Jim Haddow has had his eye on meetings for quite some time. As chief procurement officer at A.T. Kearney, Haddow had been purchasing space and services for the company's central meetings department, but only in a supporting role. Meetings fell under the professional development group — which is primarily involved in training — rather than with travel, where he felt they belonged.
“I have actually been pushing for this for the past several years,” says Haddow, whose department took over meetings January 1 and now procures nearly 300 meetings annually. “Since travel is under procurement, it just made sense for meetings and events to fall there too, so we could coordinate things more easily.”
In many companies like the Alexandria, Va. — based consulting giant, procurement managers are slowly moving meetings under their authority. But while the new boss might not be quite the same as the old boss, the good news is that his or her view of meetings extends far beyond the bottom line.
For Hadlow, it was all about efficiency. For Michael McMahon, chief procurement officer at global consulting and business solutions firm Deloitte Services LP, Wilton, Conn., it was all about restructuring the meeting department to streamline processes and improve productivity — and to relieve an overworked staff.
“This was never about bringing meetings into procurement to save money,” he says. “We're really not focused on savings per se. We've been able to adopt uniform procurement practices, includingpractices, standard , and operating within a more structured process.”
At pharmaceutical giant Novartis Pharmaceuticals, East Hanover, N.J., procurement's goal was to set up sourcing strategies, develop policies and procedures, and then “get out of the way to let meeting planners do what they're supposed to do,” says Steven Chyung, vice president, strategic sourcing — Americas.
New Roles for Planners
Usually, companies bring procurement into the picture for a combination of reasons: inefficient processes, overworked meeting staffs, and the need to create structure and savings around meetings and travel buys. Interestingly, in many cases, rather than squelch planners' decision-making power, the transitions create new opportunities for them to move into more strategic sourcing positions.
For example, at Deloitte, meeting planners were doing “everything from A to Z for every meeting” — from planning to sourcing — and were completely overloaded. Rather than throw more planners at the process, McMahon split the department (known as the global conferences group) into three groups: sourcing (which handles site selection andnegotiations), meeting planning, and close-out/settlement. Now, planners focus on a particular area rather than try to do everything. Jen Honan Luther, director of meetings, oversees the meeting planning group, while Michele Bryant, director of travel and nontechnology procurement, is responsible for meetings and travel procurement.
The six sourcing positions were filled with experienced meeting planners from the global conferences group, who were then trained in procurement practices and processes. “You don't have someone who was buying pencils and erasers and paper also buying meetings,” explains McMahon. If he had handed sourcing over to procurement staff who were unfamiliar with meetings, he says, “It would have been very painful.”
Oracle took a similar approach when it overhauled its meetings infrastructure last year, tapping a former meeting planner to run the sourcing operation. The Redwood Shores, Calif. — based software company hired Jack Eichhorn from Cisco Systems, where he was global manager of meetings and events. At Oracle, he moved to the procurement side to handle all sourcing as director of global meeting services.
At Oracle, there is no centralized meeting department. Previously, departments within each of the business units planned their own meetings and did their own sourcing. Administrative assistants did most of the work. Now, just about all planning functions are outsourced to independents, while all sourcing of hotels and travel, as well as independent meeting suppliers and other vendors, is handled through Eichhorn. “I essentially am the meeting department,” he says.
The savings so far have been significant. By using preferred suppliers, managing contracts, and leveraging the overall spend from meetings as well as corporate travel (which also falls under procurement), Oracle is targeting a 10 percent savings in year one.
The “Meetings as a Commodity” Myth
Eichhorn's internal meeting clients appreciate his background and that he understands the nuances of buying for meetings. Unfortunately, that level of confidence in procurement managers is the exception rather than the rule.
“Most meeting planners believe procurement individuals don't understand the unique features of purchasing meeting facilities and services,” says Haddow.
Lee Muller agrees. The Eastern group procurement director for Waste Management Inc. in Fairless Hills, Pa., bristles at the idea that meetings are negatively affected by procurement. “It's always the same thing with these nontraditional areas that have always run their own show,” Muller says. “They say that this is not something you can commoditize, it's very special, it's very relationship-oriented. I hear that from everyone — it's like a broken record.”
Handled correctly, however, Muller says that in his nine years as a procurement professional, he has yet to find a category of spend that has not benefited from a “defined, rigorous” sourcing process. “Meeting planning is no different from anything else as far as needing to put some science around what you are trying to do,” he says.
To help bring some science to the process, Novartis used cross-functional teams — made up of meeting planners and other internal stakeholders (marketing, training, and sales department managers) — to work with procurement on the consolidation strategy, the outsource strategy, and preferred supplier lists when it consolidated meetings four years ago. As a result, Chyung says, meeting planners now understand procurement better, and he has come to better appreciate the value of savvy planners. “Our meeting planners are very consultative to their internal clients.” They're anything but order-takers, he says.
Procurement pros also say it's a myth that they are entirely bottom-line driven and that they want to play dictator when it comes to choosing hotels and other meeting suppliers.
“The cheapest isn't the best,” says Oracle's Eichhorn. “We look for the best value.” For customer meetings or incentive trips, for example, skimping and saving by going with lower quality properties isn't going to add value, because at those types of events, he says, the company needs to put its best foot forward by selecting the right venue and creating the appropriate atmosphere.
When a meeting request comes in through the automated process at Oracle, it includes information about the meeting and often suggests sites and venues. Procurement sends out the RFPs, selects the providers, and negotiates the contracts — but not before consulting with the internal meeting requestor. “It truly is a partnership,” says Eichhorn. “We work with our internal stakeholders to assist us in identifying their needs so we have a good understanding of what the requirements are.”
The same is true when it comes to sourcing independent meeting planners, says McMahon. “We've got too much experience doing complex meetings to know that a single low-cost provider can sometimes cost you the success of the meeting.”
Chyung agrees. The fee for the independent planner may be only 10 percent of the total meeting cost, he says, but that supplier essentially controls or influences the other 90 percent of the meeting costs because it subcontracts with other vendors, such as destination management companies and audiovisual suppliers.
“When I hire meeting suppliers, I want somebody who knows how to control costs on the ground,” he says. “I want quality people who know how to deliver a meeting.”
Because at the end of the day, says Muller, “procurement in the modern organization is really a consultant — an internal consultant — and once people see the science behind the process you're facilitating them through, they warm up very quickly.”
New Relationship Rules
Meeting professionals often say that the involvement of procurement negates the relationships that they have worked so hard to develop with suppliers. But again, procurement has its side of the story.
Chyung points out that companies can have more in-depth relationships when they have a finite set of preferred suppliers. “It actually creates an opportunity for more partnerships — not fewer.”
Also, procurement does not own these third-party relationships, explains Chyung: They work with suppliers on the sourcing level, but the day-to-day interaction still remains with the meeting planners.
Planners can also maintain relationships with suppliers by coaching them on the rules and regulations in the new procurement-based structure, says Eichhorn. They may also recommend suppliers in a given market that are not on the preferred list — but those companies would still be required to go through the required RFP process.
As far as Eichhorn is concerned, the days of a meeting planner booking space at a favorite hotel without first issuing an RFP are gone. “That's certainly not what I would call procurement best practices.”
In this new environment, suppliers are challenged to show that they add value because companies whittle down the number of suppliers they use, says Paul Novak, chief executive officer, Institute for Supply Management, Tempe, Ariz.
“I know of a company that had 65,000 suppliers and right now has 3,200,” he says. “Of that 3,200, 120 make up 90 percent of the spend.”
Because companies are using fewer suppliers, smaller players may find that they have to focus on a particular niche to enhance their value. Chyung's advice to meeting suppliers: Bring innovative ideas of how the company can improve its meetings.
“Tell me how you're going to drive quality and innovation. That's what they're going to need to do to differentiate themselves.”
As for the key to integrating meetings and procurement successfully, it boils down to communication around roles and responsibilities and realizing that everyone really does share the same goal — a successful meeting.
“If you've got a progressive procurement organization, it should be about collaboration,” says Chyung. “It should not be about turf.”
Meeting Savings: The Bottom Line
Company brass at Novartis Pharmaceuticals knew they were spending a lot of money on meetings when they embarked on a plan to centralize the function four years ago. But just how much money was a shock, says Steven Chyung, vice president, strategic sourcing — Americas, at the East Hanover, N.J. — based company.
Novartis found that it held more than 1,000 meetings per year and was spending $180 million annually in the United States alone. In the first couple of years after the restructuring, the company saved 10 percent to 12 percent annually. That's around $43 million in two years alone.
“Because meeting spend, by its nature, can be very fragmented, it's eye-opening when you aggregate it all together,” says Chyung.
What's in a Name?
Purchasing and sourcing are two very different jobs, but people often use the two terms interchangeably. Recognizing the distinction, the Institute for Supply Management changed its name from the National Association of Purchasing Management in 2002.
“Generally speaking, purchasing was historically a transaction-based function within a company; that is, they are the people who got the requisition, issued the purchase order, and it went on to accounting to be paid,” explains Paul Novak, CEO at the Institute for Supply Management.
The change in name was made to reflect the fact that many professionals in the field have broader duties. Supply management is about “ensuring the supply of goods and services, anticipating what you're going to need tomorrow, and managing relationships,” says Novak.
Then there's procurement. What is the difference between procurement and supply management — or procurement and sourcing? Here are some definitions provided by the ISM:
PROCUREMENT — organizational function that includes specifications development, value analysis, supplier market research, negotiations, buying activities, contract administration, inventory control, traffic, and receiving.
PURCHASING — a major function of an organization that is responsible for acquisition of required materials, services, and equipment.
SOURCING — the process of identifying suppliers that could provide needed products or services for the acquiring organization.
SUPPLY MANAGEMENT — the identification, acquisition, access, positioning, and management of resources that an organization needs or potentially needs in the attainment of its strategic objectives.