General Electric has scaled down significantly the use of online reverse auctions for sourcing hotels, reflecting to some degree shortcomings in that process and to a larger extent the swing in the pendulum from a market that favors buyers to one favoring hoteliers.
GE went from using 300 online reverse auctions in the travel department in 2000—primarily in the hotel category—to 20 this year.
GE primarily is relying on more traditional request for proposal processes for negotiating rates for its roughly 1.5 million annual room nights, said Tim Ohl, senior vice president, global sales and account development, during a session at the Association of Corporate Travel Executives conference in Vancouver, B.C., this month.
"One reason we're not doing as many auctions today as we did in 1999 is that a lot of benefit comes from shifting your travelers to the hotels where you get the rates. If you negotiate the lowest rate and you get a $50 per-night reduction in the hotel in that market and no one wants to stay there, you really haven't saved," Ohl said. "It's important to find a way to shift share in those markets."
General Electric's waning use of e-auctions for hotel negotiations is indicative of the industry as a whole. Even as such large market companies as Xerox, Lockheed Martin, Dell and Hewlett-Packard employed online auctions in a limited capacity
(BTN, Aug. 11, 2003), the practice never came to supplant more traditional hotel negotiating techniques or traditional RFPs.
Yet, Ohl said reverse auctions and e-procurement garnered savings and continue to work on a limited basis and in key hotel markets. "What we have seen over the past five years is approximately 5 percent to 10 percent savings over some of our traditional negotiations," Ohl said of reverse auctions, offering a rare glimpse into GE's travel practices. "For the early ones, we had some very large successes on hotel, but over time it's harder to get those savings."
GE is the second-largest buyer of travel next to IBM, with $1.2 billion in total travel spend, $900 million of which is spent in the United States. The firm was an early adopter, one of the largest practitioners and a proponent of online procurement. They also were among the first to use it for travel management.
"Our first e-auction was held in the late 1999 period in our GE Transportation Systems business," Ohl said. "In that auction, we auctioned $250,000 worth of safety goggles. We saved 57 percent in what we were paying with prior practices. The CEO of the company said, 'Go out and do it more.' "
Travel comprised a small percentage of GE's online procurement initiatives and the department quickly was brought into the fold. "In the year 2000, we did about 300 travel auctions and those primarily were around hotels in major metro markets," Ohl said. "We did a few city pairs in the airline industry and we also conducted some auctions in regards to meeting planning and events."
GE built an e-procurement portal on its intranet site, encouraged its use among procurement professionals in the company's various departments and even offered dedicated personnel to the e-procurement process.
In addition to housing the homegrown e-procurement tool in the portal, the company shared best practices and "market parameters," identifying shared characteristics for goods and services that lent themselves to the auction strategy. Ohl said markets with multiple vendors, excess capacity and bidders offering wide price ranges presented the ripest auction opportunities.
Ohl said that in the travel category, hotel has been the most likely contender for online auctions, as air and card programs are too complex to simplify with auction bidding. "If the pricing is complex, if it changes frequently, if there's a lot of fees or rate structures involved, it's difficult to model and to even understand if you're getting the best deal," he said. "In the airline industry and the card industry, that's the norm."