Dominion Resources director of travel and corporate services Donna Kelliher likes to challenge the status quo, and her intuition, coupled with savvy implementation of Six Sigma analysis, has shaken some of the holiest of sacred cows in business travel. Booking air travel in advance always saves money? Not. Using nonrefundable fares always save money? Nope. These guidelines work for many companies and in many markets, but Kelliher's research proved they do not always work, shattering the assumption that such general rules are so solid they might as well be mandates.
Kelliher is a Green Belt in a firm full of Six Sigma adherents. From the interns on up, every member of her department is required to take basic Six Sigma training and earn their Blue Belts.
However, along with her skepticism of industry maxims and norms, Kelliher doesn't think Six Sigma applies to everything. Ascertaining what requires the most rigorous analysis is a big part of her job. Kelliher also does not presume that only Six Sigma has answers. Clearly, she said, organizations that do not use the methodology can examine data to unearth bad processes.
But in a company like Dominion Resources--where, Kelliher said, "it's in our DNA"--Six Sigma offers a kind of brand awareness that brings integrity to unpopular policies, support for counterintuitive conclusions and buy-in from frequent travelers (perhaps every firm's most skeptical population).
Company:: Dominion Resources, energy company with customers in 11 states, headquartered in Richmond, Va.
Volume:: about $30 million in annual T&E
Challenge:: Delve deep enough into company practices or long-held industry guidelines to identify the root cause of higher than expected costs and how to reduce them
Approach:: Use Six Sigma analysis to identify and develop ways to correct process deviations that cause defects
Solution:: Revised policies, expanded traveler communications
Developed more than 20 years ago by Motorola as a "metric for measuring defects and improving quality," Six Sigma has "evolved to a robust business improvement methodology that focuses an organization in customer requirements, process alignment, analytical rigor and timely execution," according to Motorola. "Six Sigma has literal, conceptual and practical definitions. At Motorola, we think about Six Sigma at three different levels: as a metric, as a methodology [and] as a management system. Essentially, Six Sigma is all three at the same time."
Launched as an effort to reduce flaws in manufacturing, Six Sigma can apply to a variety of business processes. One of the most important criteria for employing the methodology is determining the availability of quality data. A process lacking good data is not worth challenging with Six Sigma, Kelliher said.
"In this business, data typically abounds for anything that I manage," she said during an interview last month. "The problem is the different sources you get that from. A lot of times you have three or four data sources, and consolidating that has been a challenge."
"I can remember the days when we were talking about a $25 fee for changing a ticket, and here we are at $150. Pretty soon we will be at 50 percent of your average ticket price."
Six Sigma projects often team a Black Belt, who is highly skilled in applying statistical analysis, with a subject matter expert like Kelliher. The determination of what makes for a good Six Sigma project sometimes depends on areas of expertise. For example, Dominion rejected a suggestion to employ Six Sigma to analyze car pooling, not because it was a bad idea, but because no specific department managed it.
Kelliher's group has employed Six Sigma to reconsider and analyze several processes and dynamics: the aforementioned analyses of advance purchase and nonrefundable fares; compliance to preferred hotel policies; 24/7 travel agency services; and value added tax reclaim. Kelliher said she also is considering an "express" project examining airline contracts. Full Six Sigma projects typically involve four to six people and take several months; express initiatives can be completed in a few weeks.
Agitating Air Adages
While some projects lead to immediate policy changes and results, they also can require ongoing attention and updates. Kelliher found that was the case with her challenges of the long-held airline ticketing maxims.
Average Domestic Fares By Advance Purchase, First Half 2008 (US$)
|4 -7 days||$594.00|
|8 -14 days||$503.00|
Source: Dominion Resources
Kelliher in May told attendees at an Association of Corporate Travel Executives conference that nonrefundable airfares and their associated ticket exchange expenses cost Dominion more than refundable fares. The firm's analysis had found that 20 percent of exchanged tickets were exchanged multiple times, and 40 percent of exchanges occurred on tickets outside advance purchase guidelines (meaning too far in advance).
Between 2005 and 2007, Dominion's exchanged tickets, which initially were purchased more than 60 days in advance, incurred an average exchange cost of roughly $170, compared with less than $140 for tickets purchased within seven days, according to Kelliher's presentation. Therefore, Dominion aimed to reduce all domestic airline ticket exchanges by 70 percent.
Dominion had found that its travelers changed tickets at least twice more than half of the time. "There were a lot of things we determined from the travel management company side in terms of policies and how things should flow that were not necessarily aligned with what I thought they should be," Kelliher explained. The TMC, for example, generally issues tickets by the end of the day on which travel reservation requests are submitted, "even if [they're] 20 or 30 days in advance."
After examining data, scrutinizing transaction cycles and monitoring TMC ticket issuance processes, Dominion found that "the final result is we would really be better off purchasing refundable tickets, even if they do have a premium," Kelliher said.
That's not only because such tickets don't incur change fees, according to Kelliher's presentation, but also because they don't have "routing restrictions." Refundable tickets also "eliminate expense processing of multiple tickets [for the] same trip," improve travel agent productivity and provide such traveler benefits as better seat selections and/or upgrades.
On Dominion's domestic air routes, the difference in the average ticket price between a zero- to three-day advance purchase fare and 90-day advance purchase fare during the first half of this year was $168. The ATP difference between 15-20 day APs and 21-45 APs was nearly $52, and between 15-20 and 61-90 days was almost $81. The savings opportunity increases as a result of the added costs of $150 airline ticket exchange fees, which are not applied to refundable fares, plus associated agency transaction fees.
Tickets Purchased By Days In Advance
Source: Dominion Resources
Dominion reported zero tickets purchased more than 90 days in advance.
"I can remember the days when we were talking about a $25 fee for changing a ticket, and here we are at $150," Kelliher said. "Pretty soon we will be at 50 percent of your average ticket price." Regarding the analysis of advance purchases--unveiled in 2006 during a National Business Travel Association event and profiled later that year in this magazine ( Procurement.travel, December 2006
)--Kelliher last month said she has met her goals, thanks in large part to Master Black Belt Brad Hanks, her partner on the project. "As of July, 59 percent of our tickets are now purchased within 14 days, and 28 percent within 30 days. There are no outliers past the 90-day mark," said Kelliher. Back in 2006, she had found "that there was no financial advantage to booking airline tickets greater than 20 days in advance," and purchasing too far in advance was actually adding more than $100,000 in exchange fees to the company's travel costs.
Dominion now is seeking to "validate the consequences" of and the "visibility into" expiring nonrefundable tickets, Kelliher said. "Every time I see a report telling me how many tickets expired this month because they haven't been applied to travel for a variety of reasons, that's too many dollars and it's a consequence of a) purchasing too far in advance or b) purchasing a nonrefundable ticket. Maybe the traveler didn't anticipate a change. We're thinking about placing an approval process around it and putting in a fare limit on nonrefundables, because the more you spend on a nonrefundable, the harder it is to apply it to another ticket and your average ticket price rises. Our ATP has risen with the airfare increases, but has not suffered as a result of our changing the policy."
Hotel Compliance And Other Studies
A 2004 Six Sigma travel project at Dominion sought to answer the question, "What does compliance mean in lodging?"
"What we found was that a lot of times, [travelers] weren't really noncompliant" after initially being labeled as such, said Kelliher. "There might have been other reasons that are not really evident. I can recall a couple markets where we had 50 percent to 60 percent compliance, and we wanted it higher. Examining reason codes, we found out that 'sold out' was the reason 20 percent to 30 percent of the time. So our compliance figures were actually higher than was being reported, and we were not connecting the dots between the front lines in operations and the reporting modules."
Examining data on hotel transactions booked through the travel management company and expense reports for those booked directly with hotels (which are typically made by field personnel who drive to their business engagements), Dominion also learned where it was not getting its preferred rates. The company realized it could improve compliance by getting traveler feedback and preferences before selecting preferred properties. "We weren't engaging the operating units or the travelers," said Kelliher. "When you do, they take ownership."
The company also found that defects--in this case, bookings at nonpreferred properties--were "significantly higher" on reservations made outside the TMC, and rates ranged between $105 and $140, versus a $93 average on TMC bookings.
When it initiated the project in 2004, Dominion's use of preferred properties through the TMC was 65 percent and for direct bookings was 35 percent. Thanks to better communications and policy changes, by this year's June quarter overall hotel program compliance had grown to 89 percent, up by 17 percent from one year earlier.
The hotel project in 2004 produced a spin-off, in which a department that held regular training sessions in Chester, Va., was seeking to improve its local compliance. The analysis boosted compliance in Chester to 96 percent from 26 percent.
Meanwhile, an express project that was actually part of the training program for a Black Belt found that travelers were overusing the travel management company's 24-hour emergency travel service, not realizing that the company was paying a fee each time they called to check a flight time. "They didn't realize they could access that from a Web site at home or whatever," said Kelliher. "A lot of it ends up going back to communications and training, and partnering and collaborating with the business units and travel arrangers."
In value added tax reclaim, Six Sigma analysis several years ago helped uncover the need for a structure related to the processing of the expense report because original receipts are required. "Travelers weren't necessarily focused on all the VAT reclaim requirements," said Kelliher. "We have very little international traffic, so it's fairly cut and dry. We put parameters around that and were able to capture it just with communication and a framework in the expense report filing process.
"With all these projects, it goes back to capturing only the information you need that provides value," said Kelliher, "and asking, 'Why are we doing that?' A lot of them are little things. You have to be very willing to welcome people to find the defects you have. It may not necessarily mean you created them, but they are inherent and you have to accept the fact that such analysis may highlight deficiencies in your program.
"You can do those quick analyses, but when you put Six Sigma behind it, you're using statistical tools and people will buy the outcome," Kelliher continued. "I have found it to be very useful in validating, with teeth."
A big part of the validation comes from the involvement of an outside analyst, such as a Black Belt, who will bring in different questions and challenge assumptions. In travel management, "We've been driven in a lot of cases by the way things have been done for 20 or 30 years," said Kelliher. "You almost have to question everything."