American Express Targets 'Maverick' Purchasing, Supplier Overcharges - InformationWeek

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8/10/2007
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American Express Targets 'Maverick' Purchasing, Supplier Overcharges

CatalogPro service puts approved purchasing programs online. Contract Audit & Recovery service spots overspending and seeks refunds.

Supply chain automation and purchasing systems have done a great job of controlling corporate spending — more precisely, direct spending on materials, products and services tied to the cost of goods and services sold. What they typically haven't touched, however, is indirect spending — things like office supplies and temporary help that are often procured outside of approved purchasing channels and contracts.

"This kind of purchasing can represent 80 percent of the transactions yet only 20 percent of the spend," says Rion Needs, "It's like herding cats."

The former Chief Procurement Officer at American Express, Needs now heads the company's S2S (Source-to-Settle) Procurement and Compliance Solutions unit, which hopes to help companies improve control over this last frontier of purchasing. In May, American Express S2S launched two services that combine process management, content management and analytic capabilities to lower corporate spend and recover "leakage" — a euphemism for overcharges.

S2S CatalogPro is an online purchasing environment designed to make it easier for employees to procure goods while doing so from preferred suppliers at negotiated rates. The service offers a choice of more than 50 pre-built catalogs covering everything from office supplies and maintenance and repair products to desktop computers, peripherals and telecom equipment.

CatalogPro also supports the development and maintenance of custom catalogs that aggregate content from a customer's preferred suppliers. Automated content tools let managers oversee the product content and pricing posted to a custom catalog and on an ongoing basis they can review and approve line-by-line and product-by-product changes in specs and pricing within a click-to-approve dashboard interface.

American Express can extend its own leveraged discounts negotiated with scores of suppliers, but it also offers intelligence on purchase volumes and patterns so companies can negotiate better contracts. The system submits orders directly into supplier fulfillment systems and it can be integrated with SAP, Oracle, Ariba and other e-procurement tools on the customer side.

The biggest win, however, is increased employee adoption of approved purchasing processes. U.S. companies are losing nearly a quarter of every dollar they spend due to "maverick" purchases that miss out on favored pricing and terms, according to recent study by AberdeenGroup. "We're driving user adoption because we've converted a cumbersome business-to-business procurement application into a business-to-consumer application that is similar to what people are used to when buying on the Internet," Needs explains.

American Express' other S2S service is Contract Audit & Recovery, which matches contract and accounts payable information from the customer against billing information from suppliers to identify transactions that are out of line with contracts and service level agreements. The Audit & Recovery team then works with the customer to recover funds and restructure contracts to maximize accountability.

"At American Express, we audited $1 billion in spend with 77 suppliers in nine categories and we recovered $55 million as a result," says Needs. "Many companies see 12- to 15-percent recovery rates."

CatalogPro charges can be assessed per transaction or as a percent of expenses managed while Contract Audit & Recovery service payments can be based on contingency fees or a percent of fees recovered. S2S is the new identity of the e-invoice and e-payment business of Atlanta-based Harbor Payments, which was acquired by American Express late last year. The procurement and sourcing market is expected to grow 8 percent per year through 2011, according to AMR Research, and market leaders include Oracle, SAP, Accruent and Dun & Bradstreet as well as American Express S2S.

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