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.

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

Since what gets measured gets managed, this also means that the first thing your Supply Management organization should be doing is measuring the spend. Then, when it has measured the spend, it should be evaluating the spend. If the spend is too high relative to industry norms, then it needs to get the spend under management as soon as possible. However, one thing it should not be doing is questioning the validity of the spend.

What do I mean by this? Simply put, 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, and they definitely should not be trying to measure it with a quantitative metric.

Why?

Simply put, outside of their respective domains, these organizations have no clue how valuable or invaluable a sales meeting, training session, or conference was, and sometimes even the VP who approved the spend doesn’t know, because the value from the travel typically cannot be measured in the short term. And there definitely isn’t any way to predict the value beforehand! In the CPO Rising post, the author gives the example of Sales and says you should ask if the sales team closed a deal as a result of an expensive trip or if IT has improved its processes by attending specific conferences. These are both WRONG questions.

In the Sales example, in traditional enterprise sales with traditional executives (who have been in their roles for 20+ years), not every trip is going to close a deal, or even have a directly measurable impact. Sometimes multiple trips are required by personnel to build a relationship, which must be built before a deal can even be negotiated as relationships in many South American and Asian cultures must precede a business deal. With this metric, the salespeople would never take a trip, never meet new potential clients or business partners, and never close any deals!

And the author of this CPO Rising post, who has obviously never been an IT guy^*, needs to understand that sometimes where conferences are concerned, process improvement is not the point. Sometimes the whole point is to give key members of the development team who have been working their asses off for months straight on a key project a reward and a break (for burning the midnight oil on a regular basis and doing whatever it takes to make an unreasonable deadline set by Maury the Management Moron). The whole point is to keep the key team members happy, boost morale, and expose these team members to new ideas that will help them identify the technologies and processes they should be researching on their return. Because, where IT is concerned, it’s not how many warm bodies you have in front of computers, it’s how skilled those bodies are. In a discipline where your top coder can be as much as 20 times as productive as your average coder (because you have too many poor performers and not enough superstars), quantitatively measured in bug-free lines of code, and where top talent is rare, the organization has to keep its top talent, and low-cost tokens of appreciation, like conferences (that will also open the developers’ minds and embark them on a journey towards even more productivity in the future) is a great way to do it. If you’re going to cut the travel budget just because there’s no immediate return, then you might as well lay off the top 20% of performers in your organization, get a shotgun, blow a hole in the server, and see how you fare. Because that’s effectively what you’re doing if you don’t have another way to keep morale high in IT.

So what should an organization be measuring, evaluating, and managing in terms of T&E spend?

Come back tomorrow for Part II to find out.
^* Unlike the doctor who has a PhD in CS and who has been a senior algorithm developer, enterprise software architect, research scientist, and CTO …