Procurement Involvement In Travel Buying Rising As Corps. Eye Value

By Jennifer Merritt for BTN Online

OCTOBER 09, 2006 -- The percentage of companies in which travel buyers work with, or report directly to, procurement departments has risen dramatically in the past five years, as a couple of mega agencies claim procurement is involved in about half of the decisions made by their clients.

Procurement's involvement in travel in the past has ebbed and flowed with industry's fluctuations between buyer's and seller's markets. As 2007's seller's market tide rises, history predicts procurement's influence over travel would wane, as objectives for many travel programs shift from getting the best price to getting the best value.

When procurement departments and practices began a rapid increase in involvement in travel about five years ago, buyers at first felt threatened. A BTN story regarding a rise in the use of procurement practices drew a petition from travel buyers protesting the coverage of the phenomenon (BTN, March 26, 2001).

Many buyers feared procurement would convince their companies that travel is a commodity, and then try to buy air, hotel and car rental services as they would paper clips: at the lowest price. Today, many buyers report that tension has faded as their procurement counterparts acknowledge the importance of service in making travel decisions and how service can be furthered through networking relationships—not just with suppliers, but with travelers as well. "A good procurement department sees early on that travel is not freight, it is not print materials, it is very different," said Kay Steele, senior manager of global travel services at toy maker Mattel, whose travel department has worked with procurement for the past two years. "In the beginning, that was my concern. However, we have a very intuitive procurement department, and they saw travel was a unique commodity from the beginning, which is why we work well in a partnership role versus going for the bottom line only. Travel is something very personal to people. Their time is very important, and we still believe the quality of a trip adds to the bottom line."

"The tough part was the friction that developed in the beginning," said Mark Williams, vice president of BCD Travel Consulting. "On the other side of the coin, procurement has brought a lot of good processes and a tighter running of the ship to the whole travel management process."

For many, having travel and procurement together makes sense. "Travel is typically your number-two or -three expense line item on a balance sheet and when there's that much activity or spend, even a small percentage of savings can represent a lot of absolute dollars," said Steven Howell, senior procurement category manager for the Compass Group, the Americas Division.

Procurement's influence on travel is mainly evident in key performance indicators and service-level agreements, BCD's Williams said, noting that though SLAs always existed in the travel agency environment, they've been expanded into other areas as well. "There's more focus on timely and accurate delivery of data than there was in the past," he said. "Travel managers always focused on data, but it may well be that the involvement of procurement has heightened that need."

New metrics may include methods to determine whether a corporation is getting the deal it signed. Judy Shannon, worldwide strategic sourcing manager at Santa Clara, Calif.-based antivirus software company McAfee, said purchasing managers are used to putting business objectives to numbers.

"You don't get many travel managers who say, 'I'm going to look at how many times we didn't get into this hotel and why,' " she said. "It's really a matter of taking and gathering the data and turning it into useful information. That's the advantage of purchasing helping travel."

That advantage is working to suppliers' benefits as well, said Kerin McKinnon, executive vice president of Milford, Mass.-based Atlas Travel. "In the bids we're receiving, procurement is bringing fairness, a commonsense approach, a much better adherence to timelines and more practicality," she said. "Overall, they provide more data on bids than in the past, which only allows for the supplier to provide a more credible response."

Likewise, it allows the travel manager to make a better decision, said Mattel's Steele, noting that the most valuable thing procurement did for her travel program was turn requests for proposals into side-by-side comparisons. "There are hidden costs and there are different ways of wording what each cost is for and it can be confusing," she said. "In the end, we were really comparing apples to apples with each agency and each tool."

Procurement managers even are putting their own spin on negotiations. For example, rather than set a standard service-level agreement on lowest fares with its travel management company, American Express, Colleen Guhin, strategic sourcing manager at Phoenix-based ON Semiconductor, runs an audit every two or three years to make sure she's getting the lowest fare at all times. "I have an agreement with American Express that if they reach a certain percentage positive on the audit, I'll pay for it," she explained. "If they're midrange, we split the costs. If they're below that, they pay for it. It's kind of an SLA in its own right, because with air being the biggest portion of my spend at about 50 percent, getting the lowest fare is my key parameter."

Procurement's involvement also brings a visibility to travel it may not have had before. "Procurement brings structure to how travel is managed through more data and reporting tools, so you can capture savings and report back, giving you more exposure to top management," Guhin said.

Even technology companies have acknowledged procurement's influence on travel programs, responding with capabilities that measure data to help drive savings. "A lot of the travel originally produced in the travel space was about producing a quality trip for the traveler, now it must demonstrate its return on investment on producing that quality trip," said Alan Minton, vice president of marketing for travel management technology-company Cornerstone Information Systems. "Saying that I made it really easy for you to book a trip is important, but what was the value besides the nice trip? All of us that make technology need to keep that in mind in addition to usability, otherwise it's just cool technology."

Minton pointed to one client that sought to identify how many airline tickets were not being used annually to get a handle on hidden dollars. "We analyzed their U.S. travel spend using a ticket-tracking component of our data warehouse and what we found was they had $846,000 of unused tickets," he said. "That's not unusual with $40 million in spend, but that what was on the table. Now you see how procurement plays a role in that: They see that as cash on the table now."

Procurement may have a more concrete influence over travel in terms of using data, but travel's more holistic influence on procurement practices is not lost either.

Dennis Bent, vice president of operations and strategic sourcing at BAE Systems Inc., gained responsibility for travel in 2001 and set up teams to cover such segments as air, hotel, car rental and credit cards.

"I pair one procurement person with one finance person on each of those strands and I hold both of them responsible for the performance of their strands," Bent said. "Our focus has moved from lowest price to best value. The travel folks are typically responsible for policy and we look at the best arrangement that we can strike with our supply base based on that policy."

In fact, many buyers and procurers now see the benefit of working together extends beyond more comprehensive KPIs and SLAs. "The one reason it works here is that purchasing and travel sit right next to each other," said McAfee's Shannon. "My team gets to hear the travelers talking to the travel people all the time and vice versa. It allows us to see similarities and ways to handle different approaches. We're constantly feeding off each other. We don't even consider ourselves different departments."

Fostering such relationships can be difficult in a large multinational program, however, cautioned Maria Chevalier, vice president of business intelligence for BCD Travel Consulting. "With global clients, there isn't always the ability to walk down the hall," she noted. "You have to think of innovative ways to build those relationships and have a better understanding of what one another wants to accomplish."

According to Chevalier, the key to managing travel and procurement teams that may be in different states, or even separate continents, is to ensure ongoing dialogue. "Go into specifics of how you procure around the globe and decide how you will leverage the understanding and experience of procurement with that of a travel organization," Chevalier advised. "Between the two departments, the merging of the minds has made the better way to measure. They've come out with something that is stronger."