Co. Auctions TMC To Bidder W/ Simplest FeesCompany: Focus Wickes
Headquarters: Crewe, Cheshire, U.K.
British retailer Focus Wickes has hacked a pioneering path in the travel jungle by selecting its travel management company via a reverse online auction. Persuading TMCs to bid online has become increasingly common in the United States—DuPont was one recent example
(BTN, May 10)—but has been almost unheard of in Europe. To date, most travel-related e-auctions east of the Atlantic have been for hotel rates.
One notable feature of the Focus Wickes auction was the simplicity of the fees on which the candidate TMCs were bidding. The DuPont auction involved candidates bidding online for seven different TMC services, such as management reporting, but did not deal with booking fees, which were handled instead by face-to-face negotiation. Focus Wickes asked candidates to bid on just two fee types, transactions booked by telephone and those made online. These flat fees are truly flat—whether short-haul or long-haul, hotel or air, the price is the same, the only differential being online versus offline. The result has been startling: The transaction fee bid by the winning TMC, Expotel, was 62 percent lower than what Focus Wickes had paid to the principal previous incumbent. The contract starts later this summer.
The success of the project may have something to do with the unusual profile of the Focus Wickes travel program. The group owns two do-it-yourself store chains, Focus and Wickes, all of which are in the United Kingdom. Most business journeys between the 431 stores and various administrative offices are by private car, which means the overwhelming majority of its estimated $1.6 million travel budget is spent on domestic hotel nights, many of which are not available in the global distribution systems. There is a small, growing air volume, mainly for buying trips to the Baltic states and the Far East. The predominance of hotel spend was reflected in the choice of TMC. Expotel is primarily a hotel booking agency but also holds an IATA license for handling air reservations.
Focus Wickes chose the e-auction route for its TMC selection after having used the same technology for 14 other spending categories, both direct and indirect, since April 2003. Items have included work-wear, pest control, solar lights and the standard door Focus Wickes sells in its stores. In all cases, the bidding process has been handled by a company called Trading Partners, which also has been responsible for researching potential supplier candidates. "Trading Partners has done many of these events, and it has a massive network of information," said Nigel Stewart, head of group procurement for Focus Wickes. "I have great faith in the integrity of the suppliers it presents to us."
Previous e-auctions have produced average savings of 24 percent, making this first incursion into an arguably less easily specifiable commodity all the more remarkable for its 62 percent figure. However, John Hatton, commercial director for Trading Partners, does not view travel as a special, nonquantifiable case. "Travel is easy," he said. "We have a lot more difficulty specifying services like fulfillment." Trading Partners, which claimed to have auctioned everything from apples to zinc, has handled hotel and car services bids for other clients in the past, as well as TMC transaction fees.
On the travel side, Focus Wickes currently has incomplete management information because part of its business previously has not used a single, preferred TMC. The 10 participants in the auction therefore were given a spreadsheet estimating the group's total annual travel transactions. On the day before the e-auction took place, Focus Wickes and Trading Partners coached them in the process and walked them through the event. Bidding started with a price set at 1 percent below the fee Focus Wickes was paying to its principal incumbent. As participants fed in their bids for both phone and online bookings, the Trading Partners package calculated the likely total price for the client. Focus Wickes is hoping its travelers—fewer than 1,000 qualify as frequent, but as many as 10,000 travel infrequently—will make half of their bookings online, but based its modeling on the assumption of 70 percent made by phone. Participants could see their own price on their screens, plus the price, but not the identity, of the lowest bidder. The auction took 90 minutes and ended with three suppliers bidding more than 50 percent below the incumbent price. However, a slight confusion over the criteria for the fees being auctioned ultimately led Expotel to correct its figure slightly upward. Focus Wickes was careful not to express a preference for any supplier, such as through a shortlist, until the bidding was completed. "This let us negotiate from a position of strength," Stewart said, since no supplier was able to bid high safe in the knowledge it was a preferred bidder. Stewart is convinced that the reverse e-auction is a much better method than traditional offline negotiation. "In the context of the process we work with, buying travel is no different from buying anything else," he said. "The mechanics of getting a price from one supplier and then from another supplier is the same for all commodities, and we back it up with a strong process and capabilities audit."