Big savings on the cards

The public sector is using an idea that could save millions in costs.
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When, last October, the Treasury introduced a procurement card for use in all government departments, it claimed it could save pounds 60m a year. The move followed a highly critical report from the National Audit Office which found that it typically cost pounds 70 in bureaucracy for each order - even, as in one extreme example, to buy a 98p padlock.

Corporate purchasing cards are common currency in the private sector, and it is surprising that it has taken the public sector so long to catch on. A card - similar to an ordinary credit card - can be used for making purchases in person or over the phone, and each holder is given a personal limit per item, as well as a budget. The holder has no need to obtain authorisation from a more senior official, thereby saving time, reducing the need for central buyers, and eliminating paperwork. It can also improve budgetary control by decentralising the process.

Administration costs are borne by the supplier, who begins to process the transaction when the customer confirms goods have been correctly received, bringing payment forward by weeks or even months. Suppliers may also be willing to reduce the costs of goods when they are assured of early payment.

Using procurement cards, which are the same as the private sector's corporate purchasing cards, the Treasury expects to save 60 per cent of transactional costs. The next stage - though this may take some to implement - will be to use electronic commerce for most of Whitehall's buying. Corporations already using a combination of electronic commerce and purchasing cards find they can eliminate as much as 90 per cent of purchasing costs.

The same benefits being achieved by central government can be made by other public bodies, as is being proved by Stirling Council, the first local authority to use purchasing cards. The system was implemented by Stirling's purchasing manager, Russell Green, who says: "I had worked with purchasing cards in a previous job overseas with an American company. When I came to Stirling Council, it seemed ideal for low value purchases in our supplies department."

Working in conjunction with the Royal Bank of Scotland and Visa, Mr Green proposed using purchasing cards to improve housing maintenance operations.

Initially, the council's internal audit section was concerned at the possibility of fraud, but a procedure was developed that is effective against it. There a limit of pounds 250 on each purchase, and cardholders are only permitted to buy goods that are strictly related to their work.

Visa categorises all goods purchased on its cards, and Stirling's housing maintenance supervisors can only buy items that are categorised as building materials. Buying cameras, meals or an evening out at a nightclub should be impossible with these controls.

Under the old system, a housing maintenance supervisor would visit a tenant to assess the problem, and decide how to repair it. He would then fill in a form requisitioning the goods required; this would go to a buyer, who would raise an order; the order would be given to the supervisor; the supervisor would submit the order; when the goods were received, the supervisor would raise a goods received note, which would be sent to the buyer; the buyer would match this note to the order to approve payment; the finance department would then issue a cheque. Obtaining goods could take days, mistakes were made, and payment could be slow.

Using a purchasing card, the supervisor can assess the job and phone through an order to the builders' merchants, giving his card number, and arrange to collect the materials in half an hour. He can immediately phone through a request to the tradesmen to go straight to the house to effect an emergency repair. The only paperwork required is that the supervisor fills out a transaction log, which is compared with the monthly Visa account statement. This procedure not only cuts out 60 per cent of the costs where it is used, but saves time for the tenant waiting for repairs.

"The most important thing is that the guy is getting goods to the job much quicker, so he is getting more jobs done," says Russell Green. "The tradesmen are able to do more work, so they are able to earn more bonuses, the operation is more efficient. There is a greater impact than just on the buying department. Under the old system, the supervisor could spend two or three hours a day just on paperwork. And we still have control, because we know who he is buying from."

After an initial trial with housing maintenance, Stirling Council has approved the more widespread use of its purchasing card. It is now being used in roads maintenance and waste management, will soon be introduced in the catering and cleaning departments, and will eventually be used by all parts of the authority. The card is not appropriate for large value purchases, but it will be used for thousands of low value purchases, where the average cost of each good is pounds 15, but which typically cost between pounds 35 and pounds 75 in paperwork to buy.

Moves to use purchasing cards were given an important boost last month, when Customs and Excise introduced new rules which no longer require paper evidence of the VAT element of goods up to pounds 5,000 in value which are bought using purchase cards.

There are some ideas that are just so good, their users are left to wonder why no one did this years ago. Users of purchasing cards are saying exactly that.