Perhaps slower to penetrate the travel procurement discipline than many had anticipated, business process outsourcing nevertheless is playing a key role for such corporate giants as BAE Systems and Unilever. These companies have joined the likes of Procter & Gamble and a handful of others in assigning travel-sourcing responsibilities to third parties, notably IBM and Accenture.
In a broader sense, the number of all global outsourcing contracts rose to a new record in 2006, up 3 percent from a year earlier, but the total contract value of those deals, $78 billion, dropped 8 percent year-over-year, according to the TPI Index. TPI, a business transformation firm, cited shorter contracts and fewer multi-source BPO contracts.
BPO research firm Nelson-Hall, however, reported a 34 percent year-over-year jump in global outsource contract value in the first three quarters of 2006. Total BPO contract value in particular rose 2 percent to $12.5 billion, while IT outsource contract value rose 50 percent to $35.9 billion.
[PULL_1]Whether in the context of multi-source or single-source initiatives, more companies are likely to at least consider unloading travel sourcing to category experts. Unilever in Dec. 2005, for example, finalized a decision to outsource to IBM strategic sourcing and procurement operations of indirect materials in North America, including travel, office and IT equipment, and utilities. The five-year agreement kicked in last year and represents one component of the Anglo-Dutch consumer goods firm's larger outsourcing strategy.
Unilever in 2000 began a new corporate structure for non-production items (NPI), organized regionally, in which NPI teams purchase any non-core spend items, including travel. The NPI operation in North America decided to turn over travel procurement to IBM. According to a source familiar with Unilever's travel program, the arrangement covers "everything, from negotiations, supplier selection and relationship management to measuring activity, usage of suppliers and savings."
According to Bill Doull, Unilever's NPI supply manager in Europeand acting global travel manager, the "fundamental difference" in Unilever's IBM relationship, as compared with other similar outsource initiatives, is that "Unilever retains the right over the contract--we sign the contract and manage the contract through them. It is a bit like the airline-travel agency relationship, where there is the middleman representing us, but doing things under our control."
Regarding the travel agency, Unilever in North America retained Carlson Wagonlit Travel, which also serves the company in more than 20 European countries. Internal travel purchasing professionals, however, were no longer needed at Unilever after IBM assumed sourcing responsibilities.
Doull termed the North America travel outsourcing initiative "a success" and cited contributions from both IBM's account management team and Unilever's NPI personnel. "Plus, we are making significant progress to achieve common goals within Unilever," he added.
Unilever, which spends roughly $460 million (€350 million) annually on global travel and meetings, also outsourced transactional finance to IBM and uses a customized version of IBM's expense management tools. That aspect of the relationship is one component of Doull's "holy grail" of global travel data consolidation. Unilever last year also outsourced global human resources and parts of its European IT operation to Accenture.
More recently, aerospace and defense firm BAE Systems Australia in January announced a five-year outsourcing arrangement with U.K. procurement services firm Xchanging. The deal encompasses $393 million (AUD$500 million) in several indirect spending categories, including travel. It follows a ten-year arrangement signed in 2001 between Xchanging and BAE Systems UK, which owns half of the Xchanging Procurement Services unit. Overall, Xchanging claims supply contracts totaling $7.8 billion (£4 billion), covering 100 million passenger air miles, 120,000 car rentals and 100,000 hotel bookings, among other items.
Though TRX Travel Analytics vice president and general manager Scott Gillespie suggested BPO arrangements can influence travel supplier pricing, "it is very clear that you don't gain buying power" by selecting a large, third party to handle travel buying. Much like their rejection of purchasing consortia, airlines, for example, generally insist that an account or prospective client's volume stands on its own. "The real value is to have a more sophisticated analysis and aggressive negotiation applied to your spend to result in better deals," Gillespie said.