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Travel Strategic Sourcing
Kathy Briski, C.P.M., CCTE
June 24, 2013
Page: 2
Global Procurement Processes
DefineSupplier
EvaluationCriteria
Collect Data
Conduct Performance
Evaluation
Develop Improvement
Strategy
Supplier Relationship Management Process
GenerateRequisition
Approve/Submit
Requisition
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/ Approved
Suppliers
Negotiate & Develop Sourcing
Recommend-action
ImplementAgreements
Continuous Improvement
SupplierScorecard
SavingsManagement
SpendAnalysis
KnowledgeManagement
ContractManagement
CatalogManagement
Core Supporting Capabilities
Day-to-Day Purchasing Process
Page: 3
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommend-action
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Validate Internal
Requirements & Profile Category
ConductIndustry 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 SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
Fast Track for Quick Savings
Develop Sourcing
Strategies & Tactics
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
AssessOpportunity
Obtain Sponsorship
& ID Team
CreateProject
Plan
Project Plan
Analyze Current Spend
Document Requirements
Page: 4
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommend-action
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Develop SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
AssessOpportunity
Obtain Sponsorship
& ID Team
CreateProject
Plan
Project Plan
Analyze Current Spend
Document Requirements
5
High 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
Page: 6
Travel 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-CategoryAddressable
Spend%
AddressableSourceable
SpendEst. 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
TravelDemand Management (Compliance) N/A N/A $700,000
SAMPLE
Page: 7
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Validate Internal
Requirements & Profile Category
ConductIndustry Analysis
Internal Category Profile
TCO Model
Cost Reduction Ideas
Industry Profile
Build TCO Model
Develop SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Copyright © 2007 Accenture All Rights Reserved. 8
Total Cost of
Ownership Travel
Hotel Cost
Agency Cost
Total Cost of Ownership – Elements
Air Ticket Cost
• Emergency Travel Services• Change RequestsSupport
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
Page: 9
Industry Profile - Objective & Key Questions
Objective
Provide 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
Page: 10
Travel 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.gov
SAMPLE
• 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
2012 US Airlines Shares
Delta 16.3% United 15.1% Southwest 15.0% American 12.9% US Airways 8.1% JetBlue 4.9% Alaska 3.8% AirTran Corporation 2.9% SkyWest 2.3% ExpressJet 2.2% Other 16.5%
Page: 12
Airline Industry: Overview
• 2012 Airline Industry Revenue reached $636 Billion.
• North America is the industry's revenue leader, generating about 44.3% of industry revenue.
• United, Delta, and American are the market leaders based on revenue
• In 2012, United’s net income was $589M and Delta earned $854M, while American lost $1.87 Billion. Alaska Air earned $245M, Southwest $417M, US Airways $637M and Jet Blue earned $376M.
• Business travel represents 35% of airline’s revenue• From 2000 – 2010, US Airlines improved their on-
time arrivals from 72.6% to 79.8%.• From 2000 – 2010, airlines reduced greenhouse
gas emissions by 10%, while transporting 15% more passengers and cargo.
• Federal taxes constitutes $61 or 20% of a typical $300 domestic round trip ticket.
• In 2013, Airfare Average Ticket Prices are expected to be:
− Up 2-4% in the US− Up 1-3% in Europe − Up -1 to 4 % in Asia-Pacific (5-10% in India)− Up 5-10% in Latin America− Up 2-4% in Africa− Up 2-4% in Middle East
Key Points
Source: Airlines for America: airlines.org, Airline Financials.com, IATA, Wikipedia
2012 Global Airline Industry Revenue reached $636 Billion. North America is the industry's revenue leader, generating about 44.3% of industry revenue.
SAMPLE
United
Delta
Amer
ican
South
west
US Airw
ays
Jet B
lue
Alaska
$0
$5
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$15
$20
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$30
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20
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R
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2007 2008 2009 2010 2011 2012 2013F
$538$582
$493
$561$590
$636 $660Annual Airline Industry Revenue
Re
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n B
illi
on
s
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.
Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation
NAICS 481111 February– Mary 2013 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
186.5
200.6
200.4
205.7 205.8217.1
229.6
234.5
257.1
235.9
254.6
273.5
285.0282.0
278.7
286.6
281.2
276.9
180
200
220
240
260
280
300
Pro
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2013 Data
Page: 14
Airline Industry: Cost Drivers
Source: www.rajcoaviation.com
2012 Cost Drivers Key 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
Page: 15
Airline 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 carriers. For 2012, average price of jet fuel was $129.60 per barrel.
• The most reasonable explanation for such high prices is tight supply and counteracting the weak economic conditions
• In 2008 and now in 2013, every dollar increase per barrel (42 gallons) drove an additional $448M in fuel expenses to carriers’ bottom lines
• From 2000 – 2010, US airlines carried 15% more traffic while using 2.1 Billion fewer gallons of fuel.
• In 2011, US passenger and cargo airlines spent $50.5 Billion on fuel, up $11.7 Billion from 2010.
• For 2013 jet fuel prices averaging $124.60 per barrel
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
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$0
$20
$40
$60
$80
$100
$120
$140
$34
$33
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$49
$70
$83 $88
$129
$80
$91
$120
$130
Av
era
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Pri
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Pe
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arr
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Page: 16
Airline Industry: Air Travel Price Index
Sources: Bureau of Transportation Statistics, AMEX 2013 Forecast, CWT 2013 Forecast, Advito’s 2013 Forecast, Airlines for America: www.airlines.org
Air Travel Price Index for Chicago1 Key Points
1 The air travel price index measures the percents change over time in prices paid by travelers.
• The cost of air flying into Chicago – O’Hare has been consistent with the U.S. average while Chicago – Midway has been consistently lower than the U.S. average.
• In 2013, Airfare Average Ticket Prices are expected to be:
− Up 2-4% in the US− Up 1-3% in Europe − Up -1 to 4 % in Asia-Pacific (5-10% in
India)− Up 5-10% in Latin America− Up 2-4% in Africa− Up 2-4% in Middle East
• 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.
• In 2012, the airline industry earned approx. $36.1 billion in additional ancillary fees, an increase of 11.3% from 2011
The cost of air travel have been very volatile over the past several years. The cost of airfare flying into Chicago – O’Hare has been consistent with the U.S. average while Chicago – Midway has been consistently lower than the U. S. average.
SAMPLE
$180
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$280
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2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1
Ave
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ares
U.S.-Origin ATPI Chicago - O'Hare Chicago - Midway
Page: 17
Airline Industry: Baggage Fees SAMPLE
Source: www.bts.gov
Ranking * Airline 2007 2008 2009 2010 2011 2012
1 Delta 96,546 177,063 481,719 952,250 863,608 865,879
2 United 52,002 132,994 268,977 313,207 276,817 705,547
3 American 124,538 277,991 475,184 580,663 563,465 557,385
4 US Airways 27,738 187,082 432,280 513,623 506,339 516,206
5 Spirit 46,848 81,503 133,970 168,229
6 Alaska 16,151 22,028 58,669 108,997 157,013 151,475
7 Southwest 20,799 25,266 26,983 29,787 32,035 144,475
8 Allegiant Air 44,095 55,325 53,562 89,556
9 JetBlue 16,416 35,308 53,267 57,019 64,078 70,788
10 Frontier 4,618 15,156 55,160 62,115 54,862 70,173
11 Hawaiian 4,505 11,627 38,186 54,008 56,590 67,829
12 Virgin America 231 2,569 19,364 36,075 33,482 57,410
13 Continental 42,844 97,524 254,488 341,585 353,416
14 Air Tran 9,168 29,401 145,983 152,148 164,670
TOTAL 415,556 1,014,009 2,401,203 3,338,305 3,313,907 3,464,952
Page: 18
Airline Industry: Cancellation/Change Fees SAMPLE
Source: www.bts.gov
Ranking * Airline 2007 2008 2009 2010 2011 2012
1 Delta 16,331 18,927 406,039 698,611 766,795 778,398
2 United 331,193 354,471 309,866 321,539 324,129 660,943
3 American 469,883 449,899 471,369 495,158 517,708
4 US Airways 68,304 248,840 253,077 275,643 297,693
5 JetBlue 74,472 123,468 121,273 113,997 124,536 133,771
6 Southwest 32,470
7 Virgin America 943 9,761 12,866 18,151 15,851 30,644
8 Spirit 21,514 23,561 23,120 25,927 27,763
9 Alaska 54,700 67,077 60,590 50,357 10,598 23,210
10 Hawaiian 21,801 25,159 23,546 18,192 17,356 18,285
11 Frontier 33,081 34,279 21,494 16,685 16,562 14,217
12 Air Tran 20,820 24,339 42,766 50,416 49,964 10,400
13 Continental 227,868 237,446 249,831
TOTAL 553,341 1,217,182 1,948,608 2,272,960 2,372,350 2,545,502
* Airlines ranked by 2012 reservation cancellation/change fee revenue, dollars in thousands (000)
Page: 19
Airline 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
Shown 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
Product (Unit) 2000 2012 2012 vs 2000
College Tuition: Public (Year) 1 $3,508 $8,655 147%
College Tuition: Private (Year) 1 $16,072 $29,056 81%
National Football League (NFL) Game Ticket 8 $49.35 $78.38 59%
Prescription Drugs (Index) 2 285.4 440.2 54%
Major League Baseball (MLB) Game Ticket 9 $16.22 $25.98 66%
Unleaded Gasoline (Gallon) 3 $1.51 $3.64 141%
New Single Family Home 4 $169,000 $240,000 45%
CPI (All items) 2 172.2 229.6 33%
Movie Ticket 5 $5.39 $7.96 48%
First-class Domestic Stamp 6 $0.33 $0.45 36%
Whole Milk 2 156.9 211.27 35%
Grade-A Large Eggs (Dozen) 2 $0.91 $1.84 102%
Air Travel: Round Trip Domestic Fare 7 $314.46 $357 14%
Air Travel: Round Trip International Fare 7 $935.26 $1,209 29%
Apparel: Clothing/Footwear/Jewery (Index) 2 129.6 126.3 -3%
Television (Index) 2 49.9 5.4 -89%
1 The College Board - based on beginning of academic year
2 U.S. Bureau of Labor Statistics - including hedonic "quality-change' adjustments
3 U.S. Department of Energy - Monthly Energy Review, Table 9.4
4 U.S. Census Bureau - median value
5 National Association of Theatre Owners
6 U.S. Postal Service - Publication 100
7 ATA via U.S. bureau of Transportation Statistics - exludes taxes; first column reflects 1979 (1978 data not available)
8 National Football League, average nonpremium ticket
9 Major League Baseball, average nonpremium ticket
Page: 20
Hotel Industry: Overview
• 2012 Global Hotel Industry Revenue reached $580 Billion. The US Hotel Industry Revenue reached $128 Billion in 2012
• In 2013 global hotel revenues are estimated to grow 2.2 % to $592.6 billion. Over the five years to 2017, revenue is projected to increase at an average annual rate of 2.3% to $650.9 billion. This will result from growth in business and pleasure travel, and rising room rates.
• In 2013, US industry revenue is expected to increase 3.5% to $127.8 billion.
• Global industry profit is estimated to account for 10.8% of total industry revenue in 2012, up from an estimated 6.5% in 2009, and similar to pre-2008 levels. US industry profits in 2013 are expected to be 9%.
• Smith Travel Research is projecting increases in all three key performance metrics during 2013: Occupancy is expected to rise 0.8% to 61.9%, Average Daily Rate (ADR) will increase 4.6% to $111.27 and Revenue Per Available Room (RevPAR) is expected to grow 5.7% to $68.86.
• Major US market segmentation: 28% transient business travelers and 25% conference travelers.
Key Points
Source: www.IBISWorld.com, Smith Travel Research
2012 Global Hotel Industry Revenue reached $580 Billion. The US Hotel Industry Revenue reached $128 Billion in 2012.
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US Market Segmentation
Personal or family travelers
Business travelers
Vacation travelers
Conference travelers
Page: 21
Hotel Industry: Chains / Brands
• The majority of the global branded properties and revenue are mostly located in North American
• Major 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 hotels
• Hotel 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
Chain Portfolio by Hotels & Rooms
Total Network(Rooms/Hotels)
MainFootprint
Brands & Segment
647,161 R4,437 H
Americas: 68%7 brands
from midscale to luxury
612,735 R7,207 H
Americas: 83%12 brands
from budget to upscale
605,141 R3,474 H
Americas: 85%15 brands
from midscale to luxury
~ 600,000 R~ 3,600 H
Americas: 86%10 brands
from economy to luxury
507,306 R4,229 H
EMEA: 56%10 brands
from budget to luxury
495,145 R6,142 H
Americas: 87%11 brands
from budget to luxury
301,700 R 1,027 H
Americas: 61%9 brands
from midscale to luxury
Brands by Service Level
Hotel Chain Scales
Chain Scale Brand Name
Luxury
Upper Upscale
Upscale
Midscale
Economy
Ex-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
The PPI for hotel rooms have fluctuated during 2012 due to pressures from both buyers and sellers. The 2012 average ended at 131.4 indicating rates are raising.
Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals
Source: http://www.bls.gov/ppi/
NAICS 721110.1 February – May Preliminary. All indexes are subject to revision four months after original publication.
100.0
104.5
111.7
116.4
124.3
129.7
125.1
124.1
126.8
131.4
123.5
126.7
130.2
130.2
134.8
100.0
105.0
110.0
115.0
120.0
125.0
130.0
135.0
140.0
Pro
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2013 Data
Page: 24
Hotel Industry: Cost Drivers
Source: www.IBISWorld.com
Operating Cost Drivers
Over 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
25.3%
32.3%
6.7%
4.9%4.8%2.1%
13.1%
10.8%
0%
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20%
30%
40%
50%
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70%
80%
90%
100%
2012 Global Cost Structure
Prof it
Other
Advertising
Depreciation
Utilities
Rent
Purchases
Wages
26.9%
38.1%
7.6%
4.8%2.0%
11.6%
9.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
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2013 US Cost Structure
Prof it
Other
Advertising
Depreciation
Rent & Utilities
Purchases
Wages
Hotel Industry: 2013 Expected Changes in Room Rates
Expected Changes in Hotel Prices
Mid-Range Hotel Forecast
Upper-Range Hotel Forecast
North America 2-7% 4-9%
USA 3-7% 4-9%
Canada 0-4% 0-4%
Mid-Range Hotel Forecast Upper-Range Hotel Forecast
Latin America 4-7.5% 3-6.5%
Brazil 4.5-8.5% 5-9%
Argentina 4-6.5% 3-6.5%
Mexico -1 to 3% -1 to 3%
Chile 1.5-5.5% 1.5-5.5%
Mid-Range Hotel Forecast Upper-Range Hotel Forecast
Germany 1.5-4.5% 1.5-3.5%
France 2-5.5% 2-4.5%
UK 0-5% -2 to 4%
Italy -0.5 to 2.5% -3 to 2%
Netherlands 2-6% 1-6%
Sweden 0-4.5% 1-5.5%
Norway 1.5-4.5% 1.5-5%
Finland 3.5-6.5% 3-5%
Denmark 0-2.5% 0.5-2.5%
Russia 6.5-11% 6.5-12%
Mid-Range Hotel Forecast Upper-Range Hotel Forecast
UAE -3 to 6.5% -3 to 6.5%
South Africa 3-6% 3-7%
Expected Changes in Hotel Prices
Mid-Range Hotel Forecast Upper-Range Hotel Forecast
Asia Pacific 0-4% 2-7%
Australia 0-5% 0-5%
China 0-5% 2-7%
Hong Kong 3-8% 3-8%
India 0-5% 0-5%
Japan -1 to 2% -1 to 2%
Singapore 3-7% 3-7%
South Korea 3-8% 3-8%
Page: 26
Car Rental Industry: Overview
• Global industry spend is $30.5 Billion of which 34% is business travel
• The industry is segmented by business travelers, leisure travelers, car leasing and car sharing
• Leisure market has grown larger than corporate business market
• Industry revenue is forecasted to increase 2% for the next 5 years
• High 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 Enterprise
• Car 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 $30.5 billion of which 34% is business travel
SAMPLE
Rental Car Industry: PPI – Passenger Car Rental
NAICS 532111 February – May 2013 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
The PPI for passenger car rentals has gone up 22% from 2005 to 2008 indicating increased fleet and fuel cost. In 2008 and 2009, prices have slightly increased and in 2011 and 2012 prices dropped significantly.
102.6
106.0
105.4
104.8
104.6
108.8
111.5
116.8
117.8
119.3
118.1
109.6
102.9
102.9104.4
106.9
103.0
100.0
105.0
110.0
115.0
120.0
125.0
Pro
du
cer
Pri
ce In
dex
2013 Data
US Car Rental Industry - Segmentation
• Leisure car rentals have been making up a larger portion of industry revenue over the last few years, largely in response the sizeable drop in business travel, which happened as a result of the economic downturn.
• Car leasing involves paying an up-front lease fee plus fixed monthly payments in return for taking possession of and operating a car for 12 months or more. This industry does not include cars leased to purchase or leased to own.
• The off-airport market, sometimes called the local market, includes car sharing; insurance replacement, and leisure and business rentals independent of the airport market.
Page: 28
Key Findings
Leisure car rental41%
Business car rental
34%
Car leasing19%
Car sharing6%
Services Segmentation
Business travelers at
airports30%
Off-airport market
35%
Leisure travelers at
airports35%
Market Segmentation
Page: 29
Car 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 revenues
• Suppliers offer different brands that focus on specialized markets:
• Corporate Traveler – On-airport convenience – Hertz, Avis and National
• Leisure 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 used
• In the past 4 years, major car rental companies trimmed fleets from a total of about 2 million cars to about 1.3 million
• Car 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 decline on average between -1.5% to -2% for business travel rental cars in the U.S. next year. However, ADR will increase by 1% to 2%, due to slight increases in ancillary fees, taxes, other fees, vehicle license fees (VLFs), and energy recovery fees.
Key Points
Source: www.autorentalnews.com, Business Travel News Corporate Travel Index 2012
The U.S. car rental market is highly consolidated among a small number of major players and is getting smaller.
SAMPLE
Top 4 Car Rental Companies By Revenue
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
Enterprise Hertz Avis Dollar Thrif ty
Cars
in
Serv
ice (
K)
2012 R
even
ue (
$B
)
2012 US Revenue & Cars in Service
2012 Revenue ($B) Cars in Service
47%
20%
18%
7%
2%
6%
US Market Share by Revenue
Enterprise
Hertz
Avis
Dollar Thrifty
Independents
Other
Page: 30
Car Rental Industry: Cost Drivers
Source: 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:
• Profit margins turned positive again in 2010, growing to 3.5% in 2012.
• It is estimated that in 2012 the industry grew 5.6% and reached a revenue level of $33.7 billion.
• In 2013, industry revenue is expected to grow 3% to $34.7 billion. Car rental companies are forecast to purchase more new cars in 2013 for two reasons.
• The anticipated increase in the number of rental customers will force companies to field a larger rental fleet.
• Companies will likely replace older cars with new cars after letting the average age of their fleets rise to save money.
• Although the industry’s future looks brighter, rising gas prices may slow the recovery. As such, revenue is forecast to grow at an annualized rate of 2.8% from 2012 to 2017 to $38.6 billion.
Over 90% of costs in the car rental industry is distributed among four categories: (1) Purchases, (2) Other, (3) Depreciation, and (4) Wages.
SAMPLE
Travel Management Industry: Overview
• The top 50 travel management companies represent over $160 billion in sales revenue in 2011.
• Five companies registered more than $20 billion in sales, including a snowballing Priceline, which showed significant increases each year.
• There were 16 listees with sales of more than $1 billion, up from 14 last year.
• Expedia, Orbitz, Priceline, AAA Travel, and Travelong receive 90% or more sales revenue from the leisure market.
• Many of the listees registered surges in year-over-year sales, a couple by acquisitions but most by generating additional revenue from existing clients or winning new clients.
• AMEX regained top stop over Expedia in 2011 by a slim margin.
• It was just announced that BCD was purchasing Travelocity
2011 Top 5 (over $1B in revenue) Travel Management Co’s By Revenues
Key Points
Source: www.travelweekly.com Travel Weekly Power List 2012, www.bts.gov
The Top 50 travel management companies represent over $155 billion in sale revenue
AMEX
Exped
ia
Carlso
nBCD
HRG
$0
$5
$10
$15
$20
$25
$30
20
11
Re
ve
nu
es
(in
Bill
ion
s)
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 hit its 2007 high once again..
TMC Industry: PPI – Travel Agencies
NAICS 561510 February– May 2013 Preliminary. All indexes are subject to revision four months after original publication.
Source: http://www.bls.gov/ppi/
121.8
123.3
114.0
112.5
108.6
107.4
111.5
113.2
111.7
111.5
112.4
113.0 113.4
113.8
113.0
113.8
114.3
114.6
105.0
110.0
115.0
120.0
125.0
Pro
du
ceer
Pri
ce In
dex
2013 Data
Page: 33
• Advito’s 2013 Forecast• Airlines for America, www.airlines.org• AirlineFinancials.om• AMEX Business Travel 2013 Forecast and Trends• ATWOnline, www.atwonline.com• Auto Rental News• Bureau of Labor Statistics, www.bls.gov• Bureau of Transportation Statistics, www.bts.gov• Business Travel News• CWT Hotel Solutions• CWT 2013 Forecast• Egencia 2013 Forecast• Forbes, www.forbes.com• Hoovers Online, www.hoovers.com• IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006)• www.ibisworld.com• Global Business Travel Association, www.gbta.org• OneSource Inc., www.onesource.com• Power List 2012, www.travelweekly.com• Pwc Hospitality Directions• Rajcoaviation.com• Smith Travel Research Data• The Transnational.travel• Travel Daily News, www.traveldailynews.com• Travel Procurement• Travel Weekly, www.travelweekly.com• Wikipedia• Wikiinvest
Appendix: Data SourcesSAMPLE
Page: 34
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Develop Sourcing
Objectives
Sourcing Strategy Plan: Competitive
Supplier Selection or
Existing Supplier
Development
Develop SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
Develop Sourcing
Strategies & Tactics
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 35
Sourcing Strategies & TacticsSeveral sourcing strategies can be pursued, either separately or together.
— Possible Sourcing Strategies —
Best PriceAnalysis
Volume Leveraging
Strategic Relationship
ProcessImprovement
DemandManagement
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
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
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
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 demand
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
VOLUME CONCENTRATION Aggregate like goods and/or services
across organizational units in order to increase negotiation leverage and negotiate better pricing, and terms and conditions
Page: 36
Strategy Considerations
• Company should examine current travel policies. Enforcement of on-line booking tool, advance booking, preferred hotels and other travel guidelines will result in significant savings.
• Because of the relative small air travel spend compared to other companies, in addition to moving corporate headquarters to Dallas while still maintaining their Detroit area locations, Company should consider focusing hard dollar airline discounts with one or two major carriers supporting both markets. Furthermore, Company should consider exploring additional benefits for their secondary markets
• Company should re-examine their current preferred hotel program and consolidate markets and room nights to leverage buying power
• Company should leverage hotel spend for meetings/events in negotiating hotel rates for transient travel
• Preferred car rental utilization is “best in class”, therefore consider a competitive bid to leverage utilization
• Company may consider utilizing teleconferencing as an alternative to reduce their overall travel usage
SAMPLE
Page: 37
Sourcing Strategy: Airlines
Current State• Travel policies located in Accounts Payable
Expenditure Manual – No enforcement• All departments using one travel agency,
however suspect that some Southwest bookings are going directly to Southwest.com
• Travel compliance is not be monitored• Recently moved corporate headquarters from
Detroit, MI to Dallas, TX• Top 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 agreement
• Market dynamics suggest a 2 year contract
Results• Separate travel policy resulting in improved compliance• Discount in Tier 3 level pricing• Capture all Southwest spend
SAMPLE
Page: 38
Sourcing Strategy: Hotels
Current State• Travel policies located in Accounts Payable
Expenditure Manual – No enforcement• All departments using one travel agency, however
suspect that some hotel bookings are being booked directly with hotel
• Travel Agency manages and negotiates hotel program
• Large number of properties are being utilized in top city markets (e.g. 75 hotels were utilized in the Detroit (and surrounding) area in the last 12 months)
• Cities are classified as Room Nights per City:• Tier 1 (approx. 200+ Nights): 45% of hotel
spend in 12 market areas• Tier 2 (<200 Nights): 55% of hotel spend in
the rest of the market area
Sourcing Recommendation• Create separate travel policy and enforcement of
policy • Tier 1: Issue a Request for Proposal to the
existing supply base as well as comparable properties in defined geographies.
• Consolidate volume to increase bargaining power
• Minimize number of options available in each geography
• Pursue value-added amenities at no additional cost
• Tier 2: Utilize Travel Agency rates and drive volume to those properties with the lowest rates
Results• Separate travel policy and enforcement which will result in improved compliance• Competitive room rates in preferred cities• Strategically selected properties by geography which will increase preferred property usage
SAMPLE
Page: 39
Sourcing Strategy: Car Rentals
Current State• Travel policies located in Accounts Payable
Expenditure Manual – No enforcement• All departments using one travel agency for
booking car rentals, however some spend is being booked via another source
• 97% of the car rental spend is with one preferred supplier
• Over 75% of car rental returns are subject to refueling charges
• The top 15 cities, by volume, represent 78% of the rental car spend
Sourcing Recommendation• Develop and implement one travel policy for all
departments• Issue a Request for Proposal to the top 5 rental
car companies• Consolidate volume from all sources to
increase bargaining power• Request pricing for one primary and one
primary and one secondary supplier relationship
• Negotiate refueling charges, if possible• Negotiate city surcharges for the top 15
cities, by volume• Market dynamics suggest a 2 year contract with
the option for a 1 year extension
Results• One travel policy for all departments resulting in capturing the non-compliance that is being done• Award contract to one primary or one primary and one secondary supplier, whichever is more
advantageous
SAMPLE
Page: 40
Savings Opportunity
Proposed Strategy Expected Outcome
Volume Concentration
Consolidate all OpCo car rental spend. Leveraging buying power across all OpCo’s 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 OpCo’s to follow. Consistency across all OpCo’s leads to demand management savings.
Demand Management – Enforcement Mechanism
Empower Global Travel Department to enforce global travel policy with key OpCo 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 cargo van/truck rental spend and negotiate additional concessions such as better rebate terms, lower city surcharges and flat rate refueling charge.
SAMPLE
Page: 41
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Conduct Supplier Analysis
Create Supplier Selection Criteria
Supplier Selection
Decision Matrix
RFIs (optional)
“Short List” of Suppliers
Develop SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 42
Car Rental Scorecard
WeightMaximum
PointsPerson A
ScorePerson B
ScorePerson C
ScoreTotal Score
37% 572 I. Non-Pricing Components 549 526 538 5380% 0 A. Company Information 0 0 0 02% 35 B. Rental Locations 35 35 35 357% 100 D. Safety & Fleet 78 88 76 819% 131 E. Services & Amenities 130 121 121 1241% 21 F. Billing 21 21 21 21
12% 185 G. Top 15 Cities - Rental Locations 185 185 185 1857% 100 H. Top 15 Cities - Trans Method from Airport 100 76 100 92
63% 954 II. Pricing Components 666 667 671 66810% 154 C. Additional Pricing Questions 92 93 97 9433% 500 National Daily Rental Rate 437 437 437 43720% 300 City Surcharge Rate 136 136 136 136
100% 1526 1215 1193 1209 1206
Car Rental Company
Evaluation Criteria
SAMPLE
Page: 43
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Complete Traditional
RFP Process
RFPs / RFQs
eAuctions
Collaborative Discussions
Conduct eAuction(s)
Collaborate w/ Incumbent Supplier(s)
- AND/OR -
- AND/OR -
Develop SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 44
Supplier 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-NegotiationInformationExchange
Direct Negotiations with
an Incumbent Supplier
Direct Negotiations with a Target Supplier
Brainstorm with a Group of Trusted
Suppliers
On-Line AuctionsRFPs / RFQs
Should choose the method(s) that best meets both the Strategic Sourcing objective and the team
resource capacity
Should choose the method(s) that best meets both the Strategic Sourcing objective and the team
resource capacity
Page: 45
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Prepare Fact-Based
Negotiation Packages
Negotiate Agreements
Fact-Based Negotiation Packages
Supplier Negotiations Presentation
Sourcing Recommendation
Develop SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
Page: 46
Negotiations 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
Page: 47
Negotiations 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
Page: 48
Strategic Sourcing Process Overview
ProfileCategoryInternally &Externally
CreateSelectionFactors &EvaluateSuppliers
Negotiate & Develop Sourcing
Recommen-dation
ImplementAgreements
Strategic Sourcing Methodology
Act
ivit
ies
Del
iver
able
s o
r To
ols
Validate Internal
Requirements & Profile Category
ConductIndustry 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 SourcingStrategy
Conduct Competitive Exercise w/ ApprovedSuppliers
Fast Track for Quick Savings
Develop Sourcing
Strategies & Tactics
ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION
AssessOpportunity & Establish Team
AssessOpportunity
Obtain Sponsorship
& ID Team
CreateProject
Plan
Project Plan
Analyze Current Spend
Document Requirements
Page: 49
Implementation 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