Procurement and Travel

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When Procurement and Travel Merge
Grand Salon Tuesday Apr 30th9.15-10.15
Sponsored by
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When Procurement and Travel MergeA Foundation
for Success
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Scott Gillespies Background

• Founded Travel Analytics in 1999
• Developed TANGO for airline sourcing projects
• Analyzed in excess of 10 Billion of annual air
  spend
• Clients include Coca-Cola, Dell, ExxonMobil,
  Ernst Young, Hewlett-Packard, Invensys,
  Microsoft, PricewaterhouseCoopers and Saint
  Gobain
• Recipient of ACTEs Industry Professionalism and
  Distinguished Fellow honors
• Named by Business Travel News as one of the
  travel industrys most influential executives
• A.T. Kearneys expert in strategic sourcing of
  travel suppliers from 1994 -1999
• MBA, University of Chicago

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Todays Agenda

• The trend toward merging Travel and Procurement
• What does each side bring?
• Where are the inevitable conflicts?
• What are the solutions?
• Best practices for integrating Travel and
  Procurement

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The Merger of Travel and Procurement
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Travel is not a commodity right?
We Could Be Talking About
Travel
or Health Benefits
or Advertising
or Enterprise Software
or I.T. Consulting
Travel isnt as different as we might think
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Managing major expense categories
Travel fits this model
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Travel Management Stages of Excellence
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Common travel management problems how do you

• Minimize transaction costs?
• Control purchases at point of sale?
• Maximize suppliers price competition?
• Maximize buyers purchasing volumes?
• Enforce travel policy compliance?
• Make faster decisions about supplier bids?
• Agree to realistic supplier goals?

Predominantly procurement problems
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Applying Strategic Sourcing to Travel
Application To Travel
Strategic Sourcing Technique
1. Consolidate expense data 2. Determine
specifications 3. Enable concentrated
purchases 4. Motivate the suppliers 5. Obtain
best prices 6. Enforce new supplier agreements 7.
Track and measure savings
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Recent changes are driving a new travel
management model

• Loss of commission and override revenue makes
  travel another cost center
• Travel industry has become more complex
• Growth in travel-specific B2B technologies
• Web fares
• Self-booking tools
• Online auctions
• Strategic sourcing works in the travel category

Senior managements conclusion
Travel can be managed like other categories
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What Does Each Side Bring?
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Common Procurement Strategies

• Quantity/price leverage
• Strategic sourcing
• Cost of Quality analysis
• Product/component rationalization
• Total or lifecycle cost minimization
• Joint cost reduction joint process improvement
• New supplier development

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Procurement brings these skills

• Understand the business goals
• Identify the procurement objectives
• Develop and administer RFI, RFP, RFQs
• Evaluate current and prospective suppliers
• Negotiate favorable terms
• Contract administration
• Supplier development

Process expertise
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Why Travel Is Different

• Travel is a very large budget item
• Travel is a perishable service with high fixed
  costs
• Travel pricing is complex
• Travel affects most of your employees
• Travel has a very high WIIFM factor
• Whats In It For Me?
• It can be very hard to control the buyers
  selection
• Everybody is a buyer of travel and a travel
  expert!

No other expense category has these combined
characteristics
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Travel brings in-depth knowledge

• Supplier strengths and weaknesses
• Supplier track records
• Emerging technologies
• Management best practices
• Travel economics and pricing
• Traveler needs and behavior
• Cause and effects

Category expertise
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Where Are The Inevitable Conflicts?
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The procurement-based travel management model

• Buy the specified quality of travel
• Set guidelines for purchasing
• Evaluate supplier quality and cost
• Manage selection process
• Negotiate contracts
• Quantify potential savings

• Manage travel agency
• Implement new programs
• Implement new technology
• Manage supplier performance
• Manage travel policy compliance
• Resolve traveler problems

Each team has very different goals
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Travel and Procurement models

• Win by controlling the spend

• Travel policy compliance
• Spend and data consolidation

• Negotiations and contracts

• Can we move the business?

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Not off to a good start
Travel
Procurement
Make realistic commitments
More volume means better prices
Avoid mutiny
Theyll buy what we tell them
Just a formality
MUST be signed
Will they ever walk their own talk?
Well save so much, well be heroes
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The Travel vs. Procurement Dilemma
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What Are The Solutions?
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Its not as hard as we might think
Carpeting Coal
Laptops Temp Labor
I.T. Outsourcing Advertising
Cars Hotels
Agencies Airlines
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Four major requirements

• Involve senior management
• Agree on a value framework
• Use cost/quality decision curves
• Align Travel and Procurement goals

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What does senior management want?
Traveler Satisfaction
You cant succeed without knowing the answer
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3 Key Questions for Senior Management

• Travel Budgets how much should we spend?
• Travel ROI guidelines
• Accountability
• Travel Policy how do we want to spend it?
• Quality of travel
• Traveler behavior
• Enforcement
• Travel Procurement who should we spend it with?
• Cost versus quality
• Sales reciprocity, e.g. the airlines are our best
  customers
• Contractual commitments what can we honor?

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Agree on a value framework

• Value is often defined as Quality/Cost
• Agree on major quality components and weights,
  e.g.,
• Nonstop versus connections
• Full-service versus extended stay
• On-site versus call center
• Car availability
• Define cost
• Total expected cost versus purchased cost
• Cost of employee time?
• Switching costs?

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Agree on major quality components
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Comparative worksheet  Airlines
10 Industrys best 1 Industrys worst
Traveler Productivity

• Agree on whats important
• Keep it simple

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Use Cost/Quality Decision Curves
Switch to new supplier
100K
If the quality is equal, how much savings are
needed to switch to the new supplier?
If we want 15 more quality, whats the most
wed pay a new supplier?
(100K)
How much do we have to save to justify a 15
reduction in quality?
Stay with incumbent
(200K)
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Align Travel and Procurement Goals with the D/P
Dashboard

• D/P Delivered to Promised (e.g., market
  share, room nights, segments, rental days, etc.)

D/P Score 77 125 105
Airlines AA CO DL
Ideal D/P score is 100
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D/P Dashboards are informative

• The best D/P score is 100
• Delivered exactly what was promised
• D/P scores above 100 mean money left on the
  table
• D/P scores below 100 are red flags
• Overly aggressive sourcing promises?
• Traveler resistance?
• Travel policy compliance issues?
• Supplier quality issues?
• Supplier contracts in jeopardy?

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A strong travel policy is vital
Better Control At The Point of Sale
More Supplier Options

X
HIGH
Strategic sourcing
Point Of Sale Control
BEFORE
LOW
FEW
Supplier Options
MANY
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Airline Supplier Options Under a Weak Travel
Policy

• Continental

Newark
Houston
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Airline Supplier Options Under a Strong Travel
Policy

• Continental

• Delta
• American
• Northwest
• United

Newark
Houston
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Best Practices For Integrating Travel and
Procurement
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Common travel management problems how do you

• Minimize transaction costs?
• Control purchases at point of sale?
• Maximize suppliers price competition?
• Maximize buyers purchasing volumes?
• Enforce travel policy compliance?
• Make faster decisions about supplier bids?
• Agree to realistic supplier goals?

Predominantly procurement problems
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Integrating Travel and Procurement The Seven Cs

• Communicate and educate
• Corner senior management
• Clarify the travel policy
• Control the point of sale
• Contract with integrity
• Create D/P dashboards
• Collaborate with your preferred suppliers

Procurement and Travel A Powerful Partnership!