Biz Travel Giants Push Consortium Purchasing

<B>Biz Travel Giants Push Consortium Purchasing</B>
<I>IBM To Follow PwC In Launching An E-Procurement Initiative</I>

By Megan Hjermstad

IBM Global Services next month will deliver a suite of procurement services on Ariba's B2B e-commerce platform that will offer member companies access to travel services and fulfillment provided exclusively by Carlson Wagonlit Travel.

IBM's willingness to tackle group buying of travel, among other goods and services, is bold, given the recent decision by EDS' CoNext, a similar e-enabled purchasing platform launched early last year, to back out of the travel game after attempting consortium buying for air.

Meanwhile, PricewaterhouseCoopers is continuing to pursue group purchasing of travel as part of its similar e-commerce initiative, E.conomy, also launched early last year (BTN, Jan. 24, 2000). Carlson Wagonlit also has partnered with PwC and is providing travel service to 100 E.conomy clients in the United States and Canada.

Jim Day, vice president of client service for Carlson Wagonlit Travel, said, "For years, companies in various industries, typically small to midsize, have been trying to leverage travel spend. The next evolution is consortium run by such mega companies as PwC and IBM. It is the type of offering whose time has come."

IBM's Leveraged Procurement Services portal will enable customers to purchase office goods, industrial materials and temporary staff, in addition to travel. While the online environment will allow IBM easily to aggregate customer volumes, it now is challenged by the stigma of failed e-businesses. "Most companies have a little egg on their faces in terms of e-business," said Kevin Mitchell, chairman of the Business Travel Coalition. "When the bubble burst, a lot of companies felt embarrassed that they were e-everything. It is not going to be received with as much enthusiasm as a year ago."

By creating a combined online and offline approach, IBM may be able to move forward without that negative association. CWT will offer LPS members a standard pricing agreement that includes the ability to book reservations by calling an 800-number or using Carlson's proprietary online booking tool, which links directly from the Ariba platform. Companies within LPS that have their own negotiated rates will be able to access them, in addition to CWT's negotiated rates and any deals negotiated by IBM on behalf of LPS clients. IBM was not prepared to comment on how it plans to purchase travel for LPS, but Day said IBM will leverage its own travel spend to try to negotiate deals with travel suppliers on behalf of LPS members.

While many consortia have tried group purchasing, the "airlines are really reluctant to negotiate with consortium," said Scott Gillespie, principal of Solon, Ohio-based Travel Analytics, which did the airline analysis for CoNext. "The industry economics are not in favor of it because there is not a lot in it for suppliers. My sense is they found the travel category did not lend itself well to typical consortium principles."

PwC's E.conomy has brought on Hyatt, Starwood, Swissh&ocirc;tel and Budget Car Rental, but the only airline it has brought on is foreign carrier Ansett Australia. "We really haven't pushed far down the air path. It's harder to get it to come together," said Richard Beaumont, global business leader for PwC's E.conomy. "We want to focus on things we can get to market rapidly, since the context is broader than travel."

Meanwhile, the Corporate Travel Consortium, founded last year by a group of six travel managers, intentionally has tackled car and hotel first, despite the fact that air offers the greatest potential pay-off (BTN, March 20, 2000). "If you poll people in the industry, they will all tell you the airlines are not willing to do it. We wanted to save the biggest stumbling block for last," said Kevin Maguire, travel manager for Tokyo Electron America in Austin, Texas. However, in a slowing economy in which the major carriers are reporting low revenues and low yields, the airlines might be more responsive to consortium efforts.

"The timing is right because of the softness in the market," said BTC's Mitchell. "Carriers need high-yield business, so if IBM or another group can bring business they are not getting today, they may consider it. It is not a situation where they have seats to fill, but they will be looking for opportunities."

Moreover, the airlines have never dealt with a consortium led by a giant like IBM. "It's a whole different ball game dealing with someone with that name, power and spend. It will be interesting to see what they can achieve in an area where other people haven't," said Day.

IBM, the largest buyer among the Corporate Travel 100, with $460 million in U.S. booked air volume last year, has a lot of clout based on its individual spend, but Maguire was skeptical that it could persuade suppliers to participate in its initiative based on volume alone. "If you go into negotiating with a bullying approach, it will not work. If you go in with a concept that it should be win-win for both sides, it can work. Just because you're big and your name is out there isn't enough," said Maguire.

Although IBM has spending power to leverage, and may be able to drive incremental business to a particular carrier, it still has to convince the airlines it can govern the spend of its members in order to meet market share agreements. "It breaks down to how you can get each member to give enough skin in the game," said Gillespie. "Unless every company pulls its fair share, then the consortium disintegrates."

Tracking data could be the solution to giving consortium credibility with the airlines. The CTC is considering purchasing third-party reporting and data warehousing software that will allow the group to monitor its spend individually and as a collective group. "The vendors said it is very rare to ever see a group well put together. By sharing information, we can look and see who is doing what they're supposed to be doing," said Maguire.

While vendors are the primary restraint to the viability of a purchasing consortium, some question remains as to whether a group buying effort really can provide economic value to the corporation, particularly given that IBM will charge a subscription and transaction fee based on a customer's overall spend. "Unless there is a very substantial discount to member corporations, it is hard to justify," said Maguire.

PwC's Beaumont explained the benefit for E.conomy clients as follows: "On hotel, you're looking at getting the same benefits PwC has on our rates. We are consistently offering incremental benefit of 10 percent to 20 percent just on the purchasing power.