Procurement Practices 2010: Ebbing Of Procurement Tide
Corporate purchasing and travel executive use of procurement practices to manage travel is ebbing this year, following the rising tide that surged in so many organizations during the past few years and spectacularly last year. Rather than continue to ebb, last year's huge swell in adoption of procurement practices more likely was the crest before another wave of adoption by more companies.
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While procurement influence over travel decisions has receded slightly from last year, according to many measures taken in this study, it is from a high-water mark, with the current continuing to flow strongly toward growing use of procurement practices for travel purchasing.
In light of the severity of the economic downturn and the actions companies have taken to control spending as a result, it's no wonder that we have seen procurement's influence lessen at some companies from last year's crest. The increased decision-making authority or involvement of travel executives at those companies reflects in part the results of a buyer's market that enabled companies to make deep cuts in travel costs last year, particularly hotel room rates. While there is still some negotiating room left, most organizations recognize it is not in their best interests or control to further reduce supplier costs when the result would be to weaken suppliers' abilities to provide service.
Many also recognize that the pendulum that has swung to their side of the negotiating table soon will begin its inevitable return to the other side, and some are looking to make long-term arrangements.
Despite the game-changing aspects of the economic downturn, the mission of travel procurement remains the same: Define how to measure service quality and costs while raising the former and reducing the latter.
While it is true that the periodic aggregation, quantification and analysis of performance and cost information that are the hallmarks of procurement practices are easier for senior management to digest than less disciplined travel reporting, even travel buyers from companies without procurement organizations long have used many classic procurement techniques as part of their standard operating procedure.
Such techniques include issuing requests for proposals, mandating the use of preferred suppliers and establishing service-level agreements, particularly with travel management companies.
The growing influence of procurement executives on travel purchasing has prompted a rise in the number of companies and categories of suppliers for which they are using service-level agreements. There also is a rise in using key performance indicators, which nearly always include air, hotel and car rental savings.
To generate data for this fourth annual examination of the application of procurement practices to travel management, Business Travel News editors solicited responses from several thousand readers who are procurement and travel management practitioners, and 250 participated. Another 27 were among the clients invited to participate by sponsor American Express Business Travel.
While many questions matched those in previous Procurement Practices surveys so trends could be mapped, other questions were added or modified to focus on demand management, performance measures and outsourcing practices.
Third-party research house Equation Research, headquartered in Boulder, Colo., hosted the online survey, tabulated individual responses and provided aggregated data.
Of the 277 respondents who completed this year's survey, 91 identified themselves as responsible for travel, 29 identified themselves as responsible for procurement and 157 said they were responsible for both.
While the total number of participants grew again this year from 241 last year and 215 in 2008, those who identified themselves as having procurement responsibility consistently made up about two-thirds of the respondents.
Reflecting deep cuts in U.S. booked air volume from 2009, one-third rather than one-quarter of respondents reported spending less than $250,000 in 2010. One-fifth are spending from $250,000 up to $1 million, and another one-fifth from $1 million up to $5 million. About one-quarter, down from one-third in 2009, are spending $5 million or more.
New this year is research showing that 65 percent of respondents consider their travel procurement programs somewhat mature, 13 percent consider them very mature and one-quarter said their programs were not very or not at all mature.
Asked about ways companies measure return on investment, half said their companies do not measure business opportunities or revenue performance, use qualitative analysis correlating travel budgets to business outcomes or assess traveler feedback on trip importance.
New data on ways travel procurement is measured show 61 percent of respondents evaluate year-over-year savings, but only 47 percent weigh cost avoidance. More than 40 percent of respondents use traveler satisfaction, policy compliance or program improvement as measurements of travel procurement effectiveness.
New data also show that all but one-third of respondents renegotiated contracts in the past 12 months, and more than half renegotiated hotel contracts.
In times such as these, companies are recognizing the value of travel managers' market knowledge, relationships and policy and communications skills, like never before. The hold that finance has on travel also is likely to strengthen during these tough economic times, but the influence that procurement practices has on the practice of travel management continues to broaden.
Last year's huge swing in the numbers created a new environment that called for creativity, common sense and communications, not only internally with senior management and employees but also externally with suppliers and other corporate travel buyers. Communications alone cannot resolve every challenge facing corporate travel procurement executives as a result of the economic downturn, but it is essential for defining the problems and designing solutions.
With everyone in the company paying attention to all spending and complying with travel policy more than ever, travel buyers this year are focusing more efforts on communications and data management.
It is both best procurement and travel management practice to take a disciplined approach to measuring qualitative and quantitative external and internal performance, benchmarking to market conditions as well as year-over-year performance, managing demand and making strategic use of suppliers.
The ebbing of the long-term trend toward the rise in use of procurement practices since last year is a result of the heights it reached then and shades of further waves to come.