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Manufacturing company 3M last year embarked on a six-month process to reconstruct its preferred airline agreements through global alliance deals. Implemented in February, the deals for the company's $60 million in airline expenditures cover operations in 32 countries. According to Ric Carlson, sourcing team manager for fleet, travel, logistics, IT and telecommunications, the agreements led to an overall reduction in preferred carrier deals and should generate "significant potential savings," though it's too early to see results.
"We wanted to globalize the air program," Carlson told attendees here this month at an Association of Corporate Travel Executives conference. "Independent countries were doing their own thing, signing their own contracts. It's tough to get everyone to row the same stroke. We wanted to make sure we were leveraging our total global spend."
The process relied on 3M's six sigma methodology, peer benchmarking and an "industry template"--which Carlson described as "a real highlight of the process" that helped "everybody understand their goals."
Though 3M has a primary global travel management company, Carlson said it also works with "a lot" of local agencies. That made data gathering difficult, he added, because "some local TMCs basically have no back-office systems." But the effort to collect and analyze the data and identify areas of opportunity paid off, confirming that "alliances make sense for our situation."
Following the request for proposals process and negotiations, 3M ended with global alliance agreements, as well as regional and country-specific preferred carrier deals. "It was a mixture of all three," Carlson said, and "we really didn't think that would be the case when we started out. We did get significant potential savings by taking the alliance route, for 3M globally and for each of the specific regions. If we had not been able to do that, it would have never happened; those countries are measured on their own P&Ls, etc."
"Legally," 3M headquarters cannot sign deals for individual countries, which operate as independent subsidiaries, yet the alliance airlines "insisted that 3M corporate sign the agreement," Carlson explained. "So we had to invent an elaborate global approval process."
The final result was a set of deals representing "a third as many" contracts as what the company had, with "improved global coverage," he said. "We did ultimately shift business; we changed our suppliers as a result of this process."
Though Carlson didn’t specify with which alliances and airlines 3M struck deals, he noted that the company's St. Paul, Minn., headquarters "dictates a strong relationship with Delta." Delta acquired Northwest's Minneapolis hub, previously a "restricted city" when Northwest and Delta were separate SkyTeam partners constrained by federal regulations. As one combined company, the airlines no longer are encumbered by such competitive protections.
To measure savings, 3M takes "a very bottom-line approach," Carlson said. The company examines year-over-year savings "based on the same amount of travel, same number of cities--the footprint that we had at a certain point in time.
"We use discounts as our measurement," he continued. "So if we made an improvement of 2 percent on this discount, that is how we document it. All in all, we are very pleased with the way it worked out. We'll see the results over the next year or two."
The process presented a number of challenges, including skepticism among certain alliance partners. "The alliance concept is not universally applauded. The right to opt out by airlines created some problems for us," Carlson acknowledged. "Some airlines in the alliance said, 'I may not do that again.' " He also noted that communication between alliance partners required "a lot more time than we thought it was going to."
Moreover, given the complicated approvals process within 3M, "contract signing also was an issue," he added. Though agreements were "implemented" 1 February, "we have one contract that is still not signed."
3M negotiated the deals during a six-month window. "A year would be ideal, and nine months would be OK," Carlson said. "Six months was too short, but we did it. We scrambled, but ended up with a good outcome."
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