Behave And Save: Rockwell Automation Alters Purchasing Habits To Cut Travel Costs

Rockwell Automation last year negotiated new supplier contracts and reviewed travel policy before devising a demand management strategy on track to deliver savings this year of more than $1 million. Key to the success was management support—from the very top and within business units—communications, technology and reporting that for the first time showed units the cost and savings potential of certain behaviors.

Hired two years ago as Rockwell's global travel strategic sourcing manager, Stephen Mitleider initially focused on reviewing travel policy and sourcing suppliers for air travel, hotel stays, car rentals and travel management company services. But he also asked, "What are our purchasing behaviors, and what's really hurting us?"

For two years, more than 60 percent of the company's airline tickets were purchased in violation of a policy that required 14-day advance purchases. "Lost savings on advance purchase were about $2 million a year, with one-third of all tickets purchased less than a week in advance," Mitleider said. "If we could shift advance purchase percentages 12 points, we would see around $2 million in savings, incremental to the point-of-sale discounts enjoyed from airline contracts."

But how could Rockwell shift behavior? Mitleider surveyed technologies and best practices and considered what would and wouldn't work within the culture of the global Milwaukee-based manufacturer.

What wouldn't work was "interfering with the needs of the business," he said. "We were not devising a methodology to tell the businesses not to go, reduce their budget, dictate where and when employees could travel nor issue corrective actions to employees. We wanted to put in place technology rigor around the process. How they used the intelligence was up to the individual businesses."

Two Ways To Intervene 

To provide that intelligence to budget holders and determine "two ways to intervene" on travel purchasing, Rockwell used Cornerstone Information Systems' iBank Travel Management Reporting and Prime Numbers Technology's Travel GPA reporting tools, both developed by Prime Numbers president Rock Blanco. With assistance from technology developers and its TMC, American Express, Rockwell integrated its SAP human resources hierarchy with travel reservations and other data streams and for the first time provided travel management reporting by segment and business unit.

The pre-trip auditing function within iBank notifies managers via email anytime a direct report books travel outside policy. The manager can approve or deny the exception. As part of the strategy, Rockwell's CFO asked vice presidents, controllers and other budget holders to get involved in travel purchasing. Mitleider said he wrote all messaging, but the CFO sent the communiqués.

To prove the dramatic cost variances between last-minute bookings and those completed seven, 14 or 21 days in advance—as much as 300 percent—Mitleider reported fares for Rockwell's top 15 citypairs.

"On the back end, we reported the net effect of those decisions," said Mitleider. "The brilliance of this tool is not only coming up with the data and helping you parse it, but quantifying the net effect of the savings in the key performance indicator."

Rockwell measures the financial benefit of compliance to 14-day advance purchase requirements for domestic and international airline tickets; the use of preferred suppliers, including bookings through the designated agency and online booking tool; acceptance of the lowest fare offered; the percentage of tickets exchanged; and the number of employees within a business sub-unit traveling together to the same destination on the same date.

The company's travel analyst—a new position—meets monthly with vice presidents, controllers and budget holders to present two- or three-page reports for each business unit that compare KPIs to internal and external peers. The travel department also reports monthly to the CFO. Said Mitleider, "We took a very consultative, ongoing, personalized approach with an executive audience to listen to our customer, raise their awareness of purchasing behaviors, drive change and stimulate internal competition to achieve the greatest shift in behaviors and savings."

Standard TMC reports detailed Rockwell's overall ticket exchange rate, not the cost of each exchange at the business-unit level, he said. "Going through this rigor, I could tell a manager that every time you change a ticket it's costing $225 and your baseline [exchange] rate is 18 percent," higher than the rest of the company. "We'd like to get it to 12 percent."

Travel GPA's scorecard allowed Rockwell to quantify the savings potential if it shifted purchasing behavior for each KPI tracked. "It condenses mounds of data into two or three pages," Mitleider explained. "It identifies the key behaviors that drive savings and quantifies the effects. It gives people actionable data that they never had before and it really works."

'Travel Smarter, Not Less' 

"Our strategy was to direct reservations to our preferred suppliers, consistent with policy," Mitleider said. "What was new is that we were asking managers and budget holders to make interventions. We gave them two opportunities using [Blanco's] tools to evaluate travel pre-trip, but also to evaluate behaviors post-trip—sort of bookends to a reservation. The goal is to travel smarter, not less."

Rockwell initially implemented the demand management strategy only for U.S. air travel, but future phases call for expansion to hotel and car rental, made possible by integrating expense and credit card data into the reporting technology. The firm intends to export the strategy globally.

The reporting dovetailed with Rockwell growing its roster of preferred airlines to cover 30 percent more of its frequently traveled routes. Before it was spun off as a separate, publicly traded company, Rockwell Automation was part of the larger Rockwell International and during the past decade continued to negotiate its airline contracts in concert with a former sister firm, Rockwell Collins. The preferred agreements favored the needs of the sister firm, "but didn't correlate to where we were flying, doing business and growing—in Brazil, China and Eastern Europe," Mitleider said. After an "in-depth global spend analysis and market segmentation study, we went from three preferred carriers to two alliance deals and a couple of independents, with 17 carriers under agreement," as of March 2011.

Mitleider expected it to take six months to "move loyalty and purchasing behaviors away from a supplier with which it had a 10-year relationship." Instead, Rockwell in the first month after implementation "achieved all of our goals in every market, every point of sale," and continued to hit the goals six months later.

The company implemented the demand management strategy at the start of its fiscal year in October 2011. By December, "across the company we saw a nine-point gain over what we estimated would be a 12 to 18 percentage-point [annual] improvement in advance purchase," according to Mitleider. "In operations and engineering services, we improved advance purchases to 93 percent from 60 percent. In international, where we were already at 85 percent, we moved to 90 percent with a goal of 95 percent. We were able to reduce exchanges by 3 percentage points and across the entire organization for the first quarter [ended in December], we documented $440,000 in savings. We forecast [2012 fiscal year] savings of $1.1 million to $1.8 million, so even in the first quarter, people really got the message."

Greater than expected improvements even were noted in service-related units—where employees frequently leave at the last minute for emergencies. "We saw a 30 percentage-point lift just by asking people to book in advance whenever they could," he added.

For mature managed travel programs, Mitleider said, significant savings lie beyond supplier negotiations. "You're not going to be able to go to an airline, hotel chain or car rental company with the same volume and essentially the same travel patterns and market share and say, 'Give me a 10 percent increase in savings.' It just isn't going to happen. The opportunity for future savings lies in affecting purchasing behaviors and demand."

This report originally appeared in the February 2012 issue of Travel Procurement.