December 2007 - "Many companies are trying to adapt metrics they use in procurement to travel. Yes, a square peg will eventually fit in a round hole, but you may get splinters all over the place," said Philips International global supply market manager for travel and vice president M. John Guarneri.
While travel and procurement can learn from one another, Guarneri said, travel cannot always embrace all procurement practices. Here, he opines on some of the differences between the two.
Savings. "What is considered savings? You will get multiple variances from corporations on a definition of it for travel. Following strict purchasing guidelines, it's anything that affects the profit and loss statement directly." For an item purchased for 99 cents this year, as part of a fixed-price, three-year contract--in which last year it was purchased for $1--such rules would limit savings to 1 cent for the first year only. No additional savings in years two or three can be recorded. Given such a definition, Guarneri cannot report as savings such service enhancements as business-class upgrades in air deals or free Internet access negotiated with hotels. "How many employees used it last year and paid, versus those who 'might' use it this year? I am in essence affecting the P&L, but given the strict definition, it may not be considered P&L savings as procurement defines it."
Reverse Auctions. "Reverse auctions for airline city pairs? It's not that simple. Buying x-amount of copper, you know the quantity, the vendors and where and when the copper needs to be delivered. But for airlines, travel managers usually have historical data only, and they never really know how many travelers will need to be 'delivered' to each point by a certain time and date. Do you set it up to bid on schedule, frequency, time of departure, economy or business class? Do you really know the number of one-way segments required? Within economy, there may be five or six buckets, and which bucket are you bidding on? Plus, do all the carriers use the same inventory codes? I could probably procure a low rate on flights that leave at 6 a.m., but how many seats and would that meet my business travelers' needs?"
Bidding. "Some procurement professionals would argue that we should be bidding our car rental program every year. But what are we going to save on that?" Consider the forecasted price, together with the cost associated with a re-bid and what it takes to retrain travelers to use a different car rental company. "You can't expect your travelers to embrace a new vendor yearly and enjoy redoing their profiles. Instead, one should consider locking in a multi year agreement with an escape clause if market prices should decrease. Establish your contract pricing index and continuously measure it against the market price index to ensure your rates are still competitive."
P-cards or T&E cards. Why shouldn't a firm consolidate its card program and use one card for purchasing and travel and entertainment expenses? "You can, but do you really want to? T&E cards are designed for travel and entertainment expenses; p-cards are designed for purchasing. Would you want to race in the Indy 500 with a Formula 1 car or a VW beetle? Both will go around the track, but which one was 'designed' for the race?"
Global Contracts. Procurement advocates consolidated purchasing with few vendors. But on a global scale, market conditions in travel may not always permit it. "We may need all those one-off hotels because the big chains cannot meet our business requirements in certain cities."
Travel as a Percentage of Sales. "Procurement people often ask each other, 'What does your group spend on T&E, say, as a percent of sales?' But what does one consider T&E? Is it airlines, car, hotels, meals, meetings and entertainment--entertaining customers? If you really want to talk travel spend, it should be air, car and hotel--the big three. Additionally, a corporation's travel policy should be addressed in these conversations. Do you allow five-star properties, first-class travel, full-size cars, etc.? I cannot emphasize how important a travel policy is when attempting to benchmark cost."
Most importantly, Guarneri said, "Every traveler is a buyer, and every buyer is an expert in the travel field." Travel procurement can use online booking, direct connects with suppliers, preferred deals, etc., but the "traveler makes the decision and buys. How do you bridge that gap?"
"Philips recognized that travel was one of the fields in which a separate discipline expertise was needed. We're utilizing the purchasing process in travel, but have needed to make a few adjustments. Procurement professionals have to recognize that the travel industry operates a little differently because of various governmental rules and regulations, and some tools just don't work without some jury-rigging."
