Compliance to policy, preferred suppliers provides savings opportunities for buyers
By Susan Avery -- Purchasing, 3/12/2009 2:00:00 AM
As purchasing professionals responsible for managing indirect sourcing know, an agreement with a preferred supplier won't result in bottom-line savings for the company unless employees are aware of the agreement and use it.
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Suppliers of travel services such as airlines and hotels have metrics in place to track their customers' use of corporate agreements and have been known to pull an agreement if a customer isn't meeting agreed upon commitments.
The potential for savings—and for purchasing to make a difference—especially in this time of economic crisis is huge.
For many companies, travel is the second or third largest spend and can amount to millions—or even a billion—dollars annually. Executives at travel management companies (TMCs) say that when their clients closely follow travel policy they already have in place at their companies and travelers book trips with preferred suppliers—the airlines, hotels and car rental companies—they can realize savings of up to 30%.
What's more, they say that if travel buyers tweak their travel policy to more closely align with best practices they can see even more savings. This is all without imposing an overall corporate mandate to follow travel policy and use preferred suppliers which, for many companies, goes against the prevailing culture.
"Most companies can save 30% of their travel budget by driving better behavior and compliance," says Frank Schnur, vice president of Global Advisory Services NA for American Express Business Travel in New York. To achieve these savings, Schnur recommends buyers tighten travel policy, enforce it and consider working with travelers to better manage demand.
Research by the CWT Travel Management Institute and presented in a white paper entitled "Playing by the rules: Optimizing travel policy and compliance" finds that companies can save on average 20% of their total travel spend by optimizing travel policy and compliance.
Christophe Renard, vice president of business intelligence at CWT in Paris, points out that the research further breaks down that 20%. Typically, he says, 12% of that figure can come from boosting compliance while tightening the policy can contribute the remaining 8% savings. For some companies, tightening a policy may simply mean more clearly defining it. Asking travelers to plan ahead and use advance air booking, for instance, can result in discounts of up to 50% off ticket price.
Results of a recent Purchasing reader survey show there's plenty of opportunity for travel buyers to make a difference at their companies. While 91% of survey respondents play a leading role in negotiating agreements with suppliers, far lower numbers are responsible for ensuring compliance with these same suppliers (62%) and to the company travel policy (59%).
NEW ROLE FOR PURCHASING. Compliance to travel policy and use of preferred suppliers is about more than employees acting within rules and guidelines set out in a managed travel program. Rob Greyber, senior vice president of North America for Egencia in Bellevue, Wash., views compliance as a metric or a culture. "It's a practice companies try to build among its employees."
Purchasing has a role in this. In fact, travel buyers at some companies have responsibility for more than negotiating agreements and managing relationships with suppliers. For example, Pam McTeer, strategic sourcing manager at MillerCoors, works closely with her company's finance operation to develop and manage travel policy.
From his experience working with travel buyers, Schnur at American Express Business Travel says, "I see CFOs holding purchasing accountable for driving results. So, purchasing becomes about more than putting a contract in place. It becomes about making sure the contract is used and people are behaving in a way that drives optimal return on the company's investment in travel."
Schnur explains that travel buyers are setting expectations that go beyond what's written in the travel policy. "They're saying, 'Spend the company's money as if it were your own. Don't have sushi for lunch when you can have a sandwich. Doing so can save $20 to $30 on the meal.'"
They are looking to travelers to change behavior and plan ahead—savings opportunities are significant if travelers don't book trips at the last minute. And they're asking travelers to stay not just at a preferred hotel, but at the least expensive hotel in the city they're traveling to.
Pushing expectations beyond what's in the policy is a new skill set for purchasing. Travel buyers now are setting up communications programs. They're using change management tools and their experience in the industry to create internal marketing campaigns. Buyers are making travelers aware of less expensive alternatives and giving them information to make the right choices. They are letting them know the savings possible.
Schnur sees travel buyers leveraging support of senior management. Travel buyers are developing scorecards and creating competition between business units. For her part, McTeer at MillerCoors shares metrics with top managers at her company each quarter.
Travel buyers also are deploying tools available through their TMCs that send out real time messages asking travelers to change their selections and choose less expensive options. They remind travelers of video conferencing when it's appropriate and configure expense management tools to reinforce the right behavior.
"If I were to give advice on how to contribute to compliance I'd say, 'Think about the contract together with the long-term relationship,'" says Egencia's Greyber. "What are you putting in the contract to get the best deal now that may undermine your ability to drive compliance? Is there anything you can put in the deal that enhances your ability? For instance, you may choose to save money by opting out of certain elements of an agreement such as use of some analytic tools."
TO MANDATE OR NOT? At most companies, the culture is not to impose a mandate. Typically what management wants is to have employees understand the impact of their decisions on the company and then make the right decisions on their own.
"A company can actually save a lot more if travelers truly believe in the mission behind its travel program," says Schnur. "With a mandate, it becomes us vs. them, with employees trying to beat the system."
He suggests travel buyers explain that complying with policy is part of a bigger mission to reduce expenses so management doesn't have to lay off so many employees, invest in research and development and continue to grow the business.
"Link purchasing's message to the mission and goals of the company in a compelling way and get senior management to become part of that messaging," Schnur says. "Repeat the message. Use a carrot and stick approach and let employees know someone is watching. Then, they will realize that it is important to the company."
MillerCoors makes use of the carrot by sharing savings with travelers when they opt to buy a less expensive coach seat on international flights.
WHAT SUPPLIERS CAN DO. Over the long term, buyers who are successful at improving compliance have more and better data that can be used later in negotiations.
"Data show suppliers you are invested in actively managing your program and that you are doing it effectively," says Greyber.
"It is critical to creating sustainable savings," adds Schnur at American Express Business Travel.
Also, travel buyers use data to make adjustments to policy and messaging delivered to travelers that helps influence their behavior.
One way that purchasing can enlist supplier assistance to improve compliance is by selecting a TMC and recommending in the policy that travelers book all travel through it. TMCs provide online booking and expense reporting tools as well as consulting services that help companies manage compliance and ensure travelers use preferred suppliers (airlines, hotels, car rental agencies).
"Our consulting practice is expert at communications and can help create internal marketing programs that drive results," says Schnur. "We can help determine how to selectively and strategically reduce costs."
Greyber says suppliers can help by adjusting their products to better serve travelers, making it easy for them to comply with agreements.
"A preferred rate program is a terrific way for hotels to create a corporate rate that provides benefits specific to travelers such as a free breakfast and Internet access," he says. "These rates make it easier for travelers to comply with policy."
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