A Guide to eProcurement for the Hospitality Industry
Bringing Control to Spend Management for Competitive Hospitality Organizations
Written by: Levvel Research
Underwritten in part by: Paramount WorkPlace
Q4 2017 | Featuring insights on:
- Current Market Trends in Procurement Processes Among Hospitality Organizations
- The Benefits of Procurement Automation for Hospitality
- Features and Functionalities of Leading eProcurement Solutions
Properly managed supply chain operations and control over spend can play a large part in a company’s ability to deliver to and satisfy its customer base. There are few industries for which this is so true as in the hospitality industry. Millions of guests are served by hospitality companies each year, and the amount of goods and services that must be procured to sustain operations is enormous. Hospitality customers depend on a variety of goods (e.g. toiletries) to maintain their daily lifestyle while traveling, and if these procurement processes are mismanaged, it directly affects customers. Hospitality companies can quickly lose considerable revenue and creditability if spend and the supply chain are not run efficiently.
Hospitality companies also struggle in other ways related to spend management. First, they tend to have remote, disparate locations and multiple back-office departments. It can be difficult to see into all purchasing activity across these locations, and rogue spend and compliance are major issues for these companies. Also, keeping costs down has recently been intensified by new competition in the hospitality market. “Sharing economy”-minded hospitality services like AirBnB are drawing large amounts of customers and revenue from standard hotel chains that once owned the space. More traditional hospitality institutions must now work harder to appeal to consumers’ changing expectations and maintain financial stability.
One way for a hospitality company to control both costs and supply chain operations in the back office is to implement an electronic procurement (eProcurement) platform. These solutions can help companies coordinate spend across multiple locations and departments. They centralize all activities pertaining to procurement, from requisitioning to supplier management, while offering a great deal of visibility into spend before and after purchasing. Streamlined procurement processes, in turn, help hospitality companies reduce rogue spend and overall processing costs, and allow them to offset some of the financial challenges arising from new competition. The following report highlights some recent trends in the hospitality industry and offers insight into the ways eProcurement can improve these companies’ operations.
Procurement Trends in the Hospitality Industry
In order to identify procurement trends among North American organizations, Levvel Advisors surveyed over 400 organizations across a variety of industries and market segments. Survey results show that organizations in the hospitality industry are relatively progressive in their use of back-office automation. For example, compared to North American averages, they are more likely to have adopted an eProcurement solution, see Figure 1.
Figure 1: Hospitality Organizations’ eProcurement Adoption Rate is Higher than the North American Average
“Does your organization utilize an eProcurement solution?”
In other areas, hospitality companies use more advanced methods of dealing with everyday procurement activities. For example, if they are not using an eProcurement solution, they are highly dependent on email for tasks like sending POs to suppliers or checking on the status of POs, see Figure 2 and 3. While email is not as efficient as using an eProcurement solution to communicate with suppliers, it is preferable to manual-based methods, such as calling and using postal mail to interact with the supplier. These survey results indicate a more modern back-office culture within the industry in general.
Figure 2: Hospitality Organizations Send the Majority of their POs through an eProcurement Tool or Email
“How do you send the majority of your POs to suppliers?”
Figure 3: Hospitality Organizations Primarily Use Email to Check on the Status of Their POs
“How do you most commonly check on the status of your PO with suppliers?”
Levvel Research believes that the hospitality industry’s more advanced eProcurement adoption is due to the high amount of indirect goods and services these organizations must purchase, and the frequency with which they must make orders. For example, consider a hotel chain operating dozens of locations across the US and other global regions.
Not only must each location consistently order large quantities of items essential for every hotel room, such as the furniture and bedding, they must also consistently replenish the toiletries and stocked refreshments that deplete at much faster rates. In addition, it is vital that those in upper management maintain consistent control over spend and purchasing activity throughout these locations. It is their job to maintain a steady and transparent supply chain and negotiate the best prices and terms on purchases. Unfortunately, many companies have little real-time visibility into their supply chain operations, and they find it very difficult to assess how much spend is being dispersed inefficiently and at non-competitive price points, much less rein in that spend.
Levvel research found that hospitality companies grapple with many of the issues common to organizations managing disparate locations and a high amount of spend. For example, when asked for the greatest improvement they hoped to see in their procurement process, companies were concerned with managing data, costs and supplier negotiations, gaining visibility into spend, and contract compliance, see Figure 4.
Figure 4: Most Hospitality Organizations Want Improvements in Data, Cost and Supplier Control, and Spend Visibility
“In what area would you like to see the greatest improvements in your procurement process?”
Fortunately, software is available to help with these issues. The following section details the features and services of eProcurement solutions, and how they help hospitality organizations.
eProcurement for Hospitality
eProcurement software tailored for hospitality offers dynamic, web-based purchasing automation to help companies manage complex supply chains and widespread operations. The solutions include functionality for requisition creation and approval workflow, supplier catalogs, order lifecycle management, supplier self-service portals, budget management, receiving and fulfillment, and spend analysis—all in one real-time platform.
The following items identify more ways in which eProcurement features can improve hospitality companies’ procurement operations.
eProcurement solutions bring all spend into one platform, giving approvers real-time visibility into purchasing as it occurs, and enabling purchasers to quickly see into data related to budgets, suppliers, and catalogs as it changes. This connectivity enables upper-level management to gain more visibility into financial activity from a broader vantage point. eProcurement solutions are also simple to adopt, with many offering extensive API capabilities for integrating with existing financial systems, even if different locations are using many different systems. As users create requisitions, they can leverage information that is already in the ERP, such as GL account, budget, and vendor data.
Managing spend across multiple locations depends not only on visibility of activity—it also requires real-time control over that activity. Today’s eProcurement software offers extensive controls in many areas of procurement including approval workflow. This control allows administrators to create detailed routing and approval structures to send documents quickly while maintaining the security of sensitive financial data. Companies can set purchasing restrictions based on certain parameters, such as dollar amount thresholds. Organizations can also configure roles-based access to the system or restrict certain purchases by spend category. These controls can be placed across all locations and users.
Flexible Supplier Catalogs
eProcurement offers robust supplier catalogs that help companies choose the most suitable items and services at the best prices. Electronic catalogs function as online marketplaces that give users access to a variety of goods, with extensive details and competitive pricing. Catalogs allow for requisitions and POs to be created from a catalog selection, but with more accuracy and compliance than manual, non-catalog requisitions, as they are integrated with supplier contracts and/or maintained by suppliers. Many eProcurement systems are designed to provide more interactive, user-friendly shopping experiences in their catalog in order to compete with sites like Amazon.
The most innovative ways to access supplier offerings come in the form of punch-out catalogs. Punch-outs are supplier-maintained and are hosted outside of the eProcurement solution, but are integrated with the user’s ERP in order to transfer purchasing information quickly back to the hosted system. Punch-out catalogs are very valuable to hospitality companies for the way the solutions allow vendors to maintain product information and prices, while also allowing the requestor to shop vendor sites and pull product data into their own system for approval. This is particularly appealing considering the high number of items and amount of spend the industry manages.
Budget Management Support
One of the best ways to control spend across many locations is to use and adhere to strict budgets. An eProcurement solution tailored to the hospitality industry’s needs allows organizations to see a purchase’s potential impact on a budget before spend occurs. When budget limits are exceeded, the solution can display warnings or send the purchase request through special approval workflows.
Most eProcurement solutions come with advanced self-service supplier portals that enable communication and collaboration between buyers and their vendors. These portals allow suppliers to accept POs, send advanced shipment notices, check on the status of invoices and payments, and update their profile and payment information. Additionally, many portals come with dispute management features that allow suppliers to send queries for current transactions and use an online dispute management help desk. In all, supplier portals help hospitality companies gain greater control over their suppliers—no matter the geographic location, supplier type, or frequency of the interaction.
Auditing and Analytics
In addition to providing real-time visibility into purchasing activity, eProcurement solutions offer historical visibility into all activity conducted on the platform. Audit trails are logged throughout requisition and purchasing lifecycles, and administrators and approvers can gain real-time insight into the status of approvals and orders at any time. This eliminates the blind spots in the P2P lifecycle that often arise from manual processes, and aids in compliance during any future audits. The procurement data can also be leveraged in spend analysis with eProcurement’s built-in reporting and analytics tools. This allows upper-level management to perform financial forecasting and other strategic activities with greater accuracy and greater impact.