September 2007 - With the reach of a global company but the travel resources of a mid-size one, leading jeans and sportswear manufacturer Levi Strauss & Co. is relying on a procurement initiative to piece together the puzzle of multinational travel management: consolidating agency services, establishing global supplier contracts and using technology to increase compliance and communicate policy.
Corporate travel manager Jennifer Egan is one of two in-house travel managers for Levi. The other, Terri Teal, handles the company's global hotel program and car services. For the past eight years, Levi's procurement department has held the travel management reins, a relationship that Egan initially questioned but now describes as highly complementary.
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Company:
Levi Strauss & Co., clothing manufacturer with 10,680 employees, sales in 110 countries, worldwide revenue of $4.1 billion in 2006, U.S. headquarters in San Francisco, European headquarters in Brussels and Asia-Pacific headquarters in Singapore |
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Volume:
2006 U.S.-booked air volume of $4.5 million, with an additional $5 million in air volume booked in other countries |
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Challenge:
Standardize travel management across worldwide operations to contain costs while retaining service quality |
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Approach:
Working toward consolidation with one global travel management company; using weighted scorecards to measure service values |
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Solution:
A new agency contract that blends traditional services with online booking transactions, and, for the first time, consolidates Canadian and U.S. operations |
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"Over the years, travel has really grown to be a part of procurement," Egan said. "Travel really does fit with procurement, as long as you're in a procurement department that can be somewhat flexible with the way that you manage your program."
Last year, the procurement department played a key role when the company renegotiated its travel management company contract. Levi applied a weighted scorecard, which considered a TMC's ability to handle online transactions and VIP travelers, but skipped categories that the company no longer found important, including the physical location of agents and account managers.
"We just went through a rigorous request for proposals process and decided to sign with the incumbent, BCD Travel," Egan said, noting that company operations in Canada for the first time were included in the primary agency contract.
With international transactions up 30 percent annually during the last fiscal year-including much more travel to the Asia-Pacific region-Levi Strauss now is working to consolidate TMC services for worldwide operations.
Egan said Asian locations currently use two different travel agencies and noted that, "Europe recently went out for an RFP and decided on BCD Travel." BCD initially will serve the company's European headquarters in Brussels, with additional locations to be added gradually.
Consolidating with one global TMC can provide the advantages of continuity of service and policy delivery. It also helps leverage spend, which Egan identified as a top company priority.
The keys to the program--containing costs and maximizing value--led Levi four years ago to create a blended travel management program encompassing both traditional TMC services and online booking. "We're under a unique operating model with BCD, called TravelAgent.com," Egan said. "It was kind of their answer a few years ago to the online travel agencies. It's a lower-cost model, and it's lightly managed by the agency, so we do a lot of the typical account management in house."
BCD provides call center capabilities with dedicated Levi agents, including a
designated VIP agent. "It's worked fairly well for us," Egan added. "We're very
hands-on with our travel program, as well as the online booking tool."
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"Travel has really grown to be a part of procurement. Travel really does fit with procurement, as long as you're in a procurement department that can be somewhat flexible."
— JENNIFER EGAN, LEVI STRAUSS CORPORATE TRAVEL MANAGER
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Previously, "We thought our travelers wouldn't like going online and that they
liked the full-service approach," Egan said. "But at the time, my cost center was absorbing all of the agency costs. So when we adopted the online booking tool, we pushed all the transaction fees back out to the traveler."
By doing so, employees had to report transaction costs on their expense reports, and the "visual guilt" helped increase compliance rates from 15 percent to 40 percent in three months. "It's amazing how much that drives behav-
ior," she said.
As part of the newer contract, transaction-based pricing has generated savings for the company, Egan said. "We knew the bulk of our transactions were going online, and we didn't need to be paying our traditional agents to be fulfilling that. It's worked out really well."
Part of the travel-procurement relationship is educating the procurement department on where the real travel and entertainment savings are found, Egan
said. Travel agency fees, which a procurement department may see as a key point
for negotiation, represent only one small piece of the puzzle.
"It's a difficult model, especially when you sit in procurement," Egan said. "They want to reduce costs, but they are looking at the small piece of the pie, which is agency services. It's such a small percentage of your T&E spend, so what they need to start looking at--and what we have done in terms of cost containment--is leveraging our spend, negotiating leaner and tightening up our policy. The low-hanging fruit is in what the traveler is spending on the road."
To communicate a more complete picture of corporate travel costs, Levi's travel department has begun reporting incidental travel expenses by cost center to the company's CFO. Egan noted one key difference between travel and the other goods and services that the procurement department handles: Commodities contracts are usually sent out for bid every one or two years, a process not suitable for TMC contracts.
"With agencies, after you ramp up, you have a good 18 months of settling in," Egan said. "But we do follow the same procurement process. We compile a scorecard--similar to what procurement does--and publish it on our intranet. We also publish our fiscal year savings. [Travel is] a very tightly woven group with procurement."
Procurement cost containment policies, like traveler guidelines, are balanced with the company's key values. Compliance, Egan said, is achieved by making it easier for employees to follow policy rather than forcing them to do so.
"As a company culture, we don't really mandate," Egan explained. "We leave it up to the traveler to make the best business decision, but they seem to follow policy. It is strongly advised that they take our recommendations on suppliers. It actually works out very well."
Non-mandated doesn't mean unmanaged. Egan sets detailed parameters for booking non-preferred airlines, and travelers are telephoned when they book out of policy, but not penalized.
That system is put to the test when new carriers such as Virgin America--which debuted in San Francisco in August--begin service. Travelers want to try the new airlines, but Egan must ensure that the company can fulfill its commitments to preferred carriers, some of which accommodate Levi Strauss travelers around the globe. For now, company travelers are allowed to book Virgin America while introductory rates are still low, but that allowance may change as Egan negotiates new arrangements with preferred suppliers. Meanwhile, Egan said Levi also would benefit from the agency consolidation by capturing more travel spend "under one report," a development that would help the company sign travel supplier contracts on a global scale.
"We're hoping to consolidate agencies first, and then look at airline agreements," including possible airline alliance bids, she said. The company
already has established global contracts with preferred hotel vendors.Egan
said Levi also is considering a strategic meetings management initiative.
Though details-including the department's structure-are yet to be determined, procurement-based policies are definitely on the agenda.
"We do want to consolidate, take a look at that spend and bring it in," Egan explained. "We want to try to mitigate risks and funnel that business to our preferred suppliers. But as far as the bandwidth, with just two people on staff, we're evaluating to see if that is something we want to take on."
