The European Expense Management Study 2008 tells a familiar story. While savings are being made there is still room for significant improvement.
At least one company is spending up to 34% of its travel spend on indirect costs while the average is 4.6%. Only 21% of companies have a facility to flag up in the planning process travellers who fail to follow policy.
These are not small companies. American Express and its partner AT Kearney questioned 66 multi-national and large European-based companies. Together these companies have an annual T&E spend of €2.6bn. Of that €85m goes on indirect costs.
Amex defines these as: planning booking trips, cash advance, central billing and expense claims.
When Amex/Kearney did their last study, the average spend on these four items was 5.6% of total spend. This has now gone down to 4.6%. This means that for every €1000 spent on T&E, €46 goes in processing costs.
But Amex says that through best practice this 4.6% can be cut down to 2.1%, a cut of 54% representing a saving of €25 in every €1000 spent.
So what is best practice and exactly how can it save more than half a company's indirect costs?
There are six key characteristics. They are very familiar.
* a clearly defined, frequently communicated and enforced travel policy
* work closely with suppliers and leverage spend to get best benefits
* invest in automation and make sure your staff use these tools and processes
* centralise back office activities through a shared service centre an/or outsource non-core activities
* focus on user satisfaction as well as cost cuts
* use MI continuously to improve processes and optimise spend
Booking a trip cost 17% of a company's indirect spend; expense claims represent 52%, trip planning 23%, cash advances 2%, IT costs 5% and central billing 1%.
So 92% of indirect costs go on three items: planning, booking and expense claims and it is here that Amex says the biggest savings can be made.
The average cost for trip planning is €11.06 and by using best practice, this can be cut by 55% to €4.96. For trip booking the average cost of €6.25 can be reduced by 70% to €1.89 while expense claims represent the biggest actual savings. This can go down 47% from the average €17.64 to €9.28.
Amex said there had been an increased use of the Internet to search for available travel options and booking tools were also better than they were five years ago. But it noted that employees of average performing companies (in terms of the level of their indirect costs) "spend substantially more time in arranging travel than the best performing companies." So average performing companies spend more than efficient ones.
Companies which can move form average to best performers will make substantial savings: 66% in streamlining trip request processes and 70% in booking processes.
On expense claims, Amex noted a step backwards. This is the most expensive area of indirect costs, accounting for, as we have seen, 52% of indirect costs. Yet in 2003 Amex found that it accounted for only 46% of indirect costs.
Amex said: "Although costs are not directly comparable, this suggests that for many companies efficiency improvements in expense claims processing have not kept pace with cost reductions elsewhere in T&E management.
"However the potential for indirect savings remains considerable."
But Amex said that better control in this area could also mean improved compliance with policy which will save money on direct costs like flights and hotels. Amex noted that hotels were the area which had least policy compliance (71%). Improved compliance can also leads to a stronger negotiating position which again can cut direct costs.
The Amex/Kearney study also looked, for the first time, at the impact of shared service centres, outsourcing and offshoring was having on indirect spend. It found that 59% of companies were using a “shared services model” for at least one of their T&E processes while 45% were outsourcing.
But more significantly 25% said they would be moving to this for one or more of their T&E processes in the next 12-18 months.
The study found that 23% of companies had chosen an off shore location for their shared service centre or outsourcing provider. About half of these companies were from the UK but the survey found that continental firms would increasingly follow the British lead.
Companies in the Nordic region indicated they would follow within the next 12-18 months.
But outsourcing does not always go smoothly. Amex/Kearney found that 17% of companies had brought back in house some outsourced services.
"The principal reasons for the reversal were the disappointment with service levels and a revision of the initial costs-benefit analysis, suggesting in some cases that it was in fact cheaper to provide some services in house," Amex said.
* American Express and AT Kearney questioned 66 multi-national or large companies based in ten European countries: Belgium, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland and the UK.
* The industries these companies represented included consumer goods, energy and utilities, financial and profession, IT, manufacturing and pharmaceuticals.