As part of its sweeping procure-to-pay project, the University of Pennsylvania this month introduced a travel and entertainment policy that heralds a re-engineering of the way it manages, negotiates purchases and leverages its $40 million to $45 million in annual T&E spend.
Penn in the spring of 2006 began the procure-to-pay initiative, "making it easier for the university community to conduct business by making financial activities more streamlined, efficient and transparent" than previous practices. The collaborative effort of purchasing, the office of the comptroller, finance and information systems promises to deliver $50 million in cost-containment during a four-year period that ends in June 2010.
Penn's P2P objectives fall into one of five areas: training people how to purchase on behalf of the university, process improvements, compliance, supplier payment and cost containment. To gauge the return on investment, performance metrics are tracked and published for each spending category. In travel, Penn plans to measure performance by cost savings defined as "negotiated travel services cost savings, travel revenue, and travel contracting or the number of new preferred discount contracts."
[PROFILE_1]A buying decision chart indexed by supplier and commodity purchase type was created to help faculty and staff know how to buy and what needs approval. The Business Enterprise Network (BEN, a tribute to university founder Benjamin Franklin) serves as an integrated, Web-based financial and e-commerce system for purchasing, accounts payable and the general ledger. It integrates with the new SciQuest-based marketplace to purchase common goods and services online, and the MasterCard purchasing card.
The travel spending category came into focus last year as officials began to review the travel policies, practices, contracts and even the reporting structure, and found that "we certainly don't have a shortage of opportunities for efficiency," according to chief procurement officer Ralph Maier.
"We have great technology out there that makes it simple to select goods and services in an efficient way, but we don't really have any of that kind of thing with travel. That's really where we want to head because travel is a commodity no different than that," Maier said.
The university for decades has managed travel with policies and negotiated contracts, but the process is manual. Faculty and staff may phone an American Express travel desk and use a centrally billed card, but they are not mandated to do so. Paper expense reports are routed, approved and reimbursed. Some employees use consumer online booking systems because the university doesn't offer a corporate tool.
As Penn searched for opportunities, associate comptroller Tom Slavinski said, even the structure and responsibilities of the travel manager needed to be redefined. Travel administrator Susan Storb had little time to "deal with travel providers and opportunities with travel services and the T&E card," given that she and a small staff processed about 4,000 T&E reimbursements each month. Reporting to finance, Storb had managed travel for more than a decade. In July, expense reporting and reimbursement moves to payroll/corporate tax but remains in the finance division. Travel moves from finance to a new business services division.
To prepare for the policy and other changes, Storb and Maier during the past six months negotiated new contracts with airlines, car rental providers and even a unique car-share program.
The benefits of the new structure, Maier said, are that "I'm able to bring resources from across the division to the table. Susan is the travel expert; she knows the industry inside and out. Our role is really one to complement her travel knowledge and capabilities by bringing resources. If we're looking for an online booking product, I have a whole e-business team that I can bring in to support her. If we're negotiating new contracts, I have sourcing managers who bring contracting and project management expertise to the table." Also part of the collaborative effort is access to communications and marketing expertise.
[PULL_1]As they looked at ways to streamline travel procurement, officials realized that the focus really needed to be much broader. Maier said several questions were raised, including: " 'What is the right way to provide travel services to the campus community?' "
Following the process used for other procurement categories, the university established "P2P champions" for travel in the form of a 14-member travel advisory council. The council is tasked with creating policy revisions, travel and T&E Web pages, travel forms, broader booking options and enhanced communications.
The new travel policy, effective July 1, includes four major changes, the first of which is a requirement that "higher level" approvers authorize expense reports. This change was implemented mainly to ensure that travel follows the same approver hierarchy as other purchasing within the university, explained Slavinski.
The new policy also encourages faculty and staff to use the "preferred booking and payment methods" by placing a call to the American Express travel desk to have the travel centrally billed or use an individual's American Express corporate card to capture the data required. The new policy also limits cash advances and recommends that travelers submit expense reports within 10 days "to meet your card's billing cycle," but requires that submissions occur within 182 days of the ending date of the trip or event "in order to meet IRS and sponsored-program accounting requirements."
'What's In It For Me?'
Policy changes have been communicated to faculty and staff in a variety of ways since March. A two-page "Know Before You Go" guide to travel booking, payment and reimbursement offers tips for travelers headed overseas or stranded by disruptions.
The guide is designed to help travelers understand the personal benefits of booking through the preferred channels--from central payment to emergency assistance. But the university also benefits by the "visibility into that spend," Slavinski said. "A lot of what we're doing is to not only drive compliance, but drive them to plan in the right way, using the right suppliers," he added.
[PULL_2]"Communicating at a university is complicated," Storb said. "You really have to try to get your message out there as early as you can because it's a complex community."
Key to all the communications, according to Maier, is the answer to the eternal question, "What's in it for me?"
"We're right at the beginning of this whole process and reaching the traveler more than we ever had before--but to their benefit as well," said travel administrator Storb.
In the coming months, Penn plans to study just what the university wants and needs in travel management. "What we don't want to do is automate a flawed process," Maier said. Online booking and automated expense management will be among the technologies considered once the process is defined.
While Penn officials expect to have a blueprint for their new travel operation in place by year-end, Maier said, "realistically, we're looking at two to two-and-a-half years before we have everything in place" in terms of technology. "We want a best-in-class travel program with the most efficient buying methods to leverage travel spend so we get the best possible contracts and save money wherever possible," Maier said.
In addition to asking university centers and schools what they need in travel management, part of the process also includes learning how peers are managing travel through a staff exchange with the University of Michigan. "It's always good to see what other people are doing," Maier said. "I'd just as soon steal a good idea rather than devote a whole lot of time developing it ourselves."
The initiative also prompted Maier and Storb to take a new look at supplier relationships as the university considers: "How do we work with the supplier community to take out costs?" Recently, Maier said he has begun to ask suppliers "what criteria do they use to determine customer of choice? Based on those criteria, are we one? If not, why not, what's the benefit of being one, and what do we need to do to be one?"
"That's a whole different strategy to procurement," Maier said. "Conventional wisdom is that spend always dictates supplier of choice, customer of choice. But when we begin to have those conversations with suppliers, spend usually is number three, four or five on the list. Number one is, 'How easy is it to do business with Penn?' "
"I've been in purchasing for 25 years and until about six months ago, we never used the term 'customer of choice,' " Maier said. "It's been an eye-opening experience to sit down with senior VPs of sales and have a frank discussion about our business relationship." Sometimes, Maier hears, " 'I love your business, but you're a real pain in the neck to do business with. Here are the 16 reasons that you keep me up at night,' " Maier said. "All of those lead to opportunities--for cost savings or service enhancements." Being a customer of choice includes a number of benefits, he learned, as suppliers often "put their best sales people" on such accounts, "introduce new technology to you first or introduce new services," he added.
"We haven't had an airline use that term yet," Storb joked about customer of choice.