Procurement Practices 2010: Plying Evolving Service Metrics

Pushing past the traditional targets and metrics for widely expected service deliverables, travel buyers and procurement professionals are shifting their focus to key performance indicators and service-level agreements that impact cost and reflect intricate service elements.

Basic key performance indicators like call response time, quality control ratings and speed of reservation processing remain in travel management company contracts, but buyers now are targeting metrics that impact their bottom lines and can take their programs to new heights.

"If we go back to the beginning of SLAs, they were around what has been pretty standard service deliverables and moved to more sophisticated measurements that will drive a higher impact to the financials instead," said Carlson Wagonlit Travel North America vice president of sales and marketing Barb Barnard. "There is a laser focus on what is going to bring the biggest amount of return to your program and will drive the most positive impact that aligns with the corporate goals and objectives."

Those metrics, especially in the travel management company arena, include accuracy and timeliness of data reporting, driving preferred supplier usage and program compliance, and generating savings.

Global manager of meeting services Christopher Wall said Johnson & Johnson's supplier measurements are status quo, but its goals have shifted to reflect the changes in travel volumes and overall corporate objectives.

"We might look for a higher goal, try to have our agency work toward that and even have the agency vary them within service-level agreements so that there is a performance mark we strive to reach," Wall said. "We need the individuals who are doing the work at the point of sale to understand policy."

Like other companies that reevaluated travel management company relationships during the downturn, in 2008 Johnson & Johnson underwent a global travel management company consolidation bid process in which it added more service-level agreements.

"We continue to look for those types of opportunities with them and we look to do similar things with other suppliers," Wall said. "It can be difficult to get other suppliers to agree, but if we can take advantage of high-volume suppliers, that is the natural opportunity to get more conversation around SLAs. From a procurement perspective, we're measured on year-over-year incremental savings, so we look for every innovative opportunity that we can to drive the program."

When Energizer Battery negotiated its TMC contract several years ago, the procurement team put together a "very defined SLA agreement," said manager of human resources and travel services Doris Lee Middleton during the Strategic Travel Symposium, presented by Business Travel News and the National Business Travel Association in March. "If the performance was not at the level that we had expected, there would be a penalty for the TMC to pay. We wanted to incent them, so they had some skin in the game."

Energizer uses such KPIs as agent performance on calls, online and offline response time, online adoption and third-party audited lowest-fare search results.

That qualitative and quantitative mix gives Energizer "a tool that measures the relationship, so it's the contract that manages that daily operational piece," said Middleton. "This is the contract, this is what you agreed to, this is how I expect you to perform against on a day-in and day-out basis with the daily call management and all that stuff I don't want to know about. As the travel manager, I have other things on my plate. I want the contract to manage that."

While the TMC relationship often is the focus of supplier service level agreements, about half of the 277 respondents to this year's survey said they use SLAs in their airline, hotel and car rental contracts. Forty-five percent of respondents said they have SLAs with their TMCs, down from 54 percent last year and a high in 2008 of 65 percent.

The less mature area of meetings management is far behind travel in using procurement practices. This year, as in past surveys, about 14 percent reported service-level agreements with their meetings agencies. After reaching a high of 27 percent of respondents applying KPIs to meetings in 2008, this year, 20 percent said they are doing so. The survey also shows a drop in the respondents who include service-level agreements in meeting contracts, now at 19 percent after peaking at 35 percent in 2008.

Yet, suppliers have noted a shift as strategic meetings management philosophies, which incorporate some procurement practices, gain favor among corporate buyers .

Service and quality expectations remain unchanged in the face of procurement's rising influence in meetings contracts, said David Gauthreaux, senior vice president of sales for corporate events for event logistics and production company Freeman.

"The difference today is that in any conversation, procurement comes into it at the commodity level," he said. "There is price shopping. The amount of work involved now is fairly exponential. For instance, you typically plan for a major project and have a contingency plan. The typical logistics firm in that case even two years ago would say plan A is this and plan B is that. There are many more plans that have to be developed, which is considerably more work."

Less is more in approaching SLAs and KPIs, said Management Alternatives senior vice president Will Tate. "There is this desire to put 12 to 20 things in the SLA. That distracts and fragments the focus of what you are trying to accomplish," he said. "The question you want to ask is, what do you think needs a magnifying glass to focus in on?"

Of course, key performance indicators and service-level agreements have little use if they are not reviewed. The most common KPI review frequency continues to be quarterly, with 39 percent of survey respondents conducting such evaluations, while 31 percent do so monthly.

HRG client management director Stewart Harvey, comparing monthly reviews to weather reports and quarterly reviews to climate reports, said holding reviews at different times enables companies to have a better read on their programs. More than 70 percent of HRG client travel programs are managed by or through procurement organizations, he said.

Nearly three-quarters of respondents last year said they do not have financial incentives and penalties in their contracts, but that number dropped to 63 percent this year. The growth in using financial incentives and/or incentives in service-level agreement contracts is an effort for both parties to have some something at stake. Some buyers and suppliers also noted more of these contract clauses on both sides of the table.

Becton, Dickinson and Co. vice president of global procurement Chris Shanahan said the medical device company has lessened supplier incentives in SLAs and tightened contract language.

"We've probably been a bit more aggressive in our language with limo service and car rental providers," Shanahan said. "They have a habit of sneaking fees in. When the market was going up, these fees appeared out of nowhere and are not linked to our agreement."

Energizer included contractual clauses to make its travel management company responsible for bringing innovation, efficiency and cost savings to the program quarterly.

"If that didn't happen, we asked the travel management company to give up part of their management fees," Middleton said. "You want your travel management company to provide added value, and if they are not doing that, they should have skin in the game and there should be some kind of penalty."