THE DEBATE
SHOULD TRANSPARENCY RULE ON TMC FEES?
David Noble Chief Executive Director, Chartered Institute of Purchasing & Supply
David Noble was appointed Chief Executive of The Chartered Institute of Purchasing & Supply (CIPS) on 1 June 2009. Previously he was Group Supply Director at IMI plc, a FTSE 250 UK multinational company specialising in advanced engineering technology and responsible for around £1billion spend. A key achievement was pioneering category management and strategic sourcing at Motorola in the mid eighties. Although the majority of his career has been in manufacturing, he also has experience of the public sector, the distribution industry and large scale turnkey power station projects.
One of the hot topics for many travel managers is a lack of transparency and open book arrangements on TMC fees. Three industry experts attempt to get to the nub of the problem
THE PROCUREMENT COMMUNITY
DAVID NOBLE
In the wide range of industries CIPS members operate in, commissions and overrides and marketing fees are not commonplace from suppliers, but then all industries are different, with different ways of operating and certain nuances depending on the scope of the products being bought. What is key to CIPS is the general principles of good
Mark Avery Global Business Services & Travel Leader; Head of Business Services UK, Pricewater- houseCoopers LLP
Since joining PwC
in 1998 Mark has undertaken a number of roles in general business manage- ment. His current role within the fi rm’s Infrastructure & Property Group gives him responsibility for a number of central business functions, all of which have a very strong customer service and procurement focus. These include areas such as UK travel management, meeting and event services, UK training centres, corporate charge card, business insurance, car fl eet, videoconferencing and ground transportation, to name but a few. In August 2012 Mark took on the position of Global Business Services and Travel Leader for PwC Globally. Mark was chairman of ITM from 2006 through to 2008.
THE TMC Anonymous contribution
The representative of the TMC who provided the opinion in this feature preferred to remain anonymous. Many other individual TMCs approached to take part in this article declined to co-operate, as did the GTMC.
procurement and supply management practice and how the buyer manages the supplier. If travel manage- ment companies are adding commissions or fees to the services they offer then CIPS would always advocate those charges are transparent and upfront. It’s not possible to say that all suppliers are open
and transparent on their costs but it is certainly something we would urge and actively encourage. Any procurement professional should be sourcing the market correctly and be able to identify the supplier that offers the best true value for the service or product they are buying. Value includes total cost, not just the price of goods and services. Travel management companies
for example must consider that hidden charges or fees may make them look less competitive as other providers. It may also drive travel buyers to seek alternative ways of buying – including more spot buying as highlighted by research last year by AirPlus. This revealed less appetite for agreed deals in favour of spot purchases. All CIPS members sign up to
about open and transparent business practices. We are sure hidden fees and charges are not exclusive to one particular industry but they are not something we would ever advocate. Buyers should and – nearly always will – negotiate
with suppliers on the costs and services that they are offering. Hidden fees and charges are therefore simply unnecessary. From a CIPS point of view this debate comes
down to the individual buyer and the needs of their organisation. Obviously travel management companies offer a beneficial service and will need paying for that service. However, fees or charges must be open and transparent, otherwise the relationship between supplier and buyer can become very strained and not work effectively.
THE BUYER MARK AVERY
The issue of a lack of transparency over TMC fees hits buyers on several levels. Travellers book their own travel and see the leisure prices and believe there’s an opportunity to save money when they compare the cost of business travel. Travellers don’t understand there’s a lack of transparency; nor do business leaders and financial directors. It is difficult to educate them when the buyer doesn’t have all the information, as TMCs won’t disclose it. I believe TMCs won’t divulge the extent of
“If travel management companies are adding commissions or fees to the services they
overrides, marketing agreements and commissions because they’re concerned it’s another piece of revenue that will be negotiated away, and another opportunity for the corporate to beat them over the head on price. On average, commissions
offer then CIPS would always advocate those charges are transparent and upfront”
the CIPS Code of Ethics but this is about the buyer’s behaviour rather than that of the supplier. However, all procurement professionals must manage their suppliers effectively to maximise value for their organisation, so this becomes about good spend and supplier relationship management. The issue with the travel industry is not necessarily about the travel industry but more
paid by hotels to TMCs and HBAs are eight per cent in the UK. Then there are 'undisclosed' marketing agreements on top that we don’t see. Our intermediaries say it’s tiny in terms of our business so, if it is, why won’t
they share it with us? Our request for transparency is about helping us to understand their business model. This isn’t the soul of their profit; they’re not making huge profit from these payments. The other concern with the lack of transparency
is whether buyers are being offered the right products or is the choice coloured by these marketing agreements? If it’s a large corporation
22 THE BUSINESS TRAVEL MAGAZINE
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