Charting Canadian Procurement’s Growing Influence

The 2016 ProcureCon Canada Benchmark Report

2

Executive Summary

Table of Contents

It’s no longer a question whether we have a seat at the executive table. The question is how big a voice should we have in the future strategic direction of our organizations?

We’ve generated huge savings in corporate spend. That grabbed the C-Suite’s attention and gave us our seat at the table. But is it the voice that’s best for the business? Are we where we want to be? Truth is, we know we have more value to add.

Great executives know that mandates can only be so effective. Management by mandate perhaps gets the ball down the field but not to the goal. No department wants to be told what to do and how to do it no matter how good the results are. Gaining more sustained buy-in comes from something else…from somewhere else. We shouldn’t have to justify our value, but the bottom line isn’t always the

Executive Summary . . . . . . . . . . . . . . . . . . . . 2

Additional Contributors . . . . . . . . . . . . . . . . . . 2

Key Findings . . . . . . . . . . . . . . . . . . . . . . . . 3

Research Findings

Improving alignment with key business stakeholders and with the business at large . . . . . . . 4

Addressing spending across indirect categories . . . . . 6

Developing jurisdiction over travel and meetings spend . . 8

Nuances in travel sourcing and internal challenges for procurement . . . . . . . . . . . . . . . . 10

bottom line. Executives outside of procurement and the C-suite want something more.

As you’ll see in this year's benchmark results, we’re making steady progress. We can’t deny that. But there is more to do to get the variety of business units we serve to better appreciate our contributions, and new categories to manage that will test our skills.

Our next phase is not just about demonstrated cost savings and mandates. We are expanding the skills that get us beyond mandates so we can create true partnerships with other groups. We are getting to a place to a place where those groups will voluntarily choose our recommendations. Maybe that’s what the C-suite wants, too!

We see a bright future.

Applying technology and improving travel management performance . . . . . . . . . . . . . 12

Key Recommendations . . . . . . . . . . . . . . . . . . 14

Appendices

Appendix A: Methodology . . . . . . . . . . . . . . . . . 15

Appendix B: Demographic information. . . . . . . . . . 15

Carlson Wagonlit Travel . . . . . . . . . . . . . . . . . . 15

WBR Digital . . . . . . . . . . . . . . . . . . . . . . . . . 15

Additional Contributors

In addition to the benchmark data and analysis contained in this report, several executives and industry experts have contributed their insight via interviews. Selected quotations have been used to add context and color to the statistical information contained in this document. Interviews centered on benchmark findings as well as key trends identified by research.

Lis Anderson Director of Procurement and Supplier Management Finning

Jim Canning VP Client Services, Carlson Wagonlit Travel

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Key Findings

Canadian procurement continues to consolidate jurisdiction over spending within their companies.

Not only are Canadian companies progressively adopting procurement structures where there is consolidation of authority within centers of excellence, the influence of these procurement centers is growing to touch more spending. With refinements in both the technology and best practices that procurement can apply to spending, the department can reliably influence the bottom line when they are called in.

As procurement’s role solidifies, differences between more developed departments and those that are relatively newer become more apparent.

While procurement at large is advancing along a general trend-line, the maturity of individual businesses is usually a predictor of the role that procurement will play within them. Within a smaller company, a decentralized procurement department with voluntary interaction on the part of other business units is common. Procurement tends to gain greater influence and mandate as the amount of spend within the company grows, and the savings potential of each indirect category grows proportionally.

Like IT, travel is an indirect spending category that is increasingly being looked at through the lens of procurement best practice.

Within many growing businesses, indirect spending categories that would have been solely controlled by specialist departments, or managed by a group of stakeholders are now under the procurement umbrella. With pressures to maintain customer satisfaction while demonstrating results to key stakeholders, travel is often one of the last categories to be looked at by procurement, and thus holds promise for significant savings and process improvements. For many, a hands-off approach to contract management is still an issue that can complicate compliance down the road.

Over the last few years, procurement has become more involved in high-

level strategic planning, and that is because procurement has been given the

opportunity to show what value they can bring, and build their credibility based

on those results. As long as that credibility keeps building, more and more

organizations will start bringing their procurement leaders into their C-suite

discussions.

- Lis Anderson

4

Research Analysis

Improving alignment with key business stakeholders and with the business at large

1

2

3

4

5

1

2

3

4

5

2%

0%

7%

17%

31%

42%

48%

29%

12%

12%

On a scale of 1-5, how aligned are procurement' goals with the business?

(1 = not aligned, 5 = completely aligned)

On a scale of 1-5, how much value does management place on procurement?

(1 = not values, 5 = completely valued)

Almost half (48%) of Canadian procurement groups are now close to being fully aligned with the goals of the businesses that they support, a growth of 7% over last year. The share of procurement groups reporting an average level of alignment (31%) also increased 7% over last year, reflecting a general movement of business leadership to embrace the involvement of procurement in helping their

organizations operate with peak effectiveness. While the percentage of procurement teams who report full alignment with their business is just 12%, responses are now consolidated at or above average, reflecting a generally strengthened relationship between the role of procurement and the greater organization within the majority of businesses.

5

Research Analysis

Mandated, with full jurisdiction over spend

Mandated, with consultative interaction with other business units

Non-Mandated, with interaction encouraged by management

Non-Mandated, voluntary engagement

12%

61%

17%

10%

Describe the level of mandate in your Procurement Environment:

While 42% of procurement executives feel that business management places an average amount of value on their contributions, 29% feel they are above average, with another 12% reporting that the management within their organizations fully values their contributions and recognizes them as vital to the business. Building relationships with important management personnel is tied to the ability of procurement to communicate the value that they are creating, as well as coordinate closely

Close to two-thirds (61%) of procurement teams are operating in an environment where they are supported by a mandate coming from the top down, playing a consultative role within their organizations and working closely with other departments to help them maximize value while conserving budgets. Another 12% have been granted full veto power over the indirect categories that they are involved with, essentially placing the reigns of the company’s purchasing strategy directly in

with the business units they work with. In some growing indirect spending categories such as travel and meetings, where another department may have recently had full jurisdiction over purchasing, building bridges with stakeholders is the key to increasing both realized and perceived value. Another key is proactive involvement, in particular when a deal is not simply limited to negotiations and enforcing compliance becomes a relevant issue.

procurement’s hands. For 17% of procurement departments, while interaction from other business units is not set into policy, upper management is actively encouraging other units to engage. Just one in 10 procurement departments is still non-mandated and completely voluntary, which may be a indicative of newer procurement departments that are still establishing their roles and value creating abilities within their organizations.

In my opinion, there is an ebb and flow between center-led and centralized

procurement models. In Canada, particularly in the west, as the economy is fairly

contracted, the focus is on centralization in order to gain greater spend control. In other

years, where there is less of a focus specifically on budget, the center-led model can

become more prevalent as you will have your suppliers established and you can push

out the tactical side of procurement to the business, focusing more on strategy.

- Lis Anderson

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Research Analysis

Addressing spending across indirect categories

MRO

IT (Hardware/Software)

Human Resources

Logistics & Fleets

CapEx. Construction

Consulting

IT (Process/Automation)

Marketing/Advertising/Printing

Facility Management/Real Estate

Energy

Corporate Services/Finance

Telecom

Travel/Meetings

Legal

Contingent Labor

Benefits

50% 22% 14% 7% 7%

48% 20% 16% 8% 8%

40% 20% 20% 10% 10%

37% 18% 27% 18%

32% 21% 5% 21% 21%

27% 7% 20% 33% 13%

14% 50% 8% 14% 14%

12% 25% 25% 19% 19%

4% 25% 21% 29% 21%

10% 60% 10% 20%

17% 33% 17% 33%

30% 30% 30% 10%

100%

25% 25% 50%

25% 50% 25%

20% 60% 20%

Please rank the top 5 categories that form your highest percentage of spend (Rank 1-5, 1 as highest): 1 2 3 4 5

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Research Analysis

What % of your organization’s addressable total annual indirect/corporate spend is addressed?

What is the annual savings % on your addressed spend?

The two largest indirect categories reported by Canadian procurement leaders are currently MRO, parts, equipment leasing and maintenance, as well as IT products including hardware and software. IT solutions for process and automation were the most common secondary response, while benefits, legal, and energy were all common as third choices. The growing category of travel had a relatively strong showing as both a secondary and tertiary indirect category, reflecting the expanded role procurement plays in its management within many Canadian companies.

Just shy of half (49%) of procurement departments are now addressing at least 61% of the total indirect spend within their companies, covering a broad range of categories that demand varying degrees of category knowledge to manage effectively. By contrast, a quarter are managing below 40% of the total addressable indirect spending within their companies. Another 26% are in between, managing between 41-60% of spend within their organizations. These results show year-over-year increases around each answer segment, with the exception of the 0-20% range. The observable trend is that procurement teams are gaining greater control as they mature.

0-20%

21-40%

41-60%

61-80%

81-100%

0-5%

6-10%

11-15%

16-20%

>20%

2%

27%

23%

47%

26%

18%

31%

5%

18%

3%

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When it comes to the percentage of savings that procurement teams can achieve, 47% are managing to win back between 6-10% of what their companies would otherwise spend. Just over a one in four teams (27%) is able to create between 0-5% savings on indirect spend. On the other end of the spectrum, 18% are building in savings in the range of 11-15%, a growth of 3% over last year. Compared to 2015, the most significant change is in the share of procurement groups creating between 16-20%

As Canadian procurement departments grow their roles within the businesses that they serve, the demonstration of value through savings will often persuade business leaders to broaden their jurisdictions. One area that has been coming under increased scrutiny is travel and meetings spending.

savings, which decreased by 12%. This is likely an indicator of more mature procurement departments having addressed the “low-hanging fruit” within their organizations, which can create major savings that taper off as new strategies become normalized and the business adjusts. These procurement departments are ready to expand their roles into other areas of spend that have yet to be fully brought up to their managed potential.

The subjective nature of what constitutes a good travel experience, the naturally varying needs of individual businesses, and perceptions among business stakeholders have made it into one of the last categories to be formally addressed by procurement.

Research Analysis

Developing jurisdiction over travel and meetings spend

We do see a shift with Strategic Procurement taking a more active and lead role in the

travel buy. Although intent is always to drive travel spend savings, it can sometimes be a

challenge to shift focus away from the transaction fee, which represents about 2-4% of

the overall spend, and focus more on what unique technologies and other capabilities

can be implemented that would help drive compliance and more impactful savings.

- Jim Canning

What is the level of control procurement has over spend for the travel category?

Involvment in the sourcing of travel suppliers only, with no other involvement

Solely cost-addressing role without influence in strategic decisions

Consultative role assisting another department

Shared influence with another department

Full oversight and control

19%

11%

16%

30%

24%

9

Currently almost a quarter (24%) of procurement teams have assumed full oversight and control of the travel category, owning sourcing and decision making completely. Another 30% share influence with another department while having a firm handle on their own role within the process. For 16%, the role they play around travel is more consultative,

liaising with another department with ownership of the final results of the process while furnishing them with options and strategic guidance. For 19%, travel remains an area where they only have tangential engagement, and only enter into the sourcing process on behalf of departments or individuals who control final outcomes.

Research Analysis

>$10M

$5M-$10M

$1M-$5M

<$1M

8%

11%

36%

45%

What is your organization’s approximate annual air travel spend?

While air travel expenses fall beneath the million-dollar mark for 45% of Canadian businesses, 36% spend between $1-5 million annually, and 11% are paying out $5-10 million, a major expenditure even

on the part of a larger business. Lastly 8% spend more than $10 million annually, representing an area of spend that is large enough to merit significant oversight and controls.

Call service levels

Low transaction fees or booking

Traveler satisfaction and convenience

Ability to drive overall spend savings

Please numerically rank the internal priorities of the travel procurement department

19% 41% 41%

29% 29% 21% 21%

31% 28% 25% 16%

50% 21% 11% 18%

1 2 3 4

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Research Analysis

The imperative to control spend can be clearly seen when procurement leaders rank their internal priorities around the travel category. For 50%, cost avoidance is top priority, and for another 29%, it is specifically lowering costs around bookings or eliminating transaction fees. Part of what makes travel more complex than certain other indirect categories is the subjectivity of what constitutes a

good experience, which explains the strong showing of traveler satisfaction and convenience. For 31% of travel procurement teams, it is their number one goal, and the secondary goal of 28%, virtually a tie with elimination of transaction and booking fees. The most common tertiary priority is maintaining high call service levels, which are a complementary component of an overall great travel experience.

Nuances in travel sourcing and internal challenges for procurement

We don’t think about travel until we have to

Travel is constantly monitored to stay current

A few months prior to the current contract expiring

More than 6 months out from the RFP

46%

30%

13%

11%

At what point is travel researched prior to procurement’s involvement?

These results are not surprising. Providing excellent service on calls is what we would

view as “table stakes” today - it’s a given expectation. Companies are looking for more

ways to stretch their travel spend. Technology is playing a critical role. For example,

Carlson Wagonlit Travel will be implementing a solution this year that automatically

tracks the airfare or hotel price booked to see if a lower price can be found, right up

until the day prior to travel. If the system finds it, and given change fees, etc, our client

can still save money, then we rebook. This is all at no out of pocket cost to the client.

- Jim Canning

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Research Analysis

68% Simple

32% Complex

In comparison to other categories, is travel procurement viewed as a simple or complex process?

Travel can often make up a robust share of total indirect spend in many companies, yet often is not given the attention that it deserves. This can be seen in the 46% of procurement teams that do not think about travel procurement until it becomes an issue for them. On the opposite end of the spectrum, 30% of procurement teams are constantly monitoring

travel in order to stay current. In between these two poles, 13% will become engaged with travel research several months in advance of their current contract expiring, and another 11% begin more than six months in advance of an RFP. Perceptions of difficulty can vary depending on how deep procurement is willing to go into strategically managing value.

The technology available today can really drive travel spend savings, but it does take

time ahead of an RFP to understand what is out there, and what weight you would give

it during the procurement process. I would also add that most TMC contracts have

about a three-year duration, and advancement in technologies can evolve significantly

over that time period. I recommend always keeping up to date on what is available and

determining whether savings are being left on the table.

- Jim Canning

Some of the challenges I’ve seen include showing business travelers the benefits of booking their travel through a TMC and ensuring that they understand what the program is and is meant to do in the first place - for instance, the difference between going through a TMC versus a travel company’s website, and explaining the value that is associated with compliance. Most importantly, there is the safety aspect of compliance. Travelers might not understand that by going outside of our system, we will lose visibility on where they are and won’t have the ability to help them as quickly should anything go wrong.

- Lis Anderson

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Research Analysis

The split between those with a more lax approach to travel and those who spend more time researching and staying on top of the category is reflected in the distribution of those who feel it is more or less complex compared to other indirect spending

categories. For 68%, travel procurement is seen as a simple process relative to other sourcing categories, while just about one in three (32%) feel that travel is a more complicated category than others under their management.

Implementing a travel solution for a client can be a very unique undertaking. Many have

specific travel approval requirements, Finance and HR systems, expense management

needs, and of course travel policies differ as well. Add on to that the implementation of an

online booking tool, and of course other unique technologies that help drive compliance,

and it can get a bit complicated. It depends on what a client wants to achieve.

- Jim Canning

Supplier negotiations

Traveler satisfaction

Accommodating traveler preference

Addressing lack of oversight/visibility on spend

Demonstrating value to stakeholders

Compliance

11% 15% 22% 26% 19% 7%

11% 30% 15% 7% 30% 7%

16% 8% 8% 4% 20% 44%

24% 24% 16% 20% 16%

25% 25% 22% 14% 14%

40% 14% 21% 14% 11%

Please numerically rank your corporate priorities associated with sourcing for travel

1 2 3 4 5 6

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Research Analysis

One of the factors that showcases the disconnect between travel management and the importance of outcomes are the priorities that procurement emphasizes. For 40% of procurement teams, the number one priority that they bring in to managing the travel category is enforcing policy compliance, which can be complicated by the prevalence of the internet and the ease with which an individual can make a purchase, as well as sourcing decisions that fail to allow for actual buyer behaviors. Travel buyers have access to a wide range of channels, and there is often no easy way to monitor purchases made

while they are mid-trip. With 25% of procurement groups placing value demonstration to stakeholders as their number one priority, and another 25% naming it their second most important, it’s clear that justifying procurement’s involvement in the area is another key concern. With 24% placing a lack of oversight and visibility into spend as their top priority and an equal percentage placing it as their second, one of the main challenges that procurement faces when becoming involved in the travel category is effectively controlling behaviors and consolidating the spending information associated with them.

There have been several studies done that look at why travelers go outside policy, don’t

use preferred suppliers, and the number one reason by far is that they believe they can

save money. The study also shows this behavior actually increases spend, but it’s good to

know travelers are mostly doing it for the right reasons. So the challenge becomes one

of communication, education, and staying on top of it. Tools exist that can help with this.

For example, CWT has an automated messaging tool that can remind travelers to book a

compliant hotel if they booked airfare only, or congratulate them when they have booked

a fully compliant trip. These messages are completely automated and can be based on

hundreds of parameters - all focused on driving compliant traveler decisions.

- Jim Canning

By enabling technology to allow travelers to choose their own preferences within a

range of compliant options, you allow travelers to feel like they are making their own

decisions and not being forced into a one-size-fits-all outcome. Getting out there and

selling the concept and educating on the benefits of a corporate program as opposed

to going rogue, as well as highlighting the safety aspects, will give travelers pause to

think about why there is personal value in complying.

- Lis Anderson

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Research Analysis

Emergency support

Mobile booking/check-in/alerts

Compliance/savings focused technologies

Safety and security

Reporting

Online booking

14% 9% 27% 23% 27%

15% 31% 27% 4% 4% 19%

16% 13% 21% 13% 21% 16%

21% 7% 17% 13% 29% 13%

21% 18% 26% 21% 7% 7%

48% 28% 4% 12% 4% 4%

Please numerically rank the most important technologies/ tech features that can be leveraged to improve travel programs

1 2 3 4 5 6

The single most significant tech feature that procurement groups feel they can leverage to improve their travel programs is online booking, with 48% placing it as the biggest contributing piece to an effective travel policy, putting the ability to manage compliant transactions into the hands of travelers, as opposed to keeping the tactical workload of individual bookings within the procurement department. Reporting, safety, and security are all considered top priorities by 21% of procurement teams, with reporting taking the edge as a second and third priority. This is significant, as

visibility of spending carries such a high premium for procurement. For 18%, compliance tools would be the most important tech feature that they could leverage to improve their travel programs, which, given the importance of compliant behavior to smoothly managing a program, have the opportunity to make significant improvements in their efficacy and smoothness. Mobile booking and check-in alerts, while the first choice of 15% of procurement teams, had a stronger showing as a secondary and tertiary priority, indicating that for most teams mobile booking has a place within their top three.

Applying technology and improving travel management performance

Online booking is a cheaper and much more convenient channel for booking travel. And it can help drive compliance. But it’s not a silver bullet. Most policies allow for exceptions, so the challenge becomes one of human behavior, whether booking online or not. We do know that most travelers will make the right company decision once aware of the impacts. So booking same day trips are likely not encouraged, but are potentially allowed. So how does a company tilt this behavior in favor of a more cost effective decision? And thats where communication, instant messaging, employee rewards, etc, can really have a huge impact.

- Jim Canning

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Research Analysis

Low transaction fees

Leveraging/support on the supplier contracts (air/hotel/car)

Driving compliance to policy

20% 47% 33%

43% 27% 30%

44% 23% 33%

When evaluating travel management company savings, how would you rank the following from 1-3, 1 being most important:

1 2 3

The benefits of stronger travel technology can extend across several categories, however which of these benefits are the most desirable will depend on the specific needs of individual procurement groups. When it comes to what creates the biggest impact

on savings, the majority of procurement teams are split between prioritizing policy (44%) and leveraging support on supplier contracts (43%). As a secondary priority, low transaction fees are the standout, backed by 47% of procurement teams.

If you’re not using technology today, it’s really hard to ensure compliance. I think most

people are busy, and want to book their travel along the lines of what they like or dislike,

and it’s an emotional decision. Implementing an online booking tool has really helped

with compliance for this reason, so that the traveler can go in and feel like they are

booking the travel on their own, but are still adhering to travel policy, or are made aware

of their non-compliance. App incorporation has also been very helpful, but also I think

promoting a general awareness of a travel program and why it’s there is essential for

creating compliance.

- Lis Anderson

Although I am a bit relieved to see less of a focus on booking fees, I honestly do not yet

see the interest in proven capabilities that help drive policy compliance. I do think having

Strategic Procurement more and more involved and leading the travel management buying

process will absolutely help focus more on how impactful savings can be realized.

- Jim Canning

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Key Recommendations

Internal relationships and communication are keys to procurement success.

Procurement naturally excels at creating savings and building strategy into business goals. The other side of the coin is procurement’s need to communicate the value of these wins to business leadership. Without taking the time to internally sell procurement’s processes and results, it can be much more difficult to expand jurisdictions and gain the cooperation of business leaders who may still have final say over purchasing decisions.

As “low-hanging fruit” discounts are pursued, the effect of procurement on the bottom line can be normalized, increasing the need for communication around value.

Procurement is often able to create high margins of savings as they are called in to address categories that have never had formalized controls applied to them, which means that they are able to create transformations around value within the early years of their establishment. Within more mature organizations, the track record of value creation can lead to greater control, but when obvious steps are taken, procurement must lean on communication of the value they are building to supplement their incumbent best practices.

Travel is an example of a procurement category that is newly ripe for re-examination, and another avenue for creating savings and value.

Having long resisted more formal controls, the personal nature of travel outcomes makes it one of the last areas to come under the umbrella of procurement’s influence. While there are challenges present within the category, including preserving cost efficiency while accommodating traveler preference, enforcing compliance, and expressing value to stakeholders, in general procurement has a major opportunity to create new savings in this area. One way they will be able to realize these savings is by more closely monitoring the category and getting out further ahead of RFPs in order to maximize the potential for traveler behavior that is compliant and still delivers practically and experientially.

Having Strategic Procurement more and more involved and leading the travel management

buying process will absolutely help focus on how more impactful savings can be realized.

- Jim Canning

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Appendices

Carlson Wagonlit Travel

WBR Digital

Appendix A: Methodology

Appendix B: Demographic information

The results analyzed in this report were gathered from responses to an on-site benchmarking survey delivered at ProcureCon Canada 2016. 44 executives

Carlson Wagonlit Travel (CWT) is a global leader specializing in business travel management. CWT is dedicated to helping companies of all sizes, as well as government institutions and non-governmental

organizations, streamline their travel programs and provide best-in-class service and assistance to travelers.

Report Author

Andrew Greissman 646-200-7950 Andrew.greissman@wbresearch.com

responded to the survey. Interviews with sources were conducted after survey data was compiled, and centered on discussion of benchmark results.

By making use of the talents and know-how of its people around the world and providing leading-edge technology and innovative solutions, CWT enables clients across the globe to drive savings while delivering service and enhancing security and sustainability.

CWT also plays a major role in meetings and events management, providing strategic know-how and a host of services and technology solutions that help companies make the most of their investment.

WBR Digital connects solution providers to their target audiences with year-round online branding and engagement lead generation campaigns. We are a team of content specialists, marketers, and advisors with a passion for powerful marketing. We believe in demand generation with a creative twist. We believe in the power of content to engage audiences. And we believe in campaigns that deliver results.

62% Centralized

19% Decentralized

19% Center-lead

16% Pharmaceutical 14% Insurance/healthcare 14% Telecom, electronics,

hi-tech 14% Energy, oil & gas 9% Government 9% Other 5% Mining 5% Entertainment/gaming 5% Third-party logistics 5% Other transportation 2% Manufactured goods 2% Aerospace/defence