Five procurement guidelines you can’t afford to ignore

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Five procurement guidelines you can’t afford to ignore

Introduction

In a recent survey of 1,443 meeting professionals conducted by MPI, almost two-thirds of respondents said that their procurement department was involved in the sourcing of meetings. While this clearly signals a widespread industry trend towards stricter scrutiny of the meetings procurement process, it would be premature to say that companies have this area of spend under control. Consider for instance, the fact that the same study revealed that 26% of corporate planners did not have a preferred vendor program and 30% were not sure whether they did!

Expectations for Procurement's Involvement in 2007
A b etter p artn ersh ip /collab orative M ore of an ob stacle to p rod u cin g h ig h -q u ality even ts M ore kn owled g eab le ab ou t m eetin g s L ess in volved in p u rch asin g f or m eetin g s M ore in volved in p u rch asin g f or m eetin g s Oth er

21% 15% 23% 15% 27% 21% 5% 10% 15% 20% 25% 30%

0%

The knowledge gap is not limited to meeting professionals alone. Procurement managers will readily admit that the world of meetings procurement is highly complex and specialized and unlike most other categories. Here, the lowest bid is not always the best choice, ‘quality’ is hard to judge and every meeting has to be evaluated individually keeping in mind its objectives and unique circumstances. And yet, it is now widely acknowledged that the sourcing of meetings is highly de-centralized and offers a unique opportunity for delivering savings. One of the most difficult aspects of controlling meeting spend is that a large number of people are involved in the purchasing process and yet they don’t all have the same title or belong to the same department. To execute a successful spend management program it is important that all persons sourcing meetings follow a standardized process. The process itself will vary from company to company and there may even be multiple approval processes within the same company – for example, meetings for over 20 persons may have a different set of guidelines from smaller meetings. Standard processes and procedures are important not just because they form the basis of data consolidation, preferred vendor programs and other strategic sourcing essentials, but

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Five procurement guidelines you can’t afford to ignore

55% of corporate planners indicate that total meeting spend is calculated for their organization. Source: FutureWatch 2007

also because it is a requirement under Sarbanes Oxley. In order to be compliant, companies must have a clear, documented process that is communicated to all persons involved in the sourcing process. StarCite has had the unique opportunity of working with a large base of corporate clients, some of whom have been tackling the issues of data consolidation and risk management for more than five years. While companies may differ on how to achieve their goals, there are a set of core best practices that shape their policies and create the foundation of a sound meetings procurement process protecting the company from risk and undue liabilities. Here is a list of 5 guidelines that companies should keep in mind as they create their spend management program. 1. 2. 3. 4. 5. Data Consolidation Preferred Vendor Program Legal Oversight Company-wide Visibility and Coordination Approvals Process

Data consolidation

One of the most fundamental rules of procurement is consolidation of spend for more efficient buying — or, in simple language, volume discounts. So why haven’t most companies consolidated their meeting spend already? One reason is the distributed nature of meeting sourcing touched upon earlier. Marketing and sales departments may account for most of the meetings in the organization, but when added up, training, HR, finance, and R&D can also account for a significant chunk of spending. For large organizations, when multiplied across divisions, there may be upwards of 10 different groups contracting with the same supplier and no one has any idea of how much was spent by the company in total. One practical solution would be to centralize all meeting-related sourcing within the company. Even though individual departments can plan and organize their meetings, vendor selection and contracting is handled by a central group of experts. Many companies follow this process quite successfully. However, for most large, de-centralized organizations, this is hard to implement and even when sourcing is centralized, usually just the larger events are sent to the central sourcing group, smaller ones continue to be handled within the departments often for quite practical reasons like short lead times. Today there are technology tools that can help overcome this problem. By allowing departments to source their own meetings, companies can accommodate autonomy without compromising on data consolidation as the technology collects the sourcing related information on the back end and feeds it to the meetings/travel group for consolidation and analysis. These tools however need to be intuitive and easy to use as departments may not have dedicated meeting planners who are willing to learn complex systems.

When asked why they rated their preferred vendor program as being successful, planners cited the following reasons: • Cost savings • Time savings • Improved relationships and partnerships with vendors that better understand their needs

Five procurement guidelines you can’t afford to ignore

Preferred vendor program
60% of corporate planners believe that their organization’s preferred vendor program has been successful or beneficial – rating it either a 4 or 5 on a 5-point scale

Once the data has been collected and analyzed, it usually paves the way for a preferred vendor program. It is always more beneficial to be dealing with 5 vendors for a particular service than 15. And that’s not always because you stand to get a better rate, although resulting savings of around 20% are not uncommon. When you account for a sizeable share of a vendor’s business, you become more important to them and they are more likely to offer better service. By doing business with you repeatedly they get to learn your objectives and preferences resulting in greater efficiencies on both sides. The caveat is that you must have the ability to channel business to your preferred vendors. If you go ahead and sign an agreement but fail to follow through not only will it jeopardize your current agreement, but you will have lost credibility for the future. It is better to wait until you feel you have enough visibility into meetings activity, have some processes in place, and secure buy-in from internal stakeholders. When you are confident you can commit to a certain volume, then go ahead and contact vendors. Preferred vendor programs apply to all types of businesses including hotels, ground transportation, meeting management companies, A/V suppliers and more.

Legal oversight

Experienced planners know that penalties in the six-figure range can be levied and extracted from companies in the event of a cancellation of a large event. While in the regular course of business the amounts are much lower, many companies routinely pay out hundreds of thousands of dollars each year in attrition, cancellation and other penalties when they could have been a fraction of that amount. How can a company prevent large penalties across the board?

No le gal re v ie w of contracts at all 50% Some contracts re v ie we d by le gal 28%

All contracts re v ie we d by le gal de partme nt 22%

Source: Meetings and Conventions’ 2006 Meetings Market Report

Five procurement guidelines you can’t afford to ignore

Legal oversight of meeting contracts is the most basic procurement process reform that every company should incorporate. It can be accomplished in many ways. Many procurement departments have legal experts whose job it is to protect the company’s interests in vendor agreements. If that is not available to you, work with your legal department to arrange for the appropriate resource. Ideally, the company needs to be covered on all contracts large and small. They best way to accomplish this is to have your largest contracts reviewed individually by a legal expert while creating a set of standard terms and conditions that cover all other meetings. Standard terms and conditions are generally created by the company’s legal department. They are appended to and supersede the supplier’s contract. Companies using electronic RFPs can typically set up their system in such a way that their standard terms and conditions are attached to all outgoing RFPs leaving nothing to chance.

Company-wide visibility and coordination

It is a simple concept, but total meeting visibility is often ignored and can be hard to execute. As noted before, meetings are planned and sourced across the organization by groups of people who don’t know each other and don’t work together. This can lead to a lot of missed opportunities like the ability to hold two meetings at the same property back-toback thereby leveraging economies of scale. Or, the ability to share cancelled space information so that another group within the company can pick up the space, saving the company some or all penalties. Clearly when sourcing is centralized, this is more easily accomplished. A meeting registration system or enterprise technology are other ways that companies can gain visibility into meetings activity and leverage that information for savings.

Approvals process

Companies differ widely in the number of approvals they require, how closely they adhere to their process and consequences of non-compliance. Some companies have elaborate structures and are rigidly mandated while others are more relaxed and still others would like a better system but don’t know how to go about implementing it. Key stakeholders in the meetings spend management process will need to decide how much should be regulated and how strict the controls should be. Usually, the company culture is an important influence in this process. For meetings, there can be many different types of approvals: permission to have an off-site meeting that involves travel and overnight stay; holding the meeting at a 4 or 5-star property rather than a 2 or 3-star property; allowing guests who are not employees to join the meeting, etc. There can be additional guidelines based on safety considerations including

Five procurement guidelines you can’t afford to ignore

meeting locations especially when overseas destinations are involved. At the very least, companies need to have a system in place to ensure there is an approval process before the meeting takes place. Some of the considerations include: • • • A physical meeting involving travel and overnight stay is necessary as opposed to web conferencing A budget has been created and sanctioned by a person(s) manager at the appropriate level Approval or involvement of the travel department

Conclusion

Spend management for meetings is a relatively new concept and best practices surrounding it are still evolving. For most companies, however, the opportunity for improvement is significant and even small changes to the existing process yield measurable results. Travel and meeting managers who have already embarked on a meeting spend management process will hopefully be able to use these guidelines to strengthen existing plans while others will find it a useful starting point.

Technology
StarCite, Inc. Phone: (800) 628-1058 or (267) 330-0500 info@StarCite.com

Best Practices
National Business Travel Association (NBTA) http://www.nbta.org/Research/WhitePapers/ Meeting Professionals International (MPI) http://www.mpiweb.org/village/ccoe/ccoe.asp APEX http://www.conventionindustry.org/apex/accepted.htm

Note: FutureWatch 2007 is a survey conducted by Meeting Professionals International in partnership with American Express. Survey results are based on responses collected from 1.443 meeting professionals.

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