E-Procurement systems enable hospitality organizations to better streamline operations and eliminate rogue spend. 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 – and to collect spend information from all 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.
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,” and determines the programs that its corporate purchasing department has put in place. A large hotel organization should easily negotiate contracts and assemble programs that reduce prices from 10 to 15 percent below retail price.
Keeping suppliers in check
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-contracteditem. 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.
Hilton’s dual goals
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 U.S., 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 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 centralized solutions to hotel cluster and local program initiatives.