Moving beyond typical procurement cost-based, contractual
relationships, Hewlett-Packard has worked with a small number of key suppliers
on a strategic supplier development program designed to "create a
competitive advantage to embrace policies around sustainability and diversity
and grow the capacity of our suppliers," according to Brian Tippens, HP
procurement sustainability and innovation director.
"By investing the time we do to grow our suppliers, we
end up with incremental new value," Tippens told Travel Procurement. "Every
enterprise is invested in cost savings, but you can only cost-save so long. You
can't cost-save to zero. At some point, there must be other areas you look to.
For readers asking where the ROI is, it's truly being able to drive new
incremental, measureable and tangible value."
For HP, travel-related value in its new breed of supplier
partnerships has come from efforts to upgrade travelers to more fuel-efficient
instead of larger rental cars and thus reduce gas and costs; rely on the
expertise of a hotel partner to create metrics to track waste and carbon output
during hotel stays; increase hotel ownership diversity; and effect broader
distribution of its own products and services.
"Global procurement continually looks beyond
traditional procurement for ways to drive even greater value for HP," said
global procurement vice president Nick Gunn. "That includes helping our
business units generate increased revenue, driving innovation with our
strategic suppliers and doing the right thing for our customers and employees
with respect to corporate and social responsibility."
Jeannette Kamalski, senior director of global program
strategy and programs—including travel, since last fall—added, "Not that
spend and cost reduction lose any level of importance, but at some point when
you reach the size and breadth of HP, it really steps beyond that in looking
for areas of opportunity to drive value, not only for HP, but across
relationships in the industry. We take that responsibility very seriously in
how we choose to engage with our suppliers."
Impact In Travel
As in other procurement categories, HP segments its travel
supplier base into a first tier, a second tier and the remainder, according to
travel and meeting services global director Maria Chevalier. "A lot of
focus and visibility is on these tier-one suppliers due to our dependency to
keep our programs working. It's taking them far beyond just being a supplier."
[PROFILE_1]Chevalier, global travel strategy manager Jeff Kurn, global
travel service delivery manager Sandy Prosser and global travel procurement
manager Wendy Reynolds nominate suppliers for tier-one distinction; the number
approved is restricted. Of more than 2,000 preferred hotels, dozens of airlines
and many other vendors, tier-one travel suppliers include just four hotel
chains (including two added this year), two airlines, one travel management
company and one corporate card provider.
The four tier-one total chains are not HP's highest-volume
suppliers. "They are the four who stepped forward," Chevalier said. "We
identified them as ones we needed to invest in for our future."
Tippens said HP typically works closely on supplier
development initiatives with about 100 total suppliers. The program "is
not just based on total spend or the size of the company, but the potential
impact across a number of areas, and sustainability is included," he said.
"We're reaching beyond just tier one to focus on suppliers who can
potentially yield some impact in the areas of greenhouse gas emissions or
having more fuel-efficient cars from a rental provider. We're looking for
business impact more than just scope of spend."
As an example of such opportunities, Chevalier pointed to HP's
latest car rental initiatives, begun this summer after the company realized it
bought 1 million gallons of fuel per year for rental cars. "We changed our
approach," she explained. "We said, 'Stop upgrading us to bigger
cars. Upgrade us to fuel-efficient options.' We're working with our supplier,
educating our travelers. The supplier committed to a 15 percent reduction."
Since August, HP reduced year-over-year fuel usage almost 5 percent, Kurn said.
Chevalier said she was stunned when Kurn "did the math
and found the reduction [could result] in millions of dollars in savings.
Particularly in a mature program, finding incremental savings is a challenge,
so this was huge."
The green car rental program emerged as HP applied a "supplier
normalization and rationalization" strategy, as it previously had done for
its TMC, global distribution system and online booking tool. HP selected a
single car rental supplier instead of the dual-vendor setup it used for more
than 15 years. "We knew that one could meet service needs," Chevalier
said, and an analysis indicated it also would make sense from a strategic
perspective. "As we went through the bidding process, we found we also
could significantly reduce costs and drive other values of innovation and
sustainability."
"The nature and scope of HP's travel footprint offers
the unique opportunities to develop truly cutting-edge solutions in partnership
with our travel service providers," Gunn said. "The impact goes way
beyond simple cost savings. Through the recently launched global green rental
car program we have been able to offer travelers a high-quality, cost-effective
rental car option, while significantly reducing the HP carbon footprint through
the inclusion of alternative fuel vehicles as part of our standard service
offering."
On sustainability, HP has found travel suppliers to be "one
of the top tier of potential categories to yield big impacts," according
to Tippens. That's due in part to HP's travel volume, generated by more than
100,000 travelers.
Value, Not Price, Is
Key
"We spend a lot of time working with suppliers beyond
price and service levels offered to travelers," Kurn said. For example, in
a recent contract award, Chevalier said the supplier "chosen was not the
cheapest, but the strongest on innovation, account management and
sustainability. It's much deeper than what people think is the case, and as
traditionally viewed by procurement."
Relationships at this level go well beyond just the
contract, said Chevalier. "One of our suppliers knows HP better than I do.
He can tell us such in-depth information about our shared relationship. He is
an advocate for us throughout all of his company and helps promote the shared
initiatives. That's what makes a huge difference. It's so much more than, 'Have
you met this service-level agreement?' It's really about integrating themselves
into our business and helping us find shared opportunities."
Given the volume and maturity of HP's travel program, such
approaches to supplier management are the only way to achieve savings goals,
Chevalier said. "We're measured on incremental savings that average about
6 percent of T&E a year," she said. "Cost avoidance and all these
other goals are expected. But to achieve incremental savings, you have to be
aligned. To get to these savings objectives, you've got to move to this whole
other level" of supplier management.
HP's procurement category managers work with all tier-one
suppliers "to define what we call the ICIs—innovation and collaboration
initiatives," Kurn said. Such projects might "leverage supplier
assets, ideas, business models, geographic presence or capabilities to create
sustainable and competitive advantages for HP and potentially the supplier,"
or deliver efficiency gains, increased business or savings opportunities,
according to HP guidelines. Frequent reviews of progress on shared objectives
and at least one annual visit to each tier-one supplier's headquarters are
required.
Such access, Chevalier said, has been important as HP pushes
suppliers on diversity, sustainability and innovation. She said she told one
supplier that the way it measured performance wasn't working and why. On
supplier diversity, she said she persuaded a "major hotel chain to focus
on their ownership model. They went to having 500 diverse owners in their
portfolio from just a handful previously. We can get in front of their
executives and say this is important to us."
Managers also must validate and report ICI achievements of
each supplier relationship in one of three ways: cost reduction, cost avoidance
or revenue enablement. Assessments, scorecards and stakeholder surveys are used
to vet and justify supplier recognition. For such consideration, category
managers are required to conduct a risk assessment of financials and other areas.
"We want to be the client of choice for these suppliers
and have them fighting to do business with us and fighting to be our account
rep," Chevalier said. "When we do that, we're working with people who
are proactive, have skin in the game and are as invested in our success as we
are."
Supplier Reaction?
The difference with such strategic relationships, according
to American Airlines account sales manager Michael Douglis, is "how they
want to work with a company's best people. They want their best ideas, and they
want you to bring forward things that might not be something they've ever
thought about before. There may be an opportunity for them to increase their
global footprint, but the payoff on the back side is that it might also
increase your opportunity for share of the wallet.
"We have other similar relationships, but not to the
level of HP," Douglis continued. "HP is really in the vanguard in
trying to understand and explore all these other opportunities."
Hilton Worldwide senior vice president of sales for the
Americas Mark Komine said one key difference between a more typical
buyer-supplier relationship and Hilton's tier-one status with HP is that the
latter is more of a partnership. "Probably one of the most overused and
misused words," Komine said, "partnership is where there is mutual
value; basically, where both have skin in the game and can gain or lose from
having effective or ineffective partnerships. For us, it's about having
alignment from a strategic standpoint" and shared views on the definitions
of innovation, collaboration and mutual growth. "If you don't have that
alignment, fit and mutual perspective it make it more difficult. Clearly with
us and HP, we're aligned in all those areas."
Komine noted that while HP is on a different level, Hilton
has similar relationships with about 48 strategic accounts "where we're
really deep and high into those organizations," he added.
The focus of the relationship now goes beyond just costs. "It's
all about value and what your value proposition is to a company. Companies are
trying to save money, but they're also trying to make money," Komine said.
"Clearly companies are mindful of their cost structure, but it's really
important to understand the total value provided by the relationship, and there
is a price for it."
[PULL_1]For example, as part of HP's objectives to reduce energy and
waste, Hilton collaborated and helped to support a certification process with
hotel measurement and environmental impact results for HP's stays and its
meetings. Since it was created in 2008, Hilton's LightStay sustainability
measurement system earned International Standards Organization 14001
certification for environmental management, saved the hotel chain more than $74
million in utility costs and reduced energy and water use as well as carbon and
waste output, according to the hotel company.
As part of another collaboration, Hilton launched the HP
Virtual Print Center to print on demand such documents as sales training
materials and marketing brochures. The two also are assessing print service for
some Hilton hotels.
During the past two years, American Airlines' relationship
with HP resulted in the deployment of HP technology in 40 Admirals Clubs
worldwide, according to Douglis. Equipping each location with the latest
computers and HP TouchSmart PCs in club cyber-cafes, he said, was a "collaborative
effort of both companies up and down the organizations, in particular premium
services."
HP also became a sponsor of American's Gogo inflight
Internet service, which allows "HP to broaden their reach and touch more
customers," and provides AA with the "opportunity to broaden use of
the product, as there's no risk to the traveler to experience it at no cost,"
Douglis said. Promotional codes allow customers to try the inflight access free
of charge.
Douglis said the HP relationship still involves some "blocking
and tackling. But one of the things it affords you is to have conversations and
a really deep understanding of their business and the challenges they face."
Supplier Of Year Honors
HP executives agreed that one of the most successful
components of its supplier development initiative is an annual forum at which
it recognizes its Supplier of the Year finalists and the winner. The forum, to
which fewer than 70 of HP's suppliers are invited, provides partners with
atypical access to executives and strategy, said Chevalier. Supplier companies
typically send the HP account rep and an executive.
Continental Airlines in 2009 won HP's first Supplier of the
Year award and "of five finalists last year, two were in travel,"
Chevalier said. "Keep in mind that we're a big global procurement
organization. Travel is about 8 percent of the global procurement organization's
total spend." Vodafone won the award this year.
Not only do suppliers want the distinction of winning,
Chevalier said, but "they fight for it. One of our finalists last year
said, 'I will never be [just] a finalist again.'
While HP expects all of its 50,000 suppliers to deliver a
differentiated solution that goes beyond a simple price/rate savings, Gunn said
HP's travel suppliers "truly understand the kinds of innovative solutions
we are looking for, and have clearly stepped up to the challenge."
"We want our suppliers to wake up every morning and ask
'How can I be the best supplier to HP? What else can I do?' " Tippens
added. "If we do this the right way, HP benefits, but those suppliers
benefit as well because they see some increase in their share of wallet."
HP's supplier development initiative "is not just a
point-in-time way to achieve short-term tactical goals," Kamalski said, "but
a way to strategically position us, as well as suppliers, for what we need to
do to grow, be viable and sustainable in the future."
The report originally
appeared in the November 2011 issue of Travel
Procurement.