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Travel Strategic Sourcing July 20, 2011 Virginia Business Travel Association.

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1 Travel Strategic Sourcing July 20, 2011 Virginia Business Travel Association

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 Day-to-Day Purchasing Process 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 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

5 Page: 4 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

6 Page: 5 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 Comerica’s 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

7 Page: 6 Travel Scope NAICS 481 – Transportation by Air 4811 – Scheduled Air Transportation 481111 – Scheduled Passenger Air Transportation NAICS 721 – Accommodation 7211 – Traveler Accommodation 721110 – Hotels and Motels 721110.1 Guestroom Rental NAICS 5321 – Automotive Equipment Rental 53211 – Passenger Car Rental and Leasing 532111 – Passenger Car Rental NAICS 561 – Administrative and Support Services 5615 – Travel Arrangement and Reservation Services 561510 – 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 American Express One 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: http://www.bls.gov SAMPLE

8 Page: 7 Airline Industry: Overview Collective operating revenue for the global airline market is forecasted at $545 Billion, up 13% from $483 Billion in 2009. The operating revenue for the US airline industry in 2009 was over $107 Billion. Delta, American and United are the market leaders based on revenue 9 Airlines comprise 86% of the market. The major players control market share and have power in the industry In 2009, the Top 4 airline’s net earnings were -$3.6 Billion, while AirTran, Alaska, Southwest and JetBlue earned $414 Million total. For 2010, IATA forecasts a $15.1 Billion profit for the global airline industry. North American carriers are expected to earn $5.1 Billion. For 2011, Airlines may see smooth upward progression being interrupted as oil and jet fuel prices rise and some economies in Europe look set to be driven back into recession by debt crises. However, IATA is forecasting a $9.1 Billion profit globally, and $3.2 for North American carriers. Airlines, as part of corporate negotiations, are starting to tighten up on granting frequent flyer elite status. Top US Airlines By RevenuesKey Points Source: Travel Procurement, March 2010, Airline Financials.com, March 21, 2010, www.bloomberg.com, June 7, 2010, IATA, Wikipedia www.bloomberg.com Collective operating revenue for the global airline market is forecasted at $545 Billion, up 13% from $483 Billion in 2009. The US market amounted to over $107 Billion in 2009 SAMPLE

9 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 15% back in 2011. Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation NAICS 481111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/ 2011 Data

10 Page: 9 Airline Industry: Cost Drivers Sources: Air Transport Association (http://www.airlines.org/econ Cost Drivers Key Points Jet Fuel: In 2009, Fuel prices were at record highs. For 2010, fuel prices have decreased but are slowly rising again. 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 aircraft’s 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

11 Page: 10 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 305 – 40% of total operating expenses for most carriers Year 2000 versus 2008: a 380% increase in jet fuel prices At the end of 2008, jet fuel had traded at record levels above $128.94 a barrel compared with an average of $88.28 in 2007, an increase of 45% In 2008, every dollar increase per barrel (42 gallons) drove an additional $448M in fuel expenses to carriers’ bottom lines Jet fuel prices decreased in 2009 to an average of $79.66, increased to $91.40 for 2010, but 2011’s average for jet fuel is at $128 per barrel Thru May 2011, domestic carriers consumed 4.5B gallons of jet fuel, costing $13B, a 28% increase over 2010 YTD Increasing Jet Fuel Costs Key Points Sources: www.airlines.org, www.bts.gov, www.iata.orgwww.airlines.orgwww.bts.gov AMEX Business Travel 2010 Forecast & Trends, BTN June 1, 2009 Fuel is one of the largest cost contributor to airlines’ operating costs. SAMPLE

12 Page: 11 Airline Industry: Air Travel Price Index Sources: Bureau of Transportation Statistics, AMEX, Procurement.Travel, August & September 2010, The Transnational.travel Air Travel Price Index for Newport News/Williamsburg, Norfolk/Virginia Beach, and Richmond 1 Key Points 1 The air travel price index measures the percents change over time in prices paid by travelers. 2001 to 2010 Q4 Historically, air travel prices originating from Spokane is considerably lower than the US average, however the gap has decreased significantly. CWT’s 2011 forecast shows a projected 3% to 5% increase in domestic airfares due to reduced seat capacity and less competition in some markets AMEX reports the Average domestic corporate airline ticket price for 2009 was $215 and for 2010 they are reporting an average domestic ticket price of $228. International corporate airline ticket price for 2009 was $1,636 and 2010 was $1,781. 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 2010, the airline industry earned approx. $23 billion in additional ancillary fees, which includes $3.4 billion for baggage fees. The cost of air travel have been very volatile over the past several years. The cost of airfare in Newport News/Williamsburg has been lower than the U. S. average, but Norfolk/Virginia Beach has followed the US average, and Richmond has decreased to parallel with the US average. SAMPLE

13 Page: 12 Airline Industry: Price of Air Travel versus Other Goods & Services Sources: www.airlines.org 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). SAMPLE Product (Unit)1978200020102010 vs 1978 College Tuition: Public (Year) 1 $688$3,508$7,6051005% College Tuition: Private (Year) 1 $2,958$16,072$27,293823% Prescription Drugs (Index) 2 61.6285.4407.8562% New Vehicle 3 $6,470$24,923$29,793360% Unleaded Gasoline (Gallon) 5 $0.67$1.51$2.79316% New Single Family Home 4 $55,700$169,000$222,600300% Movie Ticket 6 $2.34$5.39$7.89237% CPI (All items) 2 65.2172.2218.1234% First-class Domestic Stamp 7 $0.15$0.33$0.44193% Whole Milk 2 81.0156.9191.2136% Grade-A Large Eggs (Dozen) 2 $0.82$0.91$1.66102% Air Travel: Domestic (Mile) 8 $186$314$31670% Air Travel: International (Mile) 8 n/a$935$1,044n/a Television (Index) 2 101.849.98.0-92% 1 The College Board - based on beginning of academic year 2 U.S. Bureau of Labor Statistics - including hedonic "quality-change' adjustments 3 National Automobile Dealers Association - average retail selling price 4 U.S. Census Bureau - median value 5 U.S. Department of Energy - Monthly Energy Review, Table 9.4 6 National Association of Theatre Owners 7 U.S. Postal Service - Publication 100 8 ATA via U.S. bureau of Transportation Statistics - excludes taxes; first column reflects 1979 (1978 data not available)

14 Page: 13 Hotel Industry: Overview Marriott is the leader in revenue share Hotel industry is fragmented and controlled by large businesses that own multiple hotels / hotel chains Business travelers, including executives, are shifting from luxury hotels to more moderate mid-priced hotels Hotel occupancy rate has been lower in the last couple of years in certain key cities which had led to better negotiating power – a buyer’s market! However, the hotel industry is turning around. 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 Top 10 Hotel Chains By Revenue Key Points Source: www.travelweekly.com Travel Weekly Power List 2009, Business Travel News Corporate Travel Index 2009www.travelweekly.com The US hotel and motel market was over $120 Billion in 2008, with 10 chains comprising over 40% of the market. SAMPLE

15 The PPI for hotel rooms has decrease 9% since the end of 2009 indicating occupancy rates have declined and hoteliers have been decreasing room rates to battle lower occupancy. For 2011, PPI has been increasing. Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals Source: http://www.bls.gov/ppi/ NAICS 721110.1 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication. 2011 Data

16 Page: 15 Hotel Industry: Cost Drivers Source : http://www.Onesource.comhttp://www.Onesource.com Operating Cost Drivers Key Findings 30% 19% 16% 15% 12% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Spend Administrative OverheadsEmployee Repairs and MaintenanceFood and Beverage PowerSelling Expenses 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. Operating cost driver: Administrative overhead is the largest cost Labor 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 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

17 Hotel Industry: Room Rates Hotel showed signs of pricing strength starting in 2011, through US rates remain well below peak levels reached in 2008 For 2011, Forecaster’s Range estimates hotel average daily rates will increase by 1% to 8% in North America and 1% to 7% in Europe. Currently, hotel occupancy on the rise, and rates are either staying the same or rising $2 - $10 per night Rate increases also have not trickled down throughout the tier levels. Smith Travel Research (STR) reported that the average US hotel rate in March 2011 increased by 3.8% year over year, but rate growth was much stronger within the luxury tier STR projects occupancy to increase 2.5% for 2011 AMEX Global Advisory Services has already seen an average increase of more than 7% in corporate rates worldwide for 2011 business travelers 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: Business Travel News Corporate Travel Index 2010, www.BTNonline.com, May 17, 2010, Procurement Travel, August, September, December 2010, and May 2011, The Transnational.travel, Business Travel Executive January 2011,www.BTNonline.com 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 for 2011, we will see hotel rates increase.

18 Page: 17 Car Rental Industry: Overview Enterprise/National/Alamo, Hertz and Avis/Budget account for 90+% of the total market Car rental companies have tightened fleet controls and operating costs, leading to steady or even increased rates for corporate buyers. 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. Key Points Source: www.autorentalnews.com, Business Travel News Corporate Travel Index 2010, Procurement Travel, August and September 2010www.autorentalnews.com The U.S. car rental market is highly consolidated among a small number of major players and its going to get smaller. SAMPLE Top 4 Car Rental Companies By Revenue

19 Rental Car Industry: PPI – Passenger Car Rental NAICS 532111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/ The PPI for passenger car rentals has gone up 22% from 2005 to 2008 indicating increased fleet and fuel costs. Since 2009, prices have slightly decreased. 2011 Data

20 Page: 19 Car Rental Industry: Average Daily Rates The total corporate average US car rental cost listed in the 2010 Corporate Travel Index is $85.55 (before taxes and fees), up from $81.44 last year. BTN’s 2010 Corporate Travel Index: Detroit topped the 2010 car rental pricing list, with car rentals in the city costing an average of $175.25, up from $138.63 in 2009. Second- ranked NYC’s average rate of $163.19 is up from $128.37 last year. And Houston, ranked 12 th in 2009, jumped to 5 th place in 2010 with an average of $152.95 per rental. According to NBTA, $46 is the average corporate car rental rate in the US, an increase of 4% from the previous year. For 2011 Forecaster’s range is -2% to 4% for North America car rental rates and 2% to 5% in Europe. 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: Business Travel News Corporate Travel Index 2010, National Business Travel Association 2008 - 2010 Business Travel Overview and Cost Forecast, Procurement travel, June and December 2010, Business Travel Executive January 2011 Average Daily Corporate Car Rental Rates: 2008 – 2010 Average corporate daily rates has been increasing slowly every year, approx. 4% SAMPLE

21 Travel Management Industry: Overview The top 50 travel management companies represent over $145 Billion in sales revenue in 2009. The top 13 travel management companies earned 92% of the sales revenue in 2009, a top heavy industry. Expedia, Orbitz, Travelocity, Priceline, AAA Travel, and Flight Centre receive 89% or more sales revenue from the leisure market and Travel Leaders earns 48% of their sales revenue from the leisure market. Travel management companies are experiencing soft demand and client cutbacks, resulting in downsizing their workforce. First time since the Travel Weekly Power List commenced (1992), AMEX did not occupy the top spot. Top 13 (over $1B in revenue) Travel Management Co’s By Revenues Key Points Source: www.travelweekly.com Travel Weekly Power List 2010, BTN June 1, 2009, www.bts.govwww.travelweekly.com The Top 50 travel management companies represent over $145 Billion in sale revenue

22 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 481111 March– June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/ 2011 Data

23 Page: 22 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

24 Page: 23 Air Transport Association, www.airlines.orgwww.airlines.org AMEX Business Travel 2010 Forecast and Trends ATWOnline, www.atwonline.comwww.atwonline.com Bureau of Labor Statistics, www.bls.govwww.bls.gov Bureau of Transportation Statistics, www.bts.govwww.bts.gov Business Travel Executive, January 2011 Business Travel News Corporate Travel Index 2010 Forbes, www.forbes.comwww.forbes.com Hoovers Online, www.hoovers.comwww.hoovers.com IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006) National Business Travel Association, www.nbta.orgwww.nbta.org NBTA 2010 Business Travel Overview & Cost Forecast OneSource Inc., www.onesource.comwww.onesource.com Power List 2010, www.travelweekly.comwww.travelweekly.com Smith Travel Research Data Standard & Poor’s, www.standardandpoors.comwww.standardandpoors.com The Transnational.travel Travel Daily News, www.traveldailynews.comwww.traveldailynews.com Travel Procurement, March, June, August and September 2010 Travel Weekly, www.travelweekly.comwww.travelweekly.com Wikipedia Appendix: Data Sources SAMPLE

25 Page: 24 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

26 Page: 25 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 partner’s goals STRATEGIC RELATIONSHIP  Establish integrated or close relationships with suppliers where both buyer and supplier work together to share information, collaborate, and further each partner’s 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

27 Page: 26 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

28 Page: 27 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. 200+ 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

29 Page: 28 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

30 Page: 29 Savings Opportunity Proposed StrategyExpected Outcome Volume Concentration  Consolidate all OpCo car rental spend.  Leveraging buying power across all OpCo’s 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 OpCo’s to follow.  Consistency across all OpCo’s 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

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 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

32 Page: 31 Car Rental Scorecard SAMPLE

33 Page: 32 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

34 Page: 33 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

35 Page: 34 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

36 Page: 35 Negotiations Approach – Discussion Points Based on a review of Company’s 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 2008. 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

37 Page: 36 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

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 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

39 Page: 38 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


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