This post continues the thread from “Deciding How to Decide”. Here, I deal with the common case of having to choose from suppliers that seem comparable on non-price dimensions.
One of the things that makes sourcing the travel category unique is the need to factor in traveler behavior. Therein lies the key to selecting a winning bid from suppliers who look the same.
Let’s assume that you have a set of bids from a variety of suppliers, and that you don’t see much difference among them on the relevant quality dimensions. That leaves you free to focus on price as the deciding factor, right? Of course not…you know it’s never as simple as that. Here’s what you should do:
Price is very important, of course. So let’s use that as one of the two key dimensions for plotting your sourcing options. For each bid, calculate the expected savings or loss, and plot that value on the horizontal axis, as shown on the chart shown several paragraphs below.
The other key dimension, assuming that qualitative differences are small enough to ignore, is the degree of traveler resistance you can expect from awarding the business to a bidder. Call it traveler resistance, or degree of change management, or program risk…it needs to be a key factor in your decision. Make this the vertical dimension, with no change (i.e., keeping your current supplier) at the bottom, and a complete replacement of the supplier (high change) at the top.
Why does this matter? First, let’s give suppliers credit for having differentiated their product. OK, you and your buying team may not have seen much difference in whatever quality scores you gave to the bidders, but that doesn’t mean there isn’t any. Your travelers will have their own views on this, and the more differences they see in quality, the more important it is for you to recognize what you’re in for when you award a contract and then ask the travelers to change their suppliers. Especially if they think the new supplier is of lower quality, for whatever reason.
Secondly, think about all those frequent flyer miles and hotel points that your travelers have been acquiring. Even if the new suppliers really are of comparable quality, there will be a natural resistance to change, driven in large part by the need for travelers to build up their status with the new supplier.
These two factors create resistance to change, and that creates risk to your procurement strategy. Once you switch suppliers, you’ll lose the discounts on the old suppliers – yet your change-resistant travelers will continue to use them. The length and depth of this change-over effort can put a serious dent in your expected savings.
Once you plot the two metrics for each bid (amount of savings and degree of change), you’ll get a really handy one-pager. Here’s what it might look like:
How does this help you decide which bid to accept? Everything else being equal, take the bid that offers you more savings. If quality is the same, then there is no reason to take a bid that delivers the same (or worse, less) savings for the same amount (or more) of change, right? In the chart above, Bid B is better than Bid A, while Bid D is better than both Bid C and Bid E.
What about Bid F? It offers the most savings, but will require the most change. Should you take F, or D, or maybe just settle for B? Here’s the beauty of the chart – it lets you easily socialize the options with your stakeholders. The decision usually depends on senior management’s appetite for savings. This way, they can see the trade-off (the degree of change needed), and judge whether or not the savings will justify the friction needed to get them.
Does this analytical method favor the incumbent? Perhaps, but incumbents naturally have the advantage of no cost of change. Skilled buyers know this, and use it to their advantage by asking incumbents to narrow the savings gap accordingly, while asking challengers to increase it.