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Research

Procurement Practices 2010: Managing Demand And Structure

By Michael B. Baker / April 11, 2010 / Contact Reporter
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Many travel procurement executives this year are ratcheting up use of such demand management practices as remote conferencing and more restrictive pre-trip approval processes after a year of trimming double-digit percentages from their travel budgets.

Companies saving travel dollars through videoconferencing technology neared critical mass in this year's Procurement Practices survey, with just under half of respondents saying they saved money through that demand management practice, compared with 37 percent in 2009. The same percentage also reported year-over-year increases in videoconferencing levels, which is fairly consistent with levels in the survey in the past few years.

In particular, companies focused on using the technology to cut travel for internal meetings, said Christa Manning, director of Expert Insights research for American Express Business Travel Global Advisory Services. "Customer-facing travel remains important, and a priority," Manning said. "Face-to-face meetings are important."

Christopher Wall, global manager of meeting services for Johnson & Johnson, said that has been the case for his company. Examining citypair and hotel data, the company determined that its highest volume of travel occurred between New York and Brussels and Amsterdam, he said. Johnson & Johnson installed two telepresence sites in Belgium and four sites in its New Jersey headquarters and is establishing a global network of them, Wall said.

"We've built sites throughout the U.S. and throughout EMEA and are expanding them in Asia as well, though we only have a couple in South America," he said. "We really went about trying to figure out where they would go within J&J. They were a project of the IT structure, and we worked with them to provide travel data, identifying where would be the logical locations."

Improvements in the technology have widened its adoption. Tommy Hilfiger purchasing director John Ingegneri said his company only recently has begun a significant investment in it.

"Being in the clothing industry, look and feel is very important," Ingegneri said. "Years ago, somebody would be on the screen, and you'd have to ask if they had a blue jacket or a black jacket. The quality of the HD now is so good that you can really see the fabric, the different contours on the fabric and the colors."

Marriott International and Starwood Hotels & Resorts each in recent months has gone live with in-house remote conferencing studios at key gateway city properties, and both hotel companies plan to add more studios across the world during the coming year.

As those efforts proliferate, and the technology suppliers work on interoperability among the disparate systems, remote conferencing usage stands to grow even further.

"If the interoperability issue does get solved smartly, we wouldn't have to have rooms everywhere," Wall said. "We'd be able to do it by having them go to a hotel or some other public facility."

Ingegneri said it remains to be seen how extensively Tommy Hilfiger travelers use the equipment. "This is coming down from the CEO, so I have to think there will be some buy-in in the beginning, but some people truly love to travel," he said.

Wall, however, said Johnson & Johnson already is discovering benefits to the tools outside of cost savings. For one, the productivity of meetings has increased, he said.

"It starts and ends on time because there are controls to be able to do that, and there are others waiting at the door for it," Wall said. "You're concentrating on accomplishing what you need to accomplish. You're also able to bring people into a meeting who ordinarily wouldn't have traveled."

He said he also views it as a quality-of-life improvement for the company's business travelers.

"If you can travel two or three times less and have a better home life, from the perspective of employee retention, we're ahead of the game," Wall said.

In terms of pre-trip notification and approvals, 39 percent of survey respondents said they use both in their travel program, up from 32 percent in 2009. Only a little more than a quarter of respondents said they used neither. Additionally, 41 percent of respondents said they had made the processes more restrictive in the past 12 months.

"That was definitely something we saw take hold in 2009," Amex's Manning said. "Pre-trip alerts and approvals really were given a second look and adopted by many companies that in the past may have felt, culturally, that it would never work."

As with remote conferencing, technology improvements also have aided growth in the practice. While pre-trip authorization once was not considered a best practice due to its potential to clog up the travel booking process, companies now can implement systems allowing for quicker automated approvals.

"With the availability of mobile solutions, managers can now be on the road and make the approvals," Manning said.

Outsourcing levels, meanwhile, remained somewhat steady compared with previous year, according to the survey. In 2010, 16 percent of respondents said they had increased travel services outsourcing in the past 12 months, while the vast majority—about two-thirds—said levels remained steady.

Carol Ann Salcito, president of travel management consulting firm Management Alternatives, however, said she's seen a significant uptick in recent years in companies placing employees of agencies in the travel management roles.

The danger with that, she said, is that while such programs can do well at running data, these individuals generally are limited within the scope of their agency and may not have an unbiased position.

"I'm watching programs that are becoming much more costly to the corporation and not providing them the complete value," Salcito said. "If you go out and do an airline bid, for example, you should have the ability and know-how to know what all the agencies are doing."

Within the individual travel task categories in the survey, air programs saw a slight uptick in outsourcing year over year, while several other categories—hotel and car rental, for example—were down slightly compared with 2009, though still significantly higher than 2008 levels.

American Express' data showed an even greater surge in outsourcing air programs, according to Manning. She attributed that to such industry challenges as reduced capacity and ever-growing ancillary fees.

"Outsourcing of air acknowledges the external expertise and support needed to stay on top of the industry," she said. "It lets them best negotiate a mix of carriers and alliances and gain access to benchmarking data to get a competitive deal."

Manning attributed demand management strategies' growth in part to increased involvement of procurement in travel.

"Companies that have travel driven by procurement professionals have a much better ability to do demand management than other functions, most notably when travel is overseen by human resources," she said. "They're pretty weak in terms of demand management."
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