Analysis - Procurement in a recession
Simacon Interim Management, Consultancy & Recruitment
Inkoop, Business Travel Management, Npr-inkoop
ANALYSIS: May 7 2009
Business Travel Management
Yesterday at 16:36 in Air Travel, Accommodation, Travel Management, Technology, Ground Transport, MICE | COMMENT
Procurement: is the debate over?
At a seminar at the London Business Travel Show about six or so years ago, an executive from the then BTI UK (now back to Hogg Robinson) produced some startling figures. There had been a massive rise, he said, in the number of procurement departments getting their hands on travel. This was really quite shocking.
At the same time, travel managers and travel management company executives were constantly proclaiming that travel was not a commodity, like paperclips or office chairs. It could not be bought in the same way as human sensitivities had to be considered.
It is a battle that has raged, at times quite fiercely, for several years. But it may now be finally dead.
At the ACTE-CORTAS Forum in Amsterdam last week, Huub Smeets in effect told his 100-strong audience "Travel is a commodity - get over it." Mr Smeets said that procurement now took the lead in managing business travel in nearly 50% of corporates. It was no longer a stigma but a reality.
But Mr Smeets, whose company Simacon specialises in advice on business travel management, moved much further away from this old argument by claiming that the right combination of procurement and travel management were "best practice" and that procurement methods were saving companies money. He called it travel procurement.
There is a major overlap - what Mr Smeets called a "huge match" - between procurement and travel management techniques. The four tenets of procurement: get the facts, create a sourcing strategy, select suppliers and negotiate and implement agreements, could equally apply to travel. The crucial need for data also applies to both.
But travel procurement goes further and involves: planning and booking a trip, fufillment, card data and receipts, integrated expense reports, accounting and re-imbursement, reporting and configuration, Mr Smeets said.
This is where the differences in travel management and simple procurement arise. Once those paperclips have been purchased and delivered, the deal is done. This is not so with travel as the booking and paying for the trips is just the start while the reporting is the finish. In the middle is the trip itself which has to be undertaken. No one wants to be reminded of Mumbai last November or 9/11. This can be where advanced travel management comes into its own.
But there is still considerable weight to Mr Smeets's argument if it relates strictly to the purchase and the reporting. And it is in this area that the savings are to be made. Mr Smeets quoted figures from the 2009 American Express Business Travel Survey which suggested that companies were increasingly aware that procurement techniques in buying travel would save them money.
68% of companies said that they had saved 5-15% on their travel budgets in 2008 by using such methods. 80% said they expected savings of 5-20% this year from smarter buying while 75% thought procurement had tightened their travel spend.
To achieve savings on this level the crucial need was for quality data from every possible source. The key then was to adopt strategies to secure the best suppliers. He quoted the classic procurements stages of Robert Monckza, a world authority on strategic purchasing.
The first step was to decide on in- or outsourcing for the commodity, then develop a strategy for travel purchase, set up and leverage a supply base, develop and manage suppliers, integrate suppliers in new processes, integrate suppliers into the order fulfilment process, manage supplier development and quality management and manage costs across the supply chain. The two stages of integrating processes were crucial to the operation Mr Smeets said.
It is a process in which supplier management becomes important.
The company which combined the classic procurement strategies with travel management policies was practicing travel procurement: the best in class methods. These include: clear quidelines on who can or can not buy or sign contracts, an approval matrix and ethical behaviour.
It will also involve the introduction or optimisation of contract management, the introduction of Service Level Agreements (SLAs) and Key Performance Indicators (KPIs), automated contracts to save on legal fees, the development and maintenance of relationships with suppliers and the introduction of demand chain management.
Mr Smeets summed up his advice as: strategise to save money, travel to make money.
, Travel Procurement