Friday, December 3, 2010

How to Control Corporate Hotel Program Compliance (Hotel Compliance 4 of 5)

Most organizations control their corporate hotel program compliance - or at least try to influence it - by setting up the following 5 pillars that together provide the appropriate infrastructure to manage travel and control spend and compliance:
  • Comprehensive travel policy
  • Mandate the use of a global corporate card
  • Mandate the use of a designated travel management company (TMC)
  • Implement an online booking tool
  • Generate consolidated reporting and dashboards

Travel policy
Almost all of the organizations with a travelling population has some form of a travel policy. A travel policy could be a simple document of 2 pages, or a rather complicated policy with more than 20 pages. It really depends on the nature of the organization, and how it would like to control its travel.

A good travel policy should include enough information for the travelers to lead them to be compliant. Although, having a good policy does not automatically mean that the organization would end up having high compliance ratios. What I mean by enough information to comply would include information about at least the following - from Hotel perspective (not including air, car, and meal):
  • Who is the travel manager
  • How to book hotel (corporate TMC, online booking tool)
  • Where to find preferred properties (corporate directory, TMC, online booking tool)
  • What to do in case no preferred property was available (lowest logical fare)
  • How to pay for travel (authorized form of payment)
  • How much to spend (per diem, lowest logical fare)
  • How far in advance the traveler need to book (if possible)

Corporate Card to capture spend
Nearly all of the Fortune 500 organizations have a mandated corporate card that is used to capture all company and travel related spend. However, in reality, not all of them actually mandate the use of the cards for travel, which is really surprising.

Some companies do not aggressively force their employees to use the corporate card, and allow - even unofficially - the use of personal credit cards and other forms of payment to pay for business travel. This kind of lack of discipline could effectively render any compliance measurement or control diluted and ineffective. All spend that is not covered by the corporate card becomes invisible to the Travel Manager and is out of any reporting structure. Hence, the reported compliance ratios and spend level could be artificially high (or low) if significant spend is not captured on the corporate card.

The organization would lose, as well, great opportunity to gain better pricing at hotels if significant spend goes without appropriate tracking. For example, if the organization spend at a certain property $1 million, but half of that spend is not tracked on the corporate card, the Travel Manager may not be able to prove to the hotel the actual amount of spend at the property and end up getting a much lower deal than would be the case if he/she was able to prove the $1 million level.

Some companies may rely on expense reports to get a more realistic level of spend, but that in my opinion a lost opportunity. Until now, expense reporting - in many cases - are manual, less accurate, and prone to human error than what many corporate card companies are offering in terms of spend reporting accuracy. So, if your organization has a corporate card program in place, I strongly recommend that you mandate the spend through the card.

Having said that, we need to acknowledge that for global companies that could be difficult to attain across the board. In many cases, there could be some limitations to the use of corporate card in certain countries or regions due to coverage issues, financial systems, or even to cultural differences. Remember that what works in the United States does not have necessarily to work in China or Chile.

Travel Management Company

Hiring a Travel Management Company (“TMC”) is the third pillar for any organization to manage travel and control its travel and entertainment spend. A TMC could be any of the mega agencies recognized globally (like America Express, HRG, or BCD Travel), or it could be a more regional, smaller scale agency. It really depends on the organization and its travel patterns to determine what size and type of TMC it needs. However, all TMC’s serve the same purpose, that is, to help the Travel Manager in executing the travel strategy of the organization.

Typically, TMC’s could help organizations with the following:
  • Booking travel
  • Providing support to corporate travelers at home and on the road
  • Supporting in the hotel program RFP, and sourcing room nights
  • Rate audit (making sure that preferred rates in the GDS systems are accurate)
  • Providing reporting on booking

Organizations may choose to go with a large global TMC, or with a smaller regional TMC; however, I strongly recommend, especially for global corporations to consolidate their travel business as much as possible. It is easier and more efficient for the travel manager to handle, it would provide a more efficient way to control travel spend, and conduct proper reporting. In many cases I have seen strong reporting coming from USA or Canada for example, and fragmented reporting from Asia Pacific region. Naturally, you will end up having a stronger program in the regions providing strong reporting, and more challenges in those markets with fragmented travel providers.

Online booking tool
Online booking tools are key to enable your travelers to comply. Not only you can control what properties and rate the travelers see when they are actually booking, but also, you can insert relevant messages pertaining to your travel policy that would aid the traveler in making appropriate decisions to enable him/her to be compliant.

For example, if a traveler is booking a trip to New York city, the online booking tool would highlight preferred properties along with the type of room the policy permits. If the traveler is selecting a higher rate room or a more expensive property when there is a lower preferred rate available, the online tool would highlight to the traveler that he or she is out of policy, and he or she needs to enter an explanation for the non-compliant choice. The Travel Manager could control these explanations by a set of drop down list of acceptable reasons.

Another benefit from implementing an online booking tool across the organization is to standardize the booking process through out the company, and make sure that all employees receive the same information pertinent to the preferred hotel program of the company, as well as, the travel policy alerts. This would help the Travel Manager tremendously in global organizations, as he or she would leverage a single enterprise solution to communicate travel policy and control travel booking.

Consolidated reporting
All of the aforementioned pillars would be incomplete and ineffective unless the organization has a robust reporting regime that not only would report spend numbers and compliance ratios, but also would provide meaningful intelligence, and actionable information.

Before the Travel Manager designs the reporting structure, it is imperative to understand the limitations of the collected data by each of data sources, for example:

Travel data from the TMC would have valuable information about how much the booked room rate was excluding taxes, but we need to realize that the total spend and room night figures are actually “booked” figures, and may not truly represent the “actual” figures. For example, I may book 1 night at a certain hotel, but end up staying for 3 nights. TMC data would show only 1 night booked, and hence, the Travel Manager need to rely on another data source to capture the remaining 2 nights. Another limitation of the TMC is that it will not capture any booking that is done outside the TMC. As much as we like to assume that 100% of employees would book through the incumbent TMC, reality shows otherwise.

Spend data from Corporate Card provides a better picture of how much spend the organization has on travel and hotel. Historically, more people are inclined to use their corporate card to pay for company expenses than they are to use the incumbent TMC. Hence, corporate card data offer a clearer picture of how much spend there is. So using the above-mentioned example, the traveler who stayed for 3 nights, would charge the total amount to the corporate card; hence, card data would give us the evidence that the travelers stayed for 3 nights as opposed to one night. However, card data gives us the total spend, not only room rate. For example, a $1,000 transaction by a travelling employee, would include room rate including taxes, as well as, other spend at the property including breakfast, food, video rental, and other auxiliary expenses. To capture what we call “transient spend”, which is the spend attributed to the room rate only, the Travel Manager would use a multiplier to make educated assumption. For example, industry standards show that between 70-90% of the amount spend at a hotel would be attributed to room rates (depending on the property and market). So, in case the traveler spend $1,000 at a hotel, then we would assume that only $700-900 of that amount is really attributed to the room fare.

An important limitation of card data is that it does not tell how many room nights the traveler actually spend. This is why it is a better practice to merge pertinent data from TMC with Card. So, you can get the room rate from TMC data, and integrate it with the calculated “transient spend” data from card, to come up with the actual room nights at the property. This merged data is of paramount importance in reporting for compliance, as well as, for strategic sourcing of hotel room down the road, as it tells you exactly how much you spent at each property, how much you had been charged in terms of room rate, and how many room nights you had.

Folio data; is now increasing in popularity, and more chains and card companies are offering folio data in North America and eventually, in other places around the world. Folio data offers tremendous value for reporting spend, as it itemizes the spend per hotel transaction. For example, if a traveler spend $1,000 at a property, folio data would show how much exactly the traveler spent on room rate, food and beverage, business center, telephone and any other item.

A new practice is emerging to report the room rates charged by hotels (although you can run the report from TMC data as well) and compare it to the accepted preferred rates. If actual charged rates are higher, then that could mean one of two things; either the traveler has upgraded the room or the hotel has charged the wrong rate. If further reporting indicated that this overcharging is repeated by the same traveler then the Travel Manager could alert the travelers that he or she has been consistently non-compliant, or if the repeat offense is coming from the same hotel with different travelers, this could mean that the hotel is over charging the travelers, or the appropriate rate is not visible to the booking agent, and so on. Sometimes, a lower than negotiated rates would be reported, and in few cases my clients had actually gone back and negotiated lower preferred rates at these properties

In conclusion, the above-mentioned 5 pillars, if structured appropriately, provide the Travel Manager with excellent infrastructure to control and monitor compliance with the organization.

How to Measure Corporate Hotel Program Compliance (Hotel Compliance 3 of 5)

There are different ways to measure corporate hotel program compliance. The most common way is the direct compliance ratio, which is basically the percentage ratio of spend at preferred properties over total spend. In addition, there is a number of other measures that could be tracked in complement to the direct compliance ration, the most important of which are compliance measure by geography, business unit, and folio data review to detect non-compliance.

Direct Compliance Ratio

This is the most straight-forward method is to divide how much spend at preferred properties by total spend. For example, if you have about $10 million of spend, where $7 million occurred at preferred properties, this would yield a compliance ratio of 70%.

Most of my clients prefer that method as it is straight-forward, easy to calculate, and easy to explain to senior management.

Compliance measurement by geography

In many cases, global companies have travelers come from different facilities and client sites around the globe. Hence, it might be advantageous to measure compliance by geographical location. This could be in one of the following two methods:
  1. Measure compliance based on the traveler’s home base: for example you have a compliance ratio for US employees, and another ratio for European (or let’s say UK) employees for example. This measure will let you know which region is more compliance, and which region(s) is(are) less compliant. As a manager, you may want to consider replicating what you are doing well at high-compliance regions in those regions with less compliance rates
  2. Measure compliance based on traveler’s destination: this is very useful when you are embarking on new RFP/Sourcing project. For example, the manager under this method would like to know that all the company’s travelers have 80% compliance ratio in London, UK, but they have 15% compliance in Paris, France. This indicates that Paris represents a good opportunity to source more coverage, and gain more savings down the road.

Business unit
Many organizations like to measure compliance at the business unit level. There could be many reasons for doing so. The size of the organization could be too large to derive any meaningful conclusion for a general compliance ratio. A major company with multiple businesses like manufacturing, financial, and consulting businesses could be interested in measuring how each business is doing in terms of compliance and procurement practices. Another organization with multiple cost centers pertinent to multiple products, would be interested in measure how each product division is tracking.

Another reason could be a financial decision to attribute savings/cost to certain cost centers, and as such, the organization would be interested in measuring how each cost center is doing in terms of compliance, which could impact the future budgets, rewards, and/or targeting of more strict control measures in the future.

In some cases, organizations tend to give certain business units - or functions- certain level of ‘flexibility’ not extended to other units within the organization. For example, in the consulting or pharmaceutical worlds, organization could show more leniency when flying a high-profile client or a medical doctor and allow their special travelers certain exceptions not available to the average employees. Such organization might be interested in tracking such travel and booking separately.

Folio review to detect non-compliance
A more complex way to measure compliance - although I have seen it gaining more popularity recently - is to measure the folio level of spend. For example, the organization would pull folio spend data from hotels that would tell them exactly how much John Smith spent for the room rate, food and beverage, and on other amenities. Then the manager would compare the rate and amenity inclusions to the preferred rate provided by the property. If the actually paid rate is higher than the accepted preferred rate, then this could mean one of two things: either John had upgraded the room (against policy for example), or the hotel is charging more than the preferred rate. In both cases, the manager has to investigate further to reach a better conclusion. Was there no available standard room, and John had no choice but to upgrade? Or did John actually book a standard room, but the hotel charged a higher rate? Or it could be simply the hotel uploaded the wrong rates to the GDS system, and so on.

This is the value of reviewing and monitoring the folio data, as it could potentially reveal many issues that could be impacting compliance and spend patterns the high level compliance ratio cannot possibly provide

Why is Corporate Hotel Program Compliance Important (Hotel Compliance 2 of 5)

There is a number of reasons why corporations monitor their corporate hotel program compliance metrics, and strive to retain them at high level. The top reasons include:
  • Credibility with vendors
  • Best practice procurement
  • Generate potential savings
  • Avoid conflict with strategic partners
  • Other issues like safety, consistency, brand, and equity

Credibility with vendors
High compliance metrics are typically a good indicator that the corporation is following best in class practices in managing its procurement and hotel program. Such indication is extremely useful when the company is sourcing new business or renewing its existing contracts. High compliance is often used as a proxy for corporate credibility with suppliers.

On the other hand, a company with poor compliance record may find it difficult to negotiate better deals with suppliers. When I manage on behalf of my clients RFP programs for their hotel, often the suppliers would ask about the client’s compliance record, especially when there is a new relationship forming. I find it very difficult to gain great concessions from these suppliers, when my client has a poor compliance record. Why is it that important for suppliers to know that the sourcing company has a strong compliance record, is because it would be harder for the suppliers to measure the size and value of the opportunity at stake. I may say that my client spends $1 million dollar on average at the supplier’s market, but if I add that the client compliance ratio is in low 20%, this means that being a preferred vendor does not really guarantee a business of nearly a fraction of the potential opportunity.

Best practice procurement
If you are a manager, you would like to see your compliance ratio in the 70-90% to be in the bull-park of best practice corporations. Low compliance ratio is frowned upon, and could mean that the corporation is not following best practices in procurement, or program management, or it implements a poor sourcing methodology. If you have a sound strategic sourcing process in place, then your compliance ratios should represent that with high percentages.

Generate potential savings
High compliance leads to satisfied preferred vendors, which consequently, leads to stronger relationship and partnership with them. Potentially, this will lead to better deals and favorable pricing down the road, with additional value and amenities to your travelers.

Avoid conflict with strategic partners
This is the opposite of the previous point. If you promise your vendors $10 million in hotel spend in 2011, and most of that spend leaks through to non-preferred vendors, you would be in a tough situation when it is time for your 2012 hotel program RFP.

In some cases, you would hear from your suppliers during your quarterly review, and some of them would withdraw their preferred rates or amenities since you are not fulfilling your part (sure there has to be legal document to allow them to do so, and many don’t do it to maintain good relationship with the client).

Other issues like safety, consistency, brand, and equity
This could be listed as an intangible value for compliance, but it is equally important. When travelers follow the policy and book at preferred hotels using preferred booking process, the company will be able to keep track of its employees. In many cases, the manager would specify certain safety elements at the properties her/his travelers stay at, especially in cities with lower safety standards. If travelers are non-compliant and stay at hotels that have not been checked by the manager or are not up to the corporate safety standards, this could put the traveler and the company in a risky situation.

Equity is another important matter. If a corporate policy states that employees must stay at budget or moderate tier properties, it would be unfair for a few travelers to be non-compliant and stay at upscale or luxury hotels, and still get the company to pay for their expenses.

Corporate Hotel Program Compliance (1 of 5)

Compliance is a measure of how much the buyer’s behavior is aligned with the corporate policy. If the traveling employee (the buyer) is following the corporate travel policy, and is staying at preferred hotels, then this buyer is compliant. If she or he is staying at non-preferred hotel (provided the availability of a preferred hotel at the destination city), and/ or is not following corporate travel policy by booking a suite rather than a standard room (for example), then this buyer is non-compliant.

One of the critical components of any corporate hotel program, or procurement best practice, is compliance. A procurement or travel manager (manager), when dealing with compliance issues, is primarily focussing on three things: how to measure compliance, how to control it, and how to improve compliance moving forward.

I have put together four articles that shed more light on the topic of corporate hotel program compliance. You can click on the hyperlink below to check them out:

Wednesday, February 3, 2010

Implementation Process: A Critical Component For The Success of Corporate Hotel Programs

Building on the theme of my previous articles, 'Why Global Corporations Must Source Their Hotel Spend And Run A Reliable Global Hotel Program?', and 'How To Handle Key Challenges That Face Buyers During an RFP Undertaking', I would like to discuss in this article the importance of the implementation process for the completeness of any corporate global hotel program, and share a few best practice tips to ensure its success.

Global corporations, with tens of millions of dollars of transient travel and entertainment spend, go through a lengthy RFP process every year to build and maintain their global hotel programs. In some cases, travel managers and consultants work for 6 to 7 months to complete this process. Most of the time is spent on building and nourishing partnerships and relationships with major chains and properties in the markets their employees travel frequently to, and on negotiating fair rates and amenities inclusions to ensure that travelers are getting the best value and service available in the marketplace.

This is fine - and actually imperative for the success of any hotel program - as long as, travel managers and consultants are, as well, adamant about addressing the implementation process, which is of equal importance to all of the above.

Often, the implementation plan is left neglected till the end of the RFP process, as an after thought. In some cases, not rigorously planning the implementation steps had harmful implications over the entire RFP outcome, and had deprived corporations from realizing savings they had negotiated so hard. Imagine for example, if the negotiated rates were not loaded properly to the Global Distribution Systems (GDS), or were not available on the online booking tool!

The following are key implementation process elements that any travel manager or consultant managing the RFP process has to plan carefully, and a head of time, to ensure the success of the RFP process, and consequently, the entire global hotel program:

- Rate Loading Instructions
- Rate Audit
- Rate Audit Follow Up
- Program Visibility
- Program Compliance and savings tracking

Rate Loading Instructions
It is imperative that you provide a clear and specific rate loading instructions to your preferred vendors. The instructions should include the PCC codes, IATA agency numbers, as well as, any other instructions that you deem necessary. examples:
- Any applicable GDS systems
- Amenities inclusions
- Tax inclusions
- Room types
- How you would like your client/corporate name to appear in the GDS

Rate Audit
It is crucial to ensure that what has been loaded to the GDS, is actually what you have negotiated and agreed upon with the hotels. It is not unusual to have rates loaded inaccurately, or without proper amenities inclusions. In some cases, the rates are not loaded altogether. This is why it is imperative to have at least one rate audit before the beginning of the program year to identify those properties that have not fully complied with your rate loading instructions, and take necessary steps to remedy the situation before the program year starts.

Rate audit is usually run by the corporation designated Travel Management Company (TMC). I strongly recommend utilizing project management concepts in conducting the audit, including communicating the following to the properties (or whoever is in charge of rate loading):
- Timelines for running the audit (when it starts, and when it ends)
- What properties, rates, amenities to be audited
- To ensure consistency of results, specify and communicate which dates to be audited
- The results of the rate audit

Rate Audit Follow Up
Once the rate audit is complete, it is important to follow up with the properties that failed the audit. There are many reasons why properties fail rate audits, and this is largely dependent on the level of sophistication and geographical location of these properties. Here are some of the reasons I have seen before:
- Independent properties may not have specialized personnel to handle the rate loading for sophisticated clients and contracts
- In many cases the sales personnel, who negotiated the rates and terms with the corporation is different than the person who is in charge of rate loading. Sometimes, there could be communication gap
- Technical challenges stemming from the use of certain GDS systems, or the lack of it. In some cases, we have seen properties that have no access to GDS systems to begin with

There is no specific industry standard ratio for the result of rate audit, but on average, I have seen some audits with success ratio between 70-80% from the first round. Usually this ratio is lower if you have international country codes in Europe or Asia for example. The ratio could be lower as well if you have more independent properties, as opposed to, chain affiliated. A good practice is to get this ratio as high as 95% through following up with individual properties. For those 5% that cannot make the cut, you may need to remove them from the program, as they offer no value anyway since your travelers will never have access to the negotiated rates using traditional means.

Program Visibility

There is no point of having a global hotel program if employees do not know about it. As most of modern, large organizations have online booking tools, travel managers need to make sure that all of the negotiated rates and amenities are accurately loaded to the applicable booking tools that clearly indicate the preferred vendors and rates.

For those corporations that do not have online booking tools - although I recommend they consider procuring one - they should consider other ways to communicate the existence of global hotel program to their employees:
- Hotel Directory to be distributed to all employees and divisions
- TMC must be obligated and trained to mention the preferred vendors and rates while booking travel for employees
- Travel department sends out emails and memos with the list of preferred properties along with the rates and inclusions from time to time
- Hot line for travelers to contact to inquire about preferred vendors when planning travel

Program Compliance and Savings Tracking
Before corporations track and report the compliance of their travelers, they have to clearly articulate the following three components:
- Definition of compliance: what does it mean to be compliant, or non-compliant
- Mechanism for compliance: what steps the management has put in place to enable travelers to comply
- The measurement of compliance: how management is going to measure compliance, and what are the consequences of non-compliance

In a future article, I plan to discuss the compliance topic in more detail, as I believe it is a very important component for any hotel program or procurement practice. However, for the purpose of this article, I would say that the corporation must have a clear travel policy that provides travelers with specific instructions on how to plan their travel, use of preferred vendors, and when they are allowed to book with non-preferred vendors. Some corporations mandate their preferred program, and some do not go that far; however, in both cases, the travel policy must be put in place, and the management has to ensure that all employees are familiar with it, and have access to it, when they plan their business travel.

The existence of travel policy, and compliance targets, and its communication from upper management, will create the necessary urgency for travelers to follow the policy and comply. This will drive the utilization of preferred vendors, and consequently, the success of the hotel program.

In conclusion, a well-planned implementation plan will enable travel managers and consultants to bridge the gap between the efforts made during the RFP process and the actual travel transactions that incur during the hotel program year.

For comments on this article, or to simply connect with me, feel free to leave a post or email me @

Sunday, November 1, 2009

How to Handle Key Challenges That Face Buyers During an RFP Undertaking

In my previous articles, The Evolving Role of Procurement in Modern Organizations – How Vendors Should Adapt to the RFP Process, and Why Global Corporations Must Source Their Hotel Spend And Run A Reliable Global Hotel Program? I try to build the case for the importance of managing the RFP process in a more methodological manner. In this article, I try to touch upon some of the key challenges that face the Buyer during a typical RFP undertaking, and how best to handle these challenges.

Although the focus of this article is on the Buyer, which is in this case, a typical global organization that is sourcing travel commodities such as hotel room nights or air contracts, the key challenges could be applicable to other types of commodities or services being sourced by organizations of any type or size.

The key challenges that face Buyers during an RFP undertaking include:
- Defining Requirements
- Managing Communications with Vendors
- Choosing The Proper Technology
- Implementing a Project Management Approach
- Evaluating The Bids
- Contracting & Performance Measurement
- Managing a Global Program

Defining Requirements
Although, this seems to be a straight forward point, it is sometimes looked upon as a major hurdle. Not only the Buyer needs to clearly identify its needs, the Buyer must be able to fully articulate these needs and requirements to the vendors. Otherwise, the RFP process will not be as effective and will not yield the aspired objectives.

Managing Communications with Vendors
Once the RFP’s are out, and vendors start working on their responses, communication back and forth with the vendors becomes a key success factor for the RFP process, since in some cases, the number of vendors in a single RFP process, may reach hundreds of hotel properties simultaneously, especially when managing a global hotel RFP program.

As a best practice, the Buyer has to designate a project manager to handle the communication with the vendors during that process. A single point of contact for all vendors. If you have multiple contacts, this will create a havoc during the RFP process, and may lead to mixed communication messages, and confusion down the road. The designated project manager must be knowledgeable about the Buyer’s needs and stakeholders, and how the RFP will be evaluated. The project manager, ideally, has to be knowledgeable as well about the industry of the vendors. He or she could be the procurement manager, or travel manager, or even an independent consultant who has strong expertise in the field.

The communication has to be fair, as some questions may lead to answers that could give certain vendors competitive advantage. Therefore, as best practice, it is always better to collect all questions from all vendors within a specific time frame - call it questions period - and then, the project manager aggregates all these responses into one Q&A sheet and distributes it at the same time to all vendors, to make sure that all vendors have the same level of information.

Choosing The Proper Technology
Many new portals and applications are out there in the marketplace that offer great benefits for typical RFP processes. As the marketplace is crowded with many technologies that offer many functionalities and tools, the RFP manager must decide on which technology is suitable for the purpose of his/her specific RFP before embarking on the undertaking.

I strongly recommend doing some research before deciding on which technology to utilize. I recommend going with the technology that is simple enough to streamline the process, and enable proper flow of the RFP, including communication with the vendors, sending out the RFP’s, receiving bids, and submitting counter-bids. The technology has to be simple to use and accessible for all vendors equally. As best practice, you need to ensure that the vendors do not have to purchase any licenses or additional software in order to have access to the technology, as this could lead to vendors dropping out of the RFP, and loss of opportunity for both sides.

Implementing a Project Management Approach
Buyers must realize that an RFP undertaking is actually a project, with a beginning and end. It is not an ongoing process. Therefore, it is critical to run the RFP utilizing a project management approach, by which I mean, to identify the requirements and end results, key stakeholders, key evaluation criteria, and most importantly, key milestones and timelines.

The communication with the vendors has to include all of the project components mentioned above, and it must clearly identify to the vendors the specific milestones, and timelines. The Buyer, as well as, the vendors must adhere to these timelines to ensure that the project is kept on track, and the required results are fully attained,
Sometimes, especially when the participating vendors in an RFP have other business relationship with the Buyer (and whoever is managing the RFP), the line between the RFP process and the other business relationship could become blurry. Participants could discuss multiple business issues on a conference call, and timelines could become overlapping and confusing for all parties. Therefore, it is the responsibility of the Buyer to keep things on track, and clearly separate the business pertinent to the RFP from other business. This circles back to my second point of assigning a project manager to run the RFP, and it would be even better if the appointed project manager happens to be independent, or at least, is not involved with the vendors in any other business during the RFP process.

Evaluating The Bids
Another hurdle that the Buyer has to address before embarking on an RFP undertaking is on what criteria the bids will be assessed on and contracts will be awarded. The Buyer has to be clear and decisive on the criteria, and make sure to communicate that to the vendors.

Generally, the criteria stem from the goals and requirements of the Buyer. What are you looking for in the vendor/or the service provided, to be able to make the decision to award the contract or preferred status to that vendor? Some criteria to consider: (mainly for hotel commodities)
- Rates or discounts
- Amenities like breakfast, internet, etc
- Proximity of hotel location to a corporate point of interest, facility, or client location
- Chain affiliation; loyalty program
- Market tier; luxury, upscale, mid-scale, or budget
- Extended stay viability; especially if your travelers travel on long stay projects (like engineers or consultants)

Knowing the criteria from the beginning enables to project manager to prepare a more focused solicitation list, as well as, manage the RFP process more efficiently.

Contracting & Performance Measurement
Contracting and performance measurement are critical components for any successful RFP undertaking, and any procurement practice. The Buyer has to be clear and up front with the vendors on how the contracting will be executed, when the contracts will be drafted, and by whom. In addition, it has to be clear whether the contracts are electronic or in hard copies.

Performance measurement has to be part of the contracting process as well. There has to be clear measurement indicators in the contract for both parties. For example, in a hotel contract, there has to be clear understanding that the hotel will load the accepted rates and inclusions to the applicable Global Distribution Systems by specific timeline. In addition, there has to be some sort of quarterly or monthly reporting that reflects the room nights being spent by the Buyer’s travelers, and how much they are paying in terms of room rates, and amenities. All of that has to be clearly indicated in a contract to ensure transparency and clarity.

Performance measurement does not only guarantee the rights of the Buyer, but also, aids the vendors in case there are certain revenue thresholds or business production levels that the Buyer has agreed to during the RFP.

Managing a Global Program
Finally, as businesses are growing globally with the emergence of markets in Asia, Europe, and the Middle East, it is highly likely to be involved in managing a true global RFP. This increases the complexity of RFP undertaking management, by getting involved with vendors from different cultures and backgrounds. Some of the incremental challenges for managing global programs include:

Language barriers; Buyer needs to deal sometimes with non-English language speakers
Time zone differences; Buyer needs to deal sometimes with vendors with 12-hour time difference
Cultural differences; this could become an issue during negotiations or regular communications. Buyer has to be sensitive to any cultural differences that could impact the relationship with the vendors
Technological differences; not all countries are at the same level of internet adaptability, or accessibility
Business practice difference; not all countries have the same set of business practices or cultures. This increases the need for enhanced communication to be able to clearly articulate the Buyer’s needs and objectives from the proposed relationship via the RFP

In conclusion, while the above mentioned challenges include most of the potential hurdles that the Buyer would typically face during a typical RFP undertaking, there could be more hurdles to consider based on the Buyer’s industry, requirements, or even economical environment. The main point is that the Buyer has to clearly define and anticipate all potential challenges that could face the RFP undertaking, and to proactively, address each one of these potential challenges to ensure a successful and efficient RFP process.

Monday, October 5, 2009

The Evolving Role of Procurement in Modern Organizations – How Vendors Should Adapt to the RFP Process

We have witnessed historical events, and colossal changes in the last ten years. From the burst of the tech bubble in the late nineties, the tragic events of September 11, two concurrent wars in Afghanistan and Iraq, and finally the meltdown of the financial markets that has led to the recent recession. Probably the contribution of this past decade alone, will keep historians busier than ever documenting and analyzing every single second of its time. How is this relevant to a blog that mainly focuses on the business world? Well, as everything around us is changing, the role of procurement in modern organizations is evolving and changing as well.

The catalyst for that change is the introduction of Sarbanes-Oxley a few years ago, which requires corporate officers to be responsible and accountable for establishing adequate internal control structures and procedures for financial reporting. Naturally, the procurement role and the decision-making process for allocating public companies funds have become more visible and tangible.

Companies now need to go through a more rigorous procurement processes for many reasons. David Hannon, in his article “Is Sarbanes-Oxley a burden or blessing?” referred to four key areas where procurement can help drive compliance as stated by Deborah Wilson, a procurement consultant: (* link to article below)

- Procurement can help by automating the bidding process and creating records of how bids were awarded and to whom

- By documenting approval for purchases, procurement can create a clear audit trail for each transaction

- Implementing tighter controls over processes for valuing assets on the books starts with procurement’s valuing of such assets

- By having documented all spend clearly, procurement can make it much more difficult for post-procurement accounting problems or scandals where expenses are made to look like assets

I like to say that enacting sound procurement practices acts as a layer between direct buyers and sellers – in a way like the sun block cream, it does not prevent you from enjoying the sunshine, but it protects you from UV rays and overexposure.

The evolution of the role of procurement does not only impact the buyers, vendors of services must adapt, as well, to the new dynamics, and change their paradigm for winning business. Now, vendors need to deal with a more rigorous procurement process in order for to sell their services and win business in the new environment.

We have seen, recently, many “new economy” and “think-out-side-the-box” type of organizations, where the founders are the current managers and final decision makers; resort – when procuring services -to go through the RFP process from a procurement lens.

As the procurement role is evolving, vendors’ approach to RFP must evolve as well. The key ingredients of any RFP process revolve around the following four stages:

Before RFP 
This it the time, when the vendor is expecting the RFP to be produced by the Buyer in the near term. The vendor must capitalize on this time by preparing for the RFP, assembling the proper team to manage the RFP, and focusing on the proper opportunities.

Some RFP’s require certain expertise or capabilities that the vendor must acquire as prerequisite for winning the bid. A smart vendor should anticipate his/her deficiencies and invest the time before the RFP in addressing the lack of certain aspects that could hinder its ability to win.

As people make decisions, not organizations, vendors must assemble qualified teams to handle the prospect clients during the process of the RFP. There has to be a balanced team that includes people-persons, who can effectively communicate and “charm” the client, and technical people, who can actually act on the technical requirements of the RFP. So many times we have seen great vendors, assigning their top technical people to manage the RFP to the demise of the entire bid, due to lack of inter-personal and effective communication skills. This is not to suggest that technical people are not effective communicators, but just to stress a point.

Finally, vendors must focus on the proper opportunities. Sometimes the aggressive growth targets, and the desire to win market share cloud the judgment of vendors, and suck them to participate in RFP’s that either cannot be won, or if were won, would offer a lousy ROI. Vendors must understand that the RFP period requires attention and resources that should be invested prudently on the proper opportunities. Therefore, it is imperative for vendors to assess the opportunity before they commit to the RFP, and participate only in the proper opportunities.

RFP Analysis 
Once the vendor’s team decides to enter the bidding process, and receives the RFP documents, it is now the time for due diligence and proper RFP analysis. This stage encompasses learning as much as possible about the client, meeting with key stakeholders, and identifying the true decision makers. In nutshell, the vendor who wins the business is the one who properly assesses the need of the client, and effectively communicates that back to the client.

You can learn about your client by meeting with the stakeholders and decisions makers; furthermore, you can learn about the client from analyzing the data provided, information about their business, and surely from the scope of work included in the RFP itself. However, quite often the information provided raise more questions than answers, and here comes a true differentiator, a vendor that asks the right questions – would know the client much better, and will be able to communicate that back to the client by drafting the better RFP response.

RFP Response 
This should be a very straightforward stage; however, many vendors fail at this stage, because they simply ignore the instructions. They may offer the best service, but do not communicate that as instructed by the client. Vendors must fully comply with the instructions provided (for example, use of certain procurement portal, inclusion of certain documents, etc). Their compliance indicates that they are focused on the client and the client’s needs. Finally, vendors must pay close attention to pricing. This could be straightforward as well, but we have seen many bids come with vague pricing schemes. This would put vendors at extreme disadvantage if there happens to be a strong competitor with clear pricing model.

Simply put, answer the questions as instructed, and say how much this is going to cost.

Post RFP 
Finally, once the RFP process is over, a strategic vendor would run a post-RFP protocol – whether they have won the business or not. This protocol entails debriefing the team and the client (if possible) on the process, and on what went well, and where there is opportunity for improvement. This will help the vendor in developing a proposal knowledge base that will be extremely helpful in winning future bids.

In conclusion, the RFP process is the dating period between vendors and buyers. Everything could be going right, yet, for one issue, or for one stupid mistake, it could be over.

While I attempt to be as generic as possible in my blog, I understand that not all of my above-mentioned comments would be applicable in all cases. Please feel free to share your views and experience with me and with the readers.

* David Hannon Article: “Is Sarbanes-Oxley a burden or blessing?” Purchasing. Thursday, February 3 2005