Lilly Pares Vendors, Goes Net

<FONT SIZE="+3"><B>Lilly Pares Vendors, Goes Net

</B>By Stefani C. O'Connor

<I>Indianapolis </I>- A corporate initiative to "operate smarter" within pharmaceutical giant Eli Lilly and Co. has resulted in the consolidation of its travel policy in North America, an effort that is expected to spread to Europe, Asia and other parts of the world.

The move includes drastically reducing the number of travel suppliers and the use of net-net airfares.

Implementation of the program began last month under Business Travel International, which retained its lock as the incumbent management company for the majority of Lilly's travel after the corporation put the business out for bid earlier this year. BTI will manage the North American business through its partners: BTI Americas in the United States, Rider Travel Group in Canada and Location Travel in Puerto Rico.

The move is expected to transform Lilly's scattershot approach to travel management into a streamlined, cost-efficient operation that ultimately will drop to the corporate bottom line. With the exception of its Indianapolis and Phoenix on-sites handled by BTI Americas and business moved by Rider in Canada, within North America Lilly had used a wide range of travel consultants stretching from mom-and-pop agencies to American Express. That business will now migrate to BTI, which has an "evergreen" transaction fee-based contract with Lilly.

As part of the consolidation, air, hotel and car programs have been retooled, with deep cuts made in the number of preferred suppliers. For example, prior to the consolidation, Eli Lilly did business with some 7,000 hotels; only 150 of them are now considered preferred. In addition, the number of airlines has been slashed by two-thirds, dropping from 15 carriers to five, with net-net programs in place at a better than 30 percent discount. In car rental, Lilly moved from Hertz to National as a primary supplier.

The change is being driven by a company mission to get the most from its corporate spend in all sourced areas-from widgets, nuts and bolts to test tubes and lab animals-in order to keep it a viable and thriving business. Not surprisingly, 120 years after its founding as a family-run business, publicly held Eli Lilly is finding itself facing stiff competition in the global marketplace.

"We're saying can we be smarter in the way we buy things," said George Odom, manager of travel and corporate meeting services. "Can we bundle it together? Can we break it apart? Can we bring different groups together to buy things at the same or better quality at a lower price? Travel was one of the groups that was in the first wave of this process."

Eli Lilly booked $26 million in air in the United States during 1995, with a total T&E spend worldwide of $72 million. Sixty percent of all travel expenditures are on domestic travel, with 40 percent going toward international.

The key to the new program is a three-pronged incentive approach that is expected to control how some 8,000 Lilly travelers move within the policy parameters.

"It's simple," said Jennifer Eiler, BTI Americas client services director for the Eli Lilly account. "Number one, travelers use the form of payment the corporation has determined is preferred, or they don't get reimbursed." For the majority of Lilly business, that's First Bank Visa, although some operating units in Canada use American Express.

Second, all travel reservations must go through travel services or there's no reimbursement. With an on-site at Eli Lilly headquarters, BTI Americas handles both travel and a corporate meetings management program, which is targeted for sourcing next year. The corporation spent some $3 million in air for meetings during 1995.

"We feel we're only touching one-half to two-thirds of the Lilly meetings business," said Eiler. "People sometimes bury those expenses in their general ledger. When we get to sourcing of the meetings and consolidating that business, we're going to have to get in real thick in the general ledger to figure out what that expenditure is."

Third, travelers are expected to use the preferred suppliers if they want to get reimbursed. Exceptions to policy must be pre-approved by an Eli Lilly operations committee board member.

While not a mandated policy, the new program is a stark contrast to the corporation's previous policy, which, Eiler said, was considered "pretty liberal. The language was, 'you should' use the travel services department, 'you should' use good judgment in booking hotels. Now the key is you won't get reimbursed." She expected the policy to drive savings over and above the consolidation of suppliers.

"It's not just something to control costs," Odom said. "It's something to meet corporate objectives, which is managing our costs. And it's not really reengineering because part of reengineering is 'redoing' people. We didn't look at this to say, 'let's get rid of people,' but to say that we can operate smarter."

He declined to speculate on how much the company might save through the new travel program, saying he would have a better idea by the middle of next year.

In the meantime, the company and BTI will examine technology, particularly in the area of electronic booking. Eli Lilly's internal e-mail system includes traveler profiles, requests for travel and electronic travel authorizations.

"Most of what we're looking for is being able to book and then QC the parts of ticketing," Odom said. Although some Lilly travelers avail themselves of paperless ticketing, Odom said lack of standardization across carriers makes the process cumbersome.

Other areas being studied for savings include alternatives to travel, such as videoconferencing; incorporating third-party self-serve reservations; and in the future, bringing in point-of-sale technology via BTI Americas' Mantis architecture, and handling meetings calls via the Internet or fax.

The corporation now is looking to bring the consolidation strategy worldwide, with an initiative under way in Europe, where Lilly uses multiple agencies.

Although Odom said it might be easier if BTI wins that piece of business, he noted that it must be a European decision. "It can't be someone sitting here in the United States deciding what's best for that group; that's doomed to fail," he said. "Going from Germany to France is a lot different than going from Indiana to Illinois. We're doing the internal evaluation to see what our needs are, because how can you go out for bid if you don't know what you're asking the supplier to do?"

The idea of a single global contract, while appealing in theory, is not something Odom sees in the near future. "It always tickles me because everybody always talks about global consolidation, but when you get talking to them, they're only talking about Europe," he said. "But you've got South America, Africa, Asia. If we're going to manage our travel budget and dollars, then those areas have to be in that realm, and those needs are completely different than in Europe." Odom said these regions will be considered for consolidation "at a much later date.