Why TMCs are facing an avalanche of RFPs
The recession has much to answer for in terms of the often drastic reduction in travel by many companies. It has caused travel management companies (TMCs), airlines and hotel chains to lose revenue and shed staff. But one other affect has been a massive rise in the number of RFPs sent by corporates to TMCs.
Tony McGetrick, UK sales manager for BCD Travel, described the avalanche, which began in his offices last October, as "unprecedented." Alison Smith, director of business development for Carlson Wagonlit Travel (CWT) UK, said there had been a 20% increase since the start of the year. Paul Tilstone, executive director of the UK and Ireland Institute of Travel and Meetings (ITM) said figures from his organisation's research showed that 48% of companies were sending RFPs to their TMCs when the normal figure was about 30%.
The result is that TMCs have been inundated and consequently have become very selective in the ones to which they reply.
But if it is the recession that has spurred this flurry of activity, what is its purpose? It seems to be twofold: first, reducing costs, either through savings on travel spend or by cutting fees to TMCs and, secondly, benchmarking with the aim of a company keeping its existing TMC on its toes.
Research by ITM published earlier this year indicated that buyers are looking, both short and long term, at how they can reduce costs. There is certainly an element here of some companies thinking they can get a better deal in terms of fees from their TMCs. Currently, ITM estimates the fees to be about 4-10% of a company's travel spend.
But ITM found that the buyers were looking beyond this to savings in process and policy. (There seems to be little doubt among buyers of the need for a TMC with ITM research last year showing that 83% of buyers thought their need for an agent would increase or stay the same).
The recent research by ITM showed buyers regarded the most effective way of reducing travel and meetings costs in the short term were: changing travel booking practices i.e. booking more in advance; re-negotiating existing deals; moving to automated booking technology; and reducing policy entitlement i.e. downgrading.
The answers for long term savings were not that different: moving to automated travel booking technology; changing travel booking practices; moving to travel alternatives; and reducing policy entitlement.
But this does not seem to be quite what is happening with the flurry of RFPs. Ms Smith found that the companies are adopting procurement strategies which see travel as a commodity and that the focus is "much more on the price of our service rather than the value."
She added: "There is increase use of procurement specialists and consultants. You have to educate the consultants because they don't know what they are asking." She felt the real aim of some of the RFPs was aimed at cutting TMC fees. "It is the old cliché of the industry about our fees, not the cost of the travel which they should focus on," she said.
Mr McGetrick's view was that part of the activity was corporates seeing "if they are getting value from their TMC." He said the focus was on price but there were also questions about service levels and use of technology as well as whether the TMC offered a pro-active accounting management.
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Alison Smith |
Again he saw the hand of procurement in the RFPs. The questions are not significantly different. "They trend to be similar, they have not significantly altered but there are better procurement objectives in them. They tend to be around price and increasing value," he said.
But it was when the talks started that the "nuts and bolts" tended to come out. "We have had a lot of conversations with procurement where they have been targeted to reduce costs by a certain amount and they are driving that in the requests," he said.
But there is also an element of benchmarking here, or to put it more crudely, fishing. Mr Tilstone admitted "there has always been some of this and it has always caused the TMC community a great deal of headache. It takes a considerable amount of money for an RFP response but it also costs the buyer to draw one up," he said.
But he said it was "not sure" how much benchmarking there currently was, adding that he questioned whether there were any "dramatic savings" to be made simply by changing TMCs. Nor he added was there any evidence that a greater number of companies were changing their TMCs.
Ms Smith said CWT's did not reply to all the RFPs it received and a "rigorous process" was in place to select the ones to which the agency wished to reply. "We don't have an endless number of sales people and if we do not believe their seriousness about changing, we tend not to bid," she said.
Mr McGetrick said BCD's approach was to prioritise companies which it knew."It would be foolhardy if any TMC attempted to pitch for every RFP it received. We are very selective about the companies we pitch to. We use a number of factors including whether we have had a prior relationship," he said.
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Paul Tilstone |
But he said every company had the right to see what was in the market and whether it could get a better deal. "But no company is going to openly admit it is benchmarking. They have every right to seek better value but the figure could be as high as 40-50%."
Putting aside the inevitable fishing expedition, designed, more than likely, to put that company's current TMC on its mettle, there is also a perfectly valid reason for an RFP investigating service levels and possible savings.
Mr Tilstone said: "TMCs say that they are god at doing certain things. So the actual situation is that they are being asked to put that to the test, to do the things that they should be good at."