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MasterCard Best Practice
Case Study - Harvard University
A T - A - G L A N C E
Harvard’s GE MasterCard
Corporate Purchasing
CardTM delivers a range of
benefits such as expense
reduction with improved
efficiency, tighter cost
control and saved manhours:
• Ease of use and improved
productivity for employee
• Reduced bank fees
• Reduced check costs and
related invoice processing
costs
• No rework- 100% first
pass yield
• Improved employee
satisfaction
• Decreased cycle time -from 22 days to 2 days
• Enhanced supplier
relationships -reimbursement within
48 hours
• Enhanced data capture
and more accurate
accounting information
• Accelerated purchasing
process
• More efficient A/P team
-- 30% reduction in check
issuance
• Fewer vendor records
added to the ERP system
• Less activity in the customer
service group regarding:
problem resolution - 20%
reduction in supplier calls
www.mastercard.com/gov
GE Capital's implementation
of the MasterCard Corporate
Purchasing CardTM solution at
Harvard University has
resulted in direct cost savings
for the organization, greater
employee productivity,
enhanced efficiency, improved
supplier relations, reduced
rework and improved cycle
times. The GE Capital
MasterCard Corporate
Purchasing Card has helped
the university more effectively
manage and control its
payment processes.
Harvard University, founded
in 1636, is the oldest educational institution in the United
States.
The university currently has
more than 18,000 enrolled students with approximately
13,000 more students attending one or more classes at the
Harvard Extension School.
There are 10 graduate and
professional schools with
more than 2,000 faculty, and
approximately 7,000 more
faculty appointments in various
affiliated teaching hospitals.
Overall, there are 14,000
employees.
The GE Capital
MasterCard Corporate
Purchasing Card
has helped the
university
more effectively
manage and control
its payment
processes.
Harvard is managed as a
decentralized organization
with a Dean appointed by
each school’s President. The
Dean is responsible for managing his or her respective
organization. Every individual
business unit or school
deploys its own purchasing
activity; although there is a
central Procurement
Management group responsible for supplier consolidation
and vendor certification. This
centralized group is also
responsible for the overall
management of suppliers and
the leveraging of vendor
relationships for the greater
good of the organization.
Management group wasted a
lot of time in rework and
troubleshooting.
Approximately 80% of the
vendor payments made by
Harvard University were for
less than $500. Yet this high
The Problem
transaction activity accounts
for only 9% of total spending;
currently $700 million annually; excluding salary and
benefits. Approximately
46,000 transactions are still
processed by Accounts
Payable each month. These
transactions consist of faceapproved invoices, local (or
site) purchase orders, petty
cash requests, check requests,
and travel and expense reimbursements to employees.
Approximately 29 Accounts
Payable staff are required to
process these 552,000 annual
Harvard had a number of
payment issues, including
high administrative costs for
processing low-value payments, long payment cycle
times and strained supplier
relations.
Supplier payment was slow.
It was difficult for suppliers
to track down their invoices
to expedite payment because
of the decentralized environment and the cumbersome
accounts payable processes.
Suppliers, Accounts Payable
and the Procurement
Harvard had a
number of payment
issues, including
high administrative
costs for processing
low-value payments,
long payment cycle
times and strained
supplier relations.
transactions.
Like many organizations,
many of Harvard University
suppliers are only paid once.
Yet even one-time suppliers
require considerable effort,
time, and cost to create the
vendor record in the
accounts payable system.
Petty cash is also available
and used, but is not encouraged as a payment process.
Less than $50,000 is funded
in petty cash at any given
time.
In addition to these issues,
a new ERP system was being
implemented. Oftentimes,
payments were delayed due
to efforts devoted to this project. A sizeable backlog of
invoices was quick to appear.
To complicate matters further
for accounts payable, the
travel and expense program
was revamped and reimbursements to employees
were slowed as well. In
short, there was a bottleneck
in accounts payable processing activity.
The Solution
The GE MasterCard
Corporate Purchasing Card
program was championed by
the central Procurement
Management group as a way
to solve the payment issues.
It was not mandated by the
University because of the
decentralized organizational
structure but positioned as a
tool that could help all of
Harvard's schools effectively
deal with their payment processing.
Every Harvard employee
who purchases goods and
services on the job is issued
a GE MasterCard Corporate
Purchasing Card. By using
the Corporate Purchasing
Card, most purchases are
“defaulted” to the appropriate
pre-determined general
ledger accounting lines,
requiring little more than a
review and quick edit if necessary. Items such as testing
materials, Federal Express
shipping, materials for executive education programs,
meeting costs, office supplies
and scientific supplies are a
few examples of purchases
made with the Corporate
Purchasing Card. Employee
convenience and ease of use
has encouraged continued
issuance of the Corporate
Purchasing Card throughout
the organization. Word of
mouth endorsements and
favorable experiences with
the Corporate Purchasing
Card drives usage and draws
in new cardholders regularly.
There are very few vendor
exclusions on purchasing
card usage at Harvard
University. Cardholders are
strongly encouraged to
review their transactions and
edit any accounting information prior to the general
ledger update. All cardholders are encouraged to use
“certified Harvard University
(suppliers) partners” whenever possible. Spending on
the card was originally
focused on small dollar transactions less than $500, but
many cardholders now have
single transaction limits of
$1,000 or $2,500. Most new
cardholders are now encouraged to assume a single
transaction limit of $2,500.
Monthly limits vary, but most
monthly limits are within the
$40,000 - $50,000 range, with
$100,000 currently at the
upper end.
The GE MasterCard
Corporate Purchasing Card
was actively promoted at all
levels of the University
administration as a simple
and effective means of paying vendors that would take
the pressure off the new ERP
and travel systems until they
were stabilized. An active
campaign of face to face
meetings from early adopters
promoted the acceptance and
usage of the Corporate
Purchasing Card.
Also important to the purchasing card program growth
was the fact that technology
was widely available and utilized throughout the organization. The GE MasterCard
Word of mouth
endorsements and
favorable experiences
with the Corporate
Purchasing Card
drives usage and
draws in new cardholders regularly.
Corporate Purchasing Card
obtained strong executive
support as the preferred settlement tool for low value
payments (defined as payments $500 or less) as
Harvard University re-engineered their business processes, introduced their ERP
system, and revamped their
employee travel and expense
reimbursement system. In
addition to being closely
associated with these re-engineering efforts, regular communications about the GE
MasterCard Corporate
Purchasing Card contributed
to its success.
The Implementation
Prior to ERP system implementation, all business practices were examined and
evaluated. This review
enabled the purchasing card
concept to gain a foothold as
the preferred purchasing and
payment tool for low value
payments. The GE MasterCard
Corporate Purchasing Card
was communicated to executive management as a means
of controlling the cost of
higher education by reducing
administrative cost.
Effectively communicating
the advantages of the
MasterCard Corporate
Purchasing Card solution to
each employee was critical
since there was not a “hard
mandate” for usage. The
Procurement team relied
heavily on GE Capital’s experience with purchasing card
programs. Word of mouth
and face to face meetings to
“sell” the purchasing card
solution were used exten-
sively to ensure “buy-in” by
all stakeholders.
Effectively communicating
“GE Capital incorporates a
the advantages of the
consultative, team-focused
MasterCard Corporate
approach to solving business
problems,” explains GE
Purchasing Card solution
Capital's Bill Hoyt. “This
to each employee was
means that cost savings and
critical since there was
efficiencies are maximized as
soon as possible.” Utilizing a
not a “hard mandate”
disciplined approach to profor usage.
ject planning and execution,
GE Capital identifies opportunity areas. Various individuals Partnership Business Plans,
Six Sigma quality rigor, and
and teams from within the
other types of programs drive
business ensure timely and
the purchasing card initiative
proper account set up, roll
and ensure an overall quality
out, deployment, and ongoprogram accepted and used
ing account management.
by all targeted employees.
Chris Yule, the National
In addition, “action workAccount Manger servicing
outs” are also used to underHarvard University describes
stand the customer’s business
her primary role as “coordienvironment, develop
nating the numerous GE
“actionable work plans”,
Capital resources to my
accelerate the desired behavclient’s fullest advantage.”
ioral changes throughout the
From the customer’s perorganization, and ensure
spective, input on “how are
“buy-in” from all levels of
we doing?” is regularly
management. It is during this
requested. “Pulse” surveys
process that goals are set and
and other “voice of the cusmeasurement tools are
tomer” instruments continuselected.
ally monitor customer
Harvard University responded
satisfaction. If needed, adjustments are made immediately. favorably to the approaches
suggested by GE Capital.
Tools such as CAP, or
There was good synergy
Change Acceleration Process,
between the two organizations.
customer dashboards,
In particular, Hoyt says, “GE
Capital did an exceptional
job of communicating with
our suppliers and encouraging MasterCard sign up…particularly with Level III
upgrades.”
Procurement also developed dashboards and metrics
so that the GE MasterCard
Corporate Purchasing Card
usage could be measured
and reported, by an individual school, on a regular
basis. Updates about the
Corporate Purchasing Card
and suggestions for use were
shared via the Procurement
team’s newsletter. A policy
manual was created and
shared throughout the organization, but adopted and
revised by the individual
schools, as they deemed
appropriate. Volume, transactions, and spend against total
“opportunity” or potential
market share is reported
regularly to the schools'
Financial Deans.
The Results
The first GE Capital
MasterCard Corporate
Purchasing Card transaction
at Harvard University
occurred in November of
1997. Approximately 200
cards were originally issued
and about 500 transactions
were processed during this
first calendar year.
During this stabilization
period, the cycle time for
invoice processing dropped
from 22 days to 2 days for
invoices in the backlog
queue. Employee reimbursements were significantly
decreased because now the
Corporate Purchasing Card
was used in lieu of the travel
and expense program for
odds and ends purchasing.
Suppliers who accept the
GE MasterCard Corporate
Purchasing Card are now
reimbursed within 48 hours.
There was no rework or
additional cost required on
their part to collect monies
owed. Local merchants in
particular responded favorably to the purchasing card
and supplier relationships
were “much improved” in a
very short timeframe.
Suppliers are pleased with
the “guaranteed sale” and
prompt payment terms that
the GE MasterCard Corporate
Purchasing card offers.
Relationships with vendors,
particularly local merchants,
have significantly improved.
Accounts Payable no longer
is buried in overdue invoices.
A significant percentage of
the travel and expense reimbursement activity has been
eliminated through the
purchasing card use as well.
The number of checks issued
has decreased by nearly 30%,
significantly reducing processing costs and banking
fees.
A recent Harvard study has
shown that the cost of processing an invoice through
Accounts Payable was eight
times higher than the same
transaction processed through
the MasterCard Corporate
Purchasing Card.
In addition, the customer
service unit has experienced
a 20% plus decrease in supplier calls and no longer has
to work with employees to
resolve invoice discrepancies
and/or expedite late payments for purchasing card
transactions.
And the cost of creating
new vendor records has been
controlled. The staff in
Accounts Payable has been
re-deployed within the organization since the need for
processing activities has
slowed.
Although the purchasing
card was originally used for
all University spending less
than $500, there has been
growing interest in increasing
that threshold to $2,500.
E-commerce is quickly
emerging at Harvard
University as well, particularly with the vendor partnerships. According to GE
Capital's Hoyt “We view the
purchasing card as an important building block in our
buy-side B2B e-commerce
strategy.”
The experience of the
Kennedy School of
Government is typical of the
positive results that the
Purchasing card has
achieved: The school has
successfully converted 90% of
their low value transactions
to the GE MasterCard
Corporate Purchasing Card.
Purchases include office supplies, express mail, materials
for executive education programs, furnishings, and food.
One goal of the Procurement
team for the Corporate
Purchasing Card program is to
further reduce transactions in
accounts payable by yet
another 30%-40%. Assuming
each school participates at
the level of the Kennedy
School, this goal will be
quickly surpassed and
accounts payable will be
used to process the smaller
number of high-value payments where financial oversight and control is most
important. The 2000 goal for
total purchasing card dollar
volume is targeted at $6 million per month, approximately double the current
activity rate.
With the GE MasterCard
Corporate Purchasing Card,
Harvard University has benefited from direct cost savings,
improved supplier relations,
empowered employees,
enhanced productivity,
reduced rework, and
decreased cycle times.
Since its beginnings, the
purchasing card program has
grown significantly. During
the month of April 2000,
more than 18,500 transactions
occurred with a dollar volume in excess of $2.8 million. There are now more
than 3,000 GE MasterCard
Corporate Purchasing Cards
in force.
www.mastercard.com/gov
NOTES
Public Sector
Payment Solutions
Public Sector
Payment Solutions
For more information:
publicsector@mastercard.com
800.704.2390
or visit us at
www.mastercard.com/gov