Corporate Travel Strategic Sourcing

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Corporate Travel Strategic Sourcing




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Presentations text content in Corporate Travel Strategic Sourcing

Slide1

Corporate Travel Strategic Sourcing

Kathy Briski, C.P.M., GTPSeptember 9, 2014

Slide2

Page: 1Global Procurement Processes

DefineSupplierEvaluation

CriteriaCollect

Data

Conduct

Performance

Evaluation

Develop

Improvement

Strategy

Supplier Relationship Management Process

GenerateRequisition

Approve/SubmitRequisition

Process/SubmitOrder

Receive Goods &Services

ApproveInvoice

ProcessInvoice &GeneratePayment

Strategic Sourcing Process

Access Opportunity &Establish Team

ProfileCategoryInternally & Externally

Develop Sourcing Strategy

CreateSelectionFactors &EvaluateSuppliers

ConductCompetitive Exercise w/ ApprovedSuppliers

Negotiate & Develop Sourcing Recommend-action

ImplementAgreements

Continuous Improvement

SupplierScorecard

SavingsManagement

SpendAnalysis

KnowledgeManagement

ContractManagement

CatalogManagement

Core Supporting Capabilities

Day-to-Day Purchasing Process

Slide3

Page: 2Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing

Recommend-action

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Validate Internal Requirements & Profile Category

Conduct

Industry 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 Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

Fast Track for Quick Savings

Develop Sourcing Strategies & Tactics

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Assess

Opportunity

Obtain Sponsorship

& ID Team

Create

Project

Plan

Project Plan

Analyze Current Spend

Document Requirements

Slide4

Page: 3Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing

Recommend-action

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Develop Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Assess

Opportunity

Obtain Sponsorship

& ID Team

Create

Project

Plan

Project Plan

Analyze Current Spend

Document Requirements

Slide5

4High 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

Slide6

Page: 5Travel 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-Category

Addressable Spend

% Addressable

Sourceable Spend

Est. 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

Travel

Demand Management (Compliance)

N/A

 

N/A

 

$700,000

SAMPLE

Slide7

Page: 6Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing Recommen-dation

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Validate Internal Requirements & Profile Category

Conduct

Industry Analysis

Internal Category Profile

TCO Model

Cost Reduction Ideas

Industry Profile

Build TCO Model

Develop Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Slide8

Copyright © 2007 Accenture All Rights Reserved.7

Total Cost of Ownership Travel

Hotel Cost

Agency Cost

Total Cost of Ownership – Elements

Air Ticket Cost

Emergency Travel Services

Change Requests

Support

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

Slide9

Page: 8Industry Profile - Objective & Key Questions

ObjectiveProvide 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

Slide10

Page: 9Travel 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.govSAMPLE

Slide11

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 is currently merging —which would further reduce the number of airlines controlling the vast majority of passenger ridership to only four. BOEING PROPRIETARY

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

Slide12

Page: 11Airline Industry: Overview

2013 Airline Industry revenue reached $711 Billion. For 2014, Airline Industry revenue forecasts to reach $746 Billion.Over the five years to 2018, industry revenue is expected to increase at an annualized rate of 3.6% to $848.2 billion US Airline Industry revenue is expected to continue flying upward over the five years to 2019, increasing at an annualized rate of 1.5% to $153.6 billion.

Major operators such as American Airlines, Delta and United Continental will reap synergies from their recent 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.U.S. scheduled passenger airlines reported a net profit of $12.7 billion in 2013, up from a profit of $98 million in 2012 Business travel represents 35% of airline’s revenueFederal taxes constitute $61 – or 20% – of the price of a typical $300 domestic one-stop round-trip ticket

In 2012, U.S. airlines carried 16% more passengers and cargo than in 2000, while using two billion fewer gallons of fuel

From 2000-2013, U.S. airlines reduced the flight cancellation rate sharply from 3.30% to 1.51%

Key Points

Source:

Airlines for America: airlines.org, Airline Financials.com, IATA, Wikipedia, CWT 2014 Travel Price Forecast

2013 Global Airline Industry

R

evenue reached $711 Billion. North America is the industry's revenue leader, generating about 44% of industry revenue.

SAMPLE

Slide13

The PPI (measures average change in prices over time) for passenger air transportation. For 2012 the average amounted to 285.0 which represents a gain of 9.5% from 2011, but for 2014 the average is trending slightly upward.

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/

Slide14

Page: 13Airline Industry: Cost Drivers

Source: www.rajcoaviation.com

2013 Cost DriversKey Points

The top three cost drivers for ninety five percent of the world’s airlines, are: fuel, personnel and the cost of aircraft, which together account for an average of 64.3% of an airline’s total cost structure.

Dependence on oil production, labor agreements and a duopoly in aircraft manufacturing prevent airlines from having any substantive impact on these cost drivers.

With revenues fixed by competitive ticket pricing and the majority of their costs out of their control, airlines are challenged to maintain earnings and gain competitive advantage by controlling less than 35% of their cost structure

.

Top 3 Drivers Account For 64.3% of Total Airline Costs.

SAMPLE

Slide15

Page: 14Airline 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 carriersThe 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 expensesFrom 2000 – 2010, US airlines carried 15% more traffic while using 2.1 Billion fewer gallons of fuel.For 2013 jet fuel prices averaging $124.60 per barrel. Current 2014 price is $120.60 per barrel or 8.4% from last year this time.Impact on 2013 fuel bill: $-4 Billion (global airline industry)

From 1978-2012, U.S. airlines improved fuel efficiency approximately 120%

Increasing Jet Fuel Costs

Key Points

Sources:

Airlines for America:

www.airlines.org

,

www.bts.gov

, www.iata.org

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

Slide16

Page: 15Airline Industry: Air Travel Price Index

Sources: Bureau of Transportation Statistics, AMEX 2013 Forecast, CWT 2014 Travel Price Forecast, Airlines for America: www.airlines.org

Air Travel Price Index for Tampa, FL

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 Tampa, FL has been lower than the U.S. average.

Airfares will be nearly flat in Canada and

the United States next year, driven by a

highly consolidated and fiercely competitive landscape, stable projected oil prices, and potential reduction in demand from the U.S. government, driven by its sequestration efforts.

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 2011, US airlines posted the lowest annual rate of mishandled baggage ever recorded.

2013 ancillary revenue reached over $42 billion this year, up from $36.1 billion in 2013.Ancillaries will account for 6% of total airline revenue in 2013, up from 5.4% last year.

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. SAMPLE

Slide17

Page: 16Airline Industry: Baggage Fees

SAMPLE

Source: www.bts.gov

Slide18

Page: 17Airline Industry: Cancellation/Change Fees

SAMPLE

Source: www.bts.gov

Slide19

Page: 18Airline Industry: Price of Air Travel versus Other Goods & Services

Sources: Airlines for America: www.airlines.org

Price of Air Travel Versus Other Goods and Services

S

hown 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). CPI is defined as a measure that examines the weighted average of prices of a basket of consumer goods and services.

SAMPLE

Slide20

Page: 19Airline Industry: Market Segment & Competitive Landscape

Source: www.ibisworld.com

Key Points

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 66.4% in 2014.

Level & Trend Competition in this industry is

High

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.Barriers to Entry in this industry are High and SteadyCosts 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 IncreasingThe 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

Slide21

Page: 20Hotel Industry: Overview

2013 Global Hotel Industry Revenue reached $592 Billion. The US Hotel Industry Revenue reached $144.4 billion in 2013In 2014 global hotel revenues are estimated to grow 2 % to $604.5 billion. Over the five years to 2018, IBISWorld forecasts industry revenue will increase at an average annual rate of 2.2% to $661.5 billion.. This will result from growth in business and pleasure travel, and rising room rates.

Over the five years to 2014, IBISWorld expects industry revenue to grow at an average annual rate of 2.5%. In 2014, industry revenue is expected to jump 2.3%, as consumer confidence and spending spike, raising revenue to $144.4 billion. US revenue is projected to increase at an average annual rate of 3.0% to $167.0 billion over the five years to 2019. Smith Travel Research is projecting increases in all three key performance metrics during 2014: Occupancy is expected to rise 1.3% to 62.7%, Average Daily Rate (ADR) will increase 4.6% to $116.43 and Revenue Per

A

vailable

R

oom (RevPAR) is expected to grow 6.0% to $72.97.

Key Points

Source:

www.IBISWorld.com

, Smith Travel Research

2013 Global Hotel Industry Revenue reached $592 Billion. The US Hotel Industry Revenue reached $144.4 Billion in 2013.

SAMPLE

Slide22

Page: 21Hotel Industry: Chains / Brands

The majority of the global branded properties and revenue are mostly located in North AmericanMajor 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 hotelsHotel 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

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

Slide23

Hotel Chain ScalesChain Scale

Brand NameLuxuryUpper Upscale

UpscaleMidscaleEconomyEx-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: 2014 Corporate Travel Index: $158

Slide24

The PPI for hotel rooms have fluctuated during 2012 due to pressures from both buyers and sellers. The 2014 average is 136.2, indicating rates are continuing to rise.

Hotel Industry: PPI – Hotels & Motels, Guestroom RentalsSource: http://www.bls.gov/ppi/

NAICS 721110.1 All indexes are subject to revision four months after original publication.

Slide25

Page: 24Hotel Industry: Cost Drivers

Source: www.IBISWorld.com

Operating Cost DriversOver 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

Slide26

Top Business Occupancy Hotel Markets Worldwide – 2013 YTDCWT 2014 Travel Price Forecast

Page: 25

Slide27

CWT 2014 Forecast: Airline, Hotel, and Car Rental PricingPage: 26

Slide28

US Hotel Industry – Competitive LandscapeLevel Concentration in this industry is MediumIn 2014, 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. 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.

Barriers to Entry in this industry are Medium and SteadyThe 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:

27

Key Findings

Source

:

www.ibisworld.com

,

Slide29

Page: 28Car Rental Industry: Overview

Global industry spend is $36.4 Billion of which 30% is business travel at airports and 35% off-airport.The industry is segmented by business travelers, leisure travelers, car leasing and car sharingLeisure market has grown larger than corporate business marketIndustry revenue is forecast to grow at an annualized rate of 3.0% over the five years to 2019 to $42.2 billionHigh fuel cost is impacting industry as customers, especially leisure travelers, are finding other alternatives (public transportation)

Hertz and Avis expanding off-airport locations to compete with EnterpriseCar 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:

IBISWORLD, Auto Rental News, Business Travel News

Global industry spend is $36.4 billion of which 30% is business travel at airports

SAMPLE

Slide30

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, but for 2014 prices are starting to finally rise again.

Slide31

Page: 30Car Rental Industry: Market Share

After Hertz’s purchase of Dollar Thrifty, the top three rental car companies will make up 95% of the total on-airport US car rental industry revenuesSuppliers offer different brands that focus on specialized markets:Corporate Traveler – On-airport convenience – Hertz, Avis and NationalLeisure 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 usedCar 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.

It is forecasted that that base rates will increase on average between 0% to 2% for business travel rental cars in the U.S. for 2014. This is big news since US suppliers haven’t been able to increase rates, even slightly. This is due to increasing fleet costs for car rental providers, as their used vehicles sell for less than in recent years as consumers shift toward buying more new and fewer used vehicles. Even so, the highly consolidated market will retain strong competition among suppliers in 2014.

Business Travel News 2014 Corporate Travel Index: $47

Key Points

Source:

www.autorentalnews.com

;

www.ibisworld.com

, Business Travel News, 2014 Corporate Travel Index The U.S. car rental market is highly consolidated among a small number of major

players and is getting smaller.SAMPLE

Top 3 Car Rental Companies By Revenue

Global Market Share

Slide32

Page: 31Car Rental

Industry: Cost DriversSource: www.ibisworld.com, Auto Rental News

Operating Cost Drivers

Key Findings

The industry have slowly recovered as the demand for air travel, which is the industry’s primary revenue source, started to increase as of 2010.

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 five years to 2019 to $42.2 billion.

Corporate profit is currently at an all-time high, growing an impressive 9.2% per year on average over the five years to 2014

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

78%

of costs in the car rental industry is distributed among four categories: (1) Purchases, (2) Other, (3) Depreciation,

and (4) Wages.SAMPLE

Slide33

US Car Rental Industry – Competitive LandscapeThis industry is MatureNew 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 increasingAll 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 SteadyRental 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:

32

Key Findings

Source

: www.ibisworld.com,

Slide34

Travel Management Industry: OverviewThe top 50 travel management companies represent over $185

billion in sales revenue in 2013.Five companies registered more than $20 billion in sales, the same number as in 2013, although three had more than $30 billion, up from one last yearThere were 16 listees with sales of more than $1 billion, same as the last 2 yearsSmaller firms continued to grow impressively, with and without acquisitions. Ovation Travel moved from $828 million to $910 million, and Direct Travel soared from $575 million to $767 million as it continued an aggressive acquisition strategy.

Over the five years to 2019 IBISWorld expects industry revenue will increase an annualized 10.1% to $265.4 billion. Expedia, and now Priceline maintains top spots over AMEX. Technology dominated the replies when it came to recent developments and projections. A number of companies said they were developing proprietary technology solutionsThe industry is highly fragmented, with the top four industry players accounting for less than 30.0% of the industry's market share.

Travel Agency profit margins are low, reflecting a high level of competition in the industry.

2013 Top

6

Travel

Management Co’s By Revenues

Key Points

Source: www.travelweekly.com Travel Weekly Power List 2014, www.bts.gov

Over the next 5 years IBISWorld expects industry revenue will increase an annualized 10.1% to $264.4 billion.

Slide35

Page: 34Global TMC Industry: Overview

Leisure travel is the largest market for the industry. This market is made up of travelers taking both domestic and international trips. The total number of international tourism departures is expected to have exceeded 1 billion in 2014. The top three countries for departures are Germany, the United States and China. Many travelers going overseas still use travel agency services for part or all of their trip components, such as accommodations and airline bookings. However, in mature markets such as the United States travelers are increasingly likely to use online services to book their domestic trip, or make arrangements directly with hotels and airlines.

Key Points

Source:

IBISWORLD,

Global industry spend is $36.4 billion of which 30% is business travel at airports

SAMPLE

Slide36

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 AgenciesNAICS

561510 All indexes are subject to revision four months after original publication.Source: http://www.bls.gov/ppi/

Slide37

Page: 36Global Travel Agency:

Cost DriversSource: www.ibisworld.com

Operating Cost Drivers

Over

60%

of costs in

the travel agency

industry is distributed among four categories: (1)

Wages, (2) Purchases, (3) Rent & Utilities,

and (4) Marketing.SAMPLE

Slide38

CWT Additional 2014 PerspectivePage: 37

Business Travel News – 2014 Corporate Travel Index: Food $88 per day

Slide39

Page: 38Advito Consulting 2014 Forecast

Airlines for America, www.airlines.orgAirlineFinancials.comAMEX Business Travel 2013 Forecast and TrendsATWOnline, www.atwonline.com

Auto Rental NewsBureau of Labor Statistics, www.bls.govBureau of Transportation Statistics, www.bts.govBusiness Travel NewsCWT Hotel Solutions

CWT 2014 Travel Price Forecast

Egencia 2013 Forecast

Forbes,

www.forbes.com

Hoovers Online,

www.hoovers.comIATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006)

www.ibisworld.comGlobal Business Travel Association, www.gbta.orgOneSource Inc., www.onesource.comPower List 2014, www.travelweekly.com

Pwc Hospitality DirectionsRajcoaviation.comSmith Travel Research DataThe Transnational.travel

Travel Daily News, www.traveldailynews.comTravel ProcurementTravel Weekly, www.travelweekly.comWikipediaWikiinvest

Appendix: Data Sources

SAMPLE

Slide40

Page: 39Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing Recommen-dation

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Develop Sourcing Objectives

Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development

Develop Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

Develop Sourcing Strategies & Tactics

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Slide41

Page: 40Sourcing Strategies & Tactics

Several sourcing strategies can be pursued, either separately or together.

Possible Sourcing Strategies —

Best Price

Analysis

Volume

Leveraging

Strategic Relationship

Process

ImprovementDemandManagement

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

Slide42

Page: 41Sourcing Strategy: Airlines

Current StateTravel policies located in Accounts Payable Expenditure Manual – No enforcementAll departments using one travel agency, however suspect that some Southwest bookings are going directly to Southwest.com

Travel compliance is not be monitoredRecently moved corporate headquarters from Detroit, MI to Dallas, TXTop 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 agreementMarket dynamics suggest a 2 year contract

Results

Separate travel policy resulting in improved complianceDiscount in Tier 3 level pricingCapture all Southwest spend

SAMPLE

Slide43

Page: 42

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

Slide44

Page: 43Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing Recommen-dation

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Conduct Supplier Analysis

Create Supplier Selection Criteria

Supplier Selection Decision Matrix

RFIs (optional)

“Short List” of Suppliers

Develop Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Slide45

Page: 44Car Rental Scorecard

SAMPLE

Slide46

Page: 45Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing Recommen-dation

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Complete Traditional RFP Process

RFPs / RFQs

eAuctions

Collaborative Discussions

Conduct eAuction(s)

Collaborate w/ Incumbent Supplier(s)

- AND/OR -

- AND/OR -

Develop Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Slide47

Page: 46Supplier 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-Negotiation

Information

Exchange

Direct Negotiations with an Incumbent Supplier

Direct Negotiations with a Target Supplier

Brainstorm with a Group of Trusted Suppliers

On-Line Auctions

RFPs / RFQs

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

Slide48

Page: 47Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing Recommen-dation

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Prepare Fact-Based Negotiation Packages

Negotiate Agreements

Fact-Based Negotiation Packages

Supplier Negotiations Presentation

Sourcing Recommendation

Develop Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Slide49

Page: 48Negotiations 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

Slide50

Page: 49Negotiations 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

Slide51

Page: 50Strategic Sourcing Process Overview

Profile

Category

Internally &

Externally

Create

Selection

Factors &

Evaluate

Suppliers

Negotiate & Develop Sourcing Recommen-dation

Implement

Agreements

Strategic Sourcing Methodology

Activities

Deliverables or Tools

Validate Internal Requirements & Profile Category

Conduct

Industry 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 Sourcing

Strategy

Conduct Competitive Exercise w/ Approved

Suppliers

Fast Track for Quick Savings

Develop Sourcing Strategies & Tactics

ANALYSIS

STRATEGY

SUPPLIER SELECTION

IMPLEMENTATION

Assess

Opportunity & Establish Team

Assess

Opportunity

Obtain Sponsorship

& ID Team

Create

Project

Plan

Project Plan

Analyze Current Spend

Document Requirements

Slide52

Page: 51Implementation 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

Slide53


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