U.S. Businesses Boosting Use Of Procurement Techniques

U.S. businesses increasingly are implementing sourcing practices and relying less on historical supplier relationships, while simultaneously balancing service levels.

Buyers do not have to come from procurement organizations to apply metrics, use scorecards and build service-level agreements into travel programs, but procurement's influence is spreading to greater numbers of corporate travel programs.

"Increasingly, travel management is viewed as a metric-driven purchasing exercise by an ever- growing number of companies," said Tom Wilkinson, president of TRW Travel Consulting. "Nobody disputes the value of sophisticated techniques in sourcing. The question is whether a different type of approach is needed to manage vendors once they've been sourced."

Although procurement practices rely primarily on measuring cost and savings, buyers using procurement techniques also are recognizing the benefits of modifying their commodity-driven sourcing initiatives. "You've got to balance your cost-cutting efforts, your rules and your policy against keeping your people alive and happy," said Ken Scott, head of procurement infrastructure for RBC Royal Bank, which spends $35 million in North American booked air volume to serve 35,000 travelers.

Constant analysis of traveler-driven metrics, such as marketshare, average ticket price and out-of-policy business class spending, coupled with a demand management program to shift noncompliant employee behavior, has saved RBC more than $10 million annually, according to Scott.

Scott, who views hotels and ground transportation as commodities, said the mix of cost and service analysis is more critical with air contracts. "You've got to temper it," he said. "You can save 200 bucks, but nobody wants to do two layovers."

While service-level agreements in contracts are used by buyers to leverage purchasing volume, consultant Wilkinson said bridges with suppliers through "relationship management" also need to be built into the travel procurement process. "At the heart of the traditional debate is striking the balance between a traditional-looking service approach versus a quantifiable objective approach of purchasing organizations," he said.

Corporate Travel 10 company Deloitte operates its travel program within a 65-employee procurement division, including eight employees dedicated to travel buying. According to Deloitte chief procurement officer Mike McMahon, all of the corporation's U.S. travel contracts have service-level agreements driven by longstanding metrics, especially in its $233 million air program. "They are jointly developed marketshare metrics that are always the same," he said. "We meet with our preferred carriers quarterly to discuss our performance against the metrics and their performance against the metrics as well."

To uphold Deloitte's end of the bargain, McMahon's team has implemented a manual pre- and-post-trip audit program, which reviews live reports of nonpreferred carrier usage, class-of-service violations and non-employee bookings on a same itinerary. "To a great extent on very specific information, there isn't a metric per se attached to that, but on a pre-trip audit they actually contact the people and that's proven to be very effective," McMahon said. "We use effective communication to try to modify our internal demand into the channels where we want it to go."

Pamela Lagattolla, Clearwater, Fla.-based Tech Data Corp. director of corporate procurement, travel management and office services, said she evaluates travel contracts for the $4 million U.S. booked air volume program on total cost of ownership, which includes cost, quality and service. "Travel is incorporated into our procurement group and it's seamless regardless of whether we are bidding on any other type of service," said Lagattolla.

Some travel buyers use performance scorecards to drive savings and benchmark their contract performance. Avaya senior manager of the global sourcing organization Janine Battaglia uses separate scorecards for key performance indicators including online adoption and average ticket price, service-level agreements and customer service, which enables her to measure the efficiency of Avaya's supplier relationships. "On a yearly basis, we are looking at our targets and reestablishing them based on the benchmarks. For some of the targets, we are drilling down for further areas of opportunity," she said.

Battaglia uses service-level agreements that carry financial penalties in some contracts, including its relationship with travel management company American Express Business Travel, but she advocates collaborating with suppliers to develop the best possible program. "We always make the service levels attainable," Battaglia said. "We have a few that are stretch goals, but all of the goals we've identified have been agreed to so that they can meet them, otherwise why bother? If they don't meet their goals, they are required to put together formal written action plans on how they are going to improve performance."