7 Ways Procurement Transformed the Hospitality Industry
Guest blog by: Scott Hollis, former Sr Vice President for Strategic Contracting, Marriott
If you’ve shopped for groceries at big warehouse stores, like Sam’s Club or Costco, you have witnessed firsthand the power of collective purchasing and volume discounts.
A purchasing program (sometimes called a GPO or Group Purchasing Program) is similar in that several businesses band together, forming a collective, to receive discounts and other benefits. A purchasing program does many things, including sourcing suppliers, negotiating discounts, and specifying service level agreements.
If you have been following Raiven, you know that we’re always a fan of analyzing other industries for learnings. While many different types of companies use purchasing programs to maximize efficiencies 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.
Let’s examine seven problems the hospitality industry had and how they were resolved through membership in a purchasing program:
1. Blind Spots
Solution: Since purchasing programs are so data-focused, joining one allowed access to robust reporting and insightful data dashboards. This meant hotels were able to get the customized information they needed and wanted, all without draining their resources.
2. Limited Resources, Limited Rewards
Problem: Companies needed to constantly negotiate with vendors to get the best price, but they often didn’t have the personnel for this resource-intensive endeavor.
Solution: By combining the purchasing volume of many companies in one collective, each business benefited by receiving the best possible price. This set-up also freed suppliers from having constant negotiations, so they had 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 your purchasing volume 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 purchasing program is that they could always add other hospitality businesses to the collective in order to procure a higher volume at a better price—so if one (or even all) hotel was facing setbacks, pricing needn’t suffer.
4. Order Disasters
Problem: MRO orders were notorious for being imperfect and the hospitality industry was no different. For example, missing items and unapproved, often unwelcome substitutions occurred constantly.
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. Problem solved!
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.
Solution: Purchasing programs served as a bridge or intermediary between vendors and customers, meaning they facilitate communication. This helped the supplier’s customers better manage inventory and expectations and kept relationships between the suppliers and customers strong. For example, rushing a huge, unexpected order for a customer could deplete supplies for others. Suppliers typically did not have the bandwidth to balance orders, but purchasing programs’ built-in customer service helped to 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 realized 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 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, purchasing programs transformed the hotel industry by enabling companies to fix these fatal flaws. 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 owners, facility managers, and contractors focused on MRO.
If your company could use some help thinking strategically about your procurement program, Raiven offers a managed service that strategically aggregates mid-tail, tail, and rogue spend. We offer ongoing supplier negotiations, account management, compliance, adoption, and a consumer-like eProcurement platform for no-cost price comparisons. Basically, we let you outsource the trouble of instituting money-saving relationships at no cost to you. If you’re interested in learning more about how we can help your company cut costs, please contact us.