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Travel Strategic Sourcing

Virginia Business Travel Association. Travel Strategic Sourcing . July 20, 2011. Global Procurement Processes. Day-to-Day Purchasing Process. Generate Requisition. Approve/ Submit Requisition. Process/ Submit Order. Receive Goods & Services. Approve Invoice. Process Invoice &

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Travel Strategic Sourcing

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  1. Virginia Business Travel Association Travel Strategic Sourcing July 20, 2011

  2. Global Procurement Processes Day-to-Day Purchasing Process Generate Requisition Approve/ Submit Requisition Process/ Submit Order Receive Goods & Services Approve Invoice Process Invoice & Generate Payment Strategic Sourcing Process Implement Agreements Access Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Create Selection Factors & Evaluate Suppliers Conduct Competitive Exercise w/ Approved Suppliers Negotiate & Develop Sourcing Recommend- action Day-to-Day Purchasing Process Supplier Relationship Management Process Define Supplier Evaluation Criteria Collect Data Conduct Performance Evaluation Develop Improvement Strategy Continuous Improvement Core Supporting Capabilities Supplier Scorecard Savings Management Spend Analysis Knowledge Management Contract Management Catalog Management

  3. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommend-action Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Assess Opportunity Complete Traditional RFP Process Create Supplier Selection Criteria Validate Internal Requirements & Profile Category Develop Sourcing Objectives Prepare Fact-Based Negotiation Packages Implement Agreements and Monitor KPIs Fast Track for Quick Savings - AND/OR - Obtain Sponsorship & ID Team Conduct eAuction(s) Activities Build TCO Model Conduct Supplier Analysis Evaluate Performance and Develop Suppliers Develop Sourcing Strategies & Tactics - AND/OR - Negotiate Agreements Conduct Industry Analysis Collaborate w/ Incumbent Supplier(s) Create Project Plan Fact-Based Negotiation Packages Supplier Negotiations Presentation Sourcing Recommendation Finalized Agreements Benefits Realization Continual Supplier Improvement Project Plan Analyze Current Spend Document Requirements Internal Category Profile TCO Model Cost Reduction Ideas Industry Profile Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development Supplier Selection Decision Matrix RFIs (optional) “Short List” of Suppliers RFPs / RFQs eAuctions Collaborative Discussions Deliverables or Tools

  4. SAMPLE Travel Category Opportunity Category Opportunity Baseline – Travel SAMPLE

  5. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen-dation Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Validate Internal Requirements & Profile Category Activities Build TCO Model Conduct Industry Analysis Internal Category Profile TCO Model Cost Reduction Ideas Industry Profile Deliverables or Tools

  6. SAMPLE 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?

  7. SAMPLE Travel Scope The travel industry encompasses a variety of different categories each grouped with an NAICS (North American Industry Classification System) code. In 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 NAICS 561 – Administrative and Support Services 5615 – Travel Arrangement and Reservation Services 561510 – Travel Agencies (including Meetings & Events) Key Points • 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 American Express One 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. Source: http://www.bls.gov

  8. SAMPLE Airline Industry: Overview Collective operating revenue for the global airline market is forecasted at $545 Billion, up 13% from $483 Billion in 2009. The US market amounted to over $107 Billion in 2009 Top US Airlines By Revenues Key Points • Collective operating revenue for the global airline market is forecasted at $545 Billion, up 13% from $483 Billion in 2009. The operating revenue for the US airline industry in 2009 was over $107 Billion. • Delta, American and United are the market leaders based on revenue • 9 Airlines comprise 86% of the market. The major players control market share and have power in the industry • In 2009, the Top 4 airline’s net earnings were -$3.6 Billion, while AirTran, Alaska, Southwest and JetBlue earned $414 Million total. • For 2010, IATA forecasts a $15.1 Billion profit for the global airline industry. North American carriers are expected to earn $5.1 Billion. • For 2011, Airlines may see smooth upward progression being interrupted as oil and jet fuel prices rise and some economies in Europe look set to be driven back into recession by debt crises. However, IATA is forecasting a $9.1 Billion profit globally, and $3.2 for North American carriers. • Airlines, as part of corporate negotiations, are starting to tighten up on granting frequent flyer elite status. Source: Travel Procurement, March 2010, Airline Financials.com, March 21, 2010, www.bloomberg.com, June 7, 2010, IATA, Wikipedia

  9. Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation The PPI (measures average change in prices over time) for passenger air transportation has decreased 8% since the end of 2009 indicating decreased costs primarily driven by lower fuel prices, but recently have gained an average of 15% back in 2011. 2011 Data NAICS 481111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/

  10. SAMPLE Airline Industry: Cost Drivers Airline costs consist of fuel, landing fees, aircraft, staffing costs, taxes and surcharges. Key Points Cost Drivers • Jet Fuel: In 2009, Fuel prices were at record highs. For 2010, fuel prices have decreased but are slowly rising again. Each penny increase in the price of a gallon of jet fuel adds $190 million in additional fuel costs • Aircraft Age & Type: Fuel consumption is directly impacted by an aircraft’s age. Standardization of aircraft fleet assists airlines in reducing inventory and maintenance costs • Distribution: This is a tiered cost for airlines, ranging from proprietary websites to GDS transaction costs • Labor:In 2010, labor cost has exceeded fuel cost even though many airlines have been slashed due to reshaping labor structure, such as redundancies, sickness pay review, bonuses • Other: These costs include insurance, utilities, office supplies, advertising and promotions, communication, personnel expenses, injuries, loss and damage, interrupted trips expenses, etc. Sources: Air Transport Association (http://www.airlines.org/econ

  11. SAMPLE Airline Industry: Jet Fuel Costs Fuel is one of the largest cost contributor to airlines’ operating costs. Increasing Jet Fuel Costs Key Points • 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 305 – 40% of total operating expenses for most carriers • Year 2000 versus 2008: a 380% increase in jet fuel prices • At the end of 2008, jet fuel had traded at record levels above $128.94 a barrel compared with an average of $88.28 in 2007, an increase of 45% • In 2008, every dollar increase per barrel (42 gallons) drove an additional $448M in fuel expenses to carriers’ bottom lines • Jet fuel prices decreased in 2009 to an average of $79.66, increased to $91.40 for 2010, but 2011’s average for jet fuel is at $128 per barrel • Thru May 2011, domestic carriers consumed 4.5B gallons of jet fuel, costing $13B, a 28% increase over 2010 YTD Sources: www.airlines.org, www.bts.gov, www.iata.org AMEX Business Travel 2010 Forecast & Trends, BTN June 1, 2009

  12. SAMPLE Airline Industry: Air Travel Price Index The cost of air travel have been very volatile over the past several years. The cost of airfare in Newport News/Williamsburg has been lower than the U. S. average, but Norfolk/Virginia Beach has followed the US average, and Richmond has decreased to parallel with the US average. Air Travel Price Index for Newport News/Williamsburg, Norfolk/Virginia Beach, and Richmond1 Key Points • Historically, air travel prices originating from Spokane is considerably lower than the US average, however the gap has decreased significantly. • CWT’s 2011 forecast shows a projected 3% to 5% increase in domestic airfares due to reduced seat capacity and less competition in some markets • AMEX reports the Average domestic corporate airline ticket price for 2009 was $215 and for 2010 they are reporting an average domestic ticket price of $228. International corporate airline ticket price for 2009 was $1,636 and 2010 was $1,781. • 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 2010, the airline industry earned approx. $23 billion in additional ancillary fees, which includes $3.4 billion for baggage fees. 2001 to 2010 Q4 1 The air travel price index measures the percents change over time in prices paid by travelers. Sources: Bureau of Transportation Statistics, AMEX, Procurement.Travel, August & September 2010, The Transnational.travel

  13. SAMPLE Airline Industry: Price of Air Travel versus Other Goods & 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). Price of Air Travel Versus Other Goods and Services Sources: www.airlines.org

  14. SAMPLE Hotel Industry: Overview The US hotel and motel market was over $120 Billion in 2008, with 10 chainscomprising over 40% of the market. Top 10 Hotel Chains By Revenue Key Points • Marriott is the leader in revenue share • Hotel industry is fragmented and controlled by large businesses that own multiple hotels / hotel chains • Business travelers, including executives, are shifting from luxury hotels to more moderate mid-priced hotels • Hotel occupancy rate has been lower in the last couple of years in certain key cities which had led to better negotiating power – a buyer’s market! • However, the hotel industry is turning around. • 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 Source: www.travelweekly.com Travel Weekly Power List 2009, Business Travel News Corporate Travel Index 2009

  15. Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals The PPI for hotel rooms has decrease 9% since the end of 2009 indicating occupancy rates have declined and hoteliers have been decreasing room rates to battle lower occupancy. For 2011, PPI has been increasing. 2011 Data NAICS 721110.1 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/

  16. Hotel Industry: Cost Drivers 100% 8% 90% 12% 80% 15% 70% Percent of Spend 60% 16% 50% 40% 19% 30% 20% 30% 10% 0% Administrative Overheads Employee Repairs and Maintenance Food and Beverage Power Selling Expenses SAMPLE Over 80% of costs in thehotel industry is distributed among four categories: (1) administrative overhead, (2) labor, (3) repairs and maintenance, and (4) food and beverage. Operating Cost Drivers Key Findings • 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. • Operating cost driver: • Administrative overhead is the largest cost • Labor costs provide the second largest spend category • Other costs include those involved in the initial investment in the hotel: • Land comprises 45-50% of total project cost • Construction is about 25-30% • Remainder goes to furniture and fittings Source: http://www.Onesource.com

  17. Hotel Industry: Room Rates US hotel room rates started to decrease late 2008 which led to a buyers market . Buyers have enjoyed lower hotel rates for 2 years, but for 2011, we will see hotel rates increase. Key Points Average Cost Per Night for March Hotel Stays Based on more than 750,00 hotel stays booked through US based corporate travel agencies • Hotel showed signs of pricing strength starting in 2011, through US rates remain well below peak levels reached in 2008 • For 2011, Forecaster’s Range estimates hotel average daily rates will increase by 1% to 8% in North America and 1% to 7% in Europe. • Currently, hotel occupancy on the rise, and rates are either staying the same or rising $2 - $10 per night • Rate increases also have not trickled down throughout the tier levels. Smith Travel Research (STR) reported that the average US hotel rate in March 2011 increased by 3.8% year over year, but rate growth was much stronger within the luxury tier • STR projects occupancy to increase 2.5% for 2011 • AMEX Global Advisory Services has already seen an average increase of more than 7% in corporate rates worldwide for 2011 business travelers • Hoteliers and analysts expect pricing power to continue rebounding throughout the year, leading to potentially tougher negotiations for buyers in the fall Source: Business Travel News Corporate Travel Index 2010, www.BTNonline.com, May 17, 2010, Procurement Travel, August, September, December 2010, and May 2011, The Transnational.travel, Business Travel Executive January 2011,

  18. SAMPLE Car Rental Industry: Overview The U.S. car rental market is highly consolidated among a small number of major players and its going to get smaller. Key Points Top 4 Car Rental Companies By Revenue • Enterprise/National/Alamo, Hertz and Avis/Budget account for 90+% of the total market • Car rental companies have tightened fleet controls and operating costs, leading to steady or even increased rates for corporate buyers. • 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 • Avis/Budget began working with GDS operators to implement the addition of credit card information to rental car bookings. This opens the door to assess a no-show fee to travelers who fail to cancel their reservation without sufficient notice • “Virtual rental technology” – enables customers to reserve, rent, access and return cars just about anywhere. ZipCar, WeCar, Connect. Source: www.autorentalnews.com, Business Travel News Corporate Travel Index 2010, Procurement Travel, August and September 2010

  19. Rental Car Industry: PPI – Passenger Car Rental The PPI for passenger car rentals has gone up 22% from 2005 to 2008 indicating increased fleet and fuel costs. Since 2009, prices have slightly decreased. 2011 Data NAICS 532111 March – June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/

  20. SAMPLE Car Rental Industry: Average Daily Rates Average corporate daily rates has been increasing slowly every year, approx. 4% Key Points Average Daily Corporate Car Rental Rates: 2008 – 2010 • The total corporate average US car rental cost listed in the 2010 Corporate Travel Index is $85.55 (before taxes and fees), up from $81.44 last year. • BTN’s 2010 Corporate Travel Index: Detroit topped the 2010 car rental pricing list, with car rentals in the city costing an average of $175.25, up from $138.63 in 2009. Second-ranked NYC’s average rate of $163.19 is up from $128.37 last year. And Houston, ranked 12th in 2009, jumped to 5th place in 2010 with an average of $152.95 per rental. • According to NBTA, $46 is the average corporate car rental rate in the US, an increase of 4% from the previous year. • For 2011 Forecaster’s range is -2% to 4% for North America car rental rates and 2% to 5% in Europe. • Good time to competitive bid car rental services. Areas of negotiation – GPS, Fuel charges, City Surcharges, Back end Rebates and multi-year agreement. Source: Business Travel News Corporate Travel Index 2010, National Business Travel Association 2008 - 2010 Business Travel Overview and Cost Forecast, Procurement travel, June and December 2010, Business Travel Executive January 2011

  21. Travel Management Industry: Overview The Top 50 travel management companies represent over $145 Billion in sale revenue Top 13 (over $1B in revenue) Travel Management Co’s By Revenues Key Points • The top 50 travel management companies represent over $145 Billion in sales revenue in 2009. • The top 13 travel management companies earned 92% of the sales revenue in 2009, a top heavy industry. • Expedia, Orbitz, Travelocity, Priceline, AAA Travel, and Flight Centre receive 89% or more sales revenue from the leisure market and Travel Leaders earns 48% of their sales revenue from the leisure market. • Travel management companies are experiencing soft demand and client cutbacks, resulting in downsizing their workforce. • First time since the Travel Weekly Power List commenced (1992), AMEX did not occupy the top spot. Source: www.travelweekly.com Travel Weekly Power List 2010, BTN June 1, 2009, www.bts.gov

  22. TMC Industry: PPI – Travel Agencies 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 is close to its 2007 high once again.. 2011 Data NAICS 481111 March– June 2011 Preliminary. All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/

  23. SAMPLE 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

  24. SAMPLE Appendix: Data Sources • Air Transport Association, www.airlines.org • AMEX Business Travel 2010 Forecast and Trends • ATWOnline, www.atwonline.com • Bureau of Labor Statistics, www.bls.gov • Bureau of Transportation Statistics, www.bts.gov • Business Travel Executive, January 2011 • Business Travel News Corporate Travel Index 2010 • Forbes, www.forbes.com • Hoovers Online, www.hoovers.com • IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006) • National Business Travel Association, www.nbta.org • NBTA 2010 Business Travel Overview & Cost Forecast • OneSource Inc., www.onesource.com • Power List 2010, www.travelweekly.com • Smith Travel Research Data • Standard & Poor’s, www.standardandpoors.com • The Transnational.travel • Travel Daily News, www.traveldailynews.com • Travel Procurement, March, June, August and September 2010 • Travel Weekly, www.travelweekly.com • Wikipedia

  25. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen-dation Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Develop Sourcing Objectives Activities Develop Sourcing Strategies & Tactics Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development Deliverables or Tools

  26. Sourcing Strategies & Tactics Strategic Relationship Best Price Analysis Commodity Sourcing Strategy Process Improvement Demand Management Volume Leveraging Several sourcing strategies can be pursued, either separately or together. —Possible Sourcing Strategies — BEST PRICE ANALYSIS • Evaluate and model all costs and use negotiation tactics that increase transparency and maximize competition 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 DEMAND MANAGEMENT • Address factors such as standards, requirements, and policies to reduce costs related to internal demand 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 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

  27. SAMPLE 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

  28. SAMPLE 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

  29. SAMPLE 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

  30. Category Strategy Deliverable SAMPLE 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.

  31. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen-dation Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Create Supplier Selection Criteria Activities Conduct Supplier Analysis Supplier Selection Decision Matrix RFIs (optional) “Short List” of Suppliers Deliverables or Tools

  32. SAMPLE Car Rental Scorecard

  33. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen-dation Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Complete Traditional RFP Process - AND/OR - Conduct eAuction(s) Activities - AND/OR - Collaborate w/ Incumbent Supplier(s) RFPs / RFQs eAuctions Collaborative Discussions Deliverables or Tools

  34. 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. Direct Negotiations with an Incumbent Supplier Direct Negotiations with a Target Supplier Brainstorm with a Group of Trusted Suppliers Pre-Negotiation Information Exchange On-Line Auctions RFPs / RFQs Should choose the method(s) that best meets both the Strategic Sourcing objective and the team resource capacity

  35. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen-dation Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Prepare Fact-Based Negotiation Packages Activities Negotiate Agreements Fact-Based Negotiation Packages Supplier Negotiations Presentation Sourcing Recommendation Deliverables or Tools

  36. SAMPLE 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. *NACV – Net Annual Charge Volume (i.e. annual spend with Amex)

  37. SAMPLE 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 *NACV – Net Annual Charge Volume (i.e. annual spend with Amex)

  38. Strategic Sourcing Process Overview ANALYSIS STRATEGY IMPLEMENTATION SUPPLIER SELECTION Strategic Sourcing Methodology Create Selection Factors & Evaluate Suppliers Negotiate & Develop Sourcing Recommen-dation Conduct Competitive Exercise w/ Approved Suppliers Assess Opportunity & Establish Team Profile Category Internally & Externally Develop Sourcing Strategy Implement Agreements Assess Opportunity Complete Traditional RFP Process Create Supplier Selection Criteria Validate Internal Requirements & Profile Category Develop Sourcing Objectives Prepare Fact-Based Negotiation Packages Implement Agreements and Monitor KPIs Fast Track for Quick Savings - AND/OR - Obtain Sponsorship & ID Team Conduct eAuction(s) Activities Build TCO Model Conduct Supplier Analysis Evaluate Performance and Develop Suppliers Develop Sourcing Strategies & Tactics - AND/OR - Negotiate Agreements Conduct Industry Analysis Collaborate w/ Incumbent Supplier(s) Create Project Plan Fact-Based Negotiation Packages Supplier Negotiations Presentation Sourcing Recommendation Finalized Agreements Benefits Realization Continual Supplier Improvement Project Plan Analyze Current Spend Document Requirements Internal Category Profile TCO Model Cost Reduction Ideas Industry Profile Sourcing Strategy Plan: Competitive Supplier Selection or Existing Supplier Development Supplier Selection Decision Matrix RFIs (optional) “Short List” of Suppliers RFPs / RFQs eAuctions Collaborative Discussions Deliverables or Tools

  39. Implementation Plan Overview SAMPLE 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. – Overview of Implementation Plan Components –

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