NBTA Convention & Exposition | August 8-11, 2010
Houston, Texas
Travel Procurement
Workshop
Scott Gillespie
Author
Gillespie’s Guide to Travel+Procurement
NBTA Convention & Exposition | August 8-11, 2010
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Scott Gillespie’s Bio
Author of Gillespie’s Guide to Travel + Procurement
Founder and CEO, Travel Analytics
•
•
•
•
Managed 300+ airline sourcing projects
Analyzed $20 billion of corporate air spend
Clients included 40% of BTN’s Top 100
Sold firm to TRX
Author of a U.S. patent covering airline bid analysis
Former travel sourcing expert at A.T. Kearney
MBA, University of Chicago
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Today’s Topics
• Procurement – Who are they and what do they
want?
• Travel Procurement – What makes it different?
• The Magic Formula for Supplier Discounts
• Why Travel Procurement Starts with Travel Policy
• Modern Airline Sourcing
• Hotel Clusters and Modern Hotel Sourcing
• Group Exercise: Recognizing Good Deals
• Travel Policy War Stories
NBTA Convention & Exposition | August 8-11, 2010
3
What are these
procurement
people doing in my
travel program?
4
Why CEOs Like Procurement
100%
~ 60%
~
Purchased goods and services can
be more than half of a firm’s total
revenue
Reduced pricing falls
right to the bottom line…
25%
10%
5%
Total
Revenue
Salaries,
Purchased
Goods and Wages and
Benefits
Services
Taxes,
Depreciation
and Interest
…without
layoffs
8%
Profit
Profit
Before
After
5
How does Strategic Sourcing work?
Buyer
Buyer
Consolidated Suppliers
Fragmented Suppliers
6
What Are The Big Picture Goals?
Corporate Goals
More Revenue
Happier Customers
Happier Employees
Lower Costs
Travel Implications
• More Trips
• Lower Trip Costs
•
•
•
•
•
•
•
More Trips
Lower Trip Costs
Fewer Trips
Better Trips
Lower Trip Costs
Fewer Trips
Worse Trips
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The Procurement-based Travel
Management Model
Travel Category Manager
Sourcing Team
Operations Team
•Buy the specified quality of travel
•Manage travel agency
•Set guidelines for purchasing
•Implement new programs
•Evaluate supplier quality and cost
•Implement new technology
•Manage selection process
•Manage supplier performance
•Negotiate contracts
•Manage travel policy compliance
•Quantify potential savings
•Resolve traveler problems
Each team has very different goals
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Travel Sourcing Team
Travel Sourcing Team
Travel
Manager
Procurement
Finance
Consultant
9
Travel Council
Travel Council
Finance
HR
Sales
Ops
Procurement
Travel Sourcing Team
Travel
Manager
Procurement
Finance
Consultant
Travel Council’s roles
• Modify/endorse travel policy changes
• Provide guidance on supplier selection criteria
• Endorse sourcing team’s recommendations to senior mgt.
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Steering Committee
Strategic Sourcing Steering Committee
1st wave
C.F.O.
Chief
Procurement
Officer
1-2 Senior
Executives
Senior
Consultant
Travel
Council
P.C./Laptop
Council
Lab Supply
Council
Printed
Material
Council
Travel
Sourcing
Team
Steering Committee’ s roles
• Push hard for savings
• Remove organizational roadblocks
• Ratify supplier selections
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Procurement Manager 101
• Typically on a career procurement track
• Very process-based (often not category experts)
• Often handle multiple categories at a time, and/or
have sourced many different categories
• Skilled at dealing with stakeholders
• Know the value of placing FU&D into suppliers’
minds
• Want to make defendable recommendations
12
Myths about Procurement Managers
“They treat Travel like widgets”
• A few do. The rest want suppliers to believe that.
“It’s all about price”
• It’s all about value – credible value.
“They’ll gladly over-commit share”
• They do care about good contracts
– Pricing tied to volume or share makes sense
– Accustomed to price penalty clauses
• They don’t care about traveler opinions
– They understand the risk of non-compliance
13
Procurement’s Stereotypes of the
Travel Category
• Travel pricing isn’t rational
• “We spend $1 million with that supplier – we can
throw our weight around.”
• “We’ll form a buying consortia to get better travel
prices”
• Travel managers are too cozy with suppliers
– And coziness causes high prices
• Travel policy compliance shouldn’t be a problem
• Travel people sure like to hug a lot
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Ways to Work with Procurement
• Show that you understand the goals
– Savings and good value
• Understand Procurement’s role
– Delivering high-value contracts
• Focus on the core issues
• Qualified suppliers
• Enhanced savings
• Achievable contracts
• Defendable decisions
• Respect the procurement process
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Travel is not a commodity — right?
Common Points
We Could Be Talking About…
“It’s a significant expense category.”
“The spend is very hard to control.”
…Travel
“It touches most employees.”
… or Health Benefits
“You can’t just switch suppliers like
you can with office supplies.”
… or Advertising
… or Enterprise Software
“It really affects sales and/or
productivity— but you can’t
quantify it.”
… or I.T. Consulting
Travel isn’t as different as we might think
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Sourcing Complexity
Carpeting
Coal
Laptops
Temp Labor
I.T. Outsourcing
Advertising
17
Travel
Is a Signal
Category
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Q: Why is Travel Sourced?
A: Money and Politics
Money
• Travel budgets are soft targets – big and “easy”
Politics
• Travel is one of the most visible expense categories
• Great way to show the organization that senior
management is serious about change
– New policies and new suppliers
– “Supplier conditioning” is a strategy
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Lower
prices!
More
market
share!
travel
sourcing
made
simple
20
20
four challenges
21
21
every traveler
is an
expert
22
22
the WIIFM factor
23
23
buying
outside
is
easy
of corporate
24
24
lost
leverage
undiscounted
spend
lost data
lost
traveler
itineraries
25
25
26
26
Travel
Procurement
Starts with
Travel Policy
27
27
Travel Policies Impact Travel Spend
How
What
Who
Why
Purchase
Process
Quality
Specs
Preferred Consequences
Suppliers
•Pre-trip
•Cabin
•Air
•Booking
•Connex
•Car
•Payment
•Hotels
•Hotel
•Car size
NBTA Convention & Exposition | August 8-11, 2010
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Why Is Travel Policy So Important?
The price paid by a corporate traveler
Is determined by the supplier’s willingness to negotiate
Which is based on the company’s ability
to move market share between
suppliers
Which depends on the company’s
travel policy and its enforcement
Companies with weak travel policies
will never get the best prices
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The
Magic Formula
for
Supplier
Discounts
30
30
Discount Drivers: Profit Contribution
and Control of Spend
$1,000K
Profit Contribution
Cost to Serve
$200K
$500K
$100K
Worst Case
$800K
$400K
Minimum
Source: Gillespie’s Guide to
Travel+Procurement
Maximum
Supplier’s Revenue from an Account
NBTA Convention & Exposition | August 8-11, 2010
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What’s the Maximum Discount?
$1,000K
Profit Contribution
Cost to Serve
$100K
Negotiable
$100K
Worst Case
$500K
$100K
Maximum Discount
Worst Case
$1,000K
$800K
$400K
Minimum
Source: Gillespie’s Guide to
Travel+Procurement
$100K Negotiable
= 10%
Maximum
Supplier’s Revenue from an Account
NBTA Convention & Exposition | August 8-11, 2010
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Key Is To Increase The Min-Max
Contribution Gap
Profit Contribution
Cost to Serve
Buy
Highermargin
Inventory
Reduce
Spend
Reduce
Supplier’s
Costs
Buy
Lowermargin
Inventory
Minimum
Source: Gillespie’s Guide to
Travel+Procurement
Increase
Spend
Maximum
Supplier’s Revenue from an Account
NBTA Convention & Exposition | August 8-11, 2010
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Travel Policy’s Impact On A Trip’s Purchase Costs:
Diminishing Returns
C
O
S
T
Trip’s
Purchase
Cost
Source: Gillespie’s Guide to
Travel+Procurement
Weak
Very Strong
Type Of Travel Policy
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Travel Policy Impacts The Human
Capital Costs
C
O
S
T
Trip’s Human
Capital Cost
Trip’s
Purchase
Cost
Source: Gillespie’s Guide to
Travel+Procurement
Weak
Very Strong
Type Of Travel Policy
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Program Optimization Means Lowest Total Cost
The Policy Level Which
Minimizes The Total Cost
C
O
S
T
Trip’s Total
Cost
Trip’s Human
Capital Cost
Trip’s
Purchase
Cost
Source: Gillespie’s Guide to
Travel+Procurement
Weak
Very Strong
Type Of Travel Policy
36
Travel Procurement
Summarized
in Six Pictures
NBTA Convention & Exposition | August 8-11, 2010
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tight
travel
policies
traveler
support
38
38
standard
sourcing
tools
39
39
travel- specific
modeling
tools
40
40
credible
promises
41
41
credible
threats
42
42
walk the talk
43
43
Recognize
a good
deal
44
44
15 MINUTE BREAK
NBTA Convention & Exposition | August 8-11, 2010
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Recognize
a good
deal
46
46
Sourcing Options
Two key dimensions are Risk and Reward
• Reward = Savings
• Risk of failure is more subjective:
• Quality of products, services
• Policy management (traveler resistance)
• Relationship (risk of not working well)
• Strategic value (can offset other risks)
Sourcing Risks Must be Scored
47
Sourcing
Option
Risk Score
Quality
Policy Mgmt.
Relationship
Strategic Value
NBTA Convention & Exposition | August 8-11, 2010
Expected
Savings
Discount or
New Price
X
Projected
Spend
48
Sourcing Options for Dummies CEOs
Risk
“We
recommend
Option B, but
if you really
want C…”
High
C
A
<< Loss
<<Reward >>
B
Savings >>
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Illustrative Risk Scoring
1 = Very Low Risk
Quality of
Product/Service
Policy
Management
Relationship
Strategic Value
NBTA Convention & Exposition | August 8-11, 2010
……..
10 = Very High Risk
This supplier will consistently
provide excellent
product/service quality
……..
This supplier will consistently
provide inferior
product/service quality
Travelers will quickly and
strongly support this
supplier
Travelers will strongly avoid
this supplier
……..
Our stakeholders will benefit
from a strong, trust-based
relationship with this
suppplier
……..
Our stakeholders are unlikely
to have a good relationship
with this suppplier
There is a compelling
strategic advantage in
selecting this supplier
There is a big strategic
disadvantage in selecting this
supplier
……..
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Elements Worth Evaluating?
Quality of
Product/Service
Customer service
Upgrades
Ease of check-in, check-out
On time stats
Availabilty
Cleanliness
Food quality
Roominess
Health and Safety
Age of fleet or buildings
Traveler productivity
- GPS
- Internet access
- Meeting space
Other?
Policy Management
Relationship
Strategic Value
Supplier's popularity
Favorable pricing
POS tools, e.g. Self Booking
Pre-trip approval
Exception reporting
Our Sr. Mgmt.'s Use
Consequences
Per diem vs. Preferred hotels
Other?
Plays nice with our TMC
Effective account manager
Responsiveness
Solution-oriented
Constructive QBRs
Waivers and Favors
Trust
References, reputation
Other?
They buy from us
Common Board Members
We're growing in their markets
Their Green commitment
Supplier Conditioning
Supplier Development
Other?
NBTA Convention & Exposition | August 8-11, 2010
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Sourcing
Option
Risk Score
%
Quality
%
Policy Mgmt.
%
Relationship
%
Strategic Value
Expected
Savings
Discount or
New Price
X
Projected
Spend
100%
NBTA Convention & Exposition | August 8-11, 2010
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Travel Category Sourcing Scenarios
Sourcing Scenarios
Air
Hotel
Car
TMC
AA as Primary, DL as Secondary
UA as Primary, DL as Secondary
Marriott and Hyatt as Preferred
Starwood and Hilton as Preferred
Avis as Primary, National as Secondary
Hertz as Primary, Enterprise as Secondary
BCD globally
Amex in N.A., CWT in Europe
NBTA Convention & Exposition | August 8-11, 2010
Savings Risk (10 =
(K/Year) V. High)
6
$400
2
$200
$300
$300
4
4
$100
($100)
5
1
$75
($50)
7
4
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Category (e.g., Air) Sourcing Options Map
Risk
High
1
Apply
Logical
Elimination
<< Loss
7
2
5
3
6
4
<<Reward >>
8
Savings >>
54
Sourcing Options Map
Inferior Options
Risk
High
1
<< Loss
Superior Options
7
2
5
3
6
4
<<Reward >>
8
Savings >>
55
Which Option Do You Recommend?
Risk
High
What does
senior
management
really want?
7
4
<< Loss
<<Reward >>
6
Savings >>
56