July 2007 - As companies strive to maximize their significant investments in electronic procurement, sourcing, spend management and contract management technologies, they're trying to figure out how to use the tools to source such indirect services as travel. More often than not, travel procurement professionals continue to rely on manual processes to select online booking systems, fulfillment providers and hundreds of transportation and lodging suppliers. But e-procurement technology vendors are anxious to change that.
From A to Z, Ariba to Procuri, SciQuest to Zycus, procurement automation vendors are either touting how their solutions can be used in the huge corporate travel management category, or trying to figure out the best approach to do so. American Express estimates that travel accounts for 15 percent of indirect corporate spending.
How could such tools alter traditional e-sourcing? KLM Royal Dutch Airlines provides an interesting example in its use of the Procuri platform to source hotels in a way that few travel managers have tried before.
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"This is far more efficient for our staff and for hotels. No one has to make calls. It's all quite clear as to what happens. In the past, it wasn't transparent at all; now it is transparent for all."
— KLM ROYAL DUTCH AIRLINES E-PROCUREMENT MANAGER FOR CORPORATE PROCUREMENT AND FLEET DEVELOPMENT
DOLF MESLAND
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KLM for about six years has used the Procuri TotalSource technology to source everything from aircraft seats and temporary staffing to plastics and flight crew uniforms. During the past five years, KLM also has used the technology to source hotel rooms around Amsterdam's Schiphol Airport on a daily basis.
"The tool itself incorporates some best practice sourcing process templates, configurable to support the line-item attributes," said Tim Minahan, Procuri senior vice president of marketing. Corporate users can develop their specs and requests for proposals, and electronically send them to suppliers. Procuri has 110,000 supplier profiles in its database, but corporations usually maintain their own private supplier databases and invite their suppliers to bid on business, he added.
KLM negotiates annual contracts with hotels around the airport--its primary operational hub--for staff and distressed passengers, according to Dolf Mesland, KLM's corporate procurement and fleet development e-procurement manager. But the rate quotes are "the maximum amount, the highest level we would pay."
Every day, KLM asks its contracted hotels to update those rates, based on market conditions. The process, Mesland said, is "not an auction. It's sharing information which hasn't always existed in one place."
Using the tool, KLM conducts about 700 "events yearly related to hotel accommodation for distressed passengers," explained Mesland. These events are for between 6,000 and 7,000 rooms monthly around Schiphol.
Hotel personnel log in as many as eight times a day, entering rate quotes and availability information-and seeing how their offers compared with those of unidentified competitors. Hotel managers know that to ensure their properties are called first to accommodate distressed travelers, they must offer the lowest rates. In the past, KLM would phone preferred hotels to ask how many rooms each would provide and at what rates. "This is far more efficient for our staff and for hotels," said Mesland. "No one has to make calls. It's all quite clear as to what happens. In the past, it wasn't transparent at all; now it is transparent for all."
Mesland declined to reveal the savings, but acknowledged that "there are some price savings," as well as process savings. A Procuri case study on KLM's use of its tools stated, "Some of the most successful events KLM conducted were for hotel room nights for stranded passengers that were sourced daily through a reverse auction. These auctions realized 35 percent savings."
KLM continues to use more traditional RFP and RFI processes to contract hotel rooms for crews outside Amsterdam, but is using Procuri for meetings and "everything that can be sourced," Mesland said. Although senior management embraced the procurement technology by 2002, initial use was low. After management tied bonuses to use of the technology, utilization soared.
It took several months for hotels to adopt the new Procuri technology, Mesland said. "Now, they cannot live without it," he added.
Used by more than 360 companies, primarily in North America, Procuri has several additional European clients.
