IBM Offers Procurement Service For Small Cos.

Poughkeepsie, N.Y. - IBM Leveraged Procurement Services last month introduced a travel procurement division that provides its services to companies with under $2 million in annual air spend. Offered in partnership with Minneapolis-based Carlson Wagonlit Travel, the Business Travel Savings Program already has 40 clients in varying stages of implementation.

BTSP is neither a consortium nor a group-buying program, but it offers clients discounted rates from air, car and hotel suppliers, and fulfillment services from travel agency CWT.

IBM Leverage Procurement Services' new division hopes to fill a vacuum in the travel management business created by small companies that do not manage their travel procurement. This market segment historically has received scant attention from large agencies. With the elimination of base commissions, the small agencies that have served these small businesses are shutting down en masse, setting the stage for the entrance of a large outsourced travel procurement program like BTSP.

One of BTSP's only competitors in the outsourced procurement of travel is Colorado Springs-based Alliente Inc. Similar to IBM Leveraged Procurement Services, Alliente provides companies with outsourced procurement for a number of commodities, including travel. Unlike IBM, however, Alliente will not procure only travel for its clients—travel is only part of its procurement platform.

CEO Bob Grant said Alliente typically handles procurement for large companies with annual air spending that ranges from $20 million to $100 million, but the company is interested in branching out into smaller markets: "In the future we are looking to get into smaller markets," he said. "Demand is increasing for outsourced procurement, especially when it comes to travel. In today's marketplace, companies of all sizes are looking for purchasing alternatives." For now, Grant said the competitive field for the outsourced procurement of travel is very narrow. "We have very few competitiors that I know of," he said, citing IBM and Jenkintown, Pa.-based ICG Commerce as two examples.

Besides CWT, none of the mega travel management companies reported that they fulfill travel buying for such third-party procurement companies as IBM, ICG or Alliente.

CWT fulfills "a good chunk" of Alliente's travel procurement, Grant said, and the travel management company also handles fulfillment for PricewaterhouseCoopers' travel procurement program E.conomy, which was launched in early 2000, and had 100 clients as of last May. PwC would not comment on the current state of it procurement business by press time.

At the core of the new program are IBM's relationships with vendors, said Terry Bynum, executive consultant for IBM Global Services. She emphasized that BTSP does not leverage IBM's travel spending, which at $439 million in U.S. booked air volume in 2000 placed the company at the top of BTN's Corporate Travel 100 (BTN, Aug. 27, 2001). "This is totally different from the group that buys travel for IBM. We are not leveraging contracts or volumes—we are leveraging our relationships with suppliers," she said.

IBM, as one of the biggest consumers of travel in the world, has developed a number of strategic relationships with travel vendors over the years, Bynum said. When the company identified a market for travel procurement for small companies, it used those relationships—but not its travel spend—as the motivator for supplier participation.

"We came up with services from airlines, hotels, car rental companies and an agency: Carlson Wagonlit Travel," Bynum said.

Approximately 80 percent of the U.S. travel market is covered by participating suppliers, Bynum said. Six major air carriers, 12,000 hotels worldwide—including Hyatt, Radisson and Starwood properties—and car rental companies Alamo Rent-A-Car and National Car Rental participate in the program. All discounts are passed to clients in their entirety, and the program receives no income from vendors. "It is totally funded by implementation fees and transaction fees assessed by CWT at the point of sale," Bynum said. "All the deals are net-net." Clients can achieve discounts of up to 20 percent on air and car rental, and 30 percent on hotel rates.

Companies that participate in the Business Travel Savings Program must meet specific market share commitments to compensate suppliers for those discounts, and not every company with under $2 million in annual air spend is right for the program.

"We assess the travel patterns of a potential client company, and we take it from there," Bynum said. "We are not interested in having companies come in and only use the program part of the time."

BTSP has a standard travel policy that it rolls out for client companies to drive compliance to program suppliers, and CWT monitors client companies' performance with preferred suppliers and reports on compliance to IBM. If a company does not adhere to program guidelines, it could be ejected from the program.

"Client companies need to adopt the policy and adhere to it to stay in the program," Bynum said. "Companies must stick to their commitments, because we have to deliver value to suppliers for their discounts."

For CWT, working with IBM on BTSP means a higher profile in new horizontal markets.

"This is a great opportunity in the sense that it will expand our reach to middle market and small market companies," said Bob Briggs, CWT executive vice president of business development and marketing for North America. "For the most part, these companies are so small they cannot really drive their own contracts with travel vendors—they need the help of a professional travel management company. With this program, they also share in the benefits of being part of the IBM group and IBM's clout with suppliers."

The small companies who participate in the program will be signed on for CWT's all-in-one Symphonie travel management platform. Symphonie's holistic approach to travel management—including call centers, a self-booking tool, Internet-based reporting and customizable travel portals—is suited to small companies, Briggs said, because it consolidates many components of travel management. "The person who buys travel at a small company often wears many hats," Briggs said. "Symphonie is perfect because it delivers a variety of different services on a single platform."

Tom Frillici, BTSP program executive, said IBM's entire program is meant to be user-friendly. "We have loaded our discounted rates into the Carlson system—and Carlson takes it from there," he said. There is no contract length for companies that want to join the program.

BTSP is being offered in two tiers. The first, called Quick Start, is designed for companies that do not require any reporting from their agencies. Companies with less than $500,000 in annual air spending must select the Quick Start option, which does not have any implementation fees and can be rolled out in as little as five days.

The second tier, Quick Start Plus, is for companies with $500,000 to $2 million in annual air spending. This option provides reporting from CWT's Symphonie platform, including executive travel summaries, air activity reports by traveler and city pair, and hotel and car rental activity summaries. For companies with $500,000 to $1 million in air spending, the implementation fee is $500. For companies with more than $1 million in annual air spending, the implementation fee is $1,000. Implementation can be completed in as little as 30 days.

Frillici said BTSP is being rolled out to the market methodically. "First, we are getting the news of our new program out to IBM's small to midsize market clients," he said, "but this is a public offering and we intend to serve a client base beyond IBM's current client roster. We have a growing list of customers that have been very pleased with the services and savings."

The new division hopes to handle $40 million in air volume by year-end, based on demand driven, in part, by the tight economy. "Everyone's travel budget is under scrutiny," Frillici said, "and everyone is looking to save travel dollars."