Procurement Permeates Corp. Meetings Decisions

Procurement departments have permeated event sourcing but have not yet had a drastic influence on meetings costs at most companies, according to an exclusive Meetings Monitor survey of 220 corporate meeting buyers.

Buyers said that during the past few years both procurement departments and meeting managers have come to a middle ground in their turf war, but that the burden remains on the meetings management industry to adjust to the new rules of business.

"I never viewed procurement as a big, bad wolf," said Edward Perotti, global meetings manager for Sunnyvale, Calif.-based Network Appliance Inc. and a member of the groups and meetings committee of the National Business Travel Association. "This is the first company in a long time where my role has not been attached to procurement. I've always sat next to or in that department."

According to the survey, 43 percent of respondents said their procurement departments had become more involved in meetings management during the past two years. This figure may not reflect companies that have used procurement strategies for meetings for a longer period of time or the higher percentage for large companies or specific types of meetings, consultants said.

Network Appliance's Perotti said many meeting managers have a relatively greater need to learn about procurement practices. "Definitely, procurement needs to learn about meetings, but most of them are so trained on contract negotiations and what to look for rather than the inner workings of the industry. Most planners have more to learn on the procurement side—understanding why procurement asks for the things it asks for," he said.

In many companies, the procurement department acts as a supervisor for contracts, mitigating risks and ensuring that negotiations are carried out correctly.

At Eugene, Ore.-based Levi Strauss & Co., procurement reviews as many meetings contracts as it can, though there is no mandate to use its services, said Terri Teal, the company's travel buyer in procurement services. The department tries to serve as a resource for meetings to assuage fears it will commoditize events.

"We try to really be approachable, so they want to come and give us the contracts. We just make suggestions to protect the company," Teal said, adding that building early successes means planners will come back to the department for future events.

The procurement department at Levi Strauss may not actually sign the contract, Teal said, but rather will make suggestions and send it back to the original department for signing.

Mike Lynch, commodity manager in travel for indirect procurement company ICG Commerce Inc., said all of his corporate clients have launched structural procurement initiatives in group travel and meetings.

"The consolidation of indirect procurement is still pretty new," Lynch said. "As companies are getting their arms around their indirect spend, they're seeing travel in a new light."

Companies usually focus first on buying group air, then hotels, technology or outsourcing initiatives, Lynch said. However, meetings present a special challenge in procurement initiatives, he said, because the user experience must not be harmed. Meetings are not transactional, he said.

The key to making the relationship between procurement and meetings management work is to view it as a partnership, rather than a battle, Perotti said. Like many meeting managers, Perotti has been tasked with consolidating global meetings expenditures, and procurement helps drive policy and build support.

Though the procurement department and the travel and meetings department are not physically in the same location at Network Appliance—a vendor of network-attached storage systems—they fall under the same business division, Perotti said. Any arrangement between procurement and meetings, whether the departments are housed in the same office or if they are only loosely linked, can work effectively as long as it fits the corporate culture, he said, but good communication is key in every instance.

"If you educate procurement on what needs to be done, let them take the lead, and then you can position yourself as the industry expert for the company," he said. "It's going to them for a true partnership versus an adversarial role."

Procurement is the first stop when purchasing meetings, Perotti said, but balance is needed between a cost-driven purchasing approach and ensuring quality service. "It's a commodity buy, but it's not one thing that we're buying 50,000 pieces of," Perotti said. "They have to allow the human side to also bleed through. They call this the hospitality industry for a reason."

Procurement has not affected meeting costs one way or another, said 71 percent of Meetings Monitor respondents. Eleven percent of respondents said procurement increased the cost of meetings at their companies, while 19 percent reported a cost reduction.

Though procurement plays a big role in protecting companies from legal risks in contract negotiations, Perotti said that meeting managers are critical for their industry knowledge.

"There are a lot of things in contracts that are implied," Perotti said. "You can't have a hardcore, cut-and-dry contract. Most hotels won't do it."

Instances where a procurement strategy might add to a company's meeting expenditures might be due to meeting managers not doing their part, he said.

"Planners should be sending their contracts to procurement clean," Perotti said. "They should be negotiated down as far as they can possibly go before procurement gets their eyes on it. If they're not, then what value is the planner adding to the company?"

Key performance indicators, procurement metrics designed to measure corporate objectives, have not been extensively adopted for meetings, said the survey. Service-level agreements were employed only by 22 percent of respondents, only 14 percent used a quality service index and 9 percent used balanced scorecards, while 69 percent of respondents said they did not use any KPIs in meetings management.

Only "a couple" of ICG Commerce clients currently are using SLAs for meetings contracts, Lynch said, but the use of performance indicators is applicable for the industry "every bit as much as general travel."

The use of KPIs is dependent on company culture and also the meeting type, Perotti said, but the planner's industry knowledge— their value to the company—generally ensures quality service. A planner should know if a particular hotel has a good reputation and have the industry networking contacts to be able to evaluate new properties, he said.

"I can't do site inspections all over the world," he said. "I should be able to pick up the phone and talk to my peers."

However, service agreements can be very helpful in master contracts, he said. Currently, the company is working on an initiative to put third-party management companies under master agreements with Network Appliance, he said.

The role of procurement generally to is support the initiatives and objectives of the meetings department with policies and programs, Lynch said. As pressure increases on companies to quantify and justify business decisions under new laws and regulations such as Sarbanes-Oxley, procurement can be a key driver in protecting companies.

Procurement initiatives generally are multi-year programs with the potential to generate double-digit percentage cost savings, Lynch said. Typical savings depend on company type and the types of meetings it holds.

"It's about the visibility of spend because most companies still don't have their arms around this space as much as they would like to," he said.

"The days of the planners just doing what they want to do are gone," Perotti said.