Strategic Sourcing - Virginia Business Travel Association

Report
Virginia Business Travel Association
Travel Strategic Sourcing
July 20, 2011
Global Procurement Processes
Day-to-Day Purchasing 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
Create
Conduct
Develop Day-to-Day
Selection
Purchasing Competitive
Process
Sourcing
Factors &
Exercise
Strategy
Evaluate
w/ Approved
Suppliers
Suppliers
Negotiate
& Develop
Sourcing
Recommendaction
Implement
Agreements
Supplier Relationship Management Process
Define
Supplier
Evaluation
Criteria
Collect
Data
Conduct
Performance
Evaluation
Develop
Improvement
Strategy
Continuous
Improvement
Core Supporting Capabilities
Supplier
Scorecard
Savings
Management
Spend
Analysis
Knowledge
Management
Page: 1
Contract
Management
Catalog
Management
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
IMPLEMENTATION
SUPPLIER SELECTION
Strategic Sourcing Methodology
Assess
Opportunity
& Establish
Team
Activities
Assess
Opportunity
Obtain
Sponsorship
& ID Team
Deliverables or Tools
Create
Project
Plan
Project Plan
Analyze Current
Spend
Document
Requirements
Profile
Category
Internally &
Externally
Validate
Internal
Requirements
& Profile
Category
Develop
Sourcing
Strategy
Develop
Sourcing
Objectives
Create
Selection
Factors &
Evaluate
Suppliers
Create
Supplier
Selection
Criteria
Fast Track for Quick Savings
Build TCO
Model
Conduct
Industry
Analysis
Internal Category
Profile
TCO Model
Cost Reduction
Ideas
Industry Profile
Conduct
Competitive
Exercise w/
Approved
Suppliers
Complete
Traditional
RFP Process
- AND/OR Conduct
eAuction(s)
Develop
Sourcing
Strategies &
Tactics
Conduct
Supplier
Analysis
- AND/OR Collaborate w/
Incumbent
Supplier(s)
Sourcing
Strategy Plan:
Competitive
Supplier
Selection or
Existing
Supplier
Development
Supplier
Selection
Decision Matrix
RFPs / RFQs
RFIs (optional)
“Short List” of
Suppliers
Page: 2
eAuctions
Collaborative
Discussions
Negotiate &
Develop
Sourcing
Recommendaction
Implement
Agreements
Prepare FactBased
Negotiation
Packages
Implement
Agreements
and Monitor
KPIs
Negotiate
Agreements
Evaluate
Performance
and Develop
Suppliers
Fact-Based
Negotiation Packages
Finalized
Agreements
Supplier Negotiations
Presentation
Benefits
Realization
Sourcing
Recommendation
Continual
Supplier
Improvement
SAMPLE
Travel Category Opportunity
Confirmation of Sourceable Spend
Category Opportunity Baseline – Travel
Sourcing
Group
Category
Sub-Category
Addressable
Spend
%
Addressable
Sourceable
Spend
Est. Mid
Saving %
Est. Mid
Savings $
Travel
Airline
$6,000,000
100%
$5,500,000
3%
$165,000
Travel
Car Rental
$1,000,000
100%
$925,000
5%
$46,250
Travel
Hotel
$4,500,000
100%
$4,400,000
5%
$220,000
Travel
Agency - Agency Fees
$170,000
100%
$0
0%
$0
Travel
Demand Management
(Compliance)
N/A
SAMPLE
N/A
Key Travel Contracts and Expiration Dates
Preliminary 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
Page: 3
$700,000
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
SUPPLIER SELECTION
IMPLEMENTATION
Strategic Sourcing Methodology
Activities
Assess
Opportunity
& Establish
Team
Profile
Category
Internally &
Externally
Develop
Sourcing
Strategy
Create
Selection
Factors &
Evaluate
Suppliers
Validate
Internal
Requirements
& Profile
Category
Build TCO
Model
Deliverables or Tools
Conduct
Industry
Analysis
Internal Category
Profile
TCO Model
Cost Reduction
Ideas
Industry Profile
Page: 4
Conduct
Competitive
Exercise w/
Approved
Suppliers
Negotiate &
Develop
Sourcing
Recommendation
Implement
Agreements
SAMPLE
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?
Page: 5
SAMPLE
Travel Scope
The travel industry encompasses a variety of different categories each grouped with an
NAICS (North American Industry Classification System) code.
In Scope
NAICS 481 – Transportation by Air
Key Points
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)
Source: http://www.bls.gov
Page: 6
• 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.
SAMPLE
Airline Industry: Overview
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
Top US Airlines By Revenues
Key Points
•
$25
•
2009 Revenues (in Billions)
$20
•
$15
•
$10
•
$5
•
$0
•
Source: Travel Procurement, March 2010, Airline Financials.com, March 21, 2010,
www.bloomberg.com, June 7, 2010, IATA, Wikipedia
Page: 7
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.
Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation
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.
2011 Data
279.9
280
277.9
273.0
Producer Price Index
260.6
260
257.1
254.6
240
234.5
235.9
229.6
220
217.1
205.7 205.8
200
200.6
200.4
186.5
180
NAICS 481111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
272.1
264.8
SAMPLE
Airline Industry: Cost Drivers
Airline costs consist of fuel, landing fees, aircraft, staffing costs, taxes and surcharges.
Key Points
Cost Drivers
•
100%
90%
OTHER OP. EXPENSES implicit GDP
deflator: 23.8% (Sept - 24.5%)
23.8%
PASSENGER COMMISSIONS as %
of passenger revenue: 1.2%
1.2%
1.6%
1.7%
2.2%
4.4%
FOOD & BEVERAGE per RPM: 1.6%
(Sept - 1.4%)
80%
70%
60%
8.3%
6.7%
50%
40%
24.7%
LANDING FEES per capacity ton
landed: 2.2%
•
PROFESSIONAL SERVICES per
ASM: 8.3%
•
AIRCRAFT OWNERSHIP per
operating seat: 6.7% (Sept - 7.2%)
20%
0%
MAINTENANCE MATERIAL per
revenue aircraft hour: 1.7%
NON-AIRCRAFT OWNERSHIP per
enplanement: 4.4% (Sept - 4.8%)
30%
10%
•
25.4%
LABOR per FTE: 24.7% (Sept 24.7%)
•
FUEL per gallon: 25.4% (Sept 23.5%)
Sources: Air Transport Association (http://www.airlines.org/econ
Page: 9
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.
SAMPLE
Airline Industry: Jet Fuel Costs
Fuel is one of the largest cost contributor to airlines’ operating costs.
Key Points
Increasing Jet Fuel Costs
•
$140
$128.94
$120
Average Price Per Barrel
•
$100
$91.40
$82.60
$88.28
•
$80
$79.66
$69.84
$60
•
$48.53
$40
$32.64
$20
•
$35.67
$33.87
$30.01
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: www.airlines.org, www.bts.gov, www.iata.org
AMEX Business Travel 2010 Forecast & Trends, BTN June 1, 2009
Page: 10
•
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
Airline Industry: Air Travel Price Index
SAMPLE
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.
Air Travel Price Index for Newport
News/Williamsburg, Norfolk/Virginia
Beach, and Richmond1
Key Points
•
2001 to 2010 Q4
U.S.-Origin ATPI
Newport News/ Williamsburg
Norfolk/ Virginia Beach
Richmond
•
$530
$480
Average Air Fares
•
$430
$380
$330
$280
•
$230
$180
2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1
•
1
The air travel price index measures the percents change over time in prices paid by travelers.
Sources: Bureau of Transportation Statistics, AMEX, Procurement.Travel, August & September
2010, The Transnational.travel
Page: 11
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.
Airline Industry: Price of Air Travel versus Other Goods & Services
SAMPLE
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).
Price of Air Travel Versus Other Goods and Services
Product (Unit)
1978
2000
2010
2010 vs 1978
College Tuition: Public (Year) 1
$688
$3,508
$7,605
1005%
College Tuition: Private (Year) 1
$2,958
$16,072
$27,293
823%
61.6
285.4
407.8
562%
New Vehicle 3
$6,470
$24,923
$29,793
360%
Unleaded Gasoline (Gallon) 5
$0.67
$1.51
$2.79
316%
$55,700
$169,000
$222,600
300%
Movie Ticket 6
$2.34
$5.39
$7.89
237%
CPI (All items) 2
65.2
172.2
218.1
234%
First-class Domestic Stamp 7
$0.15
$0.33
$0.44
193%
Whole Milk 2
81.0
156.9
191.2
136%
Grade-A Large Eggs (Dozen) 2
$0.82
$0.91
$1.66
102%
Air Travel: Domestic (Mile) 8
$186
$314
$316
70%
n/a
$935
$1,044
n/a
101.8
49.9
8.0
-92%
Prescription Drugs (Index) 2
New Single Family Home 4
Air Travel: International (Mile) 8
Television (Index) 2
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)
Sources: www.airlines.org
Page: 12
Hotel Industry: Overview
SAMPLE
The US hotel and motel market was over $120 Billion in 2008, with 10 chains comprising over
40% of the market.
Top 10 Hotel Chains By Revenue
Key Points
•
•
$12.00
•
$8.00
$6.00
•
$4.00
Best Western
Choice
Accor NA
Intercontinental
Wyndham
Starwood
•
Carlson
$0.00
Accor International
•
Hilton
$2.00
Marriott
2009 Revenue (in billions)
$10.00
•
Source: www.travelweekly.com Travel Weekly Power List 2009, Business
Travel News Corporate Travel Index 2009
Page: 13
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
Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals
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.
135
2011 Data
129.7
128.6
130
126.1
Producer Price Index
125.1
128.0
125
122.0
124.3
124.3
124.6
120
116.4
115
111.7
110
105
104.5
100
NAICS 721110.1 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
125.7
Hotel Industry: Cost Drivers
SAMPLE
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 Drivers
Key Findings
•
Percent of Spend
100%
90%
8%
12%
80%
70%
15%
60%
16%
•
50%
40%
19%
30%
20%
10%
30%
•
0%
Administrative Overheads
Employee
Repairs and Maintenance
Food and Beverage
Power
Selling Expenses
Source: http://www.Onesource.com
Page: 15
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
Hotel Industry: Room Rates
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.
Key Points
Average Cost Per Night for March Hotel Stays
Based on more than 750,00 hotel stays booked through US based
corporate travel agencies
Average US Corporate Hotel Rate
•
•
Corporate Nightly Room Rate
$160
$155
$155
•
$150
$145
$148
•
$140
$139
$135
$134
$130
$132
$125
•
$120
2007
2008
2009
2010
2011
•
•
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,
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
SAMPLE
Car Rental Industry: Overview
The U.S. car rental market is highly consolidated among a small number of major players and its going to get
smaller.
Key Points
Top 4 Car Rental Companies By Revenue
•
$13.00
•
2009 Revenue (in Billions)
$12.10
$11.00
•
$9.00
•
$7.10
$7.00
$5.13
•
$5.00
$3.00
$1.55
•
$1.00
Enterprise
Hertz
Avis/Budget
Dollar Thrifty
Source: www.autorentalnews.com, Business Travel News Corporate Travel Index 2010,
Procurement Travel, August and September 2010
Page: 17
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.
Rental Car Industry: PPI – Passenger Car Rental
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.
125.0
2011 Data
119.2
Producer Price Index
119.3
120.0
117.8
115.0
116.4
117.0
116.2
111.5
110.0
108.8
105.4
105.0
106.0
102.8
104.8
104.6
102.6
100.0
NAICS 532111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
117.2
117.1
116.8
Car Rental Industry: Average Daily Rates
SAMPLE
Average corporate daily rates has been increasing slowly every year, approx. 4%
Key Points
Average Daily Corporate Car Rental
Rates: 2008 – 2010
•
Avg Daily Corporate Car Rental Rate
$47
•
$46
$46
$45
$44
$44
$43
$42
•
$42
$41
$40
2008
2009
•
2010
•
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
Page: 19
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. Secondranked NYC’s average rate of $163.19 is up
from $128.37 last year. And Houston, ranked
12th in 2009, jumped to 5th 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.
Travel Management Industry: Overview
The Top 50 travel management companies represent over $145 Billion in sale revenue
Top 13 (over $1B in revenue) Travel
Management Co’s By Revenues
Key Points
•
$30
2009 Revenues (in Billions)
$25
•
$20
•
$15
$10
$5
•
$0
•
Source: www.travelweekly.com Travel Weekly Power List 2010, BTN June 1, 2009,
www.bts.gov
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.
TMC Industry: PPI – Travel Agencies
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..
125.0
Producer Price Index
123.3
121.8
120.0
2011 Data
115.0
113.2
112.5
114.0
111.5
112.4
112.5
111.5
110.0
111.7
108.6
107.4
105.0
NAICS 481111 March– June 2011 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
112.7
112.5
112.5
112.3
112.4
SAMPLE
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
Page: 22
SAMPLE
Appendix: Data Sources
• Air Transport Association, www.airlines.org
• AMEX Business Travel 2010 Forecast and Trends
• ATWOnline, www.atwonline.com
• Bureau of Labor Statistics, www.bls.gov
• Bureau of Transportation Statistics, www.bts.gov
• Business Travel Executive, January 2011
• Business Travel News Corporate Travel Index 2010
• Forbes, www.forbes.com
• Hoovers Online, www.hoovers.com
• IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006)
• National Business Travel Association, www.nbta.org
• NBTA 2010 Business Travel Overview & Cost Forecast
• OneSource Inc., www.onesource.com
• Power List 2010, www.travelweekly.com
• Smith Travel Research Data
• Standard & Poor’s, www.standardandpoors.com
• The Transnational.travel
• Travel Daily News, www.traveldailynews.com
• Travel Procurement, March, June, August and September 2010
• Travel Weekly, www.travelweekly.com
• Wikipedia
Page: 23
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
SUPPLIER SELECTION
IMPLEMENTATION
Strategic Sourcing Methodology
Assess
Opportunity
& Establish
Team
Profile
Category
Internally &
Externally
Develop
Sourcing
Strategy
Create
Selection
Factors &
Evaluate
Suppliers
Deliverables or Tools
Activities
Develop
Sourcing
Objectives
Develop
Sourcing
Strategies &
Tactics
Sourcing
Strategy Plan:
Competitive
Supplier
Selection or
Existing
Supplier
Development
Page: 24
Conduct
Competitive
Exercise w/
Approved
Suppliers
Negotiate &
Develop
Sourcing
Recommendation
Implement
Agreements
Sourcing Strategies & Tactics
Several sourcing strategies can be pursued, either separately or together.
— Possible Sourcing Strategies —
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
Strategic
Relationship
Process
Improvement
Best Price
Analysis
Commodity
Sourcing
Strategy
 Evaluate and model
all costs and use
negotiation tactics
that increase
transparency and
maximize competition
Demand
Management
Volume
Leveraging
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
Page: 25
BEST PRICE
ANALYSIS
DEMAND
MANAGEMENT
 Address factors such
as standards,
requirements, and
policies to reduce
costs related to
internal demand
SAMPLE
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
Page: 26
SAMPLE
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
Page: 27
SAMPLE
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
Page: 28
Category Strategy Deliverable
SAMPLE
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.
Savings
Opportunity
Proposed Strategy
Expected 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.
Page: 29
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
SUPPLIER SELECTION
IMPLEMENTATION
Strategic Sourcing Methodology
Deliverables or Tools
Activities
Assess
Opportunity
& Establish
Team
Profile
Category
Internally &
Externally
Develop
Sourcing
Strategy
Create
Selection
Factors &
Evaluate
Suppliers
Create
Supplier
Selection
Criteria
Conduct
Supplier
Analysis
Supplier
Selection
Decision Matrix
RFIs (optional)
“Short List” of
Suppliers
Page: 30
Conduct
Competitive
Exercise w/
Approved
Suppliers
Negotiate &
Develop
Sourcing
Recommendation
Implement
Agreements
SAMPLE
Car Rental Scorecard
Car Rental Company
37%
0%
2%
7%
9%
1%
12%
7%
63%
10%
33%
20%
Maximum
Points
572
0
35
100
131
21
185
100
954
154
500
300
100%
1526
Weight
Evaluation Criteria
I.
A.
B.
D.
E.
F.
G.
H.
II.
C.
Non-Pricing Components
Company Information
Rental Locations
Safety & Fleet
Services & Amenities
Billing
Top 15 Cities - Rental Locations
Top 15 Cities - Trans Method from Airport
Pricing Components
Additional Pricing Questions
National Daily Rental Rate
City Surcharge Rate
Page: 31
Person A
Score
549
0
35
78
130
21
185
100
666
92
437
136
Person B
Score
526
0
35
88
121
21
185
76
667
93
437
136
Person C
Score
538
0
35
76
121
21
185
100
671
97
437
136
1215
1193
1209
Total Score
538
0
35
81
124
21
185
92
668
94
437
136
1206
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
SUPPLIER SELECTION
IMPLEMENTATION
Strategic Sourcing Methodology
Assess
Opportunity
& Establish
Team
Profile
Category
Internally &
Externally
Develop
Sourcing
Strategy
Create
Selection
Factors &
Evaluate
Suppliers
Conduct
Competitive
Exercise w/
Approved
Suppliers
Complete
Traditional
RFP Process
Activities
- AND/OR Conduct
eAuction(s)
Deliverables or Tools
- AND/OR Collaborate w/
Incumbent
Supplier(s)
RFPs / RFQs
eAuctions
Collaborative
Discussions
Page: 32
Negotiate &
Develop
Sourcing
Recommendation
Implement
Agreements
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.
Direct Negotiations with an
Incumbent Supplier
Direct Negotiations with a
Target Supplier
Brainstorm with a Group of
Trusted Suppliers
Pre-Negotiation
Information
Exchange
On-Line Auctions
RFPs / RFQs
Should choose the method(s) that best meets both the Strategic Sourcing objective and the team
resource capacity
Page: 33
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
SUPPLIER SELECTION
IMPLEMENTATION
Strategic Sourcing Methodology
Profile
Category
Internally &
Externally
Develop
Sourcing
Strategy
Create
Selection
Factors &
Evaluate
Suppliers
Conduct
Competitive
Exercise w/
Approved
Suppliers
Negotiate &
Develop
Sourcing
Recommendation
Prepare FactBased
Negotiation
Packages
Activities
Assess
Opportunity
& Establish
Team
Deliverables or Tools
Negotiate
Agreements
Fact-Based
Negotiation Packages
Supplier Negotiations
Presentation
Sourcing
Recommendation
Page: 34
Implement
Agreements
Negotiations Approach – Discussion Points
SAMPLE
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 Point
Description
Supplier
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 nondomestic spend.
• ABC
Pricing, Signing Bonus
• Reduce/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, Deductions
• Minimize 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)
Page: 35
Negotiations Approach – Projected Targets
SAMPLE
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-$600K.
SAMPLE
Strategy
Expected Benefits
Type
Savings ($)
LAS / BATNA
Key Enablers
Incentive Rebate Structure – fine
tune the incentive BSP tiers to
maximize the rebate received post
spin-off.
Financial
$200-$400K
• Focus 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-$150K
• Concede 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-$50K
• Focus on improving the
rebate earned on HighROC 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)
Page: 36
Strategic Sourcing Process Overview
ANALYSIS
STRATEGY
SUPPLIER SELECTION
IMPLEMENTATION
Strategic Sourcing Methodology
Assess
Opportunity
& Establish
Team
Activities
Assess
Opportunity
Obtain
Sponsorship
& ID Team
Deliverables or Tools
Create
Project
Plan
Project Plan
Analyze Current
Spend
Document
Requirements
Profile
Category
Internally &
Externally
Validate
Internal
Requirements
& Profile
Category
Develop
Sourcing
Strategy
Develop
Sourcing
Objectives
Create
Selection
Factors &
Evaluate
Suppliers
Create
Supplier
Selection
Criteria
Fast Track for Quick Savings
Build TCO
Model
Conduct
Industry
Analysis
Internal Category
Profile
TCO Model
Cost Reduction
Ideas
Industry Profile
Conduct
Competitive
Exercise w/
Approved
Suppliers
Complete
Traditional
RFP Process
- AND/OR Conduct
eAuction(s)
Develop
Sourcing
Strategies &
Tactics
Conduct
Supplier
Analysis
- AND/OR Collaborate w/
Incumbent
Supplier(s)
Sourcing
Strategy Plan:
Competitive
Supplier
Selection or
Existing
Supplier
Development
Supplier
Selection
Decision Matrix
RFPs / RFQs
RFIs (optional)
“Short List” of
Suppliers
Page: 37
eAuctions
Collaborative
Discussions
Negotiate &
Develop
Sourcing
Recommendation
Implement
Agreements
Prepare FactBased
Negotiation
Packages
Implement
Agreements
and Monitor
KPIs
Negotiate
Agreements
Evaluate
Performance
and Develop
Suppliers
Fact-Based
Negotiation Packages
Finalized
Agreements
Supplier Negotiations
Presentation
Benefits
Realization
Sourcing
Recommendation
Continual
Supplier
Improvement
SAMPLE
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.
– Overview of Implementation Plan Components –
Plan Component
Description
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.
Page: 38

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