NBTA 34th Annual Convention

1
NBTA 34th Annual Convention Trade Show

• Business Strategy Negotiation Track
• Sponsored by Citicorp Diners Club

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Managing a Travel Strategic Sourcing Project
Critical Success Factors

• Presenter Scott Gillespie
• C.E.O.,Travel Analytics

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Scott Gillespies Background

• A.T. Kearneys expert in strategic sourcing of
  travel suppliers from 1994-1999
• Founded Travel Analytics in 1999
• Developed TANGO for airline sourcing projects
• Analyzed in excess of 8 Billion of annual air
  spend
• Named by Business Travel News as one of the
  travel industrys most influential executives
• Recipient of ACTEs Industry Professionalism and
  Distinguished Fellow awards
• Clients include Coca-Cola, Dell, Ernst Young,
  ExxonMobil, Hewlett-Packard, Microsoft and
  PricewaterhouseCoopers
• MBA, University of Chicago

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Session Agenda

• What Is Strategic Sourcing?
• Three Big Challenges
• Keys Success Factors
• Scoping and Organizing
• Planning and Staffing
• Negotiating and Deciding
• Selling and Enforcing
• Q A
• Ten Commandments for Travel Sourcing
• Business Case Guidelines and Samples

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Strategic Sourcing for CEOs
Purchased goods and services can be more than
half of a firms total revenue
Reduced spending falls right to the bottom line
without layoffs
6
How Does Strategic Sourcing Work?
Buyer
Buyer

• Consolidate the spend
• Control the spend
• More volume for lower prices
• Find ways to cut costs

7
What Is Strategic Sourcing?

• A compelling value proposition
• A major change for the suppliers
• Relationships are minimized
• Cuts across many expense categories
• Invisible to most employees
• Except those who travel, or
• For those who manage travelers
• Easy to pull off for most categories
• Travel is an exception

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Strategic Sourcing Is a Cornerstone for Travel
Cost Reduction
9
Travel Is Not a Commodity Right?
We Could Be Talking About
Travel
or Health Benefits
or Advertising
or Enterprise Software
or I.T. Consulting
Travel isnt as different as we might think
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Applying Strategic Sourcing to Travel
Strategic Sourcing Technique
Application To Travel
1. Consolidate expenditure data 2. Set product
specifications 3. Control the purchases 4.
Motivate the suppliers 5. Obtain best total
cost 6. Buy under new contracts 7. Track and
measure savings
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Why Travel Is Different

• Travel is a very large budget item
• Travel is a perishable service with high fixed
  costs
• Travel pricing is complex
• Travel affects most of your employees
• Travel has a very high WIIFM factor
• Whats In It For Me?
• It can be very hard to control the buyers
  selection
• Everybody is a buyer of travel and a travel
  expert!

No other expense category has these combined
characteristics
12
How Is Strategic Sourcing Different?

• Unusually strong pressure from senior management
  to produce savings
• Broader support from business unit leaders
• Stronger enforcement of travel policy
• Level playing field for all suppliers
• Incumbents have very little advantage
• Aggressive and sophisticated negotiations
• Data-driven decisions
• Show me the business case!

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Its Not As Hard As We Might Think
Carpeting Coal
Laptops Temp Labor
I.T. Outsourcing Advertising
Cars Hotels
Agencies Airlines
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Three Major Challenges
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Senior Managements Three Main Challenges To You

• Deliver significant savings
• Typically 10 or more
• Off the entire TE spend
• Avoid traveler mutiny
• What do you mean, you want to tighten the travel
  policy?!
• Get the project done quickly
• Typically 5-6 months
• Air, Car, Hotel and Agency all at the same time

Sound familiar?
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A Delicate Balancing Act
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Key Success Factors
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Keys to Successful Travel Sourcing Projects

• Scoping and Organizing
• Planning and Staffing
• Negotiating and Deciding
• Selling and Enforcing

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Scoping and Organizing
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What Spend Is In Scope?

• Start with the preliminary savings goal
• 10 of all travel spend
• Make logical adjustments
• 10 of all sourceable travel spend
• Cannot source all hotel or all air spend
• Cannot source meals, parking, taxis, rail and
  Misc.
• Check agency contract for out clauses
• Keep the cost of sourcing in mind

Use the 80/20 rule
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Which Businesses Are In Scope?

• Identify the major business units and their
  travel spend
• Determine the geographic and political reach of
  the sourcing project
• US or North America?
• Europe? Which countries?
• Which Business Units? Which subsidiaries?

Find out quickly if you are telling, or selling,
the business units
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Organize Along Political Lines

• Engage the strategic sourcing projects power
  brokers
• Chief Procurement Officer, C.O.O., E.V.P.?
• External consultants have a big say
• Enlist tactical supporters
• Procurement, Finance, Internal Audit staff
• External consultants the more, the better
• Enlist sourcing skeptics
• People who manage frequent travelers

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Organize Along Category Lines

• Travel Policy (wording and enforcement)
• Airlines, Hotel, Car, Agency
• Card, Self-Booking Tool, Expense System
• Category Teams should have
• Subject Matter Expert
• Sourcing Process Expert
• Voice of the Traveler
• Analyst(s) the people who do the work

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Sample Category Team

• Sourcing Teams role
• Travel policy analysis
• Data collection
• RFP process
• Negotiations
• Business case
• Recommendations
• Policy changes
• Supplier selection

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Use a Travel Council For Best Results
Travel Council

• Travel Councils roles
• Provide guidance on supplier selection criteria
• Endorse travel policy changes
• Endorse sourcing teams recommendations to senior
  management

Get the Travel Council to make the tough
recommendations
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Decisions are really made by the Steering
Committee

• Steering Committee s roles
• Push hard for savings
• Remove organizational roadblocks
• Ratify supplier selections

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Planning and Staffing
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Planning and Staffing The Chicken or Egg

• Must balance deadlines against resources
• Resources are MUCH more important
• Find the very best people for your project
• Smart
• Hard-working
• Unbiased
• Travel experience is NOT necessary
• Get people full-time if at all possible
• Choose a results-oriented project leader

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Build Aggressive but Achievable Work Plans

• Collect recent travel spending data
• Decide how to decide
• Build RFPs
• And their evaluation models
• Give suppliers time to prepare solid bids
• Analyze bids and prepare for negotiations
• Allow time for realistic negotiations
• And senior management ratification
• And contracting, and implementation

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Travel Policy Development
Month

• Resources
• Travel Manager 15 40 days
• Analyst 25 50 days
• Key Success Factors
• Senior management support
• Travel Council endorsement
• Solid business cases
• Traveler communication and education
• New Tools/Methods
• Valuation of traveler productivity and retention
• Benchmarking
• Involvement of Travel Councils

Task
1
2
3
4
5
6
1. Get senior management sponsorship 2. Gather
data 3. Benchmark existing policy 4. Build the
business cases for each major plank 5. Seek
Travel Council endorsement 6. Modify language and
sanctions as needed 7. Educate and communicate
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Airline Sourcing
Can now be done in 8 weeks

• Resources
• Travel Manager 30-45 days
• Procurement 30-45 days
• Analyst 45-75 days
• Key Success Factors
• Strong travel policy
• Global/Regional strategy
• Credible incremental gain/loss projections by
  airline
• Rigorous contract and bid analysis
• Realistic market share goals
• New Tools/Methods
• What if simulation models
• Electronic RFPs
• Policy-driven self-booking tools

Month
Task
1
2
3
4
5
6
1. Gather city pair and point of sale data,
contracts 2. Prepare and publish RFPs 3. Analyze
existing contracts 4. Select and test likely
supplier scenarios 5. Receive and evaluate
RFPs 6. Conduct negotiations 7. Implement new
contracts
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Hotel Sourcing
Auctions are faster but require much work

• Resources
• Travel Manager 15-25 days
• Rate negotiator(s) 10 days/100 hotels
• Analyst 25-75 days
• RFP administration 30-75 days
• Key Success Factors
• Strong travel policy
• Good data
• Logical market definitions
• Property-level negotiations
• Room rate targets prior to negotiations
• New Tools/Methods
• Electronic RFPs
• Online auctions
• Policy-driven self-booking tools

Month
Task
1
2
3
4
5
6
1. Gather room night data- Agency- Card-
Expense reports 2. Build hotel market profiles 3.
Translate travel policy into potential hotel
suppliers by market 4. Prepare and publish
RFPs 5. Determine amenity values, target room
rates 6. Negotiate room rates 7. Publish hotel
directory
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Rental Car Sourcing
Month

• Resources
• Travel Manager 15-25 days
• Analyst 20-50 days
• Procurement 15-25 days
• Key Success Factors
• Robust cost model
• Rigorous bid analysis
• Clear decision rules
• Agency point of sale
• New Tools/Methods
• Electronic RFPs
• Online auctions
• Cost versus quality decision models

Task
1
2
3
4
5
6
1. Gather rental car data 2. Prepare cost model
for analyzing bids 3. Determine selection
criteria and method 4. Prepare and publish
RFPs 5. Analyze bids 6. Conduct
negotiations 7. Implement new contracts
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Travel Agency Sourcing

• Resources
• Travel Manager 50 100 days
• Procurement 30 60 days
• Financial Analyst 20 40 days
• Key Success Factors
• Clear service configuration (e.g., res center,
  implant, outplant, etc.
• Minimal number of service configurations
• Focus on service differentiators
• Pricing clarity
• Airline/Agency/GDS alignment
• New Tools/Methods
• Net fee to cover overhead and profit
  regardless of number of transactions or air sales
• CTD (U.S. only)

Month
Task
1
2
3
4
5
6
1. Gather travel data 2. Create cost model for
analyzing pricing 3. Define RFP criteria and
weightings 4. Obtain Travel Council
endorsements 5. Prepare and publish RFP 6.
Evaluate pricing and service capabilities 7.
Finalize configuration and implementation
plans 8. Notify counselors and travelers
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Negotiating and Deciding
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Its Better Done Backwards Decide, Then
Negotiate

• Decide how to decide
• Define cost, quality and savings
• Determine quality components and weights
• Agree on the rating scale, and who votes
• Use Cost/Quality Decision curves
• Will the team present one or more
  recommendations?
• How to handle sales reciprocity?

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Agree on Major Quality Components
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Comparative Worksheet Airlines
10 Industrys best 1 Industrys worst
Traveler Productivity

• Agree on whats important
• Keep it simple

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Use Cost/Quality Decision Curves
Switch to new supplier
100K
If the quality is equal, how much savings are
needed to switch to the new supplier?
If we want 15 more quality, whats the most
wed pay a new supplier?
(100K)
How much do we have to save to justify a 15
reduction in quality?
Stay with incumbent
(200K)
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Negotiate Against a Target, Not The Supplier

• Know your savings, cost and quality goals
• Evaluate each bid for primary strengths and
  weaknesses
• Be specific with a supplier about its weak points
• Reveals misunderstandings
• Confirms what is important to the buyer
• Creates tactical negotiating opportunities

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Selling and Enforcing
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Build a Strong Business Case For Each Category

• Baseline costs
• Suppliers evaluated
• Quality scores
• Savings ranges
• Recommendation(s)
• Traveler impact
• Likely levels of support from key business units
• Implementation costs and timing
• Key assumptions and requirements

43
Use HUBS To Sell The Business Case

• Communicate the Six Ps early and often with key
  stakeholders
• Priorities corporate savings goals
• Process strategic sourcing
• People cross-functional team
• Politics Senior managements support
• Profits from significant cost reductions
• Policy what will be different
• Grow support over time use HUBS

Supporting
Believing
Understanding
Hearing
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Why A Strong Travel Policy Is Critical To Success
The price paid by a corporate traveler
Companies with weak travel policies will never
get the best pricing!
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Set Up An Intimidating Exception Approval Path

• Find a sponsor from executive management to
  approve policy exceptions
• E.g., Sally Jo, Senior Vice President
• Require all travel policy exceptions to be
  approved by Sally Jo
• Provide travel counselors and travelers with
  Sally Jos phone number
• Ill be glad to book you out of policy you
  just need to get Sally Jos approval first here
  is her phone number

Works like a charm!
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In Summary

• Strategic sourcing is here to stay
• Strategic sourcing can work in Travel
• Use the 80/20 rule to set the scope
• Organize along political lines
• Find the best people for your project
• Decide how to decide early
• Negotiate against a target, not the supplier
• Build solid business cases
• Use HUBS to sell the new program
• Create an intimidating exception approval path

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Thank You!
For a copy of this presentation, send an e-mail to
Scott.gillespie_at_travelanalytics.com
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Appendix10 Commandments for Travel
SourcingandSample Business Cases
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10 Commandments for successful sourcing

• I. Create a righteous travel policy
• II. Punish the sinners
• III. Pray for good guidance from senior
  management
• IV. Reach out to the non-believers
• V. Covet thy data
• VI. Look deeply into the value of quality
• VII. Know thy own heart prior to seeing bids
• VIII. Speak the truth to all bidders
• IX. Judge thy bidders fairly
• X. Honor thy commitments

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I. Create a righteous travel policy
The price paid by a corporate traveler
Companies with weak travel policies will never
get the best prices
51
I. Create a righteous travel policy

• Find an executive sponsor
• Build the business case
• Write the strongest policy acceptable to senior
  management
• Define appropriate sanctions

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II. Punish the sinners

• Be firm but fair
• Some exceptions will always be warranted
• Too many exceptions cripple the program
• Create an intimidating exception approval path
• Apply appropriate sanctions
• Use public hangings selectively

Strong travel policies need teeth
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III. Pray for good guidance from senior management

• Is the priority cost savings or traveler
  satisfaction?
• Are all suppliers to be treated equally?
• Who gets to make the decisions? Who can veto?
• Is there an achievable goal?
• Is there a realistic time frame?
• Are there no other major distractions?

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IV. Reach out to the non-believers

• Establish a cross-functional Travel Council
• Use a cross-functional sourcing team
• Travel Human Resources
• Procurement Sales
• Finance Operations
• Build support for change with HUBBS

Supporting
Bettering
Believing
Under- standing
Hearing
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V. Covet thy data

• Information is power
• Accurate
• Timely
• Consistent
• Meaningful
• Know what data is worth coveting
• Historical travel purchase patterns
• Travel policy compliance rates
• Supplier performance

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VI. Look deeply into the value of quality

• Place a value on key elements
• Nonstop flights
• On-time arrivals
• Business class service
• Airport lounges
• Counselor retention
• Waivers and favors
• Electronic folios

• In-room internet connections
• Room service
• Fitness centers
• Upgrades
• Account management
• Fast check in, check out

Dont ask if you wont score the answers
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VII. Know thy own heart prior to seeing bids

• Be honest about supplier preferences and
  prejudices
• Define cost, quality and savings
• Be objective and rigorous
• Do this early in the project
• Avoid extensive detail

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VII. Know thy own heart prior to seeing bids

• Create if/then decision rules
• If Supplier B comes within 10 of our
  incumbents quality, and offers a cost savings of
  at least 100,000, then switch to Supplier B.

Decide how to decide before the bids come in
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VII. Speak the truth to all bidders

• Provide more, not less, information
• Total spend and bidders share of spend
• Travel patterns and likely significant changes
• Travel policy and likely enforcement
• Insist on ethical procurement practices
• Treat all bidders equally
• Hold each bidders information in confidence

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VII. Speak the truth to all bidders

• Use a single point of communication
• Distribute questions and your answers to all
  bidders
• Strive to eliminate back door and over-the-top
  conversations

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IX. Judge thy bidders fairly

• Apply well-defined criteria
• Bids should be graded by each sourcing team
  member
• Brief senior management regularly
• After the decision criteria has been set
• After the bids have been evaluated
• Before the final selections have been made

Dont surprise senior management!
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X. Honor thy commitments

• Set realistic goals
• Market share, Segments, Room nights, Rental days,
  etc.
• Allow for unexpected business conditions
• Make every effort to meet your goals
• Educate the travelers
• Enforce the travel policy
• Uphold your implementation duties

Understand a suppliers need to renegotiate if
the goals are not met
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Building Travel Business Cases
64
A Strong Travel Policy Creates Competition
Better Control At The Point of Sale
More Supplier Options

X
HIGH
Point Of Sale Control
BEFORE
LOW
FEW
MANY
Supplier Options
65
Know how your policy compares to peers
Senior management wants objective reference points
66
Focus on the important policy planks
Category
Key Planks
Misc. Parking Mileage Taxis Meals Rental
cars Hotels Air travel
Limos Cell phones Entertainment

• Entertainment policy
• Spending guidelines
• Alcohol policy
• Use of preferred rental company
• Use of preferred hotels
• Upgrade policy
• Use of preferred airlines
• Use of preferred agency
• Lowest logical fare parameters
• Class of service restrictions
• Use of advance purchase/restricted fares

7
8
10
20
55
67
Make it easy for senior management to support the
new policy

• Use benchmarks and savings estimates to build
  support at each level of the political pyramid
• Use a cross-functional Travel Council to review,
  modify and endorse new policy language  get
  everybody behind it
• Establish the negative consequences of
  non-compliance for senior management endorsement
• Ensure that policy violations can be tracked and
  reported

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Show how strong policy benefits your company and
its preferred suppliers
Loose Travel Policy
Tight Travel Policy
Number of airlines under contract Air spend under
contract Discount range Estimated annual
savings Spend on United Airlines Corporate
discount
7 15 million 5-12 1.2 million 6.4
million 12
Benefit to the company Benefit to the
supplier
3 18 million 10-20 2.3 million 1.1
million 8.7 million 18 2.3 million

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Potential savings cant be captured without
strong compliance to policy

• Six sure ways to limit policy effectiveness
• Make the travel policy an obscure document
• Dont offer any rationale for policy elements
• Apply different standards of enforcement
  throughout the organization
• Make it difficult to track and report policy
  exceptions
• Let routine offenders off the hook
• Let senior managers routinely flaunt policy
  exceptions

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Key elements of a good travel business case
Current Language Travelers are encouraged to use
the designated corporate travel
agency. Proposed Language Travelers are
required to use the designated corporate travel
agency for all business-related travel.
Potential Annual Savings 300-500K
Benchmark Findings 6 of 8 peer companies use
language similar to our proposed language
Implementation Issues Must add three full-time
travel agents to handle additional reservations
Compliance Measurement Perform sample audits of
expense reports
Negative Consequences 1st Verbal reprimand 2nd
Written reprimand 3rd Non-reimbursement
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Example Savings from consolidating preferred
carriers
Airline Consolidation Opportunity
Before Consolidation
After Consolidation
Last Years Spend Net of Discounts (000)
Expected Spend Net of Discounts (000)
Average Systemwide Discount
Carrier Gain Or Loss (000)
New Discount
Carrier
0 10 10 0 18 0 0 0

1,500 2,300 3,400 450 8,200 250 100 150 16,350

(3,000) 700 900 (450) 1,700 (150) (250) (350) (900
)
AA CO DL NW UA US TW AC TOTAL
10 3 5 0 12 10 20 0

4,500 1,600 2,500 900 6,500 400 350 500 17,250
Consolidation is expected to save this firm
nearly 1 million per year
Note Discounts are for illustrative purposes only
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Example Savings from new cabin and fare policy
Change The Fare Mix
Fare Class
Old Spend (000)
Old Fare Mix
First Business Coach Economy TOTAL
200 900 6,200 3,500 10,800
2 8 57 33 100
Savings 1,080