WHEN CORPORATES CHARGE
Bausch & Lomb turns to purchasing cards to help pare transactions costs in Asia.
By David Lake

To say Chris Lau is a big fan of purchasing cards would be a rather sizeable understatement. The truth is, Lau, the Bausch & Lomb Asia Pacific director for business process reengineering, is practically a purchasing card evangelist. "P-cards are amazing. I love this product," he says, waving his card in the air like some preacher waving a bible from the pulpit.

You can't blame Lau for getting the P-card religion. By eliminating the paperwork on just one low-value transaction (under US$5,000), Lau is able to save the US-based eyecare specialist US$100. Last year, Bausch & Lomb made 57,000 purchases in Asia. Usually, low-ticket trans-actions make up about 80 percent of a company's purchases. The math speaks for itself. Not surprisingly, Lau believes purchasing cards could cut millions from Bausch & Lomb's operating costs in Asia.

So far, the company has issued 30 Visa-brand purchasing cards to department heads in Hong Kong. Lau says he is now focusing on similar roll-outs in Malaysia, Singapore and Australia, with subsidiaries in South Korea and Japan to follow. The head of process reengineering says the company plans to complete its Asian P-card roll-out over the next 18 months, ultimately issuing cards to most of its 1,000 or so employees in the region. At that point, Bausch & Lomb's management believes the volume of the company's P-card transactions in the region will skyrocket. This is not just wishful thinking. During the initial stages of Bausch & Lomb's purchasing card roll-out in the US in 1997, the company conducted a mere 17 P-card transactions per month. These days, that number is more like 4,000.

Supplying Suppliers

First launched by the US government in 1989 to rein in escalating expenditures, P-cards have been enthusiastically embraced by American corporates. Today, over 60 percent of Fortune 500 companies have P-card programs, with CFOs using the plastic to help reduce processing costs for low value purchases and to outsource accounts payable. Meanwhile, banks and credit card companies have created more sophisticated cards, adding features like purchasing limits, merchant category blocking codes and fraud identification. Annual P-card transaction volume in the US now tops US$12 billion.

But in Asia, P-cards have not caught on nearly so fast. The Singapore government rolled-out the first purchasing card program in late 1995, followed soon after by the Australian government. But local corporates have only recently begun to cotton on to purchasing cards. Vendors now estimate that some 300 to 400 Asian corporations use P-cards in one form or another. "P-cards are coming into their own," insists Raymond Hsiung, the Visa International director of purchasing cards and commercial e-commerce for the Asia Pacific region. "The awareness is there and so are the benefits." Hsiung notes that P-cards are now used in Asia in ways that surprise even veteran users. Some Korean corporates, for example, have come up with creative ways to cure the ills of a spotty electronic payments system. These companies use P-cards to make business-to-business purchases. One Korean company, Hsiung notes, buys tanker loads of gasoline with its card. "Two years ago no one would have known anything about a P-card," says Lau. "Now every country - except India and Indonesia - has banks assisting corporations in introducing P-cards."

But apparently, not all credit card vendors are convinced that there is a mass corporate yearning for P-cards in Asia (see box). At the moment, Visa dominates the field, with an estimated 75 percent of the P-card market in the region. MasterCard is the only other vendor of note making a big P-card push in the region. "Sure there can be resistance to P-cards," concedes Lau. "Without the right roll-out strategy and the support of senior management a program can fall flat on its face."

To avoid such a fate, Lau spent several months working up a detailed implementation strategy for Bausch & Lomb's Hong Kong roll-out. That strategy included the formation of a cross-functional implementation team, made up of members from the company's finance, purchasing and administration de-partments. Moreover, Lau spent a lot of time lining up agreements with banks and suppliers. Generally speaking, a P-card program will stand or fall on the strength of its supplier list. If employees are presented with a list that offers a variety of useful goods and services, they will be more likely to use their cards. Lacking such a list - and absent a buy-in from senior managers - P-card programs are doomed to failure. Cautions Hsiung: "Those who come to the table believing a P-card is a simple program and start issuing cards to employees right away are headed for a big surprise."

Pencil Pushers

A big, unpleasant surprise. Poorly thought-out P-card programs can make a CFO look very very bad. Typically, P-card failures are measured by the percentage of transactions paid using the cards versus those paid using regular methods. In failed implementations, the percentage of P-card payments can be as low as 1 percent of total purchasing transactions - an embarrassing figure. Conversely, in well-designed programs, that percentage can go as high as 40 to 50 percent. At Bausch & Lomb, the percentage of P-card transactions in Hong Kong has already reached 29 percent for major purchasing categories, or 7 percent overall. And that's only five months into the roll-out. "For a P-card program to work effectively," Hsiung notes, "employees must be willing to look at the procurement process with fresh eyes."

It's exactly that sort of corporate rethink that led Lau to P-cards in the first place. Bausch & Lomb's old purchasing system was not exactly a model of efficiency. For example, Lau notes how complicated it was just to order a US$40 box of pencils. To buy the pencils, an employee filled out a requisition order form and passed it to the department head for approval. The department head signed off on the requisition form order and forwarded the request to the purchasing department. The purchasing department then made a couple of calls to identify the best supplier. Eventually, a purchase order was filled out.

Within three or four weeks the pencils arrived. But the purchasing process was far from over. The invoice for the goods had to be punched into the accounting system and matched against goods received, as well as the purchase order. Finally, a check was cut to complete the transaction. There was only one small snag: the cost of processing the purchase of this US$40 box of pencils could top US$130. And, under the old system, suppliers often received a check within 30 to 60 days. With P-cards, though, that same box of pencils can be ordered and delivered for as little as US$10 in processing costs. What's more, the pencils arrive in three to four days, rather than three to four weeks. "The savings are unbelievable huge," says Visa's Hsiung. "Under the old procurement system the process could take over 40 steps and tie-up the finance department, procurement department, requisitioners and the accounts department. With P-cards the process is reduced to between five and eight steps, depending on a company's customization requirements."

Ex-Checkers

In return for this service, Bausch & Lomb pays a transaction fee to the P-card bank sponsor - in this case, HSBC. Suppliers also bear a portion of the cost, usually kicking in from 1.5 to 3 percent of the purchase price to the bank. They don't seem to mind, though. With P-card programs, accounts payable are received from the bank within days, thus improving cash flow and eliminating the need for suppliers to chase invoices. Further, companies that use P-cards often consolidate their purchases - and compliant suppliers are often the main beneficiaries of such consolidation. "In effect, we outsource our accounts payable and the suppliers outsource their accounts receivable," says Lau.

Of course, outsourcing accounts payable can be a worrying thing to a company's finance department. P-cards can dramatically reduce the number of finance personnel needed to write purchase orders and cut checks. Some companies, in fact, have eliminated jobs in their finance departments after implementing P-card programs. For his part, Lau prefers to get his purchasing and accounting employees focused on value-added tasks - rather than laying them off. "They now have the time to improve the supplier base and develop working relationships with suppliers."

Indeed, experts say P-card rollouts are more about re-engineering and re-education than redundancies. That's why P-card vendors and P-card users say P-card roll-outs require a great deal of employee education. If a purchasing card implementation is to work, they argue, long-standing methods for handling procurement must be abandoned. This is not always an easy sell. Bausch & Lomb's Lau says that old corporate habits die hard - habits such as writing checks for purchases. But like any true evangelist, he insists that changing habits is a crucial part of changing minds. "The message has to go out to employees not to write check requests," he says adamantly. "We simply will not process them anymore." You can almost hear the fire and brimstone crackling in the air.

David Lake is a Hong Kong-based business and finance writer.