Introduction. Table of Contents

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2 Introduction To stay competitive, you know how important it is to find new ways to streamline and save on your company s operations. Learning how leading companies handle commercial payments can give you deeper insights into where and how you can improve. Help you understand how to run your Procure-to-Pay processes more efficiently. Enhance visibility into corporate spend. Gain better control and compliance. And ultimately, help enable you to add more profit to your bottom line. Visa commissioned Deloitte Consulting to conduct 90 in-depth interviews in with more than 60 global/multinational, mid-size and large corporations as well as federal and local government agencies across the world. In 2010, Visa commissioned Deloitte Consulting to update each of the following 28 Travel and Corporate Card Best Practices from the comprehensive study to include current trends, updated case studies, and additional key findings. See the section entitled Study Methodology for additional detail. The Visa Global Procure-to-Pay and Commercial Card Best Practices Study describes how these organizations implement and optimize their Procure-to-Pay processes and commercial card programs. The study gives you access to best practices for a variety of topics: Maximizing the benefits of purchasing and corporate card programs. Streamlining travel and entertainment management. Taking advantage of the latest innovative best practices. And automating the entire Procure-to-Pay process. Each best practice is divided into three useful sections a recommendation overview, a benefits outline and steps for implementation so you can quickly find the information you need. For more information on the Visa Global Procure-to-Pay and Commercial Card Best Practices Study, contact your commercial banker. Table of Contents Establish Supplier Key Performance Indicators Study Methodology Note: Survey results, research and practice recommendations are intended for informational purposes only and should not be relied upon for marketing, legal, technical, tax, financial or other advice. When implementing any new strategy or practice, you should consult with your legal counsel to determine what laws and regulations may apply to your specific circumstances. Visa is not responsible for your use of the information, including errors of any kind, or any assumptions or conclusions you might draw from its use. Much of the information contained in this document applies internationally, but a certain amount of information applies only to certain countries or regions. Although Visa tries to mark all country- and region-specific information with a country indication, it does not warrant or represent that all information without indication applies internationally. You should check the applicability of any information in this document to you or your organization.

3 Establish Supplier Key Performance Indicators Leading companies monitor the performance of their suppliers to ensure adherence to the negotiated contract terms and Service Level Agreements (SLAs). To track performance, companies typically establish Key Performance Indicators (KPIs) based on the terms and SLAs that are established in the contracting and negotiation process. Common KPI categories include: Price (e.g., per item or per hour pricing and early payment discounts) Speed (e.g., time from order placement to delivery) Two-way scorecards allow us to deliver the greatest value to the customer. - VP of Procurement, U.S. Manufacturing Company Accuracy (e.g., percentage of time the order is completed and contains the ordered goods) Quality (e.g., percentage or frequency of product defects) Billing (e.g., percentage and size of billing inaccuracies, such as incorrect pricing or incorrect quantity invoiced) Customer Service (e.g., percentage of inquiries that are addressed within eight hours) A global communications company measured suppliers against the Service Level Agreements (SLAs) included in the contract. For example, their office supply contract included an SLA that any order placed by 3pm should be delivered the following day. The company actively monitored the delivery performance to ensure the supplier was following the terms of their agreement. Often companies will develop a scorecard to monitor the KPIs. A scorecard provides information on current and historical performance and allows best practice companies to proactively respond to issues and encourage the correct behavior. The scorecard can be used for performance reviews with the supplier as well as status updates with senior management. The frequency of the supplier reviews and senior management are either quarterly, semi-annually, or annually; some KPIs are measured monthly while others are measured quarterly or semi-annually. For an example scorecard, please refer to Visa's Vendor Scorecard. A large U.S. manufacturing company implemented a two-way scorecard with three of their large, strategic suppliers. The two-way scorecard evaluated the performance of both the supplier and the company. The company used the scorecard to evaluate the supplier's performance and hold them accountable to the contracted terms. In addition, the suppliers were asked to evaluate the performance of the company and to identify any problems or inefficiencies that were impacting the suppliers' ability to meet its contracted terms. One of the suppliers indicated that the company's lack of forecast accuracy was resulting in last-minute changes to the orders and the need for expedited deliveries. The company found that use of a two-way scorecard resulted in a stronger partnership with their key suppliers. In addition to tracking supplier performance against KPIs, leading companies also 1

4 evaluate suppliers on their ability to meet the company's objectives. In order to communicate the objectives, companies hold annual supplier meetings, during which the company describes their strategy, goals and initiatives. The annual meetings allow the suppliers to align their practices with company objectives. Leading companies also benchmark their supplier spend against comparable companies in the industry, particularly air and hotel spend. Considerations for acceptable comparisons include geographical location, industry, company size, and travel volume. Companies often obtain benchmarking statistics and reports from their travel agency, third-party providers, and/or industry organizations. Deviation from benchmarked standards may signal either that the company's Travel Management function is not performing optimally or that the company's strategic goals and focus areas are intentionally different from competitors. For example, a global software company benchmarks its Travel Management performance against comparable standards but disregards moderate differences because the company's priority is on traveler experience rather than pure cost savings. 1 An easy starting point for monitoring supplier performance is to review and measure the terms and SLAs negotiated in the supplier contract. Options for Best Practice Adoption Companies may choose to monitor a few select suppliers or all suppliers with which they have a contract. This decision should be based on the number of factors including the number contracted suppliers, the resource availability to conduct the monitoring, and the type of relationship the company wants to create with their suppliers. 2

5 Option I Option II Option III Options for Adoption Monitor KPIs and benchmarking reports for select suppliers Monitor KPIs and benchmarking reports for all preferred suppliers Monitor all preferred suppliers via a two-way scorecard and annual supplier meetings Large, sophisticated companies have Benefits Requires limited coordination and management within Allows for performance monitoring of all key Allows the company to closely examine their internal employees dedicated to monitoring supplier the Procurement group suppliers in the major spend processes and improve any performance and product categories Provides the ability inefficiencies Facilitates open quality. to proactively communication and respond to positive partnership with the and/or negative supplier trends in supplier performance Key Considerations Requires selection of May require Requires trust on the suppliers to monitor dedicated resource part of the supplier based on strategic to monitor and to provide honest importance measure for all and direct feedback Requires industry preferred suppliers to the company information from May require Requires a company travel agency, third- developing KPIs for to acknowledge and party provider, preferred suppliers respond to supplier and/or industry that do not currently feedback to foster organization include SLAs in their trust and partnership contracts Requires industry information from travel agency, thirdparty provider, and/or industry organization Benefits Best practice companies that monitor supplier performance report that they are better able to effectively manage their suppliers in order to receive the expected level of quality and service. In addition, monitoring performance helps ensure that suppliers are in compliance with their contracted terms. 3

6 Category Control and Compliance Benefit Obtained Implementing a scorecard monitoring system allows companies to gain visibility into and control over the supplier performance. As suppliers increase compliance with the negotiated terms, companies receive improved service and product quality. Cost Savings and Process Efficiency Improving supplier performance will reduce inconsistency and errors, either in the product quality, shipments or pricing. This will reduce the need for internal manual exception processing and expedited orders. In addition, benchmarking at regular intervals will assist companies in identifying possibilities for cost savings improvement. 2 Supplier Management Determining supplier KPIs provides companies with metrics and criteria to monitor supplier performance. The scorecard provides objective criteria that companies can use when meeting with suppliers to address issues and/or concerns. Benchmarking also helps set the standard of what can be achievable with suppliers. Implementation Steps Regardless of the level of adoption, there are series of implementation steps that best practice companies typically follow when developing and monitoring the supplier performance. # Description of Action Step 1 Review existing supplier list and identify preferred / key strategic suppliers based on internal criteria (e.g., annual spend, spend type) 2 Identify stakeholders within the organization to determine the KPIs and monitor performance (e.g., category managers in Procurement, business owners managing the supplier relationship) 3 Review supplier contracts to identify contracted terms and key SLAs 4 Determine KPI based on existing SLAs and terms 5 Determine level of supplier performance monitoring appropriate for the company (e.g., ad hoc KPI monitoring, mandated KPI monitoring, 2-way scorecards) 6 Determine monitoring frequency (e.g., monthly, quarterly) 7 Monitor performance and update scorecard 8 Report on supplier performance internally and communicate issues and/or concerns to the supplier 9 Revise scorecard criteria and KPIs, as needed (e.g., stakeholder feedback, changes to contracted terms) 4

7 1 "Procurement Practices 2010," Business Travel News, Deloitte Consulting Analysis,

8 Study Methodology The objective of the Visa Procure-to-Pay and Commercial Card Best Practices Study was to better understand the changes in the segment and to gain a comprehensive understanding of best practices across the Procure-to-Pay process and within the commercial card program. Visa commissioned Deloitte Consulting to conduct 90 in-depth interviews in the summer of 2007 with more than 60 global/multinational, mid-size and large corporations as well as federal and local government agencies across the world. In 2010, Visa commissioned Deloitte Consulting to update each of the following 28 Travel and Corporate Card Best Practices from the comprehensive study to include current trends, updated case studies, and additional key findings. The evaluation of the Procure-to-Pay process included sourcing, order placement, payment and settlement, reconciliation, control and audit, and reporting activities. For the commercial card management process, the assessment focused on practices related to the purchasing and corporate card program strategy, management, and reporting. Interviewees included Regional Controllers, Chief Procurement Officers, Directors of Strategic Sourcing, Procurement Managers, Accounts Payable Managers, Global/Regional/Local Commercial Card Program Managers and Travel Managers. Study participants had a range of commercial card programs in place including purchasing card, corporate card and commercial one card programs with each of the top three card providers: Visa, MasterCard and/or American Express. 6 STUDY METHODOLOGY