The use of online reverse auctions and electronic requests for proposals in soliciting travel management company bids has hit a lull, with buyers and agencies citing response limitations and fears of commoditization as reasons for the downturn. Though buyers suggested that e-RFPs can be valuable in organizing the TMC selection process, many said online auctions never will achieve prevalence.
Online reverse auctions and e-RFPs for TMCs hit their peak about two years ago and have steadily declined since, agency executives said. When e-RFPs peaked, they accounted for 25 percent of all RFPs mega agency HRG received, according to HRG North America executive vice president of national sales support Danielle Waters. Now, she said, it's less than 10 percent. "It's not as sexy an option as a couple of years ago," she said. "In some ways, it's easier to do electronically if the client decides they are buying a commodity. The companies that attempted to buy travel in this environment were not as prepared in their homework as they needed to be."
"Eighteen months ago, we saw a rash of bids coming in through electronic bids," said San Diego-based Balboa Travel director of business development Thomas Marks, who added that only one of 35 bids was electronic during the past six months. "In all of those online tools, when providing answers to a question they have severe counter-limitations. The goal was to have information come in identical formats and make it easier for comparison, but the reality was that people couldn't effectively give answers in that format."
While some buyers steer clear of electronic TMC bids, others have successfully used the process, including The Campbell Soup Co. and ON Semiconductor. Both used EBuyerSolutions, an online travel procurement site developed by Ralph Brown, president of travel management consulting firm R.D. Brown Co., in 2004. Brown said electronic solutions are not for all agency bids, though. "The trend is to use a procurement tool and not just an auction tool," he said. "Many companies are using their own procurement tools that may not fit for travel agencies, and that is where they may be limited in asking questions."
Although some consultants said e-RFPs provide concise responses, some TMC executives said they often have to include attachments and can't fully answer service-level inquiries. "There is no real opportunity for us to add subtext or differentiate ourselves," HRG's Waters said. "What they contracted was the lowest or most competitive price, but what they got wasn't nearly the best service."
"Unless you predefine—'I want you to tell me how much for you to fulfill a hotel booking'—you would have to go into each detail separately. It takes too much time," said Management Alternatives president Carol Ann Salcito. "It's bringing their services down to a commodity. All TMCs are not created equal and should not be evaluated by price alone. They should be evaluated by services, technologies, references, and dollars and cents, in that order."
Some buyers echoed TMC frustrations. "There are too many things involved to be able to commoditize a TMC," said Johnson Controls global travel manager Michael Hall, who has used a online reverse auction for hotels, which he said wasn't well received internally. An online auction for a travel management company is not a practice he plans to pursue.
"My TMC is too much of a relationship to do something like this," said Cynthia Shumate, Estee Lauder Cos. director of travel services. "There are too many layers of a TMC relationship. It's not just black and white. There needs to be the ability to customize and be specific."
Some buyers said online reverse auctions could be useful in a highly centralized and developed procurement department, where online tools are used to source other commodities. However, Deloitte Services chief procurement officer Mike McMahon, who uses the Ariba ERFX sourcing platform internally, said, "We would probably not look at using our e-procurement auction functionality for a TMC because travel is so big and complex for our firm, and it would be difficult to do using that tool. There are just too many variables that you have to vet. It's very difficult to use that tool to make a final decision for a travel management company."
That isn't to say it can't be done, McMahon said. "You can use a reverse auction tool successfully where you have a clear set of business requirements that can be vetted in electronic form. Other situations online tools could be helpful are in rationalizing the supply market from a large number to a small one," but then resorting to more traditional means to make the ultimate decision. "If you are decentralized and you are using 20 or 30 TMCs and you want to consolidate into one, you can develop a list of deal-making criteria to do e-RFPs among all TMCs, not to make the final decision, but it can absolutely do what you see critical to your business," McMahon said.
While there is no clear answer on whether the electronic process speeds or stunts the process, McMahon said it all depends on what is sourced and how the procedure is handled. "Buyers and suppliers will have two different viewpoints on whether it slows it down or speeds it up," he said. "You have to design the procedures and questions in an e-RFP to be very explicit and the process will be efficient. The end perception is that it takes a long time, but it took you a long time because you didn't clarify what you wanted. Every single sourcing effort is going to be different. Sourcing laptops is going to be different than doing 24-hour service suppliers like travel management companies."
Verizon in 2005 used an e-RFP tool during its TMC selection process
(BTN, Feb. 6, 2006) as part of a two-pronged approach, said travel services senior specialist Debra Goldmann. The "qualitative" portion was done traditionally, while "quantitative" questions—including pricing—via an online RFP tool. Goldmann said she found the electronic RFP "somewhat limiting," but "you're just getting responses of numbers anyway." Goldmann said the process does commoditize service to a point, but upfront preparation and meeting with suppliers beforehand can help to work around that. "Most folks who are part of travel agencies are very service-oriented. In most cases, the relationship that supports the commodity is a positive thing."