Xerox Documents Hotel Savings
<B>Xerox Documents Hotel Savings</B>
By Bruce Serlen
By delivering room night volume to hotels in its key U.S. destinations in return for reduced rates--and throwing in multi-year agreements as an added sweetener--Stamford, Conn.-based Xerox Corp. is starting to see savings in its hotel program of 10 percent to 15 percent.
While Xerox is using 280 domestic hotels this year, it selected only 25 properties in 12 cities as "best value hotels," meaning they provide the best deals in cities where the company is confident it can deliver high volume. Rates for most of the remaining hotels are negotiated under a separate system and are considered "preferred hotels."
"These hotels will account for about 54 percent of the approximately 200,000 U.S. room nights we'll book this year," said Tracey Wilt, hotel consultant in Xerox's global purchasing department. "Because we're top-heavy this way, we can afford to take an aggressive stance in negotiations in those cities."
Overall, Xerox's program serves 17,000 domestic travelers, involving all company divisions. The total hotel spend was $25.5 million in 1999. At present, regions outside the United States negotiate their own hotel program, though there's interest in expanding the best value concept worldwide.
The move to the best value/multi-year approach took increased scrutiny at the bid stage and extra work in the short term. Driving the decision was Xerox's companywide mandate to achieve productivity savings in all aspects of operations, travel management included.
The best value initiative was introduced in 1999 and the multi-year component was added this year. In the pilot year, seven hotels were selected in four cities. "Of the four cities, two in the Northeast represented our greatest room night demand," said Wilt. "One is a strong hotel market, the other weak." Only one hotel would be designated a best value hotel in each city, though as many as three others would be identified as backups.
Because the concept was new, Wilt was concerned the parameters wouldn't be clear. "We invited suppliers in those two Northeast markets to join us on an exploratory conference call before we took bids," she said. "National sales managers for the hotel chains were invited to participate, but they could also include the general managers and sales managers of specific hotels at the local property level since that's where we were bringing the business." Independently owned properties were invited to participate along with the national chains.
"Tracey laid out the program and took questions," said Terry Rockell, travel services manager, who is responsible for implementing the program Wilt negotiates in her global purchasing role. "We felt it was important that everybody be on the same call, so there would be no question later what the criteria were. Often, sales managers will try to have private side conversations to promote their properties and we wanted to discourage that." Both Wilt and Rockwell are based at company facilities in Rochester, N.Y., and comprise the Xerox hotel task team, along with Denise L. Kirkby, the Xerox account manager at Carlson Wagonlit Travel.
Travelers to these frequently visited cities would be instructed that they had to stay in that best value hotel until it was sold out. Only then could they book one of the back-up properties.
"After the conference call, suppliers could submit two bids, one for the best value designation and one for the secondary/back-up slot," said Wilt. "It was clear we were looking for really competitive rates in return for the best value designation and multi-year agreement. Consequently, there were suppliers in the city where the hotel market is strong that chose not to bid for best value designation."
In the bidding process, Xerox stipulates certain amenities that it would like to see built into the agreement. The top three: a discount on all food and beverage charges including room service, free breakfast and free local telephone calls. Hotels that include these concessions are more likely to be named a best value hotel. Other amenities such as waiving fitness facility fees, meanwhile, are of less interest to Xerox.
When the best value concept was expanded to 25 hotels in the 12 cities this year, the Xerox team again employed the conference call approach because it creates a level playing field. "Basically, we're selecting fewer suppliers, which will direct our travelers to those hotels and, therefore, help ensure we meet our room night commitments," said Wilt.
The multi-year agreements are new this year as well. By and large, they're only negotiated with these properties. Typically, the multi-year agreement holds the line on rates for two years. "If for some reason, we shouldn't meet these room night commitments, the hotels are entitled to ask us to renegotiate," said Wilt. "So far this year, we're monitoring the data on a monthly basis and we're on track with each hotel."
Down the line, implementing this aspect of Xerox's hotel program should get less time intensive because there won't be another round of negotiations until the fall of 2001. "This has really been the year of setting the stage," said Denise Kirkby of Carlson Wagonlit Travel.
"With the multi-year agreements in place, we're only dealing with lower-volume cities in the off-year," said Wilt.
"The success of these agreements tends to depend on the company's ability to control market share and deliver on its commitments," said Julie Hylton, director of hotel consulting for American Express Consulting Services in Dallas. "From the hotel's point of view, much depends on the city in question, the travel patterns and the property's ability to get the rate it wants on those nights."
A key question, said consultant Barbara Snyder, president of Solutions & Resources in Irving, Texas, is whether the company has a headquarters building or manufacturing facility in close proximity to the hotel. "If the answer's yes," she said, "the volume will more likely be there and you'll want to lock in the rate."
An indirect advantage of the multi-year feature is that it eliminates traveler confusion. "There can be so much flip-flopping in the list of approved hotels," she said. "With multi-year deals, the list stays the same longer, so travelers are more likely to remember the approved hotels."
In negotiating for the preferred hotels in the program, Xerox typically works with hotel chains' national sales managers to arrive at an across-the-board discount off the basic corporate rate. This contrasts with the best value hotels where a flat rate is negotiated.
Kirkby uses the NBTA standard form to solicit bids in best value and preferred markets. "We collect the bids and then format the appropriate data into a database that allows the team to analyze the information in the most efficient way possible," she said. The entire solicitation and collection process is handled electronically with NBTA-compatible software.
Approximately 90 percent of Xerox's 280 U.S. hotels fall under either best value or preferred hotel status. For the remaining 10 percent, Xerox uses the consortia rates available through Carlson Wagonlit.
"We search for the best available rate in these markets," said Kirkby. "At times, it may be the consortia rate, while at other times there may be a seasonal or promotional rate available that is lower."
Given the productivity concerns underlying the whole program, Wilt said the goal is to use midprice hotels as opposed to full-service properties, which were Xerox's traditional choices. "Some full-service properties, however, are coming in with midprice rates, so we're able to stay with full service in those cities."
In terms of total spend, Xerox is interested in capturing this number because it will give the company increased clout at the negotiating table. "The room rate is one thing, but it helps us if we know the total amount our travelers are spending at a given hotel," said Wilt.
"Companies should realize, for example, that when they add food and beverage charges including room service to the room night spend, they're in a much stronger bargaining position," said Solutions & Resources' Snyder.
In all cases, Xerox negotiates for run-of-the-house availability for every room, including club floor rooms. This makes last room availability for standard rooms a non-issue. In cities where there are one or more best value hotels, travelers are instructed that they must stay there or at a backup, if the best value choices are full. In other cities, a preferred hotel can be booked.
"Before going outside the program altogether, travelers must get senior management sign-off," said Wilt. "When senior management hasn't given the okay, the company reserves the right to refuse to reimburse the traveler, which is an added incentive to get the necessary sign-off." In addition, Carlson Wagonlit is instructed to not book the room if approval isn't in place.
As with so many innovations in travel management, clarity and consistency of communications is crucial in building understanding and compliance. "We're moving away from print directories in favor of increased electronic communications," said Rockell. "In fact, we're expanding our Web site, which already contains the hotel policy, to highlight special provisions of the policy as well as to include travel advisories and news of special hotel promotions."
Wilt and Rockell said that the backing of Xerox's most senior managers has been a key factor in the success not only of the best value/multi-year hotel initiative, but other programs to drive down travel costs at the company. "Starting with president and CEO G. Richard Thoman, senior management has really supported what we're attempting," said Rockell. "Because they 'walk the talk' so readily, other travelers in the organization are more willing to follow suit."
In the long run, Kirkby expects Xerox's new approach to free up time to allow the team to focus on future savings opportunities. "After all, we believe there are additional cost-saving possibilities out there. We just have to find them."
While it tries to control costs for those traveling, Xerox also is looking strategically at the number of employees traveling for the company in the first place. "This is really step one in the travel management process," said Rockell. "More and more people are being encouraged to use videoconferencing and teleconferencing in place of taking a trip or alternately to combine trips." As a result, the 200,000 room nights Xerox will buy this year is down about 10 percent from the annual number in the mid-1990s.