AS MORE MEETING DEPARTMENTS move toward establishing strategic relationships with procurement, we tapped two purchasing industry leaders — Paul Novak, CEO of the Institute for Supply Management, and Dave Hannon, senior editor, Purchasing magazine — for their take on this trend, and to learn how their industry is changing.
CORPORATE MEETINGS & INCENTIVES: Why has purchasing historically steered away from involvement in areas such as meetings?
HANNON: I don't know that they have avoided these areas — it's more an issue of actually gaining control. With many internal services — such as IT or travel and meetings — the departments are more reluctant to let go of their control, as opposed to, say, buying widgets, which is a fairly straightforward kind of transaction.
What are the main reasons procurement has chosen to focus on meetings?
NOVAK: Many large companies haven't had good data on where they spent their money until the past few years. Their spend was from all over the world and had never been aggregated. There were a lot of reasons, including computer systems that couldn't communicate with each other and the lack of software to track the spend at various locations. When they finally figured out the spend on travel, for example, it was pretty shocking.
Now, companies can analyze their spend in ways that really had been very difficult before, thanks to the development of software that pulls data together for a total picture. This gave the concept of strategic sourcing a shot in the arm. Travel and meetings then became apparent to them, and it was just a matter of time before they got around to [managing] it in a world of competing priorities.
HANNON: It's also working the other way around. Departments are getting mandates from CEOs and other higher-ups to cut costs. So, to help manage costs, meeting executives are going to procurement to help get control.
How does procurement interact with other departments within companies, and how can that be applied to meeting departments?
HANNON: For one, we're seeing the creation of more cross-functional teams. Most forward-thinking companies are using these. A purchasing department and a meeting department will form teams that work together to, say, reviewor evaluate suppliers. Supplier A may, for example, provide a better price, but Supplier B provides better service. A planner brings a lot to the table as far as supplier evaluations, and the focus shouldn't just be on price.
NOVAK: Good supply managers try not to look at individual line items and tell people they don't need to spend in that area. It should be a team effort to save costs, increase impact, and further the strategic areas of the company.
Let's say you want to hold a meeting. You ask for specs, and sometimes they can be pretty loose. A “nice hotel” is something that can be hard to get your arms around. That's a big part of the process, trying to get them [supply management] to understand what you are trying to achieve.
It really becomes a question of value. You have to understand value, and the value of a “nice hotel” is not unquantifiable — it's just a challenge.
What drives procurement to mandate compliance, as opposed to offering optional services or guidelines?
HANNON: Purchasing will use mandates to control the maverick, but as purchasing gets more strategic, rather than use mandates, it learns to create more of a winning business case for its internal customers. For example, it might use newsletters to promote wins and successes: “We worked with this division to create these savings — don't you think your department would benefit from this as well?” Purchasing almost becomes an internal consulting group.
NOVAK: Experience tells us that voluntary compliance with company policies does not work. But mandates usually come from senior management, rather than from supply management.
The bottom line is that as organizations have centralized, it's up to internal departments to prove their value. It doesn't matter what a CEO mandates; departments have to be able to work together to cut costs and provide value.
Meeting planners are known to value relationships first, rather than always working with the lowest bidder. Will they just have to accept that the way in which they do business has to change?
HANNON: Purchasing departments are going to have to understand that you can't take an existing list of suppliers and beat them up on price — that's not the way it works today. You want to work more strategically with suppliers to come up with the most value in a relationship. Of course, there is a cost component to it, but you want supplier performance and happy internal customers.
NOVAK: The backbone of good supply management is good supplier relationship management. That being said, many who are concerned about the potential loss of relationships with selected suppliers eventually learn that their favorite supplier has been using that relationship to his or her benefit.
What impact has Sarbanes-Oxley had on your field?
NOVAK: It's actually driving more activity into supply management, since that is increasingly the area within the company that has the power to negotiate and sign contracts.
How can meeting planners better position themselves to work with procurement departments?
NOVAK: They have to spend time trying to understand each other and the fact that they each have common goals. And they need to educate themselves. Every industry has a language and terms that will be foreign to outsiders. Planners can avail themselves of the kinds of things we [ISM] have to offer, so that they can understand the language that is being spoken from our side of the table. My hunch is that once people begin to talk the same language, they will begin to understand the supply management process.
HANNON: One thing planners can do is search out other organizations that have gone through similar experiences — preferably a service organization that has worked with procurement to, let's say, negotiate contracts. Find a company or another department that you can benchmark yourself against in working to control meeting or travel spend.
How is the purchasing field evolving, and how might that affect meeting management?
NOVAK: First, we need to get rid of the term “purchasing department” and the baggage that carries. In progressive companies, what was called purchasing has been replaced with the concept of supply management. Supply management is less about the control and processing of transactions and more about the role each area of spend plays in the strategic plan of the company.
HANNON: While our magazine has the name Purchasing, we also use the tag line: “For chief procurement officers and supply chain executives.” We are trying to get a feel for how different companies are approaching their organizational structures. Companies are doing it in a lot of different ways. Organizational structures are changing, so the terms are changing.
About the Experts
PAUL NOVAK, chief executive officer of the Institute for Supply Management in Tempe, Ariz., has been with ISM since October 1988.
Novak led the institute in broadening its focus from purchasing into supply management. In addition, Novak is staff editor of the four-book Knowledge series on purchasing management.
DAVE HANNON is senior editor of Purchasing magazine, based in Newton, Mass. Purchasing is read regularly by 95,000 purchasing professionals all over the world. Hannon focuses on the transportation and logistics market as well as e-sourcing technologies and strategies for the magazine, where he has worked for five years.