Travel spend flies onto procurement radar
More involvement, new tools bring strategic approach to services spend
William Atkinson -- Purchasing, 6/2/2005 2:00:00 AM
Until a few years ago, procurement professionals paid little attention to travel management spending. It was viewed as the responsibility of the company's travel management organization. But in recent years, senior management has seen the value of involving procurement in more areas of company spend—including travel—realizing that they can bring significant sourcing expertise to the table, which leads to more strategic contracting, improved operating efficiencies, and greater cost savings. But with their plates full because of involvement in so many areas, many procurement professionals say they simply don't have the time to focus attention on the opportunities for savings in travel.
"Travel is an area that gets glossed over in a lot of sourcing programs," points out Christopher Staal, vice president, global sourcing strategies for Thomson Financial in Boston.
One thing that may make the procurement department's job easier and reap additional cost savings at the same time is online booking. According to a 2004 report by the National Business Travel Association (NBTA), "The online travel management company concept has garnered a great deal of travel management industry attention during the past 12 months, primarily due to its perceived low cost per transaction fees, as well as ability to offer well known, user-friendly environments, providing a complete array of offerings including web-only air fares and other discounts available through the merchant model environment."
"The online reservation process is moving more and more into corporate America," adds Carol Devine, president and CEO of the NBTA in Alexandria, Va. and director of corporate travel for Burlington Northern & Sante Fe Railway. "Also, buying travel online includes capturing data for the corporation to use in negotiating agreements and directing spend to preferred vendors."
In recent months, the three largest Internet-based travel agencies (Travelocity Business, Orbitz for Business, and Expedia Corporate Travel) have expanded to become online travel management companies to manage customer service and obtain rate discounts.
Staal is a strong proponent of online travel spending. "The trend has been gaining momentum for the last five or six years as more buyers realize the benefits gained such as improved efficiencies and improved cost savings."
Thomson works with New York-based American Express Business Travel. When Thomson aggregated its travel spend into a single database with American Express, it was able to renegotiate contracts and save 19% annually. The program is currently voluntary at Thomson, which is the way management prefers it.
"We could mandate it in order to ramp up quickly, or make it voluntary and ramp up more slowly," explains Staal. Because the company is decentralized, and because of its culture, Thomson elected not to mandate it, but by working closely with American Express last year, Thomson was able to double its adoption rate. The key to success, Staal says, is educating employees about the value proposition.
"American Express provided the details of the value proposition, and we rolled that information out to our employees," states Staal. "We also emphasized the ease of use, and once employees experienced this, participation increased." Compliance is now around 90%.
High-tech giant Cisco Systems in San Jose, Calif. is another satisfied user of online travel bookings. Cisco has 38,000 travelers worldwide with a $300 million annual global travel spend. Cisco began working with online travel provider GetThere in the late 1990s and became one of the first companies to re-engineer its travel procurement processes. After rolling the initiative out in the U.S., Cisco did the same in its U.K. operations in 2001, followed by Canada and Latin America. "We currently have GetThere rolled out in 15 countries," reports Ralph Colunga, senior manager of global procurement, travel and meetings sourcing, for Cisco. The next areas targeted for adoption are Asia and Australia.
To date, Cisco is seeing an 80% global average adoption rate of GetThere by its travel buyers. One reason is that GetThere's booking technology is customized to meet each country's needs. In addition, transaction costs are reduced an average of 50% when trips are booked online. Cisco realized an estimated savings of $14 million in travel savings in 2004 as a result of the shift from manual to automated bookings as well as the realization of the lower online airfares.
When considering putting the travel spend online, it is important to get the right people involved, according to NBTA 's Devine. These should include procurement, travel, technology, audit, and finance. Evaluating technology tools is not a one-function process, she explains.
Unlike some areas of strategic spend, buyers cannot easily rationalize the supplier base and identify savings in travel procurement, and then shift to a maintenance mode, according to Staal. "The travel industry is constantly changing, and buyers need to keep up with the changes," he points out. "This is why we work with a company like American Express, which specializes in this industry. We know what our spend is, and they help us optimize it."
Staal believes that the growth in popularity and usage of online booking technology will depend on how the technology can respond to challenges, such as handling complex bookings, and international bookings with currency issues.
Regardless of how well the technology keeps up, though, observers insist that there will always be a need for traditional bookings. Devine says online usage will increase, but it won't completely eliminate traditional bookings because there will always be complex itineraries, certain international bookings, and some small or low-cost carriers that don't participate in online programs.
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