A fundamental challenge of indirect and services procurement is that we’re often asked to make sourcing decisions -- not to mention negotiating with and managing suppliers -- based on historic data that may or may not reflect future demands and requirements. Travel procurement is the spend poster child for this kind of challenge today. Might the evolution in travel procurement that we’re seeing today represent an even larger paradigm shift that will permanently reshape the function? Perhaps, especially if you believe some of the key tenets presented in a February Wall Street Journal article. According to the story, “Historically, business travelers have accounted for half the customer base of major carriers and an even bigger chunk of their revenue. But even as the airline industry reports that corporate travel has begun to bounce back, many U.S. companies are keeping a tight leash on travel expenses.” From a travel-sourcing perspective, it's more than just volume levers that may be changing permanently.
Before I get into the specifics of how the travel scene is evolving rapidly, it’s worth pointing out the case of Newell Rubbermaid, whose slashing of its travel budget is par for the corporate spending course. Consider how Newell “slashed its travel budget 28% last year and aims to keep travel costs flat in 2010” in part by encouraging “staff members … to skip airplanes entirely and use videoconferencing instead.” When it comes to a permanent shift in travel-spending strategy, what's more interesting is how Newell is changing its travel-product mix. It's trying to influence demand by paying employees “bonuses of $500 for booking coach fares to Europe or South America and $750 for forgoing business class to Asia.” In other cases -- I don't know about Newell -- I’ve seen these bonuses paid in tax-free ways to employees (e.g., gift cards), which is a further incentive for employees to head to the back of the plane.
As travel budgets shift and we see fewer people getting on planes, we’ll most likely see an increasing number of dollars allocated toward IT budgets for videoconferencing and related areas. Moreover, it’s likely we’ll also see more complex negotiations with travel providers as well as use of optimization technology to evaluate an increasing number of offers from multiple suppliers (e.g., comparing business class, “economy plus” and economy seating for international routes based on different demand scenarios for each as well as volume breaks). Outside of negotiation approaches, technology will also play an increasingly critical role to help frontline users understand their options and make the best possible decision based on their own preferences and situations. For me, I can honestly say that a flat-bed on a night flight is worth $500, but on a day flight, I’m happy to sit in back. I know I’m not alone in this, which could ultimately present an inventory challenge to carriers who may have far more demand for business-class seats to Europe than what they can support on the return leg.