Procurement Picks Up Travel In The United States...
<B>Procurement Picks Up Travel In The United States...</B>
By Megan Hjermstad
Corporations cognizant that travel is a controllable cost are fueling a trend to move travel into the area of purchasing, where travel and procurement professionals use general purchasing techniques to buy travel along with other indirect goods. Proponents attest that stringent purchasing strategies can be used to leverage consolidated travel spending and negotiate with suppliers for better deals without sacrificing less tangible customer service aspects associated with business travel.
According to the 2000 American Express Survey of Business Travel Management, travel in 10 percent of corporations falls under the umbrella of purchasing. "Anecdotally, especially in larger companies, more often the travel management function is shifting or being shared with procurement," said Julie Hylton, director of American Express consulting services.
Hylton suggested that the move is a result of the changing financials of travel departments. The switch from profit centers to cost centers has made travel much more visible in companies as something that can be--and needs to be--carefully managed along with other indirect purchases.
Randy Babcock, manager for indirect purchasing at Anderson, Ind.-based Delco Remy International, said within the past 12 months travel has become more formally integrated with the purchasing department. "In the past, we just established a relationship with the travel agency. We took travel for what it was and we were never really challenged to cut costs and cut waste. Now, under purchasing, we have to pay more attention to cutting costs out of the process, monitoring activity as well as monitoring spend," said Babcock.
The shifting of travel management responsibilities to purchasing departments also is a direct outcome of strategic sourcing initiatives, in which external consultants are brought in to squeeze costs out of companies from top to bottom. "As a result of strategic sourcing and related procurement practices, management is realizing that wherever they are spending a lot of money they have to be applying smart management techniques," said Scott Gillespie, principal of Solon, Ohio-based Travel Analytics. "The travel industry hates to be compared to other expenses, but from a senior management perspective travel can be managed like any other category, or at least managed with a procurement mentality."
Connie Cirillo Freeman, director of corporate procurement and travel services for Stamford, Conn.-based Pitney Bowes, said that following a strategic sourcing initiative three-and-a-half years ago, the company began categorizing travel alongside procurement. "When we went out for strategic sourcing, we invited a larger group of potential suppliers than we had previously. It allowed us to cast a wider net and get a better idea of what was out there and available. We brought an objectivity to it when we went through a very defined process, and raised the level of discipline in people's eyes," Freeman said.
Other travel professionals agreed that a purchasing mentality lends higher objectivity to the supplier selection process. Yet, opponents criticize purchasing departments for being overly focused on cutting costs--without regard for service considerations.
Alesia Bertholomey, purchasing manager for corporate services and travel at Lake Forest, Ill.-based IMC Global Inc., who moved over to the purchasing side last August, refuted the perception that a purchasing strategy is only about cost savings at the expense of all other values. "It is not only about price, but about the best service you can get for the price," said Bertholomey. "Travel is very personal. Having been a travel manager and been on the travel side, I want to make sure employees are happy, are in a safe environment and get from point A to point B."
"Our experience is when procurement manages travel, price does take on more of a focus," said Hylton. "The best of all worlds is when all interests are represented so the decision is not completely price driven," added American Express' Hylton. "There are very valuable things both sides can bring to the table. Travel managers are more familiar with tradeoffs and hidden costs. They have a pulse on traveler satisfaction and have the ability to execute on agreements."
Travel Analytics' Gillespie said it is becoming common for companies to divide travel-related responsibilities between operations and procurement to harness the negotiating skills of savvy purchasing professionals and leverage the unique travel knowledge of travel managers. The operations side manages the daily agency operations and two-way traveler communication, while the procurement side evaluates and selects suppliers based on cost and quality. "Procurement is responsible, to some extent, that contracts are managed well and volumes committed to suppliers are met," said Gillespie.
That's the case at Rosemont, Ill.-based Comdisco, where acquisition manager for travel and facilities Kevin Ellison is responsible for vendor negotiations, while Helen Scoggins, director of travel and employee services, manages the day-to-day operations. "We are bringing a more sophisticated, more analytical, more seasoned approach to how we procure goods. We are very much moving in the direction of having a core competency set for contracts and financials separate from day-to-day operations," said Ellison.
Where purchasing affiliations can lend travel managers an upper edge is in these areas of negotiations and contracts. "I have learned a lot of new techniques for negotiations and how to analyze performance of vendors," said IMC Global's Bertholomey. "We have put strategies in place to measure supplier performance, benchmark against other companies and go back and renegotiate, if necessary."
The question is whether travel can be negotiated using the same objective criteria that apply to goods with less complex pricing, fewer add-ons and less personal preferences. "What's different about negotiating with Compaq and United Airlines?" asked Phil Mingin, vice president of procurement and corporate services for Melville, N.Y.-based Gentiva Health Services. "The general philosophy behind travel is the same for RFPs, negotiating and contract language. The only difference is United gives upgrades."
Purchasing managers said they are taking into consideration less quantifiable factors, such as upgrades, in their analysis.
"Because in travel there are many waivers, favors and perks, it is incredibly difficult to measure," said Ellison. "We try to apply metrics, not only to measure them, but to determine if we need them. We take an approach to what we need, and we do it in such tremendous detail that it works.