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Travel Procurement Workshop

Travel Procurement Workshop. Scott Gillespie Author Gillespie’s Guide to Travel+Procurement. Scott Gillespie’s Bio. Author of Gillespie’s Guide to Travel + Procurement Founder and CEO, Travel Analytics Managed 300+ airline sourcing projects Analyzed $20 billion of corporate air spend

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Travel Procurement Workshop

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  1. Travel Procurement Workshop Scott Gillespie Author Gillespie’s Guide to Travel+Procurement

  2. Scott Gillespie’s Bio • Author of Gillespie’s Guide to Travel + Procurement • Founder and CEO, Travel Analytics • Managed 300+ airline sourcing projects • Analyzed $20 billion of corporate air spend • Clients included 40% of BTN’s Top 100 • Sold firm to TRX • Author of a U.S. patent covering airline bid analysis • Former travel sourcing expert at A.T. Kearney • MBA, University of Chicago

  3. Today’s Topics • Procurement – Who are they and what do they want? • Travel Procurement – What makes it different? • The Magic Formula for Supplier Discounts • Why Travel Procurement Starts with Travel Policy • Modern Airline Sourcing • Hotel Clusters and Modern Hotel Sourcing • Group Exercise: Recognizing Good Deals • Travel Policy War Stories

  4. What are these procurement people doing in my travel program?

  5. ~ 60% 100% ~ 25% 10% 8% 5% Profit After Salaries, Wages and Benefits Taxes, Depreciation and Interest Profit Before Total Revenue Purchased Goods and Services Why CEOs Like Procurement Purchased goods and services can be more than half of a firm’s total revenue Reduced pricing falls right to the bottom line… …without layoffs

  6. Fragmented Suppliers How does Strategic Sourcing work? Buyer Buyer Consolidated Suppliers

  7. More Revenue More Trips What Are The Big Picture Goals? Corporate Goals Travel Implications • Lower Trip Costs • More Trips Happier Customers • Lower Trip Costs • Fewer Trips • Better Trips Happier Employees • Lower Trip Costs Lower Costs • Fewer Trips • Worse Trips

  8. Travel Category Manager Sourcing Team Operations Team The Procurement-based Travel Management Model • Buy the specified quality of travel • Set guidelines for purchasing • Evaluate supplier quality and cost • Manage selection process • Negotiate contracts • Quantify potential savings • Manage travel agency • Implement new programs • Implement new technology • Manage supplier performance • Manage travel policy compliance • Resolve traveler problems Each team has very different goals

  9. Travel Sourcing Team Procurement Finance Consultant Travel Sourcing Team Travel Manager

  10. Finance HR Sales Ops Procurement Travel Sourcing Team Travel Manager Procurement Finance Consultant Travel Council Travel Council • Travel Council’s roles • Modify/endorse travel policy changes • Provide guidance on supplier selection criteria • Endorse sourcing team’s recommendations to senior mgt.

  11. Strategic Sourcing Steering Committee Senior Consultant 1-2 Senior Executives C.F.O. Chief Procurement Officer Travel Council P.C./Laptop Council Lab Supply Council Printed Material Council Travel Sourcing Team Steering Committee 1st wave • Steering Committee’ s roles • Push hard for savings • Remove organizational roadblocks • Ratify supplier selections

  12. Procurement Manager 101 • Typically on a career procurement track • Very process-based (often not category experts) • Often handle multiple categories at a time, and/or have sourced many different categories • Skilled at dealing with stakeholders • Know the value of placing FU&D into suppliers’ minds • Want to make defendable recommendations

  13. Myths about Procurement Managers • “They treat Travel like widgets” • A few do. The rest want suppliers to believe that. • “It’s all about price” • It’s all about value – credible value. • “They’ll gladly over-commit share” • They do care about good contracts • Pricing tied to volume or share makes sense • Accustomed to price penalty clauses • They don’t care about traveler opinions • They understand the risk of non-compliance

  14. Procurement’s Stereotypes of the Travel Category • Travel pricing isn’t rational • “We spend $1 million with that supplier – we can throw our weight around.” • “We’ll form a buying consortia to get better travel prices” • Travel managers are too cozy with suppliers • And coziness causes high prices • Travel policy compliance shouldn’t be a problem • Travel people sure like to hug a lot

  15. Ways to Work with Procurement • Show that you understand the goals • Savings and good value • Understand Procurement’s role • Delivering high-value contracts • Focus on the core issues • Qualified suppliers • Enhanced savings • Achievable contracts • Defendable decisions • Respect the procurement process

  16. Travel is not a commodity — right? Common Points We Could Be Talking About… “It’s a significant expense category.” “The spend is very hard to control.” “It touches most employees.” “You can’t just switch suppliers like you can with office supplies.” “It really affects sales and/or productivity— but you can’t quantify it.” …Travel … or Health Benefits … or Advertising … or Enterprise Software … or I.T. Consulting Travel isn’t as different as we might think

  17. Sourcing Complexity Carpeting Coal Laptops Temp Labor I.T. Outsourcing Advertising

  18. Travel Is a SignalCategory

  19. Q: Why is Travel Sourced?A: Money and Politics • Money • Travel budgets are soft targets – big and “easy” • Politics • Travel is one of the most visible expense categories • Great way to show the organization that senior management is serious about change • New policies and new suppliers • “Supplier conditioning” is a strategy

  20. madesimple Lower prices! More market share! travel sourcing

  21. four challenges

  22. every traveler is anexpert

  23. theWIIFMfactor

  24. iseasy buying outside of corporate

  25. lost lost data leverage lost undiscounted traveler itineraries spend

  26. Travel ProcurementStarts withTravel Policy

  27. Travel Policies Impact Travel Spend How What Who Why • Purchase Process • Pre-trip • Booking • Payment • Quality Specs • Cabin • Connex • Hotels • Car size • Preferred Suppliers • Air • Car • Hotel Consequences

  28. Is determined by the supplier’s willingness to negotiate Which is based on the company’s ability to move market share between suppliers Which depends on the company’s travel policy and its enforcement Why Is Travel Policy So Important? The price paid by a corporate traveler Companies with weak travel policies will never get the best prices

  29. TheMagic Formula forSupplier Discounts

  30. Discount Drivers: Profit Contribution and Control of Spend $1,000K Profit Contribution Cost to Serve $200K $500K $100K Worst Case $800K $400K Minimum Maximum Supplier’s Revenue from an Account Source: Gillespie’s Guide to Travel+Procurement

  31. What’s the Maximum Discount? $1,000K Profit Contribution Cost to Serve $100K Negotiable Worst Case $100K $500K Maximum Discount $100K $100K Negotiable Worst Case = 10% $1,000K $800K $400K Minimum Maximum Supplier’s Revenue from an Account Source: Gillespie’s Guide to Travel+Procurement

  32. Key Is To Increase The Min-Max Contribution Gap Increase Spend Buy Higher-margin Inventory Reduce Supplier’s Costs Profit Contribution Cost to Serve Reduce Spend Buy Lower-margin Inventory Minimum Maximum Supplier’s Revenue from an Account Source: Gillespie’s Guide to Travel+Procurement

  33. COST Trip’s Purchase Cost Weak Very Strong Type Of Travel Policy Travel Policy’s Impact On A Trip’s Purchase Costs: Diminishing Returns Source: Gillespie’s Guide to Travel+Procurement

  34. Trip’s Human Capital Cost COST Trip’s Purchase Cost Weak Very Strong Type Of Travel Policy Travel Policy Impacts The Human Capital Costs Source: Gillespie’s Guide to Travel+Procurement

  35. Trip’s Total Cost Trip’s Human Capital Cost COST Trip’s Purchase Cost Weak Very Strong Type Of Travel Policy Program Optimization Means Lowest Total Cost The Policy Level Which Minimizes The Total Cost Source: Gillespie’s Guide to Travel+Procurement

  36. Travel Procurement Summarizedin Six Pictures

  37. tight travel policies traveler support

  38. standard sourcing tools

  39. travel- specific modeling tools

  40. crediblepromises

  41. crediblethreats

  42. walkthetalk

  43. Recognize agood deal

  44. 15 minute Break

  45. Recognize agood deal

  46. Sourcing OptionsTwo key dimensions are Risk and Reward Sourcing Risks Must be Scored • Reward = Savings • Risk of failure is more subjective: • Quality of products, services • Policy management (traveler resistance) • Relationship (risk of not working well) • Strategic value (can offset other risks)

  47. Sourcing Option Risk Score Expected Savings Quality Discount or New Price Policy Mgmt. X Relationship Projected Spend Strategic Value

  48. Sourcing Options for Dummies CEOs Risk High “We recommend Option B, but if you really want C…” C B A << Loss Savings >> <<Reward >>

  49. Illustrative Risk Scoring

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