Collective Decisions

One purchaser group is helping small businesses cut travel costs. Here's how.
Alix StuartSeptember 1, 2001

Even with the best information, smaller companies may lack sufficient clout to cut good deals with airlines, as might larger companies that don’t centralize travel purchases. So even as he tries to aggregate global contracts for his firm, Tokyo Electron America Inc., and its parent company in Japan, travel manager Kevin Maguire is also helping to found a purchasing consortium with 5 other companies across the United States.

The members, which have similar travel patterns and policy enforcement, are approaching travel vendors as a group to offer their collective volume in exchange for lower prices. Representatives from 75 companies approached him about joining the group, he says, but ultimately only 6 were good fits.

Similar efforts have had little success. “Suppliers don’t take too kindly to aggregating across businesses; it’s much easier to aggregate across regions within a company,” says Rosenbluth International president and COO Alex Wasilov.

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Scott Gillespie, a principal and the CEO of Cleveland-based Travel Analytics, who helped a dozen Fortune 500 companies build a consortium two years ago, concedes that car-rental vendors and hotels might soften, but airline purchasing consortia “will never happen,” because of the complexity of travel patterns and preferences. “The two fundamental flaws of consortia are that travel patterns don’t match well, and there’s no structure in place for governance,” he says.

Maguire admits that the first round of negotiations, with car-rental agencies, “was not an easy process.” Hertz and Avis snubbed the group’s RFP, and Budget left the negotiating table. However, National “sat down and restructured the way pricing is done,” he says, ultimately offering separate agreements to each of the six members (which have annual car-rental budgets ranging from $300,000 to $2 million) along with a rebate incentive based on collective performance.

For Tokyo Electron alone, the new agreement will save up to $500,000 this year, or 25 percent of its car-rental budget. And, he says, “the other car companies have come back to us and said maybe they want to look at this again.” The group is now trying to hammer out better deals with hotels, and will then move on to air travel.