travel strategic sourcing july 20, 2011 virginia business travel association

Travel Strategic Sourcing

July 20, 2011

Virginia Business Travel Association

Page: 2

Global Procurement Processes

DefineSupplier

EvaluationCriteria

Collect Data

Conduct Performance

Evaluation

Develop Improvement

Strategy

Supplier Relationship Management Process

GenerateRequisition

Approve/Submit

Requisition

Process/SubmitOrder

Receive Goods &Services

ApproveInvoice

ProcessInvoice &GeneratePayment

Day-to-Day Purchasing Process

Strategic Sourcing Process

Access Opportunity

&Establish

Team

ProfileCategoryInternally

& Externally

Develop Sourcing Strategy

CreateSelectionFactors &EvaluateSuppliers

ConductCompetitive

Exercise w/ Approved

Suppliers

Negotiate & Develop Sourcing

Recommend-action

ImplementAgreements

Continuous Improvement

SupplierScorecard

SavingsManagement

SpendAnalysis

KnowledgeManagement

ContractManagement

CatalogManagement

Core Supporting Capabilities

Day-to-Day Purchasing Process

Page: 3

Strategic Sourcing Process Overview

ProfileCategoryInternally &Externally



Recommend-action

ImplementAgreements

Strategic Sourcing Methodology

Act

ivit

ies

Del

iver

able

s o

r To

ols

Validate Internal

Requirements & Profile Category

ConductIndustry 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 -

- 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 SourcingStrategy

Conduct Competitive Exercise w/ ApprovedSuppliers

Fast Track for Quick Savings

Develop Sourcing

Strategies & Tactics

ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION

AssessOpportunity & Establish Team

AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan

Analyze Current Spend

Document Requirements

Page: 4

Travel Category Opportunity

SAMPLE

Category Opportunity Baseline – Travel

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

Confirmation of Sourceable Spend

Sourcing Group

Category Sub-CategoryAddressable

Spend%

AddressableSourceable

SpendEst. 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

TravelDemand Management (Compliance) N/A N/A $700,000

SAMPLE

Page: 5





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

Validate Internal




TCO Model


Industry Profile

Build TCO Model





Page: 6

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

Page: 7

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

Page: 8

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 Revenues Key Points

Source: Travel Procurement, March 2010, Airline Financials.com, March 21, 2010, www.bloomberg.com, June 7, 2010, IATA, Wikipedia

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

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United

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Alaska

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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/

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

01/1

102

/11

03/1

104

/11

05/1

106

/11

180

200

220

240

260

280

186.5

200.6 200.4

205.7 205.8

217.1

229.6

234.5

257.1

235.9

254.6

260.6264.8

279.9277.9

272.1273

Pro

du

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ric

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2011 Data

Page: 10

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

25.4%

24.7%

6.7%

8.3%

4.4%2.2%1.7%1.6%1.2%

23.8%

OTHER OP. EXPENSES implicit GDP deflator: 23.8% (Sept - 24.5%)

PASSENGER COMMISSIONS as % of passenger revenue: 1.2%

FOOD & BEVERAGE per RPM: 1.6% (Sept - 1.4%)

MAINTENANCE MATERIAL per revenue aircraft hour: 1.7%

LANDING FEES per capacity ton landed: 2.2%

NON-AIRCRAFT OWNERSHIP per enplanement: 4.4% (Sept - 4.8%)

PROFESSIONAL SERVICES per ASM: 8.3%

AIRCRAFT OWNERSHIP per operat-ing seat: 6.7% (Sept - 7.2%)

LABOR per FTE: 24.7% (Sept - 24.7%)

FUEL per gallon: 25.4% (Sept - 23.5%)

Page: 11

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.orgAMEX Business Travel 2010 Forecast & Trends, BTN June 1, 2009

Fuel is one of the largest cost contributor to airlines’ operating costs.

SAMPLE

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0

$20

$40

$60

$80

$100

$120

$140

$33.87

$32.64

$30.01$35.67

$48.53

$69.84

$82.60 $88.28

$128.94

$79.66

$91.40

Av

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http://www.airlines.org/

http://www.bts.gov/

Page: 12

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 Richmond1

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

2001 Q1

2001 Q2

2001 Q3

2001 Q4

2002 Q1

2002 Q2

2002 Q3

2002 Q4

2003 Q1

2003 Q2

2003 Q3

2003 Q4

2004 Q1

2004 Q2

2004 Q3

2004 Q4

2005 Q1

2005 Q2

2005 Q3

2005 Q4

2006 Q1

2006 Q2

2006 Q3

2006 Q4

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 Q1

2008 Q2

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

$180

$230

$280

$330

$380

$430

$480

$530

U.S.-Origin ATPI Newport News/ Williamsburg Norfolk/ Virginia Beach Richmond

Avera

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Page: 13

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) 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%

Prescription Drugs (Index) 2 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%

New Single Family Home 4 $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%

Air Travel: International (Mile) 8 n/a $935 $1,044 n/a

Television (Index) 2 101.8 49.9 8.0 -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)

Page: 14

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 2009

The US hotel and motel market was over $120 Billion in 2008, with 10 chains comprising over 40% of the market.

SAMPLE

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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


2004

2005

2006

2007

2008

2009

2010

01/1

102

/11

03/1

104

/11

05/1

106

/11

100

105

110

115

120

125

130

135

104.5

111.7

116.4

124.3

129.7

125.1

124.3

122124.6

128.6

125.7

126.1

128

Pro

du

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Pri

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nd

ex

NAICS 721110.1 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication.

2011 Data

Page: 16

Hotel Industry: Cost Drivers

Source: http://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%

Per

cen

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f S

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Administrative Overheads Employee

Repairs and Maintenance Food and Beverage

Power Selling 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

http://www.onesource.com/

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 StaysBased 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,

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.

2007 2008 2009 2010 2011$120

$125

$130

$135

$140

$145

$150

$155

$160

$148

$155

$134

$132

$139

Average US Corporate Hotel Rate

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http://www.btnonline.com/

Page: 18

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 2010

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

Enterprise Hertz Avis/Budget Dollar Thrifty

$1.00

$3.00

$5.00

$7.00

$9.00

$11.00

$13.00 $12.10

$7.10

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http://www.autorentalnews.com/

Rental Car Industry: PPI – Passenger Car Rental

NAICS 532111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication.


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.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

01/1

102

/11

03/1

104

/11

05/1

106

/11

100.0

105.0

110.0

115.0

120.0

125.0

102.8 102.6

106.0

105.4

104.8 104.6

108.8

111.5

116.8

117.8

119.3

117.1

117.0

119.2

116.2

116.4117.2

Pro

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2011 Data

Page: 20

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 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.

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

2008 2009 2010$40

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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.gov

The Top 50 travel management companies represent over $145 Billion in sale revenue

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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.


2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

01/1

102

/11

03/1

104

/11

05/1

106

/11

105.0

110.0

115.0

120.0

125.0

121.8

123.3

114.0

112.5

108.6

107.4

111.5

113.2

111.7

111.5

112.4

112.5 112.5

112.3

112.5

112.4

112.7

Pro

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2011 Data

Page: 23

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

Page: 24

• 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

Appendix: Data SourcesSAMPLE

http://www.airlines.org/

http://www.atwonline.com/

http://www.bls.gov/

http://www.bts.gov/

http://www.forbes.com/

http://www.hoovers.com/

http://www.nbta.org/

http://www.onesource.com/


http://www.standardandpoors.com/

http://www.traveldailynews.com/


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Recommen-dation

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Existing Supplier

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Develop Sourcing




Page: 26

Sourcing Strategies & TacticsSeveral sourcing strategies can be pursued, either separately or together.

— Possible Sourcing Strategies —

Best PriceAnalysis

Volume Leveraging

Strategic Relationship

ProcessImprovement

DemandManagement

CommoditySourcingStrategy

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 demandVOLUME 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

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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

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Sourcing Strategy: Hotels


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

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Sourcing Strategy: Car Rentals


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

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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.

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

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Supplier Selection

Decision Matrix

RFIs (optional)






Page: 32

Car Rental Scorecard

WeightMaximum

PointsPerson A

ScorePerson B

ScorePerson C

ScoreTotal Score

37% 572 I. Non-Pricing Components 549 526 538 5380% 0 A. Company Information 0 0 0 02% 35 B. Rental Locations 35 35 35 357% 100 D. Safety & Fleet 78 88 76 819% 131 E. Services & Amenities 130 121 121 1241% 21 F. Billing 21 21 21 21

12% 185 G. Top 15 Cities - Rental Locations 185 185 185 1857% 100 H. Top 15 Cities - Trans Method from Airport 100 76 100 92

63% 954 II. Pricing Components 666 667 671 66810% 154 C. Additional Pricing Questions 92 93 97 9433% 500 National Daily Rental Rate 437 437 437 43720% 300 City Surcharge Rate 136 136 136 136

100% 1526 1215 1193 1209 1206

Car Rental Company

Evaluation Criteria

SAMPLE

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RFP Process

RFPs / RFQs

eAuctions


Conduct eAuction(s)


- AND/OR -

- AND/OR -





Page: 34

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-NegotiationInformationExchange

Direct Negotiations with

an Incumbent Supplier

Direct Negotiations with a Target Supplier

Brainstorm with a Group of Trusted

Suppliers

On-Line AuctionsRFPs / RFQs

Should choose the method(s) that best meets both the Strategic Sourcing objective and the team

resource capacity

Should choose the method(s) that best meets both the Strategic Sourcing objective and the team

resource capacity

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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 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 non-domestic 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)

SAMPLE

Page: 37

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

Strategy 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


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 High-ROC volume

• Dedicate a resource to handle ad-hoc assessment activities


Total $300-$600K

*NACV – Net Annual Charge Volume (i.e. annual spend with Amex)

SAMPLE

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Recommen-dation

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Validate Internal




TCO Model


Industry Profile

Build TCO Model

Develop Sourcing

Objectives



Existing Supplier

Development



Supplier Selection

Decision Matrix

RFIs (optional)



RFP Process

RFPs / RFQs

eAuctions


Conduct eAuction(s)


- AND/OR -

- AND/OR -

Prepare Fact-Based






Finalized Agreements

Benefits Realization

Continual Supplier

Improvement

Implement Agreements and Monitor

KPIs

Evaluate Performance and Develop

Suppliers



Fast Track for Quick Savings

Develop Sourcing




AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan

Analyze Current Spend

Document Requirements

Page: 39

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 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.

– Overview of Implementation Plan Components –

SAMPLE

travel strategic sourcing july 20, 2011 virginia business travel association

Documents

travel strategic sourcing

competitive supplier

supplier evaluation

requisition process

team profile category

invoice process invoice

selection factors

w incumbent suppliers