Figures from the Chartered Institute of Supply show that half of all the orders made by British business cover just 2 per cent of the value of the goods bought. These orders tend to be for low-value, everyday items, such as stationery, cleaning materials and nuts and bolts.
The administration costs similarly bear little relation to the size of the transaction. Research by Andersen Consulting suggests that Britain's top 1,000 companies spend more than pounds 18bn a year on small purchases, at a typical cost per order of more than pounds 60, irrespective of its size.
But increasing numbers of companies are abandoning this approach in favour of using credit accounts and issuing departments with purchasing cards. The idea is that individual members of staff can order what they need as they need it. In effect, as Steve Cannon, head of technical services at the Chartered Institute of Supply, points out, the practice delegates procurement to the local level. "It simplifies the paperwork. You can almost get away without having an order," he says.
Company Barclaycard claims to have been first into the market, when it responded to an approach by BOC, the industrial gases company. As a result, it says it has about 60 per cent of the market, primarily made up of large corporate companies, though NatWest, Midland and American Express are also active.
Among those that have signed up since are the Sun Valley poultry company, which was introduced to the concept by the experience of its parent company, Cargill, in the United States. Since using the cards at one of its garages, the company has introduced it to other parts of the operation and transformed the way it does things.
Stuart Fisher, head of Company Barclaycard Purchasing, says the attraction is that it streamlines the process. Cards are issued to secretaries, clerks, garage engineers or anybody who needs to make ad hoc orders, so that they can order and receive the goods they need in less time than it typically takes a purchasing department to deal with a request. Instead of producing many invoices and order forms the card company issues a monthly bill that can form part of the management accounts. Mr Fisher insists that any security concerns are dealt with by spending limits and by restricting authorisation to certain categories, so that clerks cannot, say, use their cards to buy holiday flights.
There are also advantages for the suppliers that sign up for it because they are rid of their bad-debt problems although, like retailers, they have to pay the card company a small fraction of the purchase price.
But Mr Fisher and Mr Cannon agree that the biggest potential beneficiaries are the purchasing departments of the companies that adopt the cards. Instead of being swamped with paperwork for small, everyday items, they can turn their full attention to big-ticket or strategic items, where they can use their skills to obtain better deals.Reuse content