Tasked with negotiating rates for thousands of properties
globally, GlaxoSmithKline sourcing group manager Paul Plank turned to an
auction to help keep rates in check, even in a supplier's market.
Plank since 1997 has worked in procurement positions for the
pharmaceutical giant and now manages the company's £60 million global hotel
program. The auction approach first was used in 2002 on a small scale.
"We were successful, and that gave us the groundwork to
expand it," Plank said in December at The BTN Group's Travel Management
GSK's hotel program runs on an atypical June-through-May
cycle. Last year, the auction program during a three-week period included 1,801
properties and 346 auctions. To control rates, Plank and his team before each
auction set ceilings based on market benchmarking that accounted for such
factors as inflation.
Plank also prefaces the auction with a bidder's conference
to outline the process, provide ceiling rates and, often, specify the volume in
each of the cities. "This gives them confidence about what they're
participating in," he said. "We do still end up with some properties
that don't log in, but participation is high."
Auctions are conducted on third-party software, and most
last about 15 minutes. A few, particularly those in markets with differing
cultures and less familiarity with auctions, can run as long as a week, he
The annual auctions cover only transient hotel rates. Group
rates are negotiated and managed separately on a two-year cycle.
Last year, despite industry projections of significant rate
hikes, Plank said the auctions largely kept rates steady.
"We kept rates flat and saw decreases in some markets,"
he said. "We reduced costs in [U.S. headquarters city] Philadelphia and
had a slight increase in [global headquarters city] London, but it was very
To overcome projections for more rate hikes throughout 2012,
Plank said he will increase the number of auctions to 400 and solicit several
hundred more properties, about 2,400 total. He expects contracts with more than
1,000 properties, about the same as last year.
"Extra competition will drive costs, and the ceiling
rates will trap the bidding below a certain level," he said. "We are
hoping that we'll be able to avoid cost increases and maybe get some cost
decreases this year."
Plank acknowledged that auctions are not an ideal solution
for every travel procurement department, and they require heavy prep work. Once
auctions begin, he and three others in different time zones must manage them.
Extra competition will drive costs, and the ceiling
rates will trap the bidding below a certain level. We are hoping that we'll be
able to avoid cost increases and maybe get some cost decreases this year.
Still, for GlaxoSmithKline, it's better than multiple rounds
of negotiations with thousands of properties.
"It's the only way we could possibly do direct
negotiations with all of these properties," Plank said.
Advito vice president Bob Brindley said that although he has
not seen a large increase in auctions, several clients use them for at least
part of their hotel programs, particularly for certain high-volume markets.
"It's a tactic to go along with all the other potential
tactics," Brindley said. "It's also something you can run in tandem
with RFPs to see whether you can drive better rate performance."
Brindley said that one drawback in using auctions in
high-volume cities is that it could jeopardize long-standing relationships with
hotels there and discourage new ones. "Your relationship with suppliers in
that market might allow you to get a market-leading offer, and you don't want
to put that strong rate at risk," he said.
For GSK, auctions generally don't mean a high turnover of
properties each year. Plank said the company maintains good relationships with
most chains currently in the program.
"Occasionally, rates go up and we have to kick them
out, but typically we find that the rates drop back down next year," Plank
explained. "It's a tough decision, and it's not always popular, but it's
really the only way to do it."
originally appeared in the February 2012 issue of Travel Procurement.