Actively managing the largest proportion of spending possible is a primary goal for buyers across various categories. The corporate travel category presents a unique set of challenges and opportunities. Areka Consulting’s Louise Miller explains.
Many procurement professionals tell me they consider the percentage of spend under management as one of the top metrics defining procurement’s value — if not the top one. The more spend under management, the greater the potential value. From a finance leader’s perspective, unmanaged spend limits visibility and turns forecasting into guesswork. From a human resources point of view, spending choices can make people exemplary workers or ex-employees. Saving the company money can get an employee big kudos until uncovered risks trump the previously praised decision.
Procurement departments are tasked with high-profile and high-volume purchases essential to the company’s performance and vision. Smaller purchases are often left to department heads or employees. It may appear they do just fine in getting the company a good deal. However, in too many cases one small “rogue” purchase can cause issues related to risk, data, personal safety or missing out on a larger volume discount.
Unmanaged spend typically means there is no active effort where as undermanaged commonly refers to lesser effort and less favorable results related to a category. Travel and meetings categories are particularly challenging. Why, for example, are transient hotel bookings and small meetings such a large portion of unmanaged or undermanaged spend for many companies? Here are four reasons.
1. Employees believe their purchases are too small to really impact the greater bottom line. “It’s just a meeting room for one day, with some sandwiches.” Sound familiar? Usually small meetings are planned and paid for by the host because no formal process is in place or an existing process is too cumbersome.
2. “I can absolutely get a better deal on the hotel myself. It happens every time I go to see this customer.” Management concedes a percentage of spend will be un(der)-managed. But it’s not a static percentage, and it grows. Overall, the hotel program is managed but when travelers go rogue it can reduce the percentage of spend under influence, essentially becoming an undermanaged category. It’s surprising how many programs previously saw 60 percent of hotels stays booked with negotiated rates and now see that down in the 20 percent to 30 percent range.
3. Decentralized purchasing results in overlapping or duplicate agreements and too many preferred vendors. There is lost savings and risk associated with a disjointed effort. Some companies sign contracts for hundreds of small meetings in a year, separate from their preferred hotels on the transient side. Buyers can be successful with pre-negotiated small meetings programs aligned with transient to achieve more savings and reduce risk and the number of contracts necessary.
4. Hesitant to increase manpower and commit resources, management chooses not to act to rein in rogue spending. Employees improvise and do what it takes to get the job done. The unmanaged portion spirals further out of control.
Given limited visibility, how do you begin to move the needle in areas such as hotel and small meetings? Start your research with expense and payment data. You can trace most unmanaged spend back to an ineffective payment system and policy. The travel policy is set up to fail if the payment policy isn’t practical and thorough. For example, if travelers are given a corporate card and told that using it is the most important part of booking travel, they may book outside managed channels and still consider themselves compliant. At the opposite end of the spectrum, travelers based in emerging markets are more likely to need prepaid hotels. Upon hearing that your service providers charge multiple fees to handle this process, and fax machines sometimes are involved, travel arrangers resort to an online travel agency where they can simply insert a credit card number and prepay with no fees.
Similarly, does payment for small meetings held by your organization vary by country or department? Chances are the answers are “yes” and “yes.” Do the codes in your expense reporting system effectively isolate expense types for small meetings and are they the same globally? Chances are the answers are “no” and “no.”
How can you get the attention and support of decision makers for taking initial steps to gain greater visibility? Keep your initial ask simple. Inform them of your plans to assess how policies work together. Ask if they will support your collaboration with people in finance and HR. Find out if there already is a group looking into policies that you can join.
Once you get agreement for some research and teamwork, what’s next?
First, find payment solutions for the difficult categories of prepaid hotels and small meetings. What do existing purchasing, payment and travel policies include? If key elements are not being followed, try to find out why. In some cases, the purchasing and payment policies are separate or, worse, they contradict each other. A proper policy for using purchasing cards for small meetings is an important part of bringing more spend under management. P-cards eliminate the need for purchase orders on lower-value purchases while still providing visibility.
Next, provide preferred buying channels for individual trips and meetings. That sounds simple, but if it were easy then rogue hotel spend wouldn’t be more than 50 percent and small meetings organizers would willingly ask for your help. Engage your professional meeting and event providers and your TMC; they offer instant access to best practices.
Your top rogue spend categories may not be hotel and small meetings; they may be on-trip Wi-Fi and ride-hailing. A monthly Wi-Fi subscription, rather than separate purchases for each trip, is a common savings opportunity many buyers see as too small to tackle – until they see the annual spending. Meanwhile, does splitting trips between Uber and Lyft prevent travelers from earning money-saving benefits such as discounts and free cancellations?
In any case, gaining buy-in to act is the mission and more spend under management is the vision. Senior executives must be fully committed to driving the change message. Employees used to doing things a certain way will resist if new policies, processes and procedures are unclear or cumbersome. Leaders who see the value and commit will entice the resisters to follow. They will be glad to have some of their blindspots removed. The company will be in position to use its resources in a more purposeful way.
What’s the alternative? Smaller purchases add up and without the proper processes and procedures, millions of dollars could be wasted.
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