Wrangling a commercial card portfolio can be tricky, but it isn’t rocket science – unless some of your cardholders are rocket scientists. That’s the case at defense giant Lockheed Martin, where Rick Swartwood, senior finance manager, and a staff of eight ride herd on more than 2.5 million transactions a year across multiple continents.

A commercial card portfolio of that scale offers considerable cost-saving efficiencies and revenue-sharing potential. But with 90,000 cards distributed among 136,000 employees at four business units worldwide, the potential for cardholder misuse is also a potential risk. Organizations, particularly large companies, have long struggled to strike a balance between a desire to grow the upside potential of their commercial card programs and the need to rein in possible misuse. Last year, Swartwood and his team were tasked with ensuring Lockheed Martin is doing both.

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LOCKHEED MARTIN CO.

Headquarters: Bethesda, MD
2009 sales: $45.2 billion
Employees: 136,000
Active commercial cards (travel, meeting, fleet, purchasing): 90,000
2009 transaction volume: 2.5 million 

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Security and internal controls have always been top priorities at Lockheed Martin, which ranks in the top quartile of its peer group for controlling commercial card fraud. But even one improper transaction is one too many, Swartwood told practitioners in May in Dallas at Fusion 2010, the annual conference hosted by International Accounts Payable Professionals (IAPP) and its sister organizations, International Accounts Receivable Professionals (IARP) and The Association for Work Process Improvement (TAWPI).

“Control first – that was our mandate when we started this project a year ago,” he said. “You want to grow your process, but you need to ensure your control environment is sound and effective. We’ve spent the past year focused on automating our controls and reducing process variability.”


Step 1: Cards are cards are cards

As a multinational company with multiple business units that have differing business systems and operating philosophies, consistency was a challenge. Lockheed Martin addressed this challenge by bringing all card operations – p-card, travel, meeting, fleet – together into a single organization based in Lakeland, Fla. The change in organizational structure has allowed the individual Lockheed Martin businesses to redeploy those resources that had been tasked with various aspects of commercial card activity. In the end, the eight-member commercial card operations team will likely be able to take on the work that previously involved 20 to 25 employees across the corporation, while actually increasing the capacity to process and monitor card transactions.


Step 2: Real-time early warning

In their quest for “controlled growth,” Swartwood and his consolidated card team found that automation presented both an opportunity and a threat. Expanding the company’s various card programs, particularly p-cards, would allow them to reduce the number of checks and purchase orders that had to be routed through the company and vendors would get paid faster. But streamlining the purchase order process also had its drawbacks.

“The biggest risk or concern is fear of someone doing something wrong with a card that can damage Lockheed Martin’s reputation,” Swartwood said. “We’ve heard stories about people buying cars and sponsoring race teams. At Lockheed Martin, we want to be squeaky clean. We call it ‘The newspaper test.’ We strive to stay off the front page of the newspaper.”

For a minimal technology investment in ACL software, Lockheed Martin, which is now in the beginning stages of implementing its card program on an SAP platform, was able to add near-real-time audit analytics that flag suspect transactions for further review and send a message to card users asking for additional information.

“We want to let employees know the activity is being monitored,” Swartwood said. “When you make a purchase, and within 24 hours you’ve got a message from commercial card operations asking for details, that makes a powerful and lasting impression.”

Step 3: Compliance/data capture

By using p-cards in place of procurement-based purchase orders, Swartwood estimates Lockheed Martin can avoid an average of $80 in costs per transaction. And with more than 600,000 p-card transactions a year, this cost avoidance is considerable.

As a multinational company and defense contractor, however, Lockheed Martin is required to verify that the vendors it uses are not subject to sanction by the Office of Foreign Asset Control, the federal agency tasked with enforcing sanctions against terrorists and drug traffickers. The corporation is also required to track the amount of money it spends with small and disadvantaged businesses – valuable information for the company that is not easily identified. And, frankly, point-of-purchase data capture doesn’t provide a very good picture of specifically what was purchased and why, Swartwood said.

Lockheed Martin’s solution was to create a “procedural purchase order.” The corporation partnered with BizAps, a software provider, to create a new cutting-edge approach to p-card program management. The result is the Xi-Buy Purchase Order Portal, which essentially acts as an online expense log designed to capture vital information and assist in the reconciliation process. 

“We have essentially taken the typical cardholder effort that is required to log a p-card purchase, put it online, and created a valid SAP purchase order,” Swartwood says. The portal serves as a vital bridge between the fast and efficient world of automation and the ongoing need for critical business information. By integrating the XiBuy PO portal with Lockheed Martin’s procure-to-pay SAP operation, they minimized some of the typical p-card inefficiencies such as accuracy of vendor, 1099, and sales and use tax data while at the same time clarifying their p-card spending data. They have also integrated this with their mainstream procurement spending data in SAP.


Step 4: Growth

Although cards may be similar from a processing standpoint, the difference is apparent in growth potential. While fleet, meeting, and travel cards have been around for years and have reached a level of saturation and maturity, there is still substantial opportunity for growth in the use of p-cards. With the new systems and processes in place, Swartwood says, the company is now focused on driving more purchases away from purchase orders and moving them to p-cards.

To that end, Lockheed Martin has recently introduced the Visa purchase order settlement process. This allows the corporation to settle procurement-related purchase orders with its supply base using Visa in an all-electronic and secure fashion.

In short, Swartwood said, this project has allowed Lockheed Martin to reap significant efficiencies through automation and the consolidation of processes, and it has positioned the company to meet its objective of maximizing the commercial card value proposition while minimizing commercial card risks. With minimal but focused technology investments and some out-of-the-box approaches, Lockheed Martin has transformed the way it handles commercial card business.

But the real success is that Lockheed Martin was able to deliver all of that while maintaining strong internal control, Swartwood said. “We’re really proud of that.”