E-Procurement systems enable hospitality organizations to better streamline operations and eliminate rogue spend through transparency and efficient supplier database management. At Hilton, our organization benefits from a web-based e-Procurement system, used in the majority of our UK and European properties, as well as in Egypt, Saudi Arabia, Jordan and Sydney A significant benefit is to disseminate information— essentially instructing buyers on what to purchase where we have centralized purchasing offices—and to collect spend information from those participating properties in order to centrally analyze it. The system offers valuable analytical tools, providing an integrated data warehouse that provides summarized or detailed reports of the organization’s purchasing data, down to a granular, single property level.
Regardless of whether a hotel negotiates their own supplier contracts, shares supply programs through ‘clusters’ or subscribes to a group purchasing organization (GPO) such as Hilton Supply Management, one of the primary values that any hospitality business can gather from a purchasing solution is cost savings through an increase in visibility and purchasing compliance. Purchasing compliance involves the percentage of spend “on contract” versus “off contract.” “On contract” refers to purchases against contracts that the organization’s corporate purchasing department has negotiated with suppliers or with a GPO. These contracts are often referred to as “programs”—for example, “the beef program” or “the dairy program.”
In the traditional procurement process, shortcomings in purchasing compliance lead to unnecessary overhead and payment costs. Additionally, hospitality organizations without a purchasing solution may struggle to get the company’s hotels to buy on contract consistently, and will lack transparency of the P2P process. Today, e-Procurement systems have addressed this issue and can even offer analytical tools to evaluate a company’s compliance percentage. When measured, the compliance percentage determines how effective the organization is in having its hotels “buy on contract,” using the programs that its corporate purchasing department has put in place.
A catalogue based e-Procurement solution brings another imperative benefit to an organization: increased supplier integrity. A hospitality organization may have supplier contracts in place and the organization’s hotel properties may be purchasing the right products from the right supplier; yet, without catalogue visibility in ‘real time’ the supplier may not honor the contracted prices. Some may be surprised to realize how often this occurs and the size of the dollar amounts involved. For example, item substitution is a common way in which a supplier may bypass contracted pricing. The supplier may gain a better profit margin by sporadically substituting an “out-of-stock” contracted item with a non-contracted item. Improving his margin, the supplier may rotate this substitution across an entire hotel portfolio. Our purchasing solution, BirchStreet Systems, allows our organization to run a simple report that analyzes the entire portfolio, immediately highlighting such occurrences.
The increased supplier visibility that our system brings and the ability to report all variances between purchase order and invoice is key to uncovering situations in which suppliers are over charging. For example in BirchStreet, most purchase orders are created from BirchStreet’s online supplier catalogs, which contain contracted pricing. Item-level variances between purchase order price and invoice price seen on reconciliation, can reflect a contract violation that would typically go undiscovered with a standard (manual) Accounts Payable solution. With BirchStreet, these variances are fully reportable. You can find these discrepancies—possibly discrepancies that existed for a considerable amount of time—immediately after implementing the purchasing solution.
A robust procure-to-pay solution also offers additional value in automation and financial controls. For most large organizations, increased consistency of process, visibility and compliance are the primary driver of savings. By way of example, at Hilton Hotels outside of the US, the implementation of BirchStreet achieved the dual goal of highlighting and capturing spend data, as well as providing the impetus for improvements to legacy processes and procedures. In one French property, the ROI was immediate, with annualized savings of $18,500 for a single hotel identified in the first day of go-live. In
Egypt, spend capture more than doubled, and we were able to consolidate our main supplier base from 422 to 183 vendors as a result of implementing BirchStreet. Productivity improvements reduced the typical processing time of one grocery order from three man days to a maximum of one, and provided a huge reduction in paperwork.
Steven Henderson has been working in the global hospitality industry for over 18 years, both in senior operational management, and consultancy roles for a variety of private and blue chip clients. Operationally, he has been the General Manager of a variety of hotels from the boutique, country house, to resort hotels up to 2200 beds. As director of a hospitality management company, his assignments have been equally diverse, and have taken him to some 20 countries worldwide – ranging from setting up the first championship golf resort in Turkey to the development of market leading branded holiday and hotel products for the largest European tour operators.
Steven is currently Senior Director, International Field Operations, Supply Management; and manages the procurement function of Hilton Worldwide in UKI, Europe, MEA and AsiaPac, through a network of some 15 field offices that run several purchasing models from fully centralised solutions, to hotel cluster and local program initiatives.