Corporate Travel Strategic Sourcing
Kathy Briski, C.P.M., GTP
March 8, 2016
Page: 1
Global Procurement Processes
DefineSupplier
EvaluationCriteria
Collect Data
ConductPerformanceEvaluation
DevelopImprovement
Strategy
Supplier Relationship Management Process
GenerateRequisition
Approve/Submit
Requisition
Process/SubmitOrder
Receive Goods &Services
ApproveInvoice
ProcessInvoice &GeneratePayment
Strategic Sourcing Process
Access Opportunity
&Establish
Team
ProfileCategoryInternally
& Externally
Develop Sourcing Strategy
CreateSelectionFactors &EvaluateSuppliers
ConductCompetitive
Exercisew/ ApprovedSuppliers
Negotiate& DevelopSourcing
Recommend-action
ImplementAgreements
ContinuousImprovement
SupplierScorecard
SavingsManagement
SpendAnalysis
KnowledgeManagement
ContractManagement
CatalogManagement
Core Supporting Capabilities
Day-to-Day Purchasing Process
Page: 2
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommend-action
Implement
Agreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
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: 3
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommend-action
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
Develop SourcingStrategy
Conduct Competitive Exercise w/
ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
AssessOpportunity
Obtain Sponsorship
& ID Team
CreateProject
Plan
Project Plan
Analyze Current Spend
Document Requirements
4
High Level Travel Project Plan
Travel Workplan Review
Mobilization & Kick-Off Category
Profile Internally & Externally
Develop Strategy
Screen Suppliers & Selection Factors
Conduct Competitive Exercise
Negotiate & Develop Sourcing Recommendation
Implement Agreement
April May June July August September
SAMPLE
Page: 5
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: 6
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
Validate Internal
Requirements & Profile Category
ConductIndustry Analysis
Internal Category Profile
TCO Model
Cost Reduction Ideas
Industry Profile
Build TCO Model
Develop SourcingStrategy
Conduct Competitive Exercise w/
ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
7
Total Cost of
Ownership Travel
Hotel Cost
Agency Cost
Total Cost of Ownership – Elements
Air Ticket Cost
• Emergency Travel Services• Change RequestsSupport
Management Fees• Online Booking• Agent Assisted Booking• Client Negotiated Airfare
Transaction Fee
Price for airfare, room rates and rental rates make up a portion of the TCO for Travel with cost drivers laying hidden in process.
Rental Car Cost
Airfare Cost
Nightly Room Rate
Misc. Charges• Internet• Parking• Fitness Center
Misc. Charges
Fuel
Daily Rate
• Mileage Charge• Vehicle Fees• GPS• Concession Fee Recovery
• Self fill• Fuel and Service Charges• Fuel Purchase Options
Price
Procurement
Process
Labor Costs• Time to register new online users
on Cliqbook• Time to train new online users
• Air Ticket Cost• Taxes
• Room Rate• Taxes
• Daily Rate• Taxes
Travel Policy
• Policy Enforcement• Advance Booking• Preferred Suppliers
• Meals• Phone
• Fuel Surcharges• Security Fees
• Insurance• Airport Fees• City Surcharge
• Upgrade Fees• Energy Surcharge
SAMPLE
Ancillary Fees• Baggage Fees• Change Fees
• In Flight Internet• Status Level
Page: 8
Industry Profile - Objective & Key Questions
Objective
Provide a detailed understanding of the current corporate travel industry as well as the forces shaping future travel services. The results of this profile will shape 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: 9
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 (for business travel)
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 current travel agency and the subsequent process standardization, it does not make sense to fully source the travel agency component of travel at this time. However, there may be components of the contract to reevaluate.
• Meeting/Event Planning Services are categorized under the same NAICS code as Travel Agencies.
Key Points
The travel industry encompasses a variety of different categories each grouped with an NAICS (North American Industry Classification System) code.
Source: http://www.bls.gov
SAMPLE
• In 2000, 10 airlines accounted for slightly more than 90% of available seat-mile capacity in the United States. By early 2012, those 10 airlines, through mergers, were reduced to 5 airlines controlling about 85% of the domestic passenger market. Moreover, American and US Airways merged in 2013—which further reduced the number of airlines controlling the vast majority of passenger ridership to only four.
Source: Office of Inspector General, AVIATION INDUSTRY PERFORMANCE, A Review of the Aviation Industry, 2008–2011, Number: CC-2012-029 , Date Issued: September 24, 2012
RITA, Bureau of Transportation Statistics
AIRLINE INDUSTRY – US Airline Mergers
Page: 11
Airline Industry: Overview
• 2015 Airline Industry revenue reached $727 Billion.
• IBISWorld expects revenue to grow at an annualized rate of 4.6% to $197.1 billion over the five years to 2020.
• Top four companies holding an estimated market share of 68.8%.
• Low profit margins and intense price competition Major operators such as American Airlines, Delta and United will reap synergies from their mergers, leading to higher profit margins. However, profit margins will still depend on volatile fuel prices and the airlines’ ability to successfully hedge against any adverse movements. New fuel-efficient aircraft will aid this cause and increase operator competitiveness in the global market.
• Business customers account for a significant portion of domestic flying. Companies tend to pay for travel when business activity is strong and profit levels are high. When corporate profit is down, demand for air travel also declines. However, when it increases, demand improves.
Key Points
Source: airlines.org, Airline Financials.com, IATA, Wikipedia, Statista.com, MarketWatch.com, Ibisworld.com
2016 US Airline Industry Revenue reached $157.7 Billion. North America is the industry leader.
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Major Players (Market Share)
Page: 12
Airline Industry: Market Segment & Competitive Landscape
Source: ibisworld.com
Key Points
• Level & Trend Competition in this industry isHigh and the trend is Increasing
• The Domestic Airlines industry is highly competitive. Airlines compete for customers on price, frequency and capacity, route offerings, loyalty programs, promotions, rewards and service quality.
• Level Concentration in this industry is Medium
• The Domestic Airlines industry has a moderate level of concentration. The top four industry players are estimated to hold a combined market share of more than 66.8% in 2015.
• Barriers to Entry in this industry are High and Steady
• Costs to purchase aircraft and specialist machinery, hangar and other airfield space, as well as costs to attract skilled labor and to comply with stringent safety requirements are high and a significant barrier to industry entry.
• Level & Trend Globalization in this industry is Low and the trend is Increasing
• The Domestic Airlines industry has a low level of globalization, with access to domestic routes strictly controlled for US-based airlines; foreign ownership is discouraged. Foreign operators may provide services to the domestic market, but are generally restricted to limited routes and destinations.
SAMPLE
The PPI (measures average change in prices over time) for passenger air transportation. For 2015 the average amounted to 263.4 which represents a decrease of 9% from 2014.
Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation
NAICS 481111 All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
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Page: 14
Airline Industry: Cost Drivers
Source: IBISWorld.com PlaneStats.com
Cost Drivers Key Points
• The top three cost drivers for ninety five percent of the world’s airlines, are: fuel, personnel and the cost of aircraft
• Dependence on oil production, labor agreements and a duopoly in aircraft manufacturing prevent airlines from having any substantive impact on these cost drivers.
• US airline system wide unit cost declined 12.6% year-over-year to 11.5¢ during second quarter 2015, marking the largest overall cost decline since 2009. Network carrier system cost slid 12.6%, falling from 13.5¢ to 11.8¢. Value carriers reduced system wide costs from 11.8¢ in 2014 to 10.4¢ in 2015, down 11.7%.
• The rapid decline in cost was driven by falling fuel prices, with the network unit fuel cost falling 30.2% and value carrier unit fuel cost down 34.7%. After the decline, fuel cost represents 26.2% and 25.3% of unit cost for network and value carriers, respectively.
• As a result of the significant decline in fuel cost, labor now represents the largest cost category for US airlines. It accounts for 32.9% of the network carrier system wide unit cost and 34.5% of value carrier cost.
Top 3 Drivers Account For 64.3% of Total Airline Costs.
SAMPLE
Page: 15
Airline Industry: Jet Fuel Costs
• Historically jet fuel expenses have ranged between 10% and 15% of U.S passenger airline operating costs, but in 2008 the cost of fuel was between 30% – 40% of total operating expenses for most carriers
• Perplexed Passengers: why airfares were rising even when global oil prices were plunging? One reason is fuel costs account for 26% of the price of an airline ticketaccording to the trade group Airlines for America. Other parts, including taxes and labor costs, are holding steady or rising. Another factor is profits. Airlines rarely pass along all the fuel savings to customers.
• Current 2016 price is $42.90 per barrel or 40.5% from last year this time.
• The Air Transport Association estimates that for every dollar increase in the price of jet fuel (a derivative product of crude oil), US airlines incur an additional $445.0 million in fuel expenses.
Key Points
Sources: Airlines for America: www.airlines.org, www.bts.gov, www.iata.org, WSJ.com
Fuel is one of the largest cost contributor to airlines’ operating costs.
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Airline Industry: Air Travel Price Index
Sources: Bureau of Transportation Statistics, Ibisworld.com, Airlines for America: www.airlines.org
Air Travel Price Index for Atlanta, GA Key Points
1 The air travel price index measures the percents change over time in prices paid by travelers.
• The cost of airfare flying out of Atlanta, GA has been higher than the U.S. average.
• 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!
• Airline ancillary revenue, projected to reach $59.2 billion in 2015. This figure represents an increase in ancillary revenue gains of 18.8% from 2014 and 163% from 2010.
The cost of air travel have been very volatile over the past several years. The cost of airfare flying out of Tampa, FL has been lower than the U.S. average.
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Page: 17
Airline Industry: Price of Air Travel versus Other Goods & Services
Sources: Airlines for America: www.airlines.org
SAMPLE
Airfare remains a true bargain and has risen less than overall U.S. inflation
Advito 2016 Forecast: Airline Pricing
Page: 18Source: Advito 2016 Industry Forecast
CWT/GBTA 2016 Forecast: Airline Pricing
Page: 19Source: CWT/GBTA 2016 Global Travel Price Outlook
Page: 20
Hotel Industry: Overview
• The US Hotel Industry Revenue reached $166.5 billion in 2015
• The global hotel industry revenue is predicted to reach $550 billion in 2016.
• Over the five years to 2020, IBISWorldprojects that the industry will continue expanding, with particularly strong growth in the extended-stay hotels, boutique hotels, spa and health retreats and resorts segments.
• US revenue is projected to increase at an average annual rate of 3.0% to $167.0 billion over the three years to 2019.
• Smith Travel Research is reporting in year-over-year comparisons, the industry’s occupancy was nearly flat (-0.2% to 64.2%). Average daily rate is up 3.3% to $119.50, and revenue per available room increased 3.1% to $76.76
Key Points
Source: www.IBISWorld.com, MarketWatch.com, Smith Travel Research
The US Hotel Industry Revenue reached $166.5 Billion in 2015.
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Hotel Industry: Chains / Brands
• The majority of the global branded properties and revenue are mostly located in North American
• Major revenue for global chains (such as Marriott, Hilton, etc) is from franchise and management fees.
• Business travelers, including executives, are shifting from luxury hotels to more moderate mid-priced hotels
• Hotel taxes, usually a combination of sales and occupancy taxes along with the occasional flat fee, range from 10% to more than 18%.
• Hotel costs represent the single largest component of non-air expenses, about ~40% of the travel dollar
• According to Business Travel News the average Hotel daily rate is $163
Key Points
Source: PWC Hospitality Directions, Smith Travel Research, CWT Hotel Solutions, Business Travel News, IBISWorld
The majority of the global branded properties and revenue are mostly located in North America,
SAMPLE
Brands by Service Level
Hotel Chain Scales
Chain Scale Brand Name
Luxury
Upper Upscale
Upscale
Midscale
Economy
Ex-Upscale
Ex-Midscale
Ex-Economy
For Domestic Hotel
Bookings (2012) :
Total Tracked Spend: $XXM
46% of spend in Upper Upscale. Average Nightly Rate: $XXX
21% of spend in Upscale. Average Nightly Rate: $XXX
Business Travel News: 2015 Corporate Travel Index: $163
The PPI for hotel rooms have fluctuated during 2012 due to pressures from both buyers and sellers. The 2015 average is 133.7, indicating rates are flat.
Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals
Source: http://www.bls.gov/ppi/
NAICS 721110.1 All indexes are subject to revision four months after original publication.
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Hotel Industry: Cost Drivers
Source: IBISWorld.com
Operating Cost Drivers
Over 64% of costs in the hotel industry is distributed among three categories: (1)
Purchases, (2) Wages, (3) Other (marketing, royalty fees, repairs/maintenance, etc)
SAMPLE
US Hotel Industry – Competitive Landscape
• Level & Trend Competition in this industry is High and the trend is Increasing
• At most price points, hotels look to attract travelers by offering competitive prices with a range and quality of service to maximize client satisfaction, while minimizing room vacancy rates. Room discounting increases during difficult economic periods, with fewer discounts offered in boom times.
• Level Concentration in this industry is Medium• The four largest operators in the industry (Hilton
Worldwide, Marriott International, InterContinental Hotels Group and Starwood Hotels and Resorts) account for an estimated 41.0% of industry revenue
• It is increasing as hotel buyouts and mergers become more frequent and operators join franchise and chain operators.
• Barriers to Entry in this industry are Medium and Steady
• The start-up costs and market share concentration vary between industry segments, particularly for the international standard five-star properties compared with three-star motels.
• Globalization in this industry is Medium and the trend is Increasing
• Most operators in this industry are US-owned and earn most of their sales from domestic activity.
Page: 25
Key Findings
Source: Ibisworld.com
Airbnb Average daily rate (ADR) of Airbnb rentals by type of property in the U.S. in 2015 (in U.S. dollars)
Page: 26Source: Statista 2016
Advito 2016 Forecast: Hotel Pricing
Page: 27Source: Advito 2016 Industry Forecast
CWT/GBTA 2016 Forecast: Hotel Pricing
Page: 28Source: CWT/GBTA 2016 Global Travel Price Outlook
Page: 29
Car Rental Industry: Overview
• Global industry spend is $43.2 Billion of which 20.7% is business travel at airports and 40.9% off-airport.
• The industry is segmented by business travelers, leisure travelers, car leasing and car sharing
• Leisure market has grown larger than corporate business market
• IBISWorld expects industry revenue to expand at an annualized rate of 2.1% over the five years to 2021 to $47.9 billion.
• Hertz and Avis expanding off-airport locations to compete with Enterprise
• Car rental industry adjusted to global recession better than other travel industry categories. They can “right” size fleet to meet demand by disposing vehicles quickly and reduce costs.
Key Points
Source: Ibisoworld.com, Auto Rental News, Business Travel News
Global industry spend is $43.2 billion of which 30% is business travel at airports
SAMPLE
Rental Car Industry: PPI – Passenger Car Rental
NAICS 532111 All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
The PPI for passenger car rentals had been decreasing since 2013, why?
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Page: 31
Car Rental Industry: Market Share
• Market share:• Enterprise – 32.1%• Hertz – 15%• Avis/Budget – 12.2%
• Suppliers offer different brands that focus on specialized markets:
• Corporate Traveler – On-airport convenience – Hertz, Avis and National
• Leisure Market – On/Off-airport Budget, Dollar Thrifty, and Enterprise
• Additional Non-US regional players include:• Europcar (Europe and Asia Pacific) • Sixt (Germany and EMEA) • In high risk countries such as India, China, Thailand, Latin
America, etc. the business model is to rent a car with driver. Cost is less than a chauffer / limo as a typical rental vehicle is used
• 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
• “Virtual rental technology” – enables customers to reserve, rent, access and return cars just about anywhere. ZipCar, WeCar, Connect.
• Business Travel News – Average daily cost: ~$47.00 which makes up 15% of the total travel costs.
Key Points
Source: www.autorentalnews.com; www.ibisworld.com, Business Travel News, 2015 Corporate Travel Index, MarketWatch.com
The U.S. car rental market is highly consolidated among a small number of major players and is getting smaller.
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Top 3 Car Rental Companies By Operating Revenue
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Car Rental Industry: Cost Drivers
Source: Ibisworld.com, Auto Rental News
Operating Cost Drivers Key Findings
• The Car Rental industry has changed gears over the past five years, growing strongly after being forced into reverse during the recession.
• The industry’s solid recovery is expected to continue over the next five years. Demand is expected to increase as domestic travel rates continue to grow, bolstered by the US economy’s recovery.
• Industry revenue is forecast to grow at an annualized rate of 3.0% over the three years to 2019.
• Over the past five years, many industry operators have continued to expand into off-airport markets, providing additional avenues for growth. Car rental operators have learned from the recession and have sought to diversify their revenue streams, so as to mitigate exposure to any one segment of the economy.
• Car sharing has continued to emerge over the past five years as both traditional car rental companies and new players seek to gain market share in this new segment of the industry. Each of the major car rental companies now has a car sharing division.
Over 66% of costs in the car rental industry is distributed among four categories: (1) Purchases, (2)Depreciation, and (3) Other (marketing expenditures, rent, utilities, insurance, administrative fees and a variety of other miscellaneous costs)
SAMPLE
US Car Rental Industry – Competitive Landscape
• This industry is Mature• New technologies, such as online reservations, provide
advantages like reduced customer acquisition costs. But these advantages flow on to existing companies and do not produce new entrants or new markets. Some companies are expanding into local markets with programs like car sharing.
• Basis for Competition: High and the trend is increasing
• All companies in this industry compete primarily on price and customer service.
• Companies also compete through branding and market segmentation.
• Strategic alliances with airlines and hotels can produce a competitive edge.
• External competition stems from other modes of travel including taxis, limousines and public transport.
• Barriers to Entry in this industry are Medium and Steady
• Rental fleet investment is a significant monetary outlay.
• Potential new entrants would have difficulty establishing a brand identity because the current brands are heavily entrenched.
• Globalization in this industry is Low and the trend is Steady
• All major car rental companies in the United States are domestically owned; however, US car rental companies operate globally either through direct ownership or through license and franchise agreements. Page: 33
Key Findings
Source: Ibisworld.com
CWT/GBTA 2016 Forecast: Car Rental Pricing
Page: 34Source: CWT/GBTA 2016 Global Travel Price Outlook
Page: 35
US TMC Industry: Overview
• Leisure travel is the largest market for the industry, which is made up of travelers taking both domestic and international trips. About 25.0% of revenue for this segment is derived from domestic travel and the remainder (52.0%) from US residents traveling internationally.
• Managed and unmanaged corporate travel makes up a smaller percentage of industry revenue than leisure travel, but is often more lucrative for agents. Demand for business travel is highly correlated with business confidence and corporate profit. Corporate profit has increased 2.8% per year on average over the five years to 2016, resulting in a greater number of business trips.
• There is more competition for the lucrative corporate dollar than ever before and many travel agencies focused on business customers have been forced to drop their commission rates to attract business.
Key Points
Source: Ibisworld.com
US industry spend is $34 billion of which 30% is business travel at airports. Global Industry is expected to hit $166.2 billion in 2016
SAMPLE
Travel Management Industry: Overview
• Expedia and Priceline have dominated for the past few years, ranking 1 and 2 again. No other company was close. Third-ranked AMEX registered just under $
• 21 Companies achieved sales of $1B or more
• Consolidation and more consolidation to come
• Companies are rushing to adopt in-house solutions as well as partnering with companies like Concur to make the travel experience seamless and cost effective.
• New trend – surge in companies developing their own travel schools in order to attract young professionals.
• The average profit of travel agencies in 2013 was 8%. The average profit was 12% in 2015.
2015 Top 6 Travel Management Co’s By Sales Revenue •Key Points
Source: www.travelweekly.com Travel Weekly Power List 2015, Statista 2016
Overall, the US industry is expected to grow 2.2% per year on average to $38.0 billion in 2021
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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 has exceeded its 2007 high and continues to climb.
TMC Industry: PPI – Travel Agencies
NAICS 561510 All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
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US Travel Agency: Cost Drivers
Source: Ibisworld.com
Operatng Cost Drivers Key Findings
• Wages are the largest expense for this industry, accounting for an average 35.4% of total revenue in 2016. The industry is still heavily reliant on personal service, where quality customer service and product knowledge remain key success factors.
• The average industry profit margin, is expected to reach 2.5% of total revenue in 2016, reflecting the high level of competition in the industry. When travel demand weakens, many industry operators reduce commissions and margins in an attempt to retain business and increase cash flow.
• Overall, profit margins have decreased slightly during the past five years despite the growth of the online segment of the industry and rising travel demand, especially to exotic international locations. Increased competition has pressured industry profit, forcing competitors to increase consolidation activity
Over 86% of costs in the travel agency industry is distributed among three categories: (1) Wages, (2)Purchases, and (3) Other (advertising/marketing, selling, G&A, insurance, property expense, equipment rental and professional fees)
SAMPLE
US Travel Agency Industry – Competitive Landscape
• This industry is Mature• The two main segments of the Travel Agencies industry
are in distinctively different stages of their life cycles. Travel websites are in the growth stage of their life cycle. traditional brick-and-mortar travel agents have reached maturity and face increasing threats from travel websites and vendors that take online bookings directly. Overall, the industry is mature.
• Basis for Competition: High and the trend is increasing
• Competition in this industry has become largely price-based. The increasing number of travel websites has led to an increasing number of customers browsing to find the best price deal and booking with the best-priced agency. Online ticket price and booking services have increased consumer information on travel prices and has introduced more price-based competition to the industry.
• Barriers to Entry in this industry are Low and Steady
• No restrictive factors prohibiting new players from entering the industry.
• Few large, dominant players. However, beyond these large players the industry is highly fragmented with a large number of small, independent operators.
• Globalization in this industry is Medium and the trend is Increasing
• Due to internationally linked computer booking and reservation systems, the industry has historically been highly globalized.
• The shift from retail storefronts to internet-based distribution methods or call-center-based service delivery makes enterprise location increasingly irrelevant to consumers of travel.
Page: 39
Key Findings
Source: Ibisworld.com
CWT Additional Perspective
Page: 40
Business Travel News – 2015 Corporate Travel Index: Food $97 per day
Page: 41
• Advito Consulting 2016 Forecast• Airlines for America, www.airlines.org• AirlineFinancials.com• Auto Rental News.com• Bureau of Labor Statistics, www.bls.gov• Bureau of Transportation Statistics, www.bts.gov• Business Travel News.com• CWT Hotel Solutions• CWT 2016 Travel Price Forecast• Forbes, www.forbes.com• Hoovers Online, www.hoovers.com• IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006)• www.ibisworld.com• Global Business Travel Association, www.gbta.org• MarketWatch.com• Power List 2015, www.travelweekly.com• Pwc Hospitality Directions• Smith Travel Research Data• The Transnational.travel• Travel Daily News, www.traveldailynews.com• Travel Procurement• Travel Weekly, www.travelweekly.com• Wikipedia• Wikiinvest
Appendix: Data SourcesSAMPLE
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Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
Develop Sourcing
Objectives
Sourcing Strategy Plan: Competitive
Supplier Selection or
Existing Supplier
Development
Develop SourcingStrategy
Conduct Competitive Exercise w/
ApprovedSuppliers
Develop Sourcing
Strategies & Tactics
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 43
Sourcing Strategies & Tactics
Several 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
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
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
Page: 44
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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Savings Opportunity
Proposed Strategy Expected Outcome
Volume Concentration
Consolidate all Division car rental spend. Leveraging buying power across all Divisions 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 Division’s to follow. Consistency across all Division’s leads to demand management savings.
Demand Management –Enforcement Mechanism
Empower Global Travel Department to enforce global travel policy with key Division 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 van/truck rental spend and negotiate additional concessions such as better rebate terms, lower city surcharges and flat rate refueling charge.
SAMPLE
Page: 46
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
Conduct Supplier Analysis
Create Supplier Selection Criteria
Supplier Selection
Decision Matrix
RFIs (optional)
“Short List” of Suppliers
Develop SourcingStrategy
Conduct Competitive Exercise w/
ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
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Car Rental Scorecard
WeightMaximum
Points
Person A
Score
Person B
Score
Person C
ScoreTotal Score
37% 572 I. Non-Pricing Components 549 526 538 538
0% 0 A. Company Information 0 0 0 0
2% 35 B. Rental Locations 35 35 35 35
7% 100 D. Safety & Fleet 78 88 76 81
9% 131 E. Services & Amenities 130 121 121 124
1% 21 F. Billing 21 21 21 21
12% 185 G. Top 15 Cities - Rental Locations 185 185 185 185
7% 100 H. Top 15 Cities - Trans Method from Airport 100 76 100 92
63% 954 II. Pricing Components 666 667 671 668
10% 154 C. Additional Pricing Questions 92 93 97 94
33% 500 National Daily Rental Rate 437 437 437 437
20% 300 City Surcharge Rate 136 136 136 136
100% 1526 1215 1193 1209 1206
Car Rental Company
Evaluation Criteria
SAMPLE
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Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
Complete Traditional
RFP Process
RFPs / RFQs
eAuctions
Collaborative Discussions
Conduct eAuction(s)
Collaborate w/ Incumbent Supplier(s)
- AND/OR -
- AND/OR -
Develop SourcingStrategy
Conduct Competitive Exercise w/
ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 49
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-NegotiationInformation
Exchange
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
Page: 50
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
Prepare Fact-Based
Negotiation Packages
Negotiate Agreements
Fact-Based Negotiation Packages
Supplier Negotiations Presentation
Sourcing Recommendation
Develop SourcingStrategy
Conduct Competitive Exercise w/
ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 51
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
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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
• 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 High-ROC volume
• Dedicate a resource to handle ad-hoc assessment activities
• Stakeholder buy-in
• Executive sponsorship
• Procurement Support
Total $300-$600K
*NACV – Net Annual Charge Volume (i.e. annual spend with Amex)
SAMPLE
Page: 53
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Acti
vit
ies
Delivera
ble
s o
r T
oo
ls
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: 54
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