Travel Business CPR

Effective Travel Procurement (Part 1)

Corporate managers must redefine the travel purchasing role in their organizations with a goal of proactively managing vendor selection. Current travel purchasing practices in most companies focus on vendor management.

Travel procurement includes everything from selecting a travel agency distributor to negotiating direct deals with vendors. Consider it from two different angles:

Distribution Management

Distribution management is concerned with service delivery, which includes deciding between a company-operated, in-house travel operation or a full-service outside agency configuration. In addition, distribution management is concerned with implementing travel purchasing policy (e.g., use of lowest fares/rates and preferred vendors) at the point of reservation, and capturing reservations and ticketing data (including traveler selections which are exceptions to policy) which will be used in vendor management and policy compliance monitoring.

Most companies have, or are establishing, a distribution management function. Many other companies are undergoing a similar consolidation process. In some cases, companies are seeking greater control over distribution by setting up in-house travel operations.

Vendor Management

Vendor management is concerned primarily with service purchasing: vendor selection/negotiation, travel policy development, and information management. Vendor management parallels the purchasing function found in most corporations today.

Why is it important for companies to centralize vendor management? Travel agencies give vendors "preferred status" in return for override commissions or other incentives. Conversely, vendors use overrides and incentives to establish a preferred status with agencies. Vendors also use frequent traveler programs to encourage traveler loyalty. Such programs can result in buying decisions which may conflict with a corporation's desire and responsibility to purchase at the lowest possible cost. In many companies, the travel procurement function is weak or nonexistent.

Decision-making is often left in the hands of travelers and agencies who have different motivations, considerations and criteria than the corporation. Therefore, corporations need to intervene in the decision-making process by defining rules for travelers and agencies (e.g., travel purchasing policy) and pre-selecting purchasing options (through vendor-direct deals). The objective is to make vendor selection a corporate purchasing function. Only by demonstrating effective control over the purchasing decision will corporate purchasers be able to negotiate meaningful discounts with vendors.

Continue on to Part 2 >

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Tharwat Abouraya, CTIE
President
Travel Business CPR - Bring Strategy to Life!

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