procurement and travel management company financial modeling
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Procurement and Travel Management Company Financial Modeling
Mark Walton
PrincipalConsulting Strategies
June 15, 2005
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Proprietary and Confidential
Topics To Be Covered
Procurement strategy Purchasing’s role Brief history of agency/corporate pricing Agency pricing models
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Proprietary and Confidential
Topics To Be Covered
TMC procurement strategies for 2005 Traditional models Online agencies Online service/support/financial models Performance – Service Level Agreements
The Changing Travel Industry LandscapeSourcing Becoming More Complex
Travel
Department
Travel
Department
Purchasing Departments Suppliers
Data
More Change To Come
Management
Technology
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Proprietary and Confidential
Planning For Success
Enlist senior executive sponsorship Rigorous assessment of current travel
program and supplier support Define requirements
Define Requirements
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Proprietary and Confidential
Purchasing’s RoleTo Fear Or Not To Fear
Do relationships with suppliers change when purchasing is involved?
Does purchasing actually control the negotiations, and if so who actually is the process owner?
Is travel really that different?
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Proprietary and Confidential
Travel Manager Strengths
Travel economics and pricing Best practices Understand use of travel technologies Supplier strengths and weaknesses Performance Traveler needs
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Proprietary and Confidential
Purchasing’s Role
Balance between procurement principles and the unique attributes of travel
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Proprietary and Confidential
Purchasing’s Strengths Understand the business goals and objectives Leverage strategic sourcing best practices Leveraging technology to increase efficiency and reduce processing
cycle-times “Good guy bad guy strategy” Contract management and compliance
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Proprietary and Confidential
Sourcing Initiatives – Agency
It is not just about securing the lowest price!
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Proprietary and Confidential
Sourcing Initiatives – Agency
It is not just about securing the lowest price!
However…..price is very important
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Proprietary and Confidential
Sourcing Initiatives – Agency
Structure Manual RFP
(eProcurement?)
Sourcing team Yes-cross functional
Data sources InternalAgency
External benchmarking
Timeline 6 months to 1 year
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Proprietary and Confidential
TMC Sourcing
Understanding the landscape Traditional Online agencies Operational configuration Financial models RFP process Performance measurements
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Proprietary and Confidential
TMC Sourcing Process
Organize cross functional team Train team Get data Determine requirements RFP – questions and weighting Distribute
Evaluate – rank
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Proprietary and Confidential
TMC Sourcing Process
Select finalists Presentations Evaluations of presentations Due diligence Best and finals Negotiate agreement Award
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Proprietary and Confidential
Financial Models
Commissions retained or returned? Bundled or unbundled? In a bid situation, request financials in
various formats
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Proprietary and Confidential
Example
Client of ours with air volume of $7M Commission differential between retained and
returned was $6.50
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Proprietary and Confidential
Travel Management Co. Negotiations
How should volume affect pricing?
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Proprietary and Confidential
New Strategy
Guaranteed Savings
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Proprietary and Confidential
Online BookingFinancial Considerations
Touchless Lite Touch Full Touch System Cost
Note: Financial models can affect adoption levels
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Proprietary and Confidential
Online BookingFinancial Considerations
Touchless fee = $10 Full touch = $20 Assume 90% touchless
I would suggest negotiating an $11 blended rate.
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Proprietary and Confidential
Online BookingOther Costs
ImplementationOngoing maintenance costs Internal IT resource costs
(customization, technical support)
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Proprietary and Confidential
Service Level Agreements
Key Performance Indicators (KPIs) should focus on three key areas: Service delivery Service quality Program metrics
Measure on a monthly or quarterly basis
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Proprietary and Confidential
Measuring the Results
All measurements to be quantitative Establish and maintain simple and clear
process within each metric Consider incentive for exceeding
expectations
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Proprietary and Confidential
Service Level Agreements
Financial scale for incentives & penalties should be weighted in proportion to: Importance to success of program
Penalty must be significant enough to create motivation
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Proprietary and Confidential
SLA – KPI Examples
Fare accuracy Telephone service performance Traveler survey Cost per transaction Support of primary suppliers
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Proprietary and Confidential
Questions and Answers
Thank you!
Following your roadmap will lead you
to success!