Procurement and Travel Management Company Financial Modeling

Procurement and Travel Management Company Financial Modeling

                                                             Mark Walton

PrincipalConsulting Strategies

markw@consultingstrategies.com847-541-2606

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!