Travel Business CPR

Ten Keys to Consolidate Corporate Travel Purchasing

It is inevitable that purchasers of large quantities of anything will seek ways to leverage their position. Let’s face it, when a travel agency consortium, even individual agencies, channel more business to a given airline, hotel chain or other vendor, they not only request, but indeed, expect overrides. Overrides are an inducement or a reward on the part of vendors to have more business channeled in their direction.

Likewise many corporations that purchase large quantities of travel – the precise amount of which is usually unknown to them – are increasingly questioning how they can:

  • Save money
  • Enhance service
  • Establish control

It seems only reasonable and fair, particularly from the stockholders’ perspective, that the corporation judiciously spend its resources in the pursuit of these objectives. There is, however, a point of diminishing returns such as when the V.P. of Sales has to take the next available flight to meet a client, even if it is first class, in order to obtain that all-important new account.

Some avenues to achieving the corporate objectives have been:

·       Negotiate direct deals with vendors

·       Consolidate travel with one national entity

·       Open a travel agency and take the “whole” commission

·       Do nothing but start accumulating credit card tapes centrally.

These strategies may or may not be viable solutions and one or more of them may or may not be applicable. In our work with numerous Fortune 1000 Corporations, we have designed the 10-Key Approach, outlined below, which provides a logical and very workable method to consolidate travel purchasing. Most importantly, it does not prejudge any given solution. Each key is built on the conclusions and findings of the previous key, and thus, will allow you to pursue the appropriate path. Simply stated, it’s a business plan to consolidate travel purchasing.

10-Key Approach

Key 1.  Implement Centralized Travel Management

A company first has to reach a decision to manage the process centrally. This does not mean that one agency has to be used or that everybody has to conform to the same policies. What is applicable for a field auditor who travels to Iowa for a six week field audit may not be applicable for the V.P. of Marketing who has to be in Brussels next Tuesday and in Rio do Janeiro on Thursday.

Centralization means that an executive is appointed, either permanently or on a project management basis, to begin focusing on the objectives and the process. That executive, in turn, will be the team leader who takes the company through the subsequent maze. Usually that individual reports to the V.P. of Finance/Comptroller or to a senior executive within the purchasing department. In all cases, the establishment of that position and the concept of harnessing that expenditure must have top management support in order to succeed.


Key 2. Determine Your Travel Objectives

Of the three corporate objectives above, what is most important? Savings? Service? Control? What should be the balance of the three be?

We have seen corporations in which executives are required to fly, under all circumstances, at the lowest possible fare. If it is determined that anyone has not adhered to that policy and has flown at a higher fare, then the difference between that higher fare and the lowest possible fare is subtracted from that individual’s paycheck! Likewise, all frequent flyer credits must be turned into the corporation and any aberration from that policy is dealt with by immediate dismissal.

On the other hand, we have seen corporations where it is permissible for any traveler who travels more than one hour and twenty minutes to automatically upgrade to first class. Likewise, all frequent flyer credits may be used personally because rather than a fringe benefit, traveling is perceived to be an inconvenience.

Regardless of whether you want to take either one of those extremes or any of the permutations in between, a decision has to be made as to the travel objectives of the company. This is usually accomplished by senior people from the various travel divisions sitting on a committee headed by the person appointed in Key 1. I have found that this stage is very important in the ultimate success of travel management.


Key 3. Develop and Implement Your Travel Plan

The plan must be prepared after your corporate objectives are clearly understood. Do you start working with one division first, or should you consolidate the entire company? Should you first establish a set of travel guidelines for each division or should you immediately design and implement a company-wide travel policy? We have found that policy savings alone, on average, amount to a significant percentage of the total savings achievable. It is important to get expert help at this stage to meet the objectives that were set back in Key 1. There are two other important elements of the planning process:

·       Communication

·       Data Collection

In the communications phase, information must be disseminated to all employees that the company is, in fact, looking at its travel purchasing and anticipates significant financial benefits for the company and for every department and traveler. At this juncture, it is appropriate to prepare a presentation to be given either regionally or centrally at headquarters for key individuals and opinion makers.

Data collection is equally important. It is rare for companies to have data in a ready and useful format. In most cases, expense reports, copies of airline tickets or summary reports from credit card companies are the only practical source of data.

We have found that many corporations view travel selectively. They may rationalize:

·       “When recruits come in for interviews to be hired, that’s not really travel; that’s Recruiting!”

·       “When auditors go out for field audits, that’s not really travel; that’s Accounting!”

·       “When our sales team has their annual convention, that’s not really travel; that’s the Convention!”

·       “When our training directors, have their 42 regional meetings, that’s not really travel; that’s Training!”

If you add up all the travel in a corporation, it’s truly astounding to find out what the total volume is.

In a meeting recently with a sizable American corporation, I asked the president how much travel his company budgeted each year. He indicated he really had no idea but he anticipated $3 million worth of travel. We then called in the V.P. of Finance and asked the same question. The V.P. of Finance indicated that out of the headquarters office alone, the company does $3 million worth of total T&E (travel and entertainment).

After a policy has been developed and is ready to be implemented, the anticipated actions have been communicated to the field, and a plan has been established, we are now ready to get down to action.

Key 4.    Establish Distributor Requirements

At this step, you are preparing the blueprint for how you will purchase travel. Given your company’s travel objectives, the configuration of your divisions, and the resulting plan, what is the best way to manage the actual distribution of the travel service? The options are numerous:

A.   Change nothing and maintain your relationship with your existing suppliers; however, give them specific data tasks and contractual requirements that will obligate them to perform at specific savings, service, and data management levels. Likewise, it will give them the protection of having your business for a specified and assured period of time, subject to their meeting expectations.

B. Purchase travel regionally by establishing specific territories, in conformance with your business needs. In some territories you may want to contract with a primary travel distributor (agency) who, in turn, may be obligated to subcontract some of your business to smaller agencies.

C. Reduce the number of distributors. Some of our corporate clients have faced the dilemma of purchasing travel from possibly hundreds of distributors (agencies). The sheer effort of communicating with the agencies is a monumental task. Therefore, reducing the number of distributors is certainly a viable option.

D. Contract with one or two nationally known travel entities. Your company might have locations that match very closely one of the national travel entities, and consequently, you may want to take advantage of a unilateral approach where one agency or distributor is responsible for serving your company. A possible disadvantage may be that with national entities, you are not always assured of the same operational service level that you may find by going to a regional or local entity.

E. Open your own agency. This avenue offers various permutations such as on-premise branches, satellite ticket printers, etc. The issue, here, is the degree to which you want to get involved in the travel business, per se. Perhaps you really don’t want to get involved, but you have other requirements, such as strict confidentiality concerns, that may force you to go this route. We have found that the auditing divisions of many corporations, for example, require them to manage their own travel arrangements for certain key executives due to kidnap threats or terrorism concerns.

When confronted with the possibility of running its own agency, one company we worked with recently responded as follows: “In order to get into the agency business we will have to invest money, hire talented individuals and acquire a modicum of understanding of this business. We have examined the investment required and the return on investment in the travel agency business (generally a very narrow margin business). We have concluded that the return on invested on our existing business is much higher, therefore, we have decided not to enter the travel distribution business.”

It is an interesting position because if that company had found that the return on investment from entering the travel business had been greater than their existing business, then my counsel would have been to drop whatever they are currently doing and go into the travel agency business full time! Of course, some companies have chosen to go that route, and indeed, are now selling travel to others.


Key 5. Prepare the Request for Proposal (RFP)

Given your understanding of the objectives, the travel plan, and the desired configuration, it is now time to solicit proposals from individuals or entities that can satisfy your requirements.

We have found that there truly is no such thing as a standard RFP. Given the uniqueness and individuality of each corporation, each RFP should be custom-tailored. Yes, of course, there are segments and sections of a general informational nature that must be in all RFPs; however, the crucial savings, service, and control elements are distinctly different.

The RFPs should be distributed to appropriate and prequalified bidders with a reasonable amount of time given for responses. Many of the larger agency organizations have the core of their bids prepared ahead of time and many of the smaller agencies are using services that prepare such bids.


Key 6. Evaluating Responses

It is important to state the questions in such a fashion that all responses can be quantified on an “Expected Value Matrix.” We have developed a template that analyzes bid responses to get a short list of candidates.

It is important to have all bids returned on a specific date and time, without exception. During the evaluation process, the bids should be read by two to four individuals who independently enter the responses into the electronic evaluation system. Then the bidders who achieve a predetermined target score must be invited to make personal presentations.

Obviously, a bidder must pass a “reality” test and a determination must be made that the key features important to the corporation are, indeed, present. This is also the time to check references and visit the bidders’ premises.


Key 7. Selection of the Appropriate Distributor(s)

The selection must be made in such a fashion that it is “bullet proof.” The rules of the game can be no different than any other award that the Purchasing or Contracting Departments customarily handle. We have developed a checklist that assures the inclusion of key service elements in contracts between travel distributors and corporate buyers. A key element, for example, might be “service hooks,” such as:

·       Calls will be answered 85% of the time with three rings

·       The ticketing error rate will be less than 2%

·       The savings on 25 specific city-pairs will be 25% below the average fare in the marketplace, calculated monthly on a weighted average basis.

If, in fact, these “service-hook” criteria are not met, then a warning system has to be implemented and self-improvement programs have to be established.

Another element to consider is a contractual understanding of who owns the data. Obviously, in the long run, it is of primary importance for a corporation to be able to decide how its travel data are being used. If your contract does not spell out specifically who has data ownership, it is possible that a distributor or vendor may claim data ownership and make it difficult for you to conduct online audits, data consolidation with other corporations, or statistical analysis by marketplace.

Key 8. Implementation – With Support

Throughout the entire process, key individuals in various divisions in your company have been advised of the actions you are taking. Now is the time to get them involved in the implementation process. In some corporations the President, or even the C.E.O., has supplied directives that are incorporated into the information dissemination process.

The important element of the implementation phase is to be realistic. You cannot expect a particular travel agency to take on an additional $30 million worth of business within two weeks. So, therefore, a realistic amount of time for the setup, cutover, problem resolution, and final implementation has to be given. Also, if your decision was to open your own agency, for example, this will probably be the most crucial test of your career stamina. This is also the part where you simply cannot afford mistakes. All travelers are generally very stubborn about their current way of doing things and apply the Missouri principle of “show me before I will support this change, with due respect to the President or Chairman’s request.”


Key 9. Evaluate Ongoing Contract Compliance

At some not-too-distant point in time your top management will request a report on the success of your consolidated travel purchasing program. You will have to demonstrate statistically and subjectively that the program is a success; that indeed, the company has truly saved “X” million in hard dollars; that the service has been improved in a meaningful fashion, and most importantly, that you have achieved control which the company previously simply  not have. (The company is now recognized with the following hotel companies, etc.) You, furthermore, have established an ongoing online audit program that will underscore the veracity of your information.

The online audit tool is one of the most valuable and best return-on-investment devices in travel management. On average, for every one dollar spent on online audit, you will have a return of four dollars. What is also important to appreciate is that agencies which had been concerned about the implications of online audits have become whole-hearted and enthusiastic supporters because it helps them stay within their contractual parameters and detect flaws very early in the game.

Key 10. Manage your Ongoing Data Collection and Position Yourself for Future Opportunities

In the final analysis, when your company purchases anything in quantity, it is only able to do so because it has precise information. It needs “X” number of raw materials, at such-and-such a time, delivered to ABC locations, stored in whatever fashion and distributed internally under certain standard procedures. The only reason you have not been able to do that with travel is because you simply haven’t had the information. You are able to collect data (see Illustration B on page 3). After accumulating information at such detailed levels, you will be in a position to make your bulk buying decisions, help your distributor focus your business, and provide a benefit to your preferred vendors by channeling more business to them.

In the travel distribution business, you will have numerous entrepreneurs responding enthusiastically to offer savings commensurate with your purchasing levels, service in concert with your needs, and the controls that you should have. Let’s face it, it’s your money!

Tharwat Abouraya, CTIE
Travel Business CPR