Travel procurement
is stuck in a rut, wed to old-school principles and practices.
Think hard: When
were the last big changes in the way buyers procure air, hotel, ground
transport or travel management company services?
- Airlines: Linear optimization modeling in 1994, scenario modeling in 1999, both to
minimize the amount spent on suppliers
- Hotels: Online
reverse auctions circa 1997 to drive room rates down
- Rental cars: Online reverse auctions circa 1999 to drive rental rates down
- TMCs: Online
bid modules and scoring circa 2005 to reduce the request-for-proposals workload
For the past 20
years, it's been all about price. For all the grand talk about strategic
sourcing, "modern" travel procurement boils down to a hard focus on
price reductions, or if not, then creative accounting's version of cost
avoidance.
The problem is
clear: How can both buyers and suppliers in the long run win under this
premise? Such intense price-based negotiations lock both sides into a low-value
future. We've reached the point of diminishing returns with this old-school
procurement model.
How can both sides
reframe the quest for mutual value? It's a two-part prescription. Procurement
professionals already practice these principles in other expense categories, so
setting travel on a new-school track shouldn't be too hard.
Focus On Total Cost Of Travel
Fortunately,
procurement gets the total-cost concept. Exhibit A: total cost of ownership for
a fleet of cars. Procurement looks at the lease costs, fuel economy, insurance
rates and safety records. Why not do the same in travel?
Travel-supplier
costs are only part of the picture. Buyers must factor in the human cost—the
wear and tear, or traveler friction—which comes in six measurable dimensions:
higher stress, lower productivity, lower engagement, higher health care costs,
worse safety records and higher attrition and replacement costs. Just as a good
engine burns out when it overheats, so do travelers who travel too much.
Traveler friction
costs are greatest among high-intensity road warriors. Identify those travelers
in the top 5 to 10 percent of all travelers on a few key travel metrics, such
as hours flown, nights away and time zones crossed, then start with the easiest
HR metric to measure: Monitor voluntary attrition rates among road warriors,
and get HR to quantify the cost of replacing these folks. Add this cost
component to get a freshman's view of the total cost of travel. To get a more
advanced view, work with HR to obtain timely metrics on the other five
dimensions.
Maximize Value By Measuring Quality
Procurement's goal
is to secure high-value contracts with the supply base. All this old-school
focus on price crowds out the question of quality—and hence value. Travel
procurement needs to change the goal. It should be all about maximizing value.
You can't credibly do that without measuring quality.
The sad fact is that
most every travel category RFP contains a boatload of questions about
quality-related issues, but few of the answers are ever scored, weighted and
used rigorously in the travel-supplier-selection process.
For proof of travel
procurement folks taking quality for granted, look for any sourcing example of
a before-and-after measure of travel-supplier quality. If they existed, they
would be reported side-by-side with the before-and-after price changes.
It's this highly
visible relationship between a change in price and the corresponding change in
quality that offers travel suppliers a brighter future. Under this paradigm,
suppliers are encouraged to deliver more value to buyers, even if it means an
increase in price. Likewise, buyers are encouraged to learn what their
stakeholders really do value and therefore how to define quality.
New-school
procurement needs to report the change in value, not just the change in price.
Measuring travel-supplier quality is not easy, which is largely why it isn't
being done. But this hasn't stopped procurement professionals in other categories,
so it should not be an excuse for those procuring travel.
This report originally appeared in the May 2015 issue of Travel Procurement.