards need to be deployed as part of the overall
procurement strategy; to maximise benefits organisations need to focus
on the end-to-end business process and to view procurement cards as
a tool within the procurement eco-system and not just as a purchasing
or payment mechanism.
The time is right to consider
implementing procurement
cards. They can play a
significant role in improving
efficiency in today's difficult
economic environment and in
line with public sector
budgetary constraints.
Procurement cards deliver most
when they are part of an overall
P2P strategy and plan that
positions the right products in the
right segment of the process.
Delivering the Benefits of Procurement Cards in the UK Public Sector 14