When it comes to negotiating savings, leveraging volume to take advantage of supplier efficiencies and economies of scale to drive down prices based on forecasted demand has always been procurement’s standard operating procedure.
But what about the spend categories and situations where demand is significantly lower than in the past? Can procurement still deliver savings and value when spending less? Absolutely – but it requires a different bag of tricks.
Business travel is a prime example. The number of corporate trips and in-person meetings has been significantly reduced in result of the COVID-19 pandemic. According to the Global Business Travel Association’s November 2021 forecast, global business travel spending fell by 54% from 2019 to 2020. They don’t expect business travel to be back to pre-pandemic levels until 2024. As a result, leveraging volume is not going to be an effective strategy for procurement. We are going to have to find another way.
Fortunately, there are multiple proven approaches that procurement can take to deliver savings that don’t require large volumes of spend. What they do require is data: clean, trusted sources of data that provide insight into how much the business is spending, what they are spending it on, and how it helps them achieve their objectives. Taking a data-driven approach also offers procurement the opportunity to build a sophisticated understanding of the business travel category, providing ample opportunities for additional value creation as well.
A data-driven approach to delivering an increased ROI while managing decreased business travel spend includes the following steps:
- Capture all relevant data in one place. Transparency into a category of spend requires a comprehensive data set – and this is especially true when spending is down. Every source of demand should be reflected in negotiated contracts, either to manage prices or maximize amenities. In addition to making all spending activity traceable, data centralization opens the door to using analytics to better understand demand patterns (even as they change) and optimize contracts to leverage additional efficiencies.
- Develop policies that guide spending behavior through desired channels. The traveler experience starts with the booking process and ends with submitting expenses for management. Procurement may not be responsible for the flight, hotel, or rental car experience, but if the process of making reservations or the ability to receive reimbursement is hampered, the relationship with that traveler will be affected. It may even reduce their confidence in procurement in other categories of spend. Managing travel expenses digitally should be easiest part of the trip and provide no incentive to work around established processes. In this case, automation can stand in for procurement and frictionlessly guide the traveler through approved channels.
- Focus on adding value rather than cutting costs. Now that companies are rethinking who should travel when and where, they have an opportunity to better understand the strategic value of each trip in the dual context of operational effectiveness and employee satisfaction. Investing resources where they will have the greatest impact empowers the right travelers to make the most of their time on the road. Robust reporting will enable procurement to have informed decisions with the business and implement policies that make sense for travelers.
Procurement addresses many different expense categories on a regular basis, but business travel is unique. And if the goal is to deliver savings and value even while spending is down, their approach must be unique as well, something visionary Chief Procurement Officers understand.
“There are decisions about T&E that are also unique, in part because employees often view travel as personal. Being able to wrap your arms around the different strategies which are tailored to the nature of spend and still have an approach for the entire spectrum of spend is how you gain success,” said Kathy Hinton, former CPO for Tesoro Corporation, in a recent interview.
Kathy Hinton’s point about “tailored” strategies is well-suited to managing reduced volume spend categories. In fact, when there is less employee spend to manage, procurement can leverage precision and clarity instead of volume to deliver results, meeting cost efficiency targets and traveler expectations at the same time.
For more information, read Four Insights Every CPO Should Know About Travel & Expense by SAP Concur.