. Kathy Briski, C.P.M., GTP. September 9, 2014. Page: . 1. Global Procurement Processes. Define. Supplier. Evaluation. Criteria. Collect . Data. Conduct. Performance. Evaluation. Develop. Improvement. ID: 658410
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Corporate Travel Strategic Sourcing
Kathy Briski, C.P.M., GTPSeptember 9, 2014
Slide2Page: 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
Slide3Page: 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
Slide4Page: 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
Slide54High 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
Slide6Page: 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
Slide7Page: 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
Slide8Copyright © 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
Slide9Page: 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
Slide10Page: 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
Slide11In 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
Slide12Page: 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
Slide13The 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/
Slide14Page: 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
Slide15Page: 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
Slide16Page: 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
Slide17Page: 16Airline Industry: Baggage Fees
SAMPLE
Source: www.bts.gov
Slide18Page: 17Airline Industry: Cancellation/Change Fees
SAMPLE
Source: www.bts.gov
Slide19Page: 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
Slide20Page: 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
Slide21Page: 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
Slide22Page: 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
Slide23Hotel 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
Slide24The 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.
Slide25Page: 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
Slide26Top Business Occupancy Hotel Markets Worldwide – 2013 YTDCWT 2014 Travel Price Forecast
Page: 25
Slide27CWT 2014 Forecast: Airline, Hotel, and Car Rental PricingPage: 26
Slide28US 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
,
Slide29Page: 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
Slide30Rental 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.
Slide31Page: 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
Slide32Page: 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
Slide33US 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,
Slide34Travel 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.
Slide35Page: 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
Slide36The 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/
Slide37Page: 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
Slide38CWT Additional 2014 PerspectivePage: 37
Business Travel News – 2014 Corporate Travel Index: Food $88 per day
Slide39Page: 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
Slide40Page: 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
Slide41Page: 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
Slide42Page: 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
Slide43Page: 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
Slide44Page: 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
Slide45Page: 44Car Rental Scorecard
SAMPLE
Slide46Page: 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
Slide47Page: 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
Slide48Page: 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
Slide49Page: 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
Slide50Page: 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
Slide51Page: 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
Slide52Page: 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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