Strategic Sourcing and the New Procurement Model.ppt

StrategicSourcingandProcurement basedTravelManagement TheNewModel Thissessionispresentedthroughthegenerosityof StrategicSourcingandProcurement basedTravelManagement TheNewModel PresentedbyScottGillespiePrincipalTravelAnalytics ScottGillespie sBackground A T Kearney sexpertinstrategicsourcingoftravelsuppliersfrom1994 1999FoundedTravelAnalyticsinJanuary1999DevelopedTANGO forairlinesourcingprojectsAnalyzedinexcessof 3BillionofannualairspendNamedbyBTNasoneofthetravelindustry smostinfluentialexecutivesMBA UniversityofChicago Today sAgenda StrategicSourcingandTravelWhatisstrategicsourcing ReadinesstestfortravelmanagersTenCommandmentsforsuccessfultravelsourcingTheprocurementmodelformanagingtravelTravelisnotacommodity right SolvingtheTravelManagementdilemmaOldproblems newsolutions what sworking Q AAppendix 10C s WorkPlans BusinessCases StrategicSourcingandTravel StrategicSourcingisacornerstonefortravelcostreduction HowdoesStrategicSourcingwork ConsolidatethespendControlthespendTightensupplyrelationshipsFindwaystocutcosts Buyer Buyer StrategicSourcingseemstoogoodtobetrue Purchasedgoodsandservicescanbemorethanhalfofafirm stotalrevenue withoutlayoffs Reducedspendingfallsrighttothebottomline StrategicSourcingissoldattheCEOLevel HighValueandBig5firmshavestrongcredentialsBoardroomnamerecognitionGlobalresourcesMultiplecategoryexpertsFeescanrunintothemillionsofdollarsConsultantspromisebigsavingstojustifythefeesConsultantspromisefastresultsConsultantsoftenhavelittletravelexperienceTravelmanagershavelittlesayinthedecision CharacteristicsofStrategicSourcing EffectivemethodforreducingsupplycostsAwardslargervolumesinreturnforbetterpricingMaximizescompetitivetensionUnderminesrelationship basedpricepremiumsCantriggernewwaysofdoingbusinessRigorousandobjectiveprocurementprocessWell definedsuppliercriteriaRequiressomequantificationofqualityBalancesloyaltyandswitchingcosts CharacteristicsofStrategicSourcing PoliticalpowderkegSponsoredbyseniormanagementOftendrivenbyexternalconsultantsThreatensmanypartsoftheorganizationProcurementEngineering Manufacturing ServicedeliverySalesandotherfrequenttravelers Amajorinvestmentoftimeandmoney andthereforearisk Industrydynamicsinvitenewapproachtotravelmanagement MoreSophisticatedManagementofTravelCosts DwindlingRevenues PressuretoReduceCosts ApplyingStrategicSourcingtoTravel StrategicSourcingTechnique 1 Consolidateexpensedata2 Determinespecifications3 Enableconcentratedpurchases4 Motivatethesuppliers5 Obtainbestprices6 Enforcenewsupplieragreements7 Trackandmeasuresavings ApplicationToTravel TheRoleofExternalConsultants QuicklyshowsignificantsavingsopportunitiesConsolidateandanalyzedataHelptightentravelpoliciesApplyrigorousRFPprocessesNeutralizebiasestoward againstsuppliersBuildseniormanagementsupportforchange Bigfeesarejustifiedwithbigsavings SettingGoalsforTravelSourcingProjects Setstretchgoals e g 5 20 savingsBasesavingsonlyonsourcedspendDefine savings Whichyear sprices Whichyear svolume MakesavingsconditionaluponnewtravelpoliciesAllow4 5monthspercategory LikelyConsequencesofaSourcingProject Newpolicies processesandtechnologiesSuppliersareshakenupSignificantsavingsTravelersacceptthechangesIncreasedseniormanagementattentionTravelmanager scareerisboosted orbusted ReadinessTestforTravelManagers StrategicSourcingreadinesstest Usethescaletoanswereachquestionbelow A CostreductionisahighpriorityforourseniormanagementteamB OurseniormanagementteamisinterestedinstrategicsourcingC OurfirmhasacentralizedmanagementstyleD OurtravelmanagementteamiswellrespectedbyatleastonememberofourseniormanagementteamE OurmajorcitypairshaveadequateairlinecompetitionF WecanmoveroomnightsbetweenpropertiesinmostofourkeyhotelmarketsG Ourfirmisnotoverlyconcernedaboutturnover i e retention amongourfrequenttravelers Addtotalpoints Score 1 Stronglydisagree2 Disagree3 Neutral don tknow4 Agree5 Stronglyagree Isyourfirmreadyforstrategicsourcing Score 29 35Highprobabilityofsuccess23 28Moderateprobabilityofsuccess19 22Lowprobability butstillpossible15 18Likelytofail7 14Donotstart Notallfirmsareready butyoumaynothaveachoice 10Commandmentsforsuccessfulsourcing CreatearighteoustravelpolicyPunishthesinnersPrayforgoodguidancefromseniormanagementReachouttothenon believersCovetthydataLookdeeplyintothevalueofqualityKnowthyownheartpriortoseeingbidsSpeakthetruthtoallbiddersJudgethybiddersfairlyHonorthycommitments I II III IV V VI VII VIII IX X I Createarighteoustravelpolicy Companieswithweaktravelpolicieswillnevergetthebestprices Thepricepaidbyacorporatetraveler VII Knowthyownheartpriortoseeingbids BehonestwithinthesourcingteamaboutsupplierpreferencesandprejudicesDefinecost qualityandsavingsBeobjectiveandrigorousDothisearlyintheprojectAvoidextensivedetailCreate if then decisionrules IfSupplierBcomeswithin10 ofourincumbent squality andoffersacostsavingsofatleast 100 000 thenswitchtoSupplierB Decidehowtodecidebeforethebidscomein TravelSourcing101Summary StrategicsourcingisheretostayAstrongtravelpolicyisrequiredNotallfirmsarereadySelectsuppliersfairlyHonoryourcommitments TheProcurementModelforManagingTravel Travelisnotacommodity right CommonPoints WeCouldBeTalkingAbout It sasignificantexpensecategory Thespendisveryhardtocontrol Ittouchesmostemployees Youcan tjustswitchsupplierslikeyoucanwithofficesupplies Itreallyaffectssalesand orproductivity butyoucan tquantifyit Travelisn tasdifferentaswemightthink orAdvertising Travel orHealthBenefits orI T Consulting orEnterpriseSoftware IsStrategicSourcingthefinalanswer No StrategicsourcinghasseveralweaknessesHeavyfocusoncostsavingsProjectsare done butnot done done TravelmanagersareleftholdingthecommitmentbagSeniormanagementrememberstheprojectedsavings butforgetsthetravelpoliciesneededforsuccessSuppliersarelefttosinkorswimStrategicsourcingprinciplesarenotintegratedwithtraveloperations Managingmajorexpensecategories Travelfitsthismodel Recentchangesaredrivinganewtravelmanagementmodel LossofcommissionandoverriderevenuemakestravelanothercostcenterTravelindustryhasbecomemorecomplexGrowthintravel specificB2BtechnologiesStrategicsourcingworksinthetravelcategory Seniormanagement sconclusion Travelcanbemanagedlikeothercategories Theprocurement basedtravelmanagementmodel BuythespecifiedqualityoftravelSetguidelinesforpurchasingEvaluatesupplierqualityandcostManageselectionprocessNegotiatecontractsQuantifypotentialsavings ManagetravelagencyImplementnewprogramsImplementnewtechnologyManagesupplierperformanceManagetravelpolicycomplianceResolvetravelerproblems Eachteamhasverydifferentgoals Operationsandprocurementmodels Winbyexecutingwell Winbycontrollingthespend TravelpolicycomplianceReservationsoperations TravelpolicycomplianceSpendanddataconsolidation Travelerbehavior Contractperformance Arethetravelershappy Canwemovethebusiness Thetravelmanagementdilemma Where sthevolume or Where sthethreat D PScore77 115 105 Solution TheD PDashboard D P DeliveredtoPromised e g marketshare roomnights segments rentaldays etc AirlinesAACODL IdealD Pscoreis100 D PDashboardsareinformative ThebestD Pscoreis100 DeliveredexactlywhatwaspromisedD Pscoresabove100 meanmoneyleftonthetableD Pscoresbelow100 areredflagsOverlyaggressivesourcingpromises Travelerresistance Travelpolicycomplianceissues Supplierqualityissues Suppliercontractsinjeopardy D PDashboardsarepowerful SourcingteamsmakemorerealisticcommitmentsSeekmoreinputfromOperationsSupplierreputationandcapabilitiesTravelerperceptionsTravelpolicyimplicationsMorelikelytochallengesupplier svolumetargetsEliminatesover commitmentstosuppliersOperationsperformancecanbeclearlymeasuredAkeyresponsibilityistomeetcontractedgoalsSomefactorswillbeoutsidetheteam scontrol Oldproblems howdoyou Minimizetransactioncosts Controlpurchasesatpointofsale Maximizesuppliers pricecompetition Maximizebuyers purchasingvolumes Enforcetravelpolicycompliance Makefasterdecisionsaboutsupplierbids Agreetorealisticsuppliergoals Predominantlyprocurementproblems Solution Problem Implicationsfortravelmanagers Morestakeholders travelcouncils sourcingcommitteesAdditionalprocurementresourcesMorerigoroussupplierevaluationandselectionMorebusinesscasesSupplierrecommendationsYear over yearsavingsTravelpolicycostsandbenefitsTightertravelpoliciesMoretechnology E RFPs auctions sourcingsoftware Implicationsfortravelsuppliers GreateraccountvolatilityStrongertravelpoliciesMorepressureonpriceMustreduceinternalcostsNeedtoshowcleardifferentiatedvalueContinuedindustryconsolidationRequiresmoresophisticatedselling Procurement basedtravelmanagement Summary SeniormanagementthinkstravelcanbemanagedlikeotherexpensecategoriesManykeytrendsintravelareprocurement relatedStrategicsourcingisnotthefinalanswerTheprocurementmodelemphasizes Aggregationandpoint of salecontroltokeeppriceslowRigorousandobjectivesupplierevaluationsAligningsourcingandoperationswithsuppliergoals Appendix WorkPlans10CommandmentsBuildingBusinessCases Foracopyofthispresentation PleasevisittheFreeToolssectiononourwebsiteat Orsendane mailtoscott gillespie StrategicSourcingandProcurement basedTravelManagement TheNewModel PresentedbyScottGillespiePrincipalTravelAnalytics TenCommandmentsforSuccessfulSourcing 10Commandmentsforsuccessfulsourcing I CreatearighteoustravelpolicyII PunishthesinnersIII PrayforgoodguidancefromseniormanagementIV Reachouttothenon believersV CovetthydataVI LookdeeplyintothevalueofqualityVII KnowthyownheartpriortoseeingbidsVIII SpeakthetruthtoallbiddersIX JudgethybiddersfairlyX Honorthycommitments I Createarighteoustravelpolicy Companieswithweaktravelpolicieswillnevergetthebestprices Thepricepaidbyacorporatetraveler I Createarighteoustravelpolicy FindanexecutivesponsorBuildthebusinesscaseWritethestrongestpolicyacceptabletoseniormanagementDefineappropriatesanctions CostSavings TravelerProductivityAndRetention II Punishthesinners BefirmbutfairSomeexceptionswillalwaysbewarrantedToomanyexceptionscrippletheprogramCreateanintimidatingexceptionapprovalpathApplyappropriatesanctionsUse publichangings selectively Strongtravelpoliciesneedteeth III Prayforgoodguidancefromseniormanagement Istheprioritycostsavingsortravelersatisfaction Areallsupplierstobetreatedequally Whogetstomakethedecisions Whocanveto Isthereanachievablegoal Istherearealistictimeframe Aretherenoothermajordistractions Supporting Bettering Believing Under standing IV Reachouttothenon believers Establishacross functionalTravelCouncilUseacross functionalsourcingteamTravel HumanResourcesProcurement SalesFinance OperationsBuildsupportforchangewithHUBBS Hearing V Covetthydata InformationispowerAccurateTimelyConsistentMeaningfulKnowwhatdataisworthcovetingHistoricaltravelpurchasepatternsTravelpolicycomplianceratesSupplierperformance VI Lookdeeplyintothevalueofquality PlaceavalueonkeyelementsNonstopflightsOn timearrivalsBusinessclassserviceAirportloungesCounselorretentionWaiversandfavorsElectronicfolios In roominternetconnectionsRoomserviceFitnesscentersUpgradesAccountmanagementFastcheckin checkout Don taskifyouwon tscoretheanswers VII Knowthyownheartpriortoseeingbids BehonestaboutsupplierpreferencesandprejudicesDefinecost qualityandsavingsBeobjectiveandrigorousDothisearlyintheprojectAvoidextensivedetailCreate if then decisionrules IfSupplierBcomeswithin10 ofourincumbent squality andoffersacostsavingsofatleast 100 000 thenswitchtoSupplierB Decidehowtodecidebeforethebidscomein VII Speakthetruthtoallbidders Providemore notless informationTotalspendandbidder sshareofspendTravelpatternsandlikelysignificantchangesTravelpolicyandlikelyenforcementInsistonethicalprocurementpracticesTreatallbiddersequallyHoldeachbidder sinformationinconfidenceUseasinglepointofcommunicationDistributequestionsandyouranswerstoallbiddersStrivetoeliminatebackdoorandover the topconversations IX Judgethybiddersfairly Applywell definedcriteriaBidsshouldbegradedbyeachsourcingteammemberBriefseniormanagementregularlyAfterthedecisioncriteriahasbeensetAfterthebidshavebeenevaluatedBeforethefinalselectionshavebeenmade Don tsurpriseseniormanagement X Honorthycommitments SetrealisticgoalsMarketshare Segments Roomnights Rentaldays etc AllowforunexpectedbusinessconditionsMakeeveryefforttomeetyourgoalsEducatethetravelersEnforcethetravelpolicyUpholdyourimplementationduties Understandasupplier sneedtorenegotiateifthegoalsarenotmet WorkPlansandKeySuccessFactors Task 1 2 3 4 5 6 ResourcesTravelManager15 40daysAnalyst25 50daysKeySuccessFactorsSeniormanagementsupportTravelCouncilendorsementSolidbusinesscasesTravelercommunicationandeducationNewTools MethodsValuationoftravelerproductivityandretentionBenchmarkingInvolvementofTravelCouncils Month 1 Getseniormanagementsponsorship2 Gatherdata3 Benchmarkexistingpolicy4 Buildthebusinesscasesforeachmajorplank5 SeekTravelCouncilendorsement6 Modifylanguageandsanctionsasneeded7 Educateandcommunicate TravelPolicyDevelopment Task 1 2 3 4 5 6 1 Gathercitypairandpointofsaledata contracts2 PrepareandpublishRFPs3 Analyzeexistingcontracts4 Selectandtestlikelysupplierscenarios5 ReceiveandevaluateRFPs6 Conductnegotiations7 Implementnewcontracts ResourcesTravelManager30 45daysProcurement30 45daysAnalyst45 75daysKeySuccessFactorsStrongtravelpolicyGlobal RegionalstrategyCredibleincrementalgain lossprojectionsbyairlineRigorouscontractandbidanalysisRealisticmarketsharegoalsNewTools Methods Whatif simulationmodelsElectronicRFPsPolicy drivenself bookingtools Month AirlineSourcing Task 1 2 3 4 5 6 ResourcesTravelManager50 100daysProcurement30 60daysFinancialAnalyst20 40daysKeySuccessFactorsClearserviceconfiguration e g rescenter implant outplant etc MinimalnumberofserviceconfigurationsFocusonservicedifferentiatorsPricingclarityAirline Agency GDSalignmentNewTools MethodsNetfeetocoveroverheadandprofit regardlessofnumberoftransactionsorairsalesCTD U S only Month 1 Gathertraveldata2 Createcostmodelforanalyzingpricing3 DefineRFPcriteriaandweightings4 ObtainTravelCouncilendorsements5 PrepareandpublishRFP6 Evaluatepricingandservicecapabilities7 Finalizeconfigurationandimplementationplans8 Notifycounselorsandtravelers TravelAgencySourcing Task 1 2 3 4 5 6 1 Gatherroomnightdata Agency Card Expensereports2 Buildhotelmarketprofiles3 Translatetravelpolicyintopotentialhotelsuppliersbymarket4 PrepareandpublishRFPs5 Determineamenityvalues targetroomrates6 Negotiateroomrates7 Publishhoteldirectory ResourcesTravelManager15 25daysRatenegotiator s 10days 100hotelsAnalyst25 75daysRFPadministration30 75daysKeySuccessFactorsStrongtravelpolicyGooddataLogicalmarketdefinitionsProperty levelnegotiationsRoomratetargetspriortonegotiationsNewTools MethodsElectronicRFPsOnlineauctionsPolicy drivenself bookingtools Month HotelSourcing Task 1 2 3 4 5 6 1 Gatherrentalcardata2 Preparecostmodelforanalyzingbids3 Determineselectioncriteriaandmethod4 PrepareandpublishRFPs5 Analyzebids6 Conductnegotiations7 Implementnewcontracts ResourcesTravelManager15 25daysAnalyst20 50daysProcurement15 25daysKeySuccessFactorsRobustcostmodelRigorousbidanalysisCleardecisionrulesAgencypointofsaleNewTools MethodsElectronicRFPsOnlineauctionsCostversusqualitydecisionmodels Month RentalCarSourcing BuildingTravelBusinessCases Seniormanagementwantsobjectivereferencepoints Knowhowyourpolicycomparestopeers Misc ParkingMileageTaxisMealsRentalcarsHotelsAirtravel LimosCellphonesEntertainment 55 10 20 8 7 EntertainmentpolicySpendingguidelinesAlcoholpolicyUseofpreferredrentalcompanyUseofpreferredhotelsUpgradepolicyUseofpreferredairlinesUseofpreferredagencyLowestlogicalfareparametersClassofservicerestrictionsUseofadvancepurchase restrictedfares Category KeyPlanks Focusontheimportantpolicyplanks Makeiteasyforseniormanagementtosupportthenewpolicy UsebenchmarksandsavingsestimatestobuildsupportateachlevelofthepoliticalpyramidUseacross functionalTravelCounciltoreview modifyandendorsenewpolicylanguage geteverybodybehinditEstablishthenegativeconsequencesofnon complianceforseniormanagementendorsementEnsurethatpolicyviolationscanbetrackedandreported NumberofairlinesundercontractAirspendundercontractDiscountrangeEstimatedannualsavingsSpendonUnitedAirlinesCorporatediscount LooseTravelPolicy 7 15million5 12 1 2million 6 4million12 Showhowstrongpolicybenef