Procurement and Travel Management Company Financial Modeling

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Procurement and Travel Management Company
Financial Modeling
Mark WaltonPrincipalConsulting Strategies
markw_at_consultingstrategies.com847-541-2606 June
15, 2005
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Topics To Be Covered

• Procurement strategy
• Purchasings role
• Brief history of agency/corporate pricing
• Agency pricing models

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Topics To Be Covered

• TMC procurement strategies for 2005
• Traditional models
• Online agencies
• Online service/support/financial models
• Performance Service Level Agreements

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The Changing Travel Industry Landscape Sourcing
Becoming More Complex
Suppliers
Purchasing Departments
Travel Department
More Change To Come
Technology
Data
Management
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Planning For Success

• Enlist senior executive sponsorship
• Rigorous assessment of current travel program and
  supplier support
• Define requirements

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• Define Requirements

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Purchasings RoleTo Fear Or Not To Fear

• Do relationships with suppliers change when
  purchasing is involved?
• Does purchasing actually control the
  negotiations, and if so who actually is the
  process owner?
• Is travel really that different?

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Travel Manager Strengths

• Travel economics and pricing
• Best practices
• Understand use of travel technologies
• Supplier strengths and weaknesses
• Performance
• Traveler needs

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Purchasings Role

• Balance between procurement principles and the
  unique attributes of travel

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Purchasings Strengths

• Understand the business goals and objectives
• Leverage strategic sourcing best practices
• Leveraging technology to increase efficiency and
  reduce processing cycle-times
• Good guy bad guy strategy
• Contract management and compliance

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Sourcing Initiatives Agency

• It is not just about securing the lowest price!

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Sourcing Initiatives Agency

• It is not just about securing the lowest price!
• However..price is very important

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Sourcing Initiatives Agency
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TMC Sourcing

• Understanding the landscape
• Traditional
• Online agencies
• Operational configuration
• Financial models
• RFP process
• Performance measurements

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TMC Sourcing Process

• Organize cross functional team
• Train team
• Get data
• Determine requirements
• RFP questions and weighting
• Distribute
• Evaluate rank

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TMC Sourcing Process

• Select finalists
• Presentations
• Evaluations of presentations
• Due diligence
• Best and finals
• Negotiate agreement
• Award

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Financial Models

• Commissions retained or returned?
• Bundled or unbundled?
• In a bid situation, request financials in various
  formats

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Example

• Client of ours with air volume of 7M
• Commission differential between retained and
  returned was 6.50

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Travel Management Co. Negotiations

• How should volume affect pricing?

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New Strategy

• Guaranteed Savings

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Online BookingFinancial Considerations

• Touchless
• Lite Touch
• Full Touch
• System Cost
• Note Financial models can affect adoption levels

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Online BookingFinancial Considerations

• Touchless fee 10
• Full touch 20
• Assume 90 touchless
• I would suggest negotiating an 11 blended rate.

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Online BookingOther Costs

• Implementation
• Ongoing maintenance costs
• Internal IT resource costs (customization,
  technical support)

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Service Level Agreements

• Key Performance Indicators (KPIs) should focus on
  three key areas
• Service delivery
• Service quality
• Program metrics
• Measure on a monthly or quarterly basis

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Measuring the Results

• All measurements to be quantitative
• Establish and maintain simple and clear process
  within each metric
• Consider incentive for exceeding expectations

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Service Level Agreements

• Financial scale for incentives penalties should
  be weighted in proportion to
• Importance to success of program
• Penalty must be significant enough to create
  motivation

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SLA KPI Examples

• Fare accuracy
• Telephone service performance
• Traveler survey
• Cost per transaction
• Support of primary suppliers

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Questions and Answers
Following your roadmap will lead you to success!
Thank you!