You Get What You Pay For ...

We all know the old adage, but how often is it applied by corporations when selecting preferred travel suppliers? In the most recent edition of The Wire…from AirPlus, we asked travel professionals exactly that--which criteria are most important to them in several supplier categories. What we found was not surprising in this economic climate. Cost was the largest factor in selecting airline, hotel and car rental vendors. However, in the TMC and payment categories, it was data that reigned supreme.
So my question is when cost is a leading factor how much decisions are made using Total Cost of Ownership (TCO). It’s often used by purchasing managers responsible for capital purchases such as buildings, equipment and IT. TCO decisions are based on a full cost analysis. This includes the actual purchase price, plus maintenance costs, installation, upgrades, training and more. Often, the result is not to purchase based on the lowest upfront costs but instead on this TCO analysis.

I suggest that in the selection of travel program suppliers, this same methodology can be applied and further, will lead to the development of better buyer-supplier relationships over time. Some might suggest it’s actively being used, but based on my experience in the RFP process for the selection of a corporate card provider, I think there is room for improvement in deploying this initiative. I’ve talked with hundreds of travel managers around the world, and from them I’ve learned that often the economics of payment are not crystal clear.

When selecting a corporate card partner, companies sometimes place too much focus on the financial incentives being offered. These include signing bonuses, rebates and rewards and often overlooked are the real capabilities of the product or provider. A true TCO analysis for payment should also include fraud costs, processing effort, reconciliation costs, data files fees, data consolidation costs, rewards redemption deductions, foreign exchange mark-up, acceptance rates, and costs to integrate data into corporate financial and expense management systems. However, since it is difficult to quantify these values without a rigorous analysis of the processes that support a card program, many companies simply jump to the rebate as the proxy of value. This simplistic substitution for a TCO analysis might lead to wrong decisions and signal to card issuers that a rebate is more important than the product itself or the service they offer.

Do you agree? What factors did I exclude or should be considered further?