7 Ways Procurement Transformed the Hospitality Industry
Guest blog by: Scott Hollis, former Sr Vice President for Strategic Contracting, Marriott
Updated: December 7, 2022 - 6 MIN. READ
If you’ve shopped for groceries at big warehouse stores like Sam’s Club or Costco, you have witnessed firsthand the power of collective, centralized purchasing and volume discounts.
Like most industries, the hospitality sector relies on many moving parts to provide materials, labor, and overhead utilities for its day-to-day business operations. Many companies are turning toward digital solutions for their purchasing needs as new advanced procurement platforms and group purchasing programs are proving themselves worthy fixes for recurring issues related to purchasing in the hospitality industry.
With the impact of COVID and the strain the pandemic has placed on the global market, professionals in the hospitality industry are realizing the importance of using digital procurement platforms to compensate for the challenges associated with purchasing in an increasingly volatile and unpredictable market.
According to Bizsimply, the three main issues that the hospitality industry faces with purchasing are supply, price volatility, and uncertainty.
Issues the hospitality industry faces with purchasing
Supply comes from several different sources, often from locations all over the globe. Raw materials and labor shortages can quickly disrupt supply chains, making it vital to understand why these disruptions occur and to be able to quickly shift sourcing and procurement procedures in order to prevent costly delays and shortages.
Price volatility has become a major concern in recent years for many of the same reasons supply chains have suffered. Suppliers have struggled with profit. In some cases, suppliers operate at a loss to make up for the issues caused by the global crisis. These suppliers are raising and lowering prices to remain competitive and survive the various challenges their industries are currently experiencing. In hospitality purchasing, pricing on parts and materials essential to a business’s maintenance, repair, and ongoing operations can shift dramatically, even week to week. This volatility can make it hard to optimize your procurement spend and purchasing procedures.
Uncertainty is an enduring result from the previous challenges the hospitality industry has experienced. Before issues with COVID, many businesses held their suppliers in high esteem and trusted their service, but because of numerous production and distribution challenges, many suppliers had difficulty maintaining pre-existing contracts. This often resulted in broken contracts as fulfilling orders correctly and on time became impossible.
Digital transition in hospitality procurement can offer solutions to these problems. Using data analytics and centralized purchasing to gauge price fluctuations and your first- and second-tier suppliers’ inventory is a great way to begin a digital transition. Additionally, procurement platforms that aggregate purchasing and assist in negotiating special pricing agreements with suppliers can result in lower prices and reduce rogue spending. Data also can be used to monitor trends in pricing and availability. Suppose the data predicts a future surge in prices or that a specific sector may experience supply chain disruptions, you can avoid paying more for goods by delaying an order or increasing a current order’s quantity.
Implementing a centralized, digital purchasing platform can be a hurdle in itself. It's good to take a few moments to learn the best practices when you want to go digital. Hotel Tech Report suggests “small, achievable efforts directly connected to a business outcome” should be used as a general strategy. Many digital plans fail, and this is because the goals are too large in scope. It is also the case when there isn’t a clear business-related goal that digital solutions will achieve. These goals can be along the lines of the following:
- Increasing web traffic, thus increasing digital revenue.
- Reducing overall operating costs.
- Increasing product and service quality
- Improving customer experience
If you have been following Raiven, you know that we’re always a fan of analyzing other industries. While many different types of companies use group purchasing programs to maximize efficiency and savings, the hospitality industry has been particularly successful at improving their bottom line using collective purchasing and negotiation.
We believe there are many takeaways from the hospitality industry’s experience which are applicable to the maintenance, repair, and operations (MRO) industry.
Seven problems of the hospitality industry and solutions through membership in a purchasing program
1. Blind Spots
- Problem: Very few companies within the hospitality industry have visibility into their procurement operations because purchasing data goes uncaptured.
- Solution: Since purchasing programs and digital procurement platforms are so data-focused, joining one allows access to robust reporting and insightful data dashboards. This means hotels are able to get the customized information they need and want, all without draining their resources.
2. Limited Resources, Limited Rewards
- Problem: Companies need to constantly negotiate with vendors to get the best price, but they often don’t have the personnel for this resource-intensive endeavor.
- Solution: By combining the collective purchasing power of many companies, each business benefits by receiving the best possible price. This setup also frees suppliers from constant negotiations, so they have more resources to devote to getting orders out quickly and accurately.
3. No Volume Control
- Problem: When you work for a single hotel vs. a chain, the only way to get better prices is to increase the volume of your purchases by growing your business. As a result, a company that’s not growing gets hit with a double-whammy: stagnant growth and static—or even higher—prices at a time when the business can least afford it.
- Solution: Hotels found that one of the advantages of a group purchasing program is that they could always add other businesses in the hospitality industry to the program in order to procure a higher volume at a better price—so if one hotel was facing setbacks, pricing wouldn’t suffer.
4. Order Disasters
- Problem: MRO orders were notorious for being imperfect, and the hospitality industry was no different. Missing items and unapproved, unwelcome substitutions occurred frequently.
- Solution: When hotels joined forces in a collective, they found that purchasing programs solved this problem by tying supplier compensation to accurate and efficient order fulfillment.
5. Communication Mishaps
- Problem: Let’s face it. Most suppliers didn’t get into the business because they excelled at customer service and communication. They did their best when they could focus their energies on fulfilling orders quickly and accurately.
- Solution: Purchasing programs served as a bridge or intermediary between vendors and customers, meaning they facilitate communication. This helped the supplier customers better manage inventory and expectations and kept relationships between the suppliers and customers For example, rushing a huge, unexpected order for a customer could deplete the inventory available to others. Suppliers typically did not have the bandwidth to balance orders but purchasing programs’ built-in customer service helped manage these orders and ensure all were filled in a timely fashion.
6. Fear of Collaboration
- Problem: At first glance, collaborating with competitors in their own industry felt strange and even dangerous. When Avendra, the leading purchasing program in the hospitality industry, was first formed in 2001, many hotel executives were wary—and some flatly refused to join.
- Solution: The executives who discerned the potential advantages and overcame their fears saw tremendous savings for their hotels when they joined. (As a note, purchasing programs are set up in a way that protects each hotel’s proprietary data with NDAs and agreements.) Now purchasing programs are accepted and even embraced throughout the hotel industry.
7. Focusing on Weaknesses Instead of Strengths
- Problem: Even though most hospitality companies realized that procurement was not their area of expertise, a pre-purchasing program industry meant there wasn’t much in the way of choice. Hotels still had to devote time and resources to procurement, even though that wasn’t an area that truly differentiated their businesses.
- Solution: Many hotels took the money saved through purchasing programs and used it to better train their employees to become masters in their areas of expertise (e.g., service). As a result, they were spending more time and dollars on brand-building efforts.
As you can see, group purchasing programs transformed the hotel industry by enabling companies to optimize their supply chains, negotiate deeper discounts, and avoid costly delays. That’s why Raiven partnered with Avendra. With $11 billion in aggregated spend, Avendra changed the hospitality industry, and now Raiven is bringing all these advantages to building and property owners, facility managers, and contractors operating within the maintenance, repair, and operations industry.
Interested in learning more about the ways digital purchasing can help your business? Raiven’s procurement program is a service that aggregates costs across mid-tail, tail, and rogue spending. With a simple platform, familiar materials and supply items from industry-leading suppliers will be available to order. With ongoing account management and frequent supplier negotiations, Raiven’s eProcurement platform fills many roles. If you would like to learn more, contact Raiven here.