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To some, it's a dirty word. To others, it's been nothing short of a revolution. But whichever way you see it, procurement is here to stay in the world of corporate travel, says Beverley Fearis
According to the latest annual industry report by BCD Travel, Insight on Corporate Travel: Results of the Travel Program Survey 2008, based on the responses of 300 corporate clients worldwide, 74 per cent of travel departments reported to procurement in 2008. The figure is rising fast, soaring from 44 per cent in 2007 and up from just 7 per cent in 2004 (see table, 'Where travel reports').
Companies that combine procurement with traditional travel techniques outperform their peers when it comes to savings and service, according to research and market intelligence firm The Aberdeen Group. Its report, Travel and Procurement: The Convergence, published in November 2007, found 53 per cent of survey respondents stated that there has been a significant increase in the two departments working together. Furthermore, around half the respondents reported that this collaboration has resulted in improved travel policy compliance and compliance to preferred suppliers. 'Best-in-Class' companies achieved an average compliance rate of 90 per cent to corporate travel policies and procedures.
"Procurement should really not be seen as the bad guy; they are becoming more strategic in nature and can add significant value in a category such as travel and expenses," says Vishal Patel, senior research analyst at Aberdeen Group.
But not everyone is convinced of the value of procurement in the realms of travel. Procurement people are often accused of treating travel like a commodity and buying everything purely at the lowest price. They are criticised for ignoring the 'human' aspects of business travel, overlooking long-standing relationships between buyers and suppliers, and for a lack of consideration for service levels and reliability.
"Travel is a cost centre, but it's not a commodity," says Doreen Duncan, director of sales for travel management company (TMC) Travel Alliance. "Some procurement people focus purely on saving costs, and when it comes to selecting a TMC, they only judge us on fees. They don't look at the relationship we have built up over the years, or the cost savings we have achieved. I would like procurement to come in and introduce themselves, to get an understanding of their travellers, and an understanding of us. But in many cases, it seems the transaction fees are the only thing they see and understand.
"A lot of these people probably don't travel. They report directly to the chief financial officer and they are only interested in driving down costs, especially when they are new and they have to tick the boxes."
There are, she admits, exceptions to this rule, and Travel Alliance has worked effectively with some procurement specialists. But her concerns were echoed by other TMCs.
Traditional travel managers, meanwhile, complain that procurement specialists often come parachuting in, set up a price-led deal with suppliers, then make a hasty exit, leaving the travel manager to deal with the consequences.
"What may look like top line savings could actually result in increased costs if handled incorrectly," says Paul
Tilstone, chief executive of the Institute of Travel & Meetings (ITM). "For example, choosing a TMC, airline or hotel company based on price alone could cause major servicing issues which costs the company in the long run. While good procurement professionals always have an appreciation of that, there can be a tendency for procurement to focus on simple cuts rather than try to change travel processes which can result in far greater savings in the long run."
While procurement specialists may feel comfortable negotiating airline or hotel contracts, they often lack the knowledge about the particular nuances of the travel industry. A 2008 report on the changing role of travel management by PhoCusWright, sponsored by GetThere and Sabre, states: "For example, prices and inventory levels are constantly changing, and if a negotiated discount is only available with specific inventory, the discount can be nullified if the necessary inventory is not available on the key segments used by your corporation. In addition, the value chain conflict that has emerged between travel supply and distribution may be misunderstood. "It continues: "A newcomer to travel management may not fully understand the implications of sourcing directly from those in travel supply or indirectly from those in travel distribution. Without a deeper understanding of these types of issues, vendor negotiations may produce agreements that do not reflect best practices."
Tom Stone, director of Sirius Management and past chairman of the ITM, says the best results will be achieved with close co-operation between both parties. "Some procurement people are purely taking over the travel buying role. They are just coming in to do the negotiations and set up the deal and then leave travel managers to continue with implementation," he says. "But some larger organisations are actually merging the role and appointing a specialist travel person that sits within the procurement team, and this generally works well."
He believes procurement can bring many benefits to the travel Procurement can bring many benefits to the travel management process management process. "Procurement people don't suffer the baggage of being overly sympathetic to suppliers. Many travel managers have historically come from the other side of the fence, and might have too much knowledge,"he says. "There is a dichotomy between having enough information to have some meaningful dialogue, or being too heavily involved and having too much knowledge so that you end up finding excuses when suppliers can't deliver, or feeling bad when you change TMC because of dear old Mary in the implant, who has been there for years. Procurement people don't have that baggage."
He says it is also helpful to bring a fresh pair of eyes to the process. "We have all been guilty of mystifying the travel commodity over the years. There is a lot of jargon in the industry and specific dynamics about the way things are priced. Procurement people have come in and helped de-mystify it. It's good to get people to start thinking outside the box a little bit or you just perpetuate the same old, same old." He says there will always be a battle between those who will commoditise travel and suppliers who will resist that. "Obviously, hotels and airlines don't want to be seen as a commodity, they want to differentiate themselves. It is the job of the buyers to commoditise travel, the job of sales people to resist that at all costs, and the job of the travel manager to sit in the middle."
Stone, himself, came from a travel background but was taught procurement skills when he was employed as travel manager for SmithKline Beecham. "Procurement is essentially about data gathering, strategic planning, negotiation, communications with stakeholders, and building teams, "he says. "There are a number of tools and checklists that procurement people use. They extract industry sector data, examine the key players, slot the company data into it and put forward a plan.
Purchasing procurement is a process, where 80 per cent of the work is in the planning, and then showing how things work."
By using key performance indicators and service-level agreements companies have been able to provide more accurate data for use in negotiations with suppliers. Procurement processes have allowed them to produce more frequent and concise key performance indicator reports to identify travel spending and savings.
"It is strategic, and a million miles from a traditional travel manager's role," says Stone, who believes the function of the travel manager has been further blurred by the changing role of a TMC account manager. "A good TMC account manager should do everything a travel manager does and more, "he says.
According to BCD's 2008 report, the traditional role of the travel manager has widened in recent years (see table, 'Role of the travel buyer').
"While the traditional mainstays of the travel manager's role -sourcing, programme strategy and policy review -are still the main drivers, these individuals enjoy an increasingly wide range of responsibility," says the report.
"For example, 43 per cent of respondents say they have full responsibility or are involved in an advisory role on long-term accommodation decisions, and 20 per cent exercise the same level of responsibility on mobile phone programmes.
"Additional challenges are coming to the forefront, with travel managers now expected to know about other issues such as regulations and legal ramifications, ranging from data protection and duty of care to environmental taxation schemes."
Today's travel managers are finding themselves working more closely with security, risk management and environmental sustainability departments, not just with procurement. Using their specialist travel knowledge and expertise, they must increasingly communicate with a whole host of other departments and stakeholders within their company.
"In general, travel managers have fared pretty well," says Tilstone. "Those that have maintained traditional approaches still have opportunities, but it is those who excel in a fast changing environment which seem to be booming."
Role of the travel buyer
Source: BcD Travel's Insight on corporate Travel: results of the Travel Program Survey 2008, powered by Advito
Where travel reports
Source:BCD Travel's Insight on corporate Travel: results of the Travel Program Survey 2008, powered by Advito