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Supplier rationalisation can boost best value in a travel programme, but the process has to secure the support of travellers
In these days of ever-growing travel and transport options, it may seem counterintuitive to seek to reduce the number of suppliers in your travel programme. Isn’t choice always a good thing?
Rationalising the number of travel suppliers can make both financial and practical sense for organisations of all sizes.
The benefits of rationalisation include cutting down on paperwork and invoicing, as well as being able to access better corporate deals by driving increased booking volumes to a smaller pool of suppliers.
It is also much simpler for buyers to manage a reduced selection of preferred suppliers, including the major bonus of having to take part in fewer RFPs.
Of course, there can be pitfalls. When a regular traveller is told they can no longer use their preferred airline or stay at their favourite hotel, the buyer may be in line for some negative feedback. Communication with travellers about any rationalisation process is essential to ensuring its success.
BBT asked three experts in corporate travel for their advice on how best to tackle the supplier rationalisation process.
The TMC: Angelina Bunting, commercial director, Reed & Mackay
For most travel managers, the ultimate aim of supplier rationalisation is to ensure they are getting the best value from their programme. Undertaking rationalisation is a chance for travel managers to understand what suppliers value, learn how to maximise their TMC’s leverage and add value for travellers.
Streamlining suppliers isn’t just about savings – it can help control costs, manage the travel policy more effectively and drive better value from existing relationships.
It’s important to remember cost is not the only factor; some clients rationalise suppliers to accord with sustainability credentials or to comply with regulations.
Several clients who have used our consultancy services have seen savings of 15-20 per cent compared with the previous year’s spend.
Preparation is key. Before going through this process, it’s important to understand your organisation. Visibility of information is critical as a basis for analysing your suppliers. Before making changes to your programme, you need to know who you are buying from, how much you buy and what it costs.
When it comes to negotiating with suppliers, focus on routes, carriers and hotels where you have a large, mandated spend and leverage your total value to the supplier. Collaboration is key – if you can understand the supplier’s objectives, then everyone can win.
Supplier rationalisation isn’t necessarily going out of fashion, but a blended solution is increasingly the way to go. On the air side, the market is incredibly competitive as airlines vie for market share. Your TMC has a great view of all the tactical fares in the market. When these discounted fares are released, they may be able to offer significant savings compared to your negotiated rate.
The Consultant: Kavita Cooper, managing director, Novo-K
Supplier rationalisation is usually driven by finance or procurement departments. Normally it’s about finance and often it’s about getting more control of costs.
The main advantages of reducing suppliers include: fewer invoices and improved efficiency; increased leverage and buyer power with suppliers; more control which should improve employee satisfaction; and better payment terms and processes.
For example, one of my clients reduced the number of invoices processed by 89 per cent. It did this by moving to monthly billing, while also securing an 18 per cent improvement in negotiated rates from suppliers. In addition, it cut the accommodation portfolio by 50 per cent.
Supplier rationalisation should be just one part of a raft of measures designed to help employees, including flexi-working, CSR (corporate social responsibility) and staff retention policies. Rationalisation is not something done on its own.
Start by scrutinising spend, including the number of suppliers, location, invoices, department and user trends – who books online and when?
Learn about travel buying behaviour: what are the drivers, what could be done to support a change of mindset and help reduce cost?
You have to take employees with you – travel can be very emotive, especially when people are staying away from their families regularly. Also, work with HR on duty-of-care – if something should go wrong what are the protocols?
While it’s important to get clarity and control, you also have to remain agile. The biggest downside could be the impact on employees, so you need to communicate with them – not telling them why you’re doing this is going to create a backlash.
Set up user groups and a feedback loop with communication going both ways. Your travellers understand what’s happening on the ground far better than those sitting in the office.
The Payment Specialist: Paul Spelman, managing director, Airplus International
Rationalisation has several key benefits, including cost reduction, but often that’s not why our customers consider it. Along with directly reducing purchasing costs, the benefits include reducing processing costs and the number of suppliers – decreasing the risk of issues within the entire supply chain.
Clients also often find reducing the pool of suppliers benefits their relationship with the remainder of their contacts by developing more exclusive relationships.
Ensuring your rationalisation programme benefits suppliers is paramount to achieving the objective. Always keep in mind the length of contract you initiate with your rationalised list. Rationalisation naturally calls for shorter contracts to encourage competitive pricing throughout the agreement.
Consider carbon impact. It’s all well and good creating a rationalisation programme that saves money, but ensure your business isn’t increasing the carbon impact, as there’s no doubt there will be measurements put in place in the future.
Travellers will always find a way to complete their trip using their preferred method of travel and hotel chain, so rationalisation can contribute to maverick buying when not handled with the traveller at the centre of the programme.
Travel managers understand their policy is the most beneficial, both for the traveller and the organisation. But sometimes this doesn’t come across as clearly for the traveller, and it’s the manager’s job to reinforce why it’s key to comply with the travel policy.
Sometimes the travel policy doesn’t work for every traveller situation and buyers need to understand that. The key to rationalisation is flexibility – policies should include guidelines to follow, not laws.