Complex Category Tips: Finance and Legal (Part 4)

In the first three posts in the series (Part 1, Part 2 and Part 3), we looked at different models and approaches for sourcing and managing complex finance (including legal) categories. Courtesy of ICG Commerce, the discussion, in the most recent post in this series, also looked at a case study examining the types of results that companies can achieve through sourcing what's arguably the most sacred sourcing services cow of all: external audit services. But in this final post in the series, we'll leave the realm that involves sourcing firm-based services for a minute and instead examine another finance services case study: T&E and p-card programs. Even though many companies look at p-cards without realizing the type of price compression possible (based on revenue in fact -- incentive payments), the results speak for themselves.

To examine the types of results that are possible, let's consider the case of a company with $610 million in global related spend, including $200 million in p-card specific annual volume and $210 million in global T&E (spread across 4,000 and 23,000 card holders inside the company, respectively). Through a sourcing and ongoing vendor management engagement, the company went in with two key objectives: increase incentives and reduce key program inhibitors. For the former, this included pursuing incentive strategies around sign-on bonuses, net annual charges, volume, client held days and guaranteed savings. And for the latter, it included program terms focused on reducing inhibitors around average transaction size and volume/spend per card.

With its partner (ICG in this case), the company set about gathering information on a global basis, including VAT recovery capabilities. As part of this effort, they worked to create a program structure that could integrate both their own and provider technologies, with the end result focused on consolidating spend with a single provider. The next step was to go to RFP which included developing a vendor modeling/scorecard approach to rank and analyze responses from the eight vendors that participated. Following this electronic information gathering and bid response phase, the team then got together for in-person meetings with the key vendors involved to further refine specific incentives.

The end-result was dramatic -- a 3% increase for incentive payments of $4.4 million, or roughly 17%. And over five years, the winning bidder offered an incentive program delivering $13.55 million in total added benefit, representing a 52% increase. Accounting rules and flexibility for how to account for these payments (and the different options in doing so) can differ between different countries and regions. Spend Matters is aware that in the UK, HMS allows companies to count certain types of paid incentives or rebates as revenue (this is the Oxygen Finance model, for all of you discounting junkies).

In other regions, rules may differ. But regardless of how you track the benefits from the successfully bidding out T&E and p-card programs, it's pretty clear the results can be dramatic. And regardless, you'll be doing your moral duty as well. After all, given that what banks earn off such programs often amounts to a ridiculous APR off the backs of suppliers, shouldn't you share in the benefits as well, considering it's your spend after all? Just remember that the sourcing component of T&E and p-card vendor negotiation is the simple part. It's the overall program design, requirements gathering and related efforts that must go first that are the biggest challenge.

- Jason Busch

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