Daily Archives: October 27, 2014

It’s Conference Season, and that means It’s Travel Season! Part II

And this means it’s time to get your T&E under control.

Since what gets measured gets managed, this means that the first thing your Supply Management organization should be doing is measuring the spend. In particular, it should be measuring:

  • How much spend is under management,
  • How much spend should be under management,
  • How much spend is being spent on each T&E category,
  • How much spend should be spent on each T&E category, and
  • How does the T&E spend compare to business norms?

Why? Let’s take these one by one.

How much is under management?

Supply Management success comes from spend under management. If the majority of spend is not under management, then there is a huge untapped opportunity that comes from getting the majority of spend under management. With enough centralized spend volume, leverage can be used to negotiate better airfares, hotel rates, and car rentals — which may take the form of increasing rebate levels as spend volumes increase.

How much should be under management?

While the goal for most categories is 100% Spend Under Management, T&E is one category where the goal should never be for 100% under management. Why? Taxi and limo companies are different in every city, trains are usually localized to a given country, and while McDonald’s is doing its best, there is no truly global restaurant chain with an establishment in every country. You only want to manage those categories where there is enough spend volume to get leverage and where there are vendors that can meet a significant percentage of global T&E needs. In other words, airfare, hotel rates, and car rentals. For the rest of the spend, you want to set policies that have acceptable ranges by locale. Specifically, you want a range for each country, each state where the averages are off more than 10% from the country, and each city where the averages are off by more than 10% from the state. For example, you wouldn’t use the US average for a 3 star hotel or a dinner in New York, New York, USA or in Pueblo, Colorado, USA where the average cost of living is significantly higher than the norm and significantly lower than the norm, respectively.

How much is being spent on each T&E category?

This information will be critical to negotiating agreements with vendors that will save the organization money in the long run.

How much should be spent on each T&E category?

Before the Supply Management organization begins negotiations with prospective vendors, it needs to understand how much it should be paying. For example, before negotiating with a major airline, it needs to research average fares for its most common travel itineraries, average discounts or rebates for the spend volume it has, and other factors that make it a desirable customer for the airline in question.

How does the T&E compare to business norms?

Specifically, how much is each department spending on T&E relative to the industry norm for that department (measured as a percentage of budget or other standardized measure). If Sales is spending more on T&E relative to the industry average, then either it is traveling more than its peers (and this means it should be getting better results to warrant this travel, and this is up to the VP of Sales and the C-Suite to decide) or it is traveling the same amount and spending more, and this means that its costs are too high and Supply Management either needs to help it get better rates or implement better policies. Regardless of the situation, Supply Management needs to present the T&E spending facts to the C-Suite for every department in the organization so that it gets the authority to do what it needs to do to bring more SUM and so the C-Suite can decide whether any department spending more than industry norms (for its size) has a valid reason for doing so.

And finally, as explained in detail in Part I, despite urges to the contrary, neither Finance nor Supply Management should be attempting to judge the ROI of business travel by function, as suggested in this post over on CPO Rising, or try and measure it with a quantitative metric. It’s job is to prevent over-spending, not to question the validity of the spend. That’s for the head of each department and the C-Suite to debate.