Companies that consider themselves "strategic" in their approach to procurement and sourcing are often surprised at the benefits that come when they establish a true Strategic Sourcing discipline. Those benefits go far beyond simple cost savings, reaching into all aspects of corporate operations, including relationships with suppliers. The key to it all is understanding - knowing why and how the organizations spend, and how procurement and sourcing activities can improve the process. Commercial card programs have a role to play in the process by providing spending information. Alignment of commercial card program strategy with the company's procure-to-pay strategy is key in getting the most out of the card program.

The benefits of Strategic Sourcing come when the process is established as a structured corporate discipline. A 2002 research study by Deloitte Consulting found that a focused Strategic Sourcing initiative could generate potential cost savings as high as 15 to 25 per cent. But the benefits of Strategic Sourcing go well beyond cost savings. Part of the focus required to set up a Strategic Sourcing initiative is to develop a unified payment program. In some cases several payments programs need to be consolidated due to overlap, duplication of efforts, difficulty in tracking and controlling spend complexity, and waste of administration. A multiplicity of payment programs can also greatly increase the amount of unauthorized or unconsolidated spend, leading to the loss of supplier leverage. Consolidation of payment programs enables a better understanding of company-wide spending. Improved understanding lays the foundation for one of the main benefits of Strategic Sourcing - the ability to analyze and rationalize the company's supplier base. It also eases the administrative burden, and creates the potential for a serious reduction in the number of purchase orders that have to be generated, especially for high-volume, low dollar value items.

In building stronger relationships with targeted suppliers of selected services and commodities, a Strategic Sourcing program simplifies spending data and makes it more uniform, which helps to reduce the number and type of spending categories that have to be tracked. Strong senior management support and involvement is a critical element required from the planning stages. With it, strategic procurement and sourcing decisions can be made more quickly and intelligently, increasing the organization's ability to identify and take advantage of new opportunities.

Perhaps one of the most important benefits of Strategic Sourcing is that it puts the company in the driver's seat when it comes to relationships with suppliers. The program managers can more easily keep themselves informed about the conduct of supplier relationships and keep the suppliers moving in the direction of deeper discounts. It also makes it much easier to improve service levels, either at the urging of the buying organization or, where suppliers are proactive, at their own initiative.

A key feature of successful Strategic Sourcing initiatives is the cultivation of multifunctional negotiating teams. The involvement of the Procurement and Accounts Payable functions as team members is essential. Both areas have recently begun to receive greater attention from senior management as "shared services" organizations with vital contributions to make in other areas, and are increasingly viewed as highly interdependent when initiatives such as strategic sourcing are undertaken. For the purposes of strategic sourcing, Procurement brings negotiation and industry expertise, while Accounts Payable contributes the ability to provide detailed analysis of spending data. But input from other areas, such as IT and Finance, is also crucial. One participant in the 2004 Visa Procure-to-Pay Best Practices Study actually established Procurement department business unit liaisons who work with other business units to identify opportunities for supplier reduction, the negotiation of deeper supplier discounts and the improved utilization of the company's e-Procurement system. The liaisons also improve operational communications between Procurement and other business units, enhancing responsiveness to user needs.

One participant in the 2004 Visa Procure-to-Pay Best Practices Study found that its Procure-to-Pay process gained significant attention from key stakeholders when it clearly aligned the goals of its Procure-to-Pay strategy with the company's overall goals. The Procure-to-Pay process is expected to contribute $90 million towards the company's overall cost savings target of $600 million due to productivity improvement initiatives.

If a corporate Procure-to-Pay strategy benefits from close alignment with overall organizational objectives, an organization's commercial card program strategy has a central role to play in supporting and helping to reach its Procure-to-Pay objectives. The commercial card program must be aligned to support goals such as reducing transaction costs and invoice volumes, improving supplier management, cutting expense payment turnaround times, moving away from paper-based processes, increasing controls, maximizing the proportion and amount of spend that is directed to preferred suppliers, and enhancing user satisfaction.

Establishing performance metrics and benchmarks based on card-derived data helps program managers control user spending behaviour, eliminate off-contract spend and identify new savings opportunities. Metrics can include such data as purchase transaction costs, invoice payment costs, amount of spend being carried on the card, and much more. Organizations find that when spend visibility is detailed and available in real time, senior management support for spending initiatives increases which benefits all aspects of procurement. Risk mitigation also becomes much easier by instituting such initiatives as merchant category code (MCC) blocking for high-risk vendors and transaction authorization limits. One company that participated in the 2004 Visa Procure-to-Pay Best Practices Study recorded a 60 per cent reduction in unauthorized and maverick spend thanks to the control and reporting capabilities it gained through its commercial card program

Detailed, comprehensive data provides critical backup in supplier relationships, especially when renegotiating existing supplier contracts or setting up new ones. The availability of detailed, comprehensive spending data also makes it easier to set up a disciplined, centrally led strategic vendor management program. One participant in the 2004 Visa Procure-to-Pay Best Practices Study meets with its suppliers quarterly to conduct a 'backward and forward' evaluation (past three months and upcoming three months), using a dual scorecard that measures the performance of the suppliers as well as that of the organization itself. Putting spend on a commercial card also speeds up the payment cycle, a definite benefit to suppliers that can be used to a company's benefit in negotiating contracts with its suppliers.

When an organization's commercial card program is aligned with its strategic sourcing discipline, the whole becomes greater than the sum of the parts. What begins with cost savings - impressive enough on their own, but conceptually simple - delivers more sophisticated benefits that are otherwise difficult or impossible to achieve. If a commercial card program and a strategic sourcing initiative are approached in a structured way, and constructed to be closely integrated, improvements such as consolidation of payment programs, simpler administration, better reporting, enhanced understanding and control of purchasing, and greater adaptability to change and fresh opportunities, follow almost naturally. As complementary parts of a broader Procure-to-Pay strategy, strategic sourcing and commercial card programs are an essential best-practices building block.