By strict procurement definitions, savings can be reported only when a new price is lower than that of the prior year. For many managing travel today, therein lies a problem, as the narrow definition doesn't provide the means to factor in cost avoidance, negotiations or the value delivered by many travel management programs.
"How do you measure savings associated with your program, and how does your CFO sign off on those?" Philips vice president global supply manager for travel M. John Guarneriasked travel procurement executives at the recent Association of Corporate Travel Executives conference here.
KPMG calculates savings based on the new rates negotiated compared with the prior year, as well as benchmarks provided by American Express, said Pat Barrett, director of operations for firmwide procurement. "Did we do better than the year before? I'm not certain you would find everyone in the firm calling cost avoidance as savings, but if they're not spending as much as they have to, I consider it savings."
Pfizer views savings as "more black and white," according to vice president of worldwide procurement Tom Donatelli. "Savings is only savings if it's lower than last year. Especially for hotel and air, it is much more difficult to actually get true cost savings."
Deloitte chief procurement officer Mike McMahonnoted that "Air is really difficult. The industry pricing is so dynamic. We typically measure cost avoidance. We'd like to measure lost savings--some people booked possibly higher than our negotiated rates. All of our programs are to look at the total value that we're bringing to the program. If you're looking for general ledger tracking year over year, you're not going to be able to do that in very many travel categories because the environment is too dynamic. Each of us is challenged with coming up with credible ways to show how we calculate the value that we bring to our respective companies with the effort that we put forth. Some of those may or may not make sense to all, it becomes a personal metric."
United Technologies Corp. travel commodity manager Marcia Tellez said her company looks at both negotiated savings and the value of any added benefits. For example, if her team negotiated Internet access to be provided free as part of the rate and paid for that separately the year before, the cost avoidance would be calculated as savings.
When asked how he defines savings, Guarneri noted, "I am struggling being part of a purchasing group to justify my savings. You know darn well that if you're with facilities management or IT that they can show savings. I don't show savings, per se, according to those strict definitions of procurement. I can show added value. I can show cost avoidance. I can show what misbehavior costs us. But by the strict definition of procurement, that's not savings."
Part of procurement for just 18 months, KPMG's Barrett noted that she has found "having spent all of my career in business travel management," that "we've been doing many of these things all along. What being part of procurement has done is formalize many of the great practices we already had. But there is an understanding that this is a different breed of cat."
Tektronix global travel and fleet manager Cay Cooney said she recently struggled with this very issue as she tried to prove that negotiated savings should be calculated as savings. Her department negotiated a hotel rate to $105 from the $110 rate offered by a property. However, she was told that she couldn't count it as savings as the rate was higher than last year's rate of $99. "I've done all the fuzzy math, but now I'm faced with reality. We all add value and we know that. I put it this way, procurement is from Mars, travel is from Venus."
Pfizer's Donatelli said his firm looks at savings in three different ways. "One is clearly cost avoidance--that's got to be done even though people may not appreciate it as cost savings. Second is to deliver some cost savings" from card or agency agreements. "But even more importantly is teaming up with our global corporate travel services group and get extensively involved in policy changes and demand management changes. We have a very large travel spend, the only way we're going to get any significant P&L reductions is literally managing our behavior and demand."
Barrett echoed the importance of policy and behavior in managing travel today and noted the effectiveness of a recent switch in how policy changes were communicated at her company. For years, travel policies were changed, but were "kind of stealth changes. We found out about them generally when accounting told us you hadn't done something the way you should have."
Six months ago, the travel policy was "produced as a standalone" document, distributed to 23,000 employees, Barrett said. But in addition, employees "had to take a 45-minute Web session" test to prove their knowledge of the travel policy. "If you didn't get a 70 or better, you had to keep taking it until you did. When that kind of policy change took place, it indicated that adherence was more important than it had been in other years."
Increasingly, the two biggest savings opportunities that it is finding for its clients are in "meetings management and behavior management," said American Express Business Travel's Frank Schnur, vice president of consulting for advisory services. "Those new opportunities require a different set of skills and different KPIs [key performance indicators] to take advantage of them."