Presentation is loading. Please wait.

Presentation is loading. Please wait.

Travel Strategic Sourcing Kathy Briski, C.P.M., CCTE Senior Vice President Partnership Travel Consulting May 16, 2012.

Similar presentations


Presentation on theme: "Travel Strategic Sourcing Kathy Briski, C.P.M., CCTE Senior Vice President Partnership Travel Consulting May 16, 2012."— Presentation transcript:

1 Travel Strategic Sourcing Kathy Briski, C.P.M., CCTE Senior Vice President Partnership Travel Consulting May 16, 2012

2 Page: 1 Global Procurement Processes Define Supplier Evaluation Criteria Collect Data Conduct Performance Evaluation Develop Improvement Strategy Supplier Relationship Management Process Generate Requisition Approve/ Submit Requisition Process/ Submit Order Receive Goods & Services Approve Invoice Process Invoice & Generate Payment Strategic Sourcing Process Access Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Create Selection Factors & Evaluate Suppliers Conduct Competitive Exercise w/ Approved Suppliers Negotiate & Develop Sourcing Recommend- action Implement Agreements Continuous Improvement Supplier Scorecard Savings Management Spend Analysis Knowledge Management Contract Management Catalog Management Core Supporting Capabilities Day-to-Day Purchasing Process

3 Page: 2 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommend- action Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Validate Internal Requirements & Profile Category Conduct Industry Analysis Internal Category Profile TCO Model Cost Reduction Ideas Industry Profile Build TCO Model Develop Sourcing Objectives Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development Conduct Supplier Analysis Create Supplier Selection Criteria Supplier Selection Decision Matrix RFIs (optional) Short List of Suppliers Complete Traditional RFP Process RFPs / RFQs eAuctions Collaborative Discussions Conduct eAuction(s) Collaborate w/ Incumbent Supplier(s) - AND/OR - Prepare Fact- Based Negotiation Packages Negotiate Agreements Fact-Based Negotiation Packages Supplier Negotiations Presentation Sourcing Recommendation Finalized Agreements Benefits Realization Continual Supplier Improvement Implement Agreements and Monitor KPIs Evaluate Performance and Develop Suppliers Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers Fast Track for Quick Savings Develop Sourcing Strategies & Tactics ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team Assess Opportunity Obtain Sponsorship & ID Team Create Project Plan Project Plan Analyze Current Spend Document Requirements

4 Page: 3 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommend- action Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team Assess Opportunity Obtain Sponsorship & ID Team Create Project Plan Project Plan Analyze Current Spend Document Requirements

5 4 High Level Travel Project Plan Travel Workplan Review Mobilization & Kick-Off Category Profile Internally & Externally Develop Strategy Screen Suppliers & Selection Factors Conduct Competitive Exercise Negotiate & Develop Sourcing Recommendation Implement Agreement AprilMayJuneJulyAugustSeptember SAMPLE

6 Page: 5 Travel Category Opportunity SAMPLE Category Opportunity Baseline – Travel Key Travel Contracts and Expiration DatesPreliminary Opportunities to Drive Accelerated Benefit Hertz Car Rental Agreement – Expiration Date: July 31, 2010 Northwest Airlines Agreement – Expiration Date: November 30, 2010 American Express Travel Agency Agreement – Expiration Date: September 30, 2009 – Currently Extended until September 30, 2010, with an additional 1 year extension (2011). Mandated Travel & Entertainment Policy Drive Demand Management (Compliance Behavior): On-Line Booking Tool Advance Ticket Purchase Non-Refundable Tickets Preferred Hotel usage Preferred Car Rental usage Hotel Competitive Bid Negotiate American Airlines contract Car Rental Competitive Bid Confirmation of Sourceable Spend Sourcing Group CategorySub-Category Addressable Spend % Addressable Sourceable Spend Est. Mid Saving % Est. Mid Savings $ TravelAirline$6,000,000100%$5,500,0003%$165,000 TravelCar Rental$1,000,000100%$925,0005%$46,250 TravelHotel$4,500,000100%$4,400,0005%$220,000 TravelAgency - Agency Fees$170,000100%$00%$0 Travel Demand Management (Compliance)N/A $700,000 SAMPLE

7 Page: 6 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen- dation Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Validate Internal Requirements & Profile Category Conduct Industry Analysis Internal Category Profile TCO Model Cost Reduction Ideas Industry Profile Build TCO Model Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team

8 Copyright © 2007 Accenture All Rights Reserved. 7 Total Cost of Ownership Travel Hotel Cost Agency Cost Total Cost of Ownership – Elements Air Ticket Cost Emergency Travel Services Change Requests Support Management Fees Online Booking Agent Assisted Booking Client Negotiated Airfare Transaction Fee Price for airfare, room rates and rental rates make up a portion of the TCO for Travel with cost drivers laying hidden in process. Rental Car Cost Airfare Cost Nightly Room Rate Misc. Charges Internet Parking Fitness Center Misc. Charges Fuel Daily Rate Mileage Charge Vehicle Fees GPS Concession Fee Recovery Self fill Fuel and Service Charges Fuel Purchase Options Price FHN Procurement Process Labor Costs Time to register new online users on Cliqbook Time to train new online users Air Ticket Cost Taxes Room Rate Taxes Daily Rate Taxes Travel Policy Policy Enforcement Advance Booking Preferred Suppliers Meals Phone Fuel Surcharges Security Fees Insurance Airport Fees City Surcharge Upgrade Fees Energy Surcharge SAMPLE

9 Page: 8 Industry Profile - Objective & Key Questions Objective Provide a detailed understanding of the current corporate travel industry as well as the forces shaping future travel services. The results of this profile will shape Comericas travel Sourcing Strategy. Key Questions How big is the industry? Who are the major players? How competitive is the market? What are the key cost drivers? Is the industry in a state of growth or decline? What are the current pricing trends? SAMPLE

10 Page: 9 Travel Scope NAICS 481 – Transportation by Air 4811 – Scheduled Air Transportation – Scheduled Passenger Air Transportation NAICS 721 – Accommodation 7211 – Traveler Accommodation – Hotels and Motels Guestroom Rental NAICS 5321 – Automotive Equipment Rental – Passenger Car Rental and Leasing – Passenger Car Rental (for business travel) NAICS 561 – Administrative and Support Services 5615 – Travel Arrangement and Reservation Services – Travel Agencies (including Meetings & Events) In Scope Scheduled passenger air transportation, hotel, passenger car rentals and meeting/event planning services are in scope for travel sourcing. Because of the existing relationship with current travel agency and the subsequent process standardization, it does not make sense to fully source the travel agency component of travel at this time. However, there may be components of the contract to reevaluate. Meeting/Event Planning Services are categorized under the same NAICS code as Travel Agencies. Key Points The travel industry encompasses a variety of different categories each grouped with an NAICS (North American Industry Classification System) code. Source: SAMPLE

11 Page: 10 Airline Industry: Overview 2011 Airline Industry Revenue reached $591 Billion Domestic Airline Industry amounted to $147 Billion Domestic Airline industry revenue is forecast to exhibit positive growth, increasing at a rate of 2% per year to $162.3 Billion United, Delta, and American are the market leaders based on revenue In 2011, Uniteds net income was $840M and Delta earned $854M, while American lost close to $2 Billion. Alaska Air earned $244.5M, Southwest $178M, US Airways $71M and Jet Blue earned $86M. For 2012, IATA forecasts an industry profit of $3.5 Billion, but with jet fuel prices at an all time high, it will be interesting if this forecast becomes true Business travel represents 35% of airlines revenue AirlineFinancials.com predicts a 95% probability that American Airlines and US Airways will merge in the next months. From 2000 – 2010, US Airlines improved their on- time arrivals from 72.6% to 79.8%. From 2000 – 2010, airlines reduced greenhouse gas emissions by 10%, while transporting 15% more passengers and cargo. Federal taxes constitutes $61 or 20% of a typical $300 domestic round trip ticket. Key Points Source: Airlines for America: airlines.org, Airline Financials.com, IATA, Wikipedia 2011 Global Airline Industry Revenue reached $591 Billion, up 5.5% from Domestic Airline Industry amounted to $147 Billion. SAMPLE

12 The PPI (measures average change in prices over time) for passenger air transportation has decreased 8% since the end of 2009 indicating decreased costs primarily driven by lower fuel prices, but recently have gained an average of 18% back in Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation NAICS January – April 2012 Preliminary. All indexes are subject to revision four months after original publication. Source:

13 Page: 12 Airline Industry: Cost Drivers Sources: Airlines for America: Cost Drivers Key Points Jet Fuel: In 2008, Fuel prices were at record highs. For 2011, fuel prices have increased to 2009 record highs. Each penny increase in the price of a gallon of jet fuel adds $190 million in additional fuel costs Aircraft Age & Type: Fuel consumption is directly impacted by an aircrafts age. Standardization of aircraft fleet assists airlines in reducing inventory and maintenance costs Distribution: This is a tiered cost for airlines, ranging from proprietary websites to GDS transaction costs Labor: In 2010, labor cost has exceeded fuel cost even though many airlines have been slashed due to reshaping labor structure, such as redundancies, sickness pay review, bonuses Other: These costs include insurance, utilities, office supplies, advertising and promotions, communication, personnel expenses, injuries, loss and damage, interrupted trips expenses, etc. Airline costs consist of fuel, landing fees, aircraft, staffing costs, taxes and surcharges. SAMPLE

14 Page: 13 Airline Industry: Jet Fuel Costs Historically jet fuel expenses have ranged between 10% and 15% of U.S passenger airline operating costs, but in 2008 the cost of fuel was between 30% – 40% of total operating expenses for most carriers. For 2012, average price of jet fuel is $ per barrel. The most reasonable explanation for such high prices is tight supply and counteracting the weak economic conditions In 2008 and now in 2011, every dollar increase per barrel (42 gallons) drove an additional $448M in fuel expenses to carriers bottom lines From 2000 – 2010, US airlines carried 15% more traffic while using 2.1 Billion fewer gallons of fuel. In 2011, US passenger and cargo airlines spent $50.5 Billion on fuel, up $11.7 Billion from Increasing Jet Fuel Costs Key Points Sources: Airlines for America: Fuel is one of the largest cost contributor to airlines operating costs. SAMPLE

15 Page: 14 Airline Industry: Air Travel Price Index Sources: Bureau of Transportation Statistics, AMEX 2012 Forecast, CWT 2012 Forecast, Advitos 2012 Forecast, Airlines for America: Air Travel Price Index for Seattle/Tacoma 1 Key Points 1 The air travel price index measures the percents change over time in prices paid by travelers to 2011 Q3 Historically, air travel prices originating from Sea- Tac Airport has been higher than the US average during 2003 – 2008, but has dropped in line with the US average at the end of 2011 AMEX 2012 US forecast: Short Haul: 2%-4% Coach 5%-7% Bus/1 st Long Haul: 0%-3% Coach 3%-6% Bus/1 st CWTs US forecast: 3.6% - 5.2% increase Advitos 2012 N/A Regional forecast shows a YOY increase of +5% in Coach fares and +3% in Bus fares. Airlines found several ways to grow revenue without raising fares – a la carte pricing: from charging for select coach seat assignments, boarding after elite status members, baggage fees and fuel surcharges and possibly using restrooms! In 2011, US airlines posted the lowest annual rate of mishandled baggage ever recorded. In 2010, the airline industry earned approx. $23 billion in additional ancillary fees, which includes $3.3 billion for baggage fees. For 2011, the worlds airlines are projected to generate $32.5 billion worldwide from ancillary revenue. The cost of air travel have been very volatile over the past several years. The cost of airfare flying into Sea-Tac Airport has been higher than the U. S. average during 2003 – 2008, but has dropped in line at the end of SAMPLE

16 Page: 15 Airline Industry: Baggage Fees SAMPLE Source:

17 Page: 16 Airline Industry: Cancellation/Change Fees SAMPLE Ranking *Airline ( thru Q3) 1Delta16,33118,927406,039698,611587,810 2American 469,883449,899471,369373,674 3United331,193354,471309,866321,539249,891 4US Airways 68,304248,840253,077211,332 5Continental 227,868237,446180,920 6JetBlue74,472123,468121,273113,99792,430 7Air Tran20,82024,33942,76650,41638,384 8Spirit 21,51423,56123,12019,036 9Frontier33,08134,27921,49416,68516,562 10Virgin America9439,76112,86618,15115,851 11Hawaiian21,80125,15923,54618,19213,369 12Alaska54,70067,07760,59050,3577,944 TOTAL553,3411,217,1821,948,6082,272,9601,807,203 * Airlines ranked by 2011 reservation cancellation/change fee revenue, dollars in thousands (000) Source:

18 Page: 17 Airline Industry: Price of Air Travel versus Other Goods & Services Sources: Airlines for America: Price of Air Travel Versus Other Goods and Services Shown in their original values, facilitating comparisons with other goods & services versus the price of air travel and with movements in the U.S. Consumer Price Index (CPI). CPI is defined as a measure that examines the weighted average of prices of a basket of consumer goods and services. SAMPLE Product (Unit) vs 1978 College Tuition: Public (Year) 1 $688$3,508$8, % College Tuition: Private (Year) 1 $2,958$16,072$28,500823% National Football League (NFL) Game Ticket 9 $9.67$49.35$ % Prescription Drugs (Index) % Major League Baseball (MLB) Game Ticket 10 $3.98$16.22$ % Unleaded Gasoline (Gallon) 4 $0.67$1.51$ % New Vehicle 3 $6,470$24,923$29,793**360% New Single Family Home 5 $55,700$169,000$222,600**300% CPI (All items) % Movie Ticket 6 $2.34$5.39$7.89**237% First-class Domestic Stamp 7 $0.15$0.33$ % Whole Milk % Grade-A Large Eggs (Dozen) 2 $0.82$0.91$ % Air Travel: Round Trip Domestic Fare 8 $186 *$314.46$34384% Air Travel: Round Trip International Fare 8 n/a*$935.26$1,160n/a Apparel: Clothing/Footwear/Jewery (Index) % Television (Index) % * Domestic fare data commences in 1979; international fare data commenes in 1990 ** 2011 data not yet available; 2010 data used as a placeholder 1 The College Board - based on beginning of academic year 2 U.S. Bureau of Labor Statistics - including hedonic "quality-change' adjustments 3 National Automobil Dealers Associaton - average retail selling price 4 U.S. Department of Energy - Monthly Energy Review, Table U.S. Census Bureau - median value 6 National Association of Theatre Owners 7 U.S. Postal Service - Publication ATA via U.S. bureau of Transportation Statistics - exludes taxes; first column reflects 1979 (1978 data not available) 9 National Football League, average nonpremium ticket 10 Major League Baseball, average nonpremium ticket

19 Page: 18 Hotel Industry: Overview 2011 Global Hotel Industry Revenue reached $126.6 Billion, with an overall profit of $7.6 Billion. Hotel industry began its recovery in 2010, following a disappointing 2009 when revenue fall 9.4%, due to declines in travel spending In 2010 and 2011, revenue grew by 4.4% and 6% respectively, as the economy began to improve and travel rates increased. For 2012, industry revenue is expected to continue to grow with an estimated jump of 4% 2012 – 2017 projected annual revenue growth rate is projected to be 2.6% to $144.3 Billion. Smith Travel Research is projecting increases in all three key performance metrics during 2012: Occupancy is expected to rise to 59.5%, Average Daily Rate (ADR) will increase 6.8% to $ and Revenue Per Available Room (RevPAR) is projected to end the year up 8.6% to $ Major market segmentation: 28.5% transient business travelers and 25% conference travelers. Key Points Source: Smith Travel Researchwww.IBISWorld.com 2011 Global Hotel Industry Revenue reached $126.6 Billion, with an overall profit of $7.6 Billion. SAMPLE

20 Page: 19 Hotel Industry: Chains / Brands The majority of the global branded properties and revenue are mostly located in North American Major revenue for global chains (such as Marriott, Hilton, etc) is from franchise and management fees. Business travelers, including executives, are shifting from luxury hotels to more moderate mid-priced hotels Hotel taxes, usually a combination of sales and occupancy taxes along with the occasional flat fee, range from 10% to more than 18%. Hotel costs represent the single largest component of non-air expenses, about 43% of the travel dollar Key Points Source: PWC Hospitality Directions, Smith Travel Research, CWT Hotel Solutions, Business Travel News, IBISWorld The majority of the global branded properties and revenue are mostly located in North America, SAMPLE Brands by Service Level

21 The PPI for hotel rooms has increased an average of 2.4% since 2011 indicating occupancy rates have bounced back hence pricing increasing due to demand. No more buyers market! Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals Source: NAICS January – April 2012 Preliminary. All indexes are subject to revision four months after original publication.

22 Page: 21 Hotel Industry: Cost Drivers Source: Operating Cost Drivers Key Findings Over 80% of costs in the hotel industry is distributed among three categories: (1) purchases, (2) wages, (3) other. Operating cost driver: Purchases is the largest cost – mainly food and alcohol for resale. Wages costs provide the second largest spend category Other costs include those involved in the initial investment in the hotel: Land comprises 45-50% of total project cost Construction is about 25-30% Remainder goes to furniture and fittings Recently, the hotel sector has experienced a significant increase in insurance premiums particularly related to public liability and health benefit policies. Over 80% of costs in the hotel industry is distributed among four categories: (1) administrative overhead, (2) labor, (3) repairs and maintenance, and (4) food and beverage. SAMPLE

23 Hotel Industry: Room Rates Hotel showed signs of pricing strength starting in 2011, with 2012 forecast indicating an upward swing. The majority of new hotels in the pipeline are limited service properties, especially in the emerging markets, China and India. Full service and resort properties have been the hardest hit with reduced demand and little new construction. Technology has lowered labor costs, increased productivity and enhanced the customer service. AMEX 2012 forecast for N/A: 2.5% - 6.5% CWT 2012 forecast for N/A: 2.4% - 3.1% Advito 2012 forecast for N/A: 5% - 6% Egencia forecast for N/A: 5% Overall average forecast: 4% For 2012: Hoteliers and analysts expect pricing power to continue rebounding throughout the year, leading to potentially tougher negotiations for buyers in the fall Average Cost Per Night for March Hotel Stays Based on more than 750,00 hotel stays booked through US based corporate travel agencies Key Points Source: PWC Hospitality Directions, Smith Travel Research, AMEX 2012 Forecast, CWT 2012 Forecast, Advitos 2012 Forecast, Egencia 2012 Forecast, Business Travel News US hotel room rates started to decrease late 2008 which led to a buyers market. Buyers have enjoyed lower hotel rates for 2 years but rates have been increasing, especially in key markets.

24 Page: 23 Car Rental Industry: Overview Global industry spend is $26.5 Billion of which 34% is business travel The industry is segmented by business travelers, leisure travelers, car leasing and car sharing Leisure market has grown larger than corporate business market Industry revenue is forecasted to increase 2% for the next 5 years High fuel cost is impacting industry as customers, especially leisure travelers, are finding other alternatives (public transportation) Hertz and Avis expanding off-airport locations to compete with Enterprise Car rental industry adjusted to global recession better than other travel industry categories. They can right size fleet to meet demand by disposing vehicles quickly and reduce costs. Good time to competitive bid car rental services. Areas of negotiation – GPS, Fuel charges, City Surcharges, Back end Rebates and multi-year agreement. Key Points Source: IBISWORLD, Auto Rental News, Business Travel News Global industry spend is $26.5 billion of which 34% is business travel SAMPLE

25 Rental Car Industry: PPI – Passenger Car Rental NAICS January – April 2012 Preliminary. All indexes are subject to revision four months after original publication. Source: The PPI for passenger car rentals has gone up 22% from 2005 to 2008 indicating increased fleet and fuel cost. In 2008 and 2009, prices have slightly increased and in 2011 prices have decreased.

26 Page: 25 Car Rental Industry: Market Share Enterprise/National/Alamo, Hertz and Avis/Budget account for 90% of the total US on airport market and 80% of total market Suppliers offer different brands that focus on specialized markets: Corporate Traveler – On-airport convenience – Hertz, Avis and National Leisure Market – On/Off-airport Budget, Dollar Thrifty, and Enterprise Additional Non-US regional players include: Europcar (Europe and Asia Pacific) Sixt (Germany and EMEA) In the past 4 years, major car rental companies trimmed fleets from a total of about 2 million cars to about 1.3 million Car rental companies have implemented a variety of new ancillary fees to help preserve some of the lost revenue in recent times, such as tacking on fees to extend a reservation, eliminating 60 minute grace period, or increasing the cost of a two-day rental Avis/Budget began working with GDS operators to implement the addition of credit card information to rental car bookings. This opens the door to assess a no-show fee to travelers who fail to cancel their reservation without sufficient notice Virtual rental technology – enables customers to reserve, rent, access and return cars just about anywhere. ZipCar, WeCar, Connect. For 2012, industry experts forecast flat to minimal increase in rates. Key Points Source: Business Travel News Corporate Travel Index 2011www.autorentalnews.com The U.S. car rental market is highly consolidated among a small number of major players and it may get smaller. SAMPLE Top 4 Car Rental Companies By Revenue

27 Page: 26 Car Rental Industry: Cost Drivers Source : Auto Rental Newswww.ibisworld.com Operating Cost Drivers Key Findings Over 90% of costs in the car rental industry is distributed among four categories: (1) purchases, (2) other, (3) depreciation, and (4) labor. Operating cost driver: Fleet purchases are the largest cost Other costs provide the second largest spend category. This represents concession agreements with major airports, fixed rent for terminal counters or other leased properties and facilities. Depreciation and Labor costs complete the top cost drivers in the car rental industry Over 90% of costs in the car rental industry is distributed among four categories: (1) Purchases, (2) Other, (3) Depreciation, and (4) Labor. SAMPLE

28 Travel Management Industry: Overview The top 50 travel management companies represent over $155 billion in sales revenue in The top 14 travel management companies earned over $1billion in sales revenue, or 92% of the sales revenue in 2010, a top heavy industry. Expedia, Orbitz, Priceline, AAA Travel, and Travelong receive 90% or more sales revenue from the leisure market. Travel Leaders earns 26% of their sales revenue from the leisure market (down from 48%). Agency after agency on the Travel Weeklys Power List 2011 registered increases over their 2009 results. In many cases, the increases brought them back to where they were before the recession. Second time since the Travel Weekly Power List commenced (1992), AMEX did not occupy the top spot Top 5 (over $1B in revenue) Travel Management Cos By Revenues Key Points Source: Travel Weekly Power List 2011, The Top 50 travel management companies represent over $155 billion in sale revenue

29 The PPI for travel agencies has gone down 13% since its high in 2001 (due to 9/11 and the commencement of the on-line booking tool), but has risen since and is close to its 2007 high once again.. TMC Industry: PPI – Travel Agencies NAICS January – April 2012 Preliminary. All indexes are subject to revision four months after original publication. Source:

30 Page: 29 Advitos 2012 Forecast Airlines for America, AirlineFinancials.om AMEX Business Travel 2011 Forecast and Trends ATWOnline, Auto Rental News Bureau of Labor Statistics, Bureau of Transportation Statistics, Business Travel News Business Travel News Corporate Travel Index 2011 CWT Hotel Solutions CWT 2012 Forecast Egencia 2012 Forecast Forbes, Hoovers Online, IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006) Global Business Travel Association, OneSource Inc., Power List 2011, Pwc Hospitality Directions Smith Travel Research Data The Transnational.travel Travel Daily News, Travel Procurement Travel Weekly, Wikipedia Wikiinvest Appendix: Data Sources SAMPLE

31 Page: 30 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen- dation Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Develop Sourcing Objectives Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers Develop Sourcing Strategies & Tactics ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team

32 Page: 31 Sourcing Strategies & Tactics Several sourcing strategies can be pursued, either separately or together. Possible Sourcing Strategies Best Price Analysis Volume Leveraging Strategic Relationship Process Improvement Demand Management Commodity Sourcing Strategy STRATEGIC RELATIONSHIP Establish integrated or close relationships with suppliers where both buyer and supplier work together to share information, collaborate, and further each partners goals STRATEGIC RELATIONSHIP Establish integrated or close relationships with suppliers where both buyer and supplier work together to share information, collaborate, and further each partners goals PROCESS IMPROVEMENT Identify opportunities to standardize and streamline business processes that will result in improved quality, reduced cycle times, and lower total cost of ownership PROCESS IMPROVEMENT Identify opportunities to standardize and streamline business processes that will result in improved quality, reduced cycle times, and lower total cost of ownership BEST PRICE ANALYSIS Evaluate and model all costs and use negotiation tactics that increase transparency and maximize competition BEST PRICE ANALYSIS Evaluate and model all costs and use negotiation tactics that increase transparency and maximize competition DEMAND MANAGEMENT Address factors such as standards, requirements, and policies to reduce costs related to internal demand DEMAND MANAGEMENT Address factors such as standards, requirements, and policies to reduce costs related to internal demand VOLUME CONCENTRATION Aggregate like goods and/or services across organizational units in order to increase negotiation leverage and negotiate better pricing, and terms and conditions VOLUME CONCENTRATION Aggregate like goods and/or services across organizational units in order to increase negotiation leverage and negotiate better pricing, and terms and conditions

33 Page: 32 Strategy Considerations Company should examine current travel policies. Enforcement of on-line booking tool, advance booking, preferred hotels and other travel guidelines will result in significant savings. Because of the relative small air travel spend compared to other companies, in addition to moving corporate headquarters to Dallas while still maintaining their Detroit area locations, Company should consider focusing hard dollar airline discounts with one or two major carriers supporting both markets. Furthermore, Company should consider exploring additional benefits for their secondary markets Company should re-examine their current preferred hotel program and consolidate markets and room nights to leverage buying power Company should leverage hotel spend for meetings/events in negotiating hotel rates for transient travel Preferred car rental utilization is best in class, therefore consider a competitive bid to leverage utilization Company may consider utilizing teleconferencing as an alternative to reduce their overall travel usage SAMPLE

34 Page: 33 Sourcing Strategy: Airlines Current State Travel policies located in Accounts Payable Expenditure Manual – No enforcement All departments using one travel agency, however suspect that some Southwest bookings are going directly to Southwest.com Travel compliance is not be monitored Recently moved corporate headquarters from Detroit, MI to Dallas, TX Top 3 airline spend: Northwest, American and Southwest Current contract with Northwest only (no discount in Tier 3 and high market share commitment) 70% of air spend in Tier 3 Some international air spend – about 15% Sourcing Recommendation Create separate travel policy with management enforcement Enter into negotiations with Northwest (current contracted supplier) and American Airlines. In addition, pursue possible corporate deal with Southwest Airlines. Stimulate competition between Northwest and American Airlines in multi-hub city pairs Stimulate competition between Northwest and American Airlines for international air spend Negotiate with Southwest and determine if market share can support a formal corporate agreement Market dynamics suggest a 2 year contract Results Separate travel policy resulting in improved compliance Discount in Tier 3 level pricing Capture all Southwest spend SAMPLE

35 Page: 34 Sourcing Strategy: Hotels Current State Travel policies located in Accounts Payable Expenditure Manual – No enforcement All departments using one travel agency, however suspect that some hotel bookings are being booked directly with hotel Travel Agency manages and negotiates hotel program Large number of properties are being utilized in top city markets (e.g. 75 hotels were utilized in the Detroit (and surrounding) area in the last 12 months) Cities are classified as Room Nights per City: Tier 1 (approx Nights): 45% of hotel spend in 12 market areas Tier 2 (<200 Nights): 55% of hotel spend in the rest of the market area Sourcing Recommendation Create separate travel policy and enforcement of policy Tier 1: Issue a Request for Proposal to the existing supply base as well as comparable properties in defined geographies. Consolidate volume to increase bargaining power Minimize number of options available in each geography Pursue value-added amenities at no additional cost Tier 2: Utilize Travel Agency rates and drive volume to those properties with the lowest rates Results Separate travel policy and enforcement which will result in improved compliance Competitive room rates in preferred cities Strategically selected properties by geography which will increase preferred property usage SAMPLE

36 Page: 35 Sourcing Strategy: Car Rentals Current State Travel policies located in Accounts Payable Expenditure Manual – No enforcement All departments using one travel agency for booking car rentals, however some spend is being booked via another source 97% of the car rental spend is with one preferred supplier Over 75% of car rental returns are subject to refueling charges The top 15 cities, by volume, represent 78% of the rental car spend Sourcing Recommendation Develop and implement one travel policy for all departments Issue a Request for Proposal to the top 5 rental car companies Consolidate volume from all sources to increase bargaining power Request pricing for one primary and one primary and one secondary supplier relationship Negotiate refueling charges, if possible Negotiate city surcharges for the top 15 cities, by volume Market dynamics suggest a 2 year contract with the option for a 1 year extension Results One travel policy for all departments resulting in capturing the non-compliance that is being done Award contract to one primary or one primary and one secondary supplier, whichever is more advantageous SAMPLE

37 Page: 36 Savings Opportunity Proposed StrategyExpected Outcome Volume Concentration Consolidate all OpCo car rental spend. Leveraging buying power across all OpCos to maximize savings. Primary and Secondary Considerations Pricing exercise to include using one primary vendor only or having one primary and one secondary vendor for car rentals. Award business to one primary only, or one primary and one secondary vendor, whichever is more advantageous. Service Consolidations Increase total spend to include cargo van/truck rental business to leverage buying power with Enterprise and Budget. Enterprise to acknowledge additional spend with cargo van/truck business which could help achieve additional savings. Show Budget total spend across their business units to obtain best pricing. Additional Concessions Ask for additional concessions, including higher rebate, lower city surcharges, lower refueling charges, lower one-way and weekly rentals, and lower GPS rental fee. Better rebate terms, possible lower city surcharges, and flat rate refueling charge which amounts to additional savings. Demand Management – Global Policy Develop a global travel policy for all OpCos to follow. Consistency across all OpCos leads to demand management savings. Demand Management – Enforcement Mechanism Empower Global Travel Department to enforce global travel policy with key OpCo team members. Demand management savings in all areas, airline, hotel and car rental. Demand Management – Class of Service Standardization Standardize car rental class of service to intermediate size car only. Average daily car rental rate to decrease, providing incremental cost savings to the program. Category Strategy Deliverable Perform pricing exercise to include primary and primary/secondary considerations, include cargo van/truck rental spend and negotiate additional concessions such as better rebate terms, lower city surcharges and flat rate refueling charge. SAMPLE

38 Page: 37 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen- dation Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Conduct Supplier Analysis Create Supplier Selection Criteria Supplier Selection Decision Matrix RFIs (optional) Short List of Suppliers Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team

39 Page: 38 Car Rental Scorecard SAMPLE

40 Page: 39 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen- dation Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Complete Traditional RFP Process RFPs / RFQs eAuctions Collaborative Discussions Conduct eAuction(s) Collaborate w/ Incumbent Supplier(s) - AND/OR - Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team

41 Page: 40 Supplier Engagement Options There are many ways to initially exchange information. While RFPs are often appropriate, they are one of many means of engaging suppliers. Pre-Negotiation Information Exchange Direct Negotiations with an Incumbent Supplier Direct Negotiations with a Target Supplier Brainstorm with a Group of Trusted Suppliers On-Line Auctions RFPs / RFQs Should choose the method(s) that best meets both the Strategic Sourcing objective and the team resource capacity

42 Page: 41 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen- dation Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Prepare Fact- Based Negotiation Packages Negotiate Agreements Fact-Based Negotiation Packages Supplier Negotiations Presentation Sourcing Recommendation Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team

43 Page: 42 Negotiations Approach – Discussion Points Based on a review of Companys current program, contract terms, and stakeholder requirements, the following improvement areas have been identified to maximize the annual incentive rebate. Negotiation PointDescriptionSupplier Pricing, Incentive Rebate Structure Size down the gap between rebate tiers to reduce the risk associated with dropping to a lower tier. Closing the gap between tiers will inset Company to drive more spend to Amex. Ensure incentive BPS earned at each tier are best in class for domestic and non- domestic spend. ABC Pricing, Signing BonusReduce/eliminate minimum signing bonus *NACV thresholds (claw back clause) to avoid refunding any portion of the $1M signing bonus paid to Company in Take a position which suggest Company is doing Amex a favor by offering them other potential business. ABC should fight to keep this business considering transition cost will be minimal for them, thus their margin will not be adversely be effected. ABC Pricing, Performance Bonus Establish a realistic performance target based on the post spin *NACV, the current (pre spin) performance target is too aggressive. Maximize the annual performance bonus. ABC Pricing, DeductionsMinimize consulting assessment expenses (hourly rate) and Membership Reward (MR) fees which are deducted directly from the incentive rebate. Negotiate an annual credit which can be applied to consulting and MR expenses. ABC Pricing, High ROC Transactions Reduce the 50 BSP reduction on P-card transactions > $10K (Hi-ROC volume). Negotiate a buffer which can be applied to the Hi-ROC volume, i.e. request that the BSP penalty apply only to Hi-ROC volume which exceeds a specified amount. ABC *NACV – Net Annual Charge Volume (i.e. annual spend with Amex) SAMPLE

44 Page: 43 Negotiations Approach – Projected Targets Below are the projected results should Company be successful in driving ABC to the negotiation points proposed. Total Savings is projected to be approximately $300-$600K. SAMPLE Expected Benefits StrategyTypeSavings ($)LAS / BATNAKey Enablers Incentive Rebate Structure – fine tune the incentive BSP tiers to maximize the rebate received post spin-off. Financial$200-$400KFocus on sizing down the gap between rebate tires. Put business out to bid Stakeholder buy-in Executive sponsorship Procurement Support Performance & Signing Bonus – adjust bonus targets to align with the post spin-off spend portfolio. The current targets are far to aggressive. Financial$100-$150KConcede to a reduction in the performance bonus if the target is simultaneously reduced Mandate a reduction in minimum thresholds for signing bonus retention Stakeholder buy-in Executive sponsorship Procurement Support Deductions – reduce the expense subtracted from the *NACV and deductions from the base incentive rebate. Financial$0-$50KFocus on improving the rebate earned on High- ROC volume Dedicate a resource to handle ad-hoc assessment activities Stakeholder buy-in Executive sponsorship Procurement Support Total$300-$600K *NACV – Net Annual Charge Volume (i.e. annual spend with Amex) SAMPLE

45 Page: 44 Strategic Sourcing Process Overview Profile Category Internally & Externally Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen- dation Implement Agreements Strategic Sourcing Methodology Activities Deliverables or Tools Validate Internal Requirements & Profile Category Conduct Industry Analysis Internal Category Profile TCO Model Cost Reduction Ideas Industry Profile Build TCO Model Develop Sourcing Objectives Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development Conduct Supplier Analysis Create Supplier Selection Criteria Supplier Selection Decision Matrix RFIs (optional) Short List of Suppliers Complete Traditional RFP Process RFPs / RFQs eAuctions Collaborative Discussions Conduct eAuction(s) Collaborate w/ Incumbent Supplier(s) - AND/OR - Prepare Fact- Based Negotiation Packages Negotiate Agreements Fact-Based Negotiation Packages Supplier Negotiations Presentation Sourcing Recommendation Finalized Agreements Benefits Realization Continual Supplier Improvement Implement Agreements and Monitor KPIs Evaluate Performance and Develop Suppliers Develop Sourcing Strategy Conduct Competitive Exercise w/ Approved Suppliers Fast Track for Quick Savings Develop Sourcing Strategies & Tactics ANALYSISSTRATEGY SUPPLIER SELECTION IMPLEMENTATION Assess Opportunity & Establish Team Assess Opportunity Obtain Sponsorship & ID Team Create Project Plan Project Plan Analyze Current Spend Document Requirements

46 Page: 45 Implementation Plan Overview An effective implementation plan consists of several key components necessary to ensure rapid and complete benefits realization from the new supply arrangement(s), and to follow through on agreed to parameters during contract negotiations. Plan ComponentDescription Transition Plan Shift from old supply agreements to new ones. May or may not involve switching suppliers. Communication Plan Inform the user community of the outcome of the strategic sourcing effort. Specify to users how they are impacted and what actions they are required to take as a result of the strategic sourcing effort. Highlight all benefits that users may derive from the new supply arrangements. Compliance Plan Determine how compliance to new supply arrangements will be enforced (if possible). Closely linked to the Communication Plan. Benefits Tracking & Reporting Plan Measure benefits resulting from new supply arrangements relative to targets Report to senior management on both status and any necessary actions required to improve benefits realization. Performance Management Plan Ensure that suppliers are performing along key metrics as required by the contract. Put in place a regular communication vehicle with suppliers to drive improvements in supplier performance. – Overview of Implementation Plan Components – SAMPLE


Download ppt "Travel Strategic Sourcing Kathy Briski, C.P.M., CCTE Senior Vice President Partnership Travel Consulting May 16, 2012."

Similar presentations


Ads by Google