Procurement Practices 2009: Expanding The Use Of Travel Metrics

As procurement departments expand their sway over travel management, supplier performance measurement using such procurement-based tactics as key performance indicators, scorecard analysis and service-level agreements have become a central part of that process at many corporations. In the past several years, companies have expanded the use of these strategies to more travel supplier categories, often providing more granular analysis and better accuracy for use in negotiations and internal program value assessment.

Today, executives are requiring more frequent and concise key performance indicator reports to provide them with snapshots of company travel spending and savings accumulated through travel management efforts. Senior management's watchful eye now has many travel procurement professionals fine-tuning KPIs to provide the most relevant metrics to stakeholders and new metrics for travel supplier categories are being pulled under procurement's wing, including meetings.

According to a January CWT Travel Management Institute report, 46 percent of 178 travel manager respondents said development of key performance indicators would be a higher priority in 2009.

BTN's 2009 Procurement Practices survey shows an expansion of KPIs this year that focus on demand management. For example, 36 percent said they measure their use of videoconferencing and 24 percent measure reduction of one-day trips.

Advito vice president of business development Mark Williams said the evolution of procurement in travel has created a higher level of sophistication in KPI metrics. In its earlier stages, there was more of a "focus on metrics that didn't really matter that much, like average ticket price," he said. As a metric, average ticket price has too many variances, including citypairs and volumes, for a company to benchmark itself against its peers. Travel buyers now have broken that down into a more meaningful analysis with such KPIs as average cost per mile and airline class of service price comparisons.

Even with a more tailored approach to KPI measurement, procurement's influence and subsequent focus on cost and savings can at times neglect the service aspects of travel, leading to a misinterpretation of a corporate travel program's performance. While 88 percent of respondents in this year's survey said they measure KPIs associated with measurement of air, car rental and hotel savings, 72 percent said they apply traveler satisfaction KPIs, which can catch the intangibles like a hotel's amenities or a TMC's agent services during bad weather.

"The challenge with applying KPIs and quantifiable goals has always been that so much of travel is pure service and highly subjective and not necessarily subject to clean quantitative metrics," according to TRW Travel Consulting president Tom Wilkinson. "There is always a benefit to measuring performance, but you have to be careful in the travel industry when you are trying to measure something that is inherently subjective."

Supply chain advisory services firm AMR Research's director of research Mickey North Rizza said too much of a KPI focus can cause managers "paralysis analysis" or "just focusing in on KPIs instead of focusing in on what they need to drive the business."

At Corporate Travel 100 pharmaceutical company GlaxoSmithKline, procurement has standard savings definitions for all supplier measurement categories, including travel, which are tracked through an automated system and validated through the finance department. "That's how we build real credibility within the organization. Sometimes it's a little more difficult to measure discrete savings in buying airline tickets and hotels," GSK vice president of procurement of global systems and operations Gregg Brandyberry said in a recent Rearden Commerce and Institute of Supply Management Webinar.

While senior management requires concise reporting, travel managers continue to measure supplier categories in new ways as they seek the most value in terms of savings and service. While KPI-based service-level agreements are most commonly found in agreements between corporations and travel management companies, SLAs are being extended into new areas, including hotel agreements, to ensure acceptable service levels for such amenities as wireless Internet performance and availability of business services.

Buyers also have increased use of SLAs with their online booking tool vendors as they measure "up time" and proper preferred supplier display.

Integrys Energy Group is developing its KPI portfolio as it reaches the one-year implementation anniversary of its procurement-driven managed travel program via its supply chain organization. The program will use its first year of data as its baseline as it secures preferred contracts with more travel suppliers. It already evaluates its travel management company's customer service levels, online booking tool inventory and "up time," according to Rick Seymour, Integrys' corporate card coordinator and travel buyer.

Seymour's contracts contain few SLAs. "We chose that supplier through other efforts and RFPs," he said. "Once you go through all those hurdles and hoops, we said you are the best and you give us the best price and your product is the best. We are really watching the price to make sure the vendor isn't adding any dings on there to nickel-and-dime you."

Integrys senior management is taking an active role in reviewing the program. "In the past, they would let the immediate supervisors or the respective business units police themselves," said Seymour, who is moving from quarterly to monthly KPI reviews. "Now, upper management is saying, 'Give me these comparisons and I want to know why.' "

One growing focus for travel procurement professionals is reining in meetings spending by wrapping procurement methodology around it. According to the survey, 22 percent of respondents apply KPIs to their meetings contracts and 24 percent include SLAs.

"Meetings has been talked about for a long time, and we are seeing increased visibility within the procurement organizations and in general management in wanting to put a process in place," said Carlson Wagonlit Travel North America vice president of meetings and events Tony Wagner.

UnitedHealth Group applies that procurement approach to its roughly 600 meetings annually. Service-level agreements and key performance indicators are part of standard addenda to meetings contracts that are "topics of conversation when we are going through the negotiations process," said Tamara Gordon, UnitedHealth global travel and meetings manager, who reports through procurement and ultimately the finance department.

Although KPIs and SLAs continue to grow across travel supplier categories, there has been a reduction in the application of financial incentives and penalties, especially as year-over-year comparisons became tougher to measure in such volatile economic times.

Looking back on his travel-buying days, Advito's Williams said, "Sometimes we were just disgusted with the things that were going on. When you would go through the written service-level agreement, even if you tried to button it down as much as you could at the time of the contract, when you actually went through a calculation with your TMC partner, the interpretations would end up being different and it would be very difficult to come to a conclusion that in fact they made this one or missed this one."

Now that volumes are falling, buyers and suppliers are working more collaboratively and are looking at numbers differently to avoid penalties and building long-term relationships for when business travel rebounds.

"It's much harder to hit targets these days as volumes fall," consultant Wilkinson said. "A hotel supplier at this point that insists on maintaining the same rigid quantity of room nights in the current economic environment that were committed a year ago is going to wind up with very few preferred customers."