In the search for solutions to the havoc wrought by the economic crisis, Mark Frary wonders whether the travel sector could benefit from the lateral approach of benchmarking
When you have downgraded the star rating of the hotels your travellers stay in and have increased the journey length over which travellers can get Business Class, what next? Rather than trying to squeeze more out of your company travel budgets using purely travel techniques, could there be any value in looking at other categories of spend within your company and seeing how they are managed? Emma Scott, representation manager at the Chartered Institute of Purchasing and Supply (CIPS), the UK's leading procurement organisation, believes there is.
From a procurement perspective, company spend is usually broken down into separate categories.
Travel might be one of those, but there might also be IT equipment, power, steel and stationery - as well as the myriad other products and services that a company needs to function properly.
Scott says: "For these categories, it may well be that the procurement processes and procedures are the same but companies will need some extra information about the market itself to understand it.
"This means bringing in experts in the field who have an understanding of print, stationery or travel, say, or working closer with people in the business who have that experience themselves." This article takes a look at one of those other categories of spend - stationery and office products - to see what people involved in buying business travel can learn.
Both the UK market for stationery and related office products, and the market for business travel are worth billions of pounds.
Yet there is one big difference between the two sectors when it comes to procurement: travel usually involves 'distressed inventory' - meaning, for example, that the value of seats on an aircraft falls to zero after it departs - while stationery does not. A paperclip today has pretty much the same value as a paper clip tomorrow.
However, business travel is changing and has become increasingly commoditised over recent years. The low-cost airlines and their introduction of an increasing range of ancillary charges for things like baggage and preferred seating has only increased this. Perhaps there is much to learn after all.
So how have office products companies fared during the recession? Doug Ramsdale, a partner in OP Resource, a consultancy to the office products industry, says: "They have suffered top-line erosion during the recession but in general have produced strong profits as a result of aggressive operational cost reductions and better buying.
"However, there is concern that all the low-hanging fruit has been picked, hence a lot of companies are giving rather bleak guidance on the rest of the year."
Office Depot - the second largest office products company in the world after Staples, and parent company of the UK's Viking Direct - is a case in point.
In 2009, the company's sales from its international retail division plunged by 16 per cent to $3.5 billion. At the same time, operating profits from the division were still $119.6 million. These are down substantially on the years of economic plenty that preceded the recession, but are still impressive.
"Cost cutting has been seen across the board, but the most notable has been in headcount reduction, salary and benefit cuts, and almost complete bans on discretionary spending," says Ramsdale. "There has been an intense focus on managing inventory, eliminating stock write-downs, and cut backs in capital spending. Some essential costs like maintenance have been deferred or scaled back." Those views probably reflects what many travel suppliers have been saying in the past year and a half.
"The companies that have done best are the ones who have executed well and got more out of their employees and suppliers," says Ramsdale. "In particular, listening to and responding to customers has paid off.
Recognising that customers expect even better value has been a key.
"Relationships are key in the office products industry, and vendors and re-sellers have in fact demonstrated a greater willingness to listen and respond as long as the agenda has been agreed. Today that agenda is all about the magic combination - value, exceptional service and prompt reaction to issues. In other words, the same as it has been for years."
Emma Scott at CIPS agrees that a collaborative approach has paid off for companies in the recession.
"The recession has made us realise that we are all in this mess together and we have to get through it together." One company taking supplier relationships very seriously is Staples. As part of its diversity supplier programme, which aims to increase the inclusion of diverse suppliers in its supply chain, it sent the CEOs of several partners to business school to help them develop strategies to position their own businesses for rapid growth.
Op resource's Ramsdale says that in the stationery sector, as in the travel business, companies have looked again at their existing contracts.
"A big source of additional margin has been re-bidding everything that is purchased, switching to lower cost versions of the item or service," he says.
Emma Scott at CLPS says that such renegotiations have been happening but that it may not necessarily have the desired effect.
"It is very much a buyer's market at the moment and hitting suppliers over the head with a stick may work in the short term but you might end up putting a supplier out of business," she says. "the recession has been a time when companies have forged better relationships with suppliers and said rather than scrapping contracts, let's build a plan on shared risk and rewards.
There is no point trying to squeeze your supplier right down. You have to understand their needs and they need to understand yours." Some companies in the sector are incentivising suppliers to come up with money-saving ideas by sharing any increased sales or savings made. this is starting to appear in travel too, with corporate buyers remunerating their travel management companies (TMCs) not through a transaction or management fee but on a share of any savings made. However, this method of remuneration remains limited in scope and is typically restricted to individual projects rather than to entire travel programmes.
Companies in the stationery and office products sector have used the recession to reinvent themselves, says Ramsdale. "One case in point was a company that eschewed private-label business in an attempt to protect its brands.
A complete reversal of that policy has brought sales and profit growth and much improved customer relationships," he says.
Some travel companies are doing the same. the global and multinational TMCs have launched new or improved offerings for small to medium sized companies, for example.
The commoditised nature of stationery means that e-procurement has grown faster in the sector than in travel.
Office products company Staples, for example, is part of the supplier network of automated procurement technology provider Ariba. Staples says that selling its products through Ariba allows it to cut down on the number of catalogues it prints by around 10 per cent, to reduce order processing costs by three quarters and to cut customer service calls by 40 per cent.
e-procurement of travel is still in its relative infancy in the UK, although companies like Lanyon have been helping corporates with electronic requests for proposal (RFPS) and reverse auctions for years in the US. New companies like SSSource are introducing UK companies to the concepts of travel e-procurement.
In the past decade, business travel has increasingly come under the auspices of the procurement department in companies.
Stationery has been there an awful lot longer. there has been some resistance to the move of business travel to procurement with cries of "buying travel is not like buying paper clips." As we have seen, that may no longer be the case.