Purchasing power : Hotel chains embrace on-line procurement

Hotel & Motel Management, Feb 21, 2000 by Marty Whitford

True "just-in-time delivery" is just around the corner-thanks to the industry's recent embrace of Internet-based business models, including on-line procurement.

According to a survey of more than 1,200 attendees at the recent International Hotel/Motel & Restaurant Show, the industry can expect a 67-percent increase in on-line procurement activity this year.

Conducted by GoCo-op.com, the November 1999 survey found 57 percent planned on their companies purchasing goods and services via the Internet during the next 12 months.

The vast majority of respondents-91 percent-said eventually, they plan to fulfill up to 50 percent of their procurement needs on-line.

According to Boston-based Aberdeen Group, total annual procurement expenditures hit $43 billion for the hotel industry and $60 billion for the restaurant business in 1999. On-line purchases by the hospitality industry eventually could exceed $50 billion annually.

According to Christopher Cogan, GoCo-op chairman and c.e.o., on-line purchasing provides significant savings to large hotel and restaurant chains. Cogan said cost savings include reductions in:

* administrative costs up to 90 percent;

* inventory costs 25 percent to 50 percent; and

* purchasing costs 10 percent or more.

"E-procurement systems offer huge cost savings to the hospitality industry by going where current systems can't," Cogan said. "We are seeing more industry executives opting for Internet-based solutions for supply-chain management in order to achieve these efficiencies."

Early adopter

Choice Hotels International is one hotel company that decided early on to ride the Internet wave.

More than one-third of Choice's domestic hotel system-850 franchisees representing 1,100 properties-are registered users of Choicebuys.com, the company's Web-based purchasing system. Since its launch nine months ago, the system has grown to accommodate 135 endorsed suppliers that offer more than 6,500 products ranging from designer bedspreads to shampoo to light bulbs.

"The overwhelming response to Choicebuys.com indicates our franchisees are recognizing the convenience, reasonable pricing and ease of purchasing that the Internet represents," said Brad Douglas, vice president of Choice's strategic partnership division. "In short, Choicebuys.com offers hassle-free shopping for the items our franchisees need to operate their hotels successfully."

Following suit

Although many aren't recording on-line procurement levels as high as Choice, most chains are preparing to better capitalize on the numerous benefits of electronic commerce, according to Larry Chervenak, president of Chervenak, Keane & Co., a New York-based hotel technology-consulting company.

"By 2010, most procurement by the hotel industry will take place on- line," Chervenak projected.

"The industry has a ways to go to take full advantage of e-commerce, but there's no question it's going to be the way to go," he said. "We're looking at a whole new merchandising structure-one in which the middleman is downsized or squeezed out, and the parties on the ends can cut their costs and expand their options and services."

Two hotel organizations preparing to roll out systemwide on-line procurement systems are Best Western International and Accor Economy Lodging.

Best Western currently has been beta testing an on-line procurement system offered by Las Vegas-based Purchasepro.com for a few months. Wayne W. Wielgus, vice president of Best Western's worldwide marketing and sales, said the membership organization hopes to expand the participation level from the current 120 North American properties to all 1,800 North American Best Westerns by this year's third quarter. When the chain completes its e-commerce roll-out to international properties in 2001, about 4,100 Best Westerns in 81 countries will be procuring goods and services via the Internet.

"On-line procurement offers an enormous opportunity for our individual members, as well as for the membership organization as a whole," Wielgus said.

"At this point, I don't see a downside," he said. "We're able to work with more vendors, get more product information out to members more quickly, cut inventory and administrative costs and improve purchasing services for our members and their guests."

Accor Economy Lodging, meanwhile, in February kicked off Phase I of its on-line procurement plan for its corporate-owned Red Roof Inn properties, said Kris Richardson, Accor Economy Lodging's vice president of procurement.

Phase I includes establishing electronic-ordering processes via the company's intranet, with immediate e-mail order confirmations and summary billing at Accor's Dallas headquarters. In mid-summer, Accor will begin Phase II, which includes establishing hyperlinks to preferred vendors' Web sites and/or providing preferred vendors' complete product catalogs on the company intranet. Capital purchases for such things as TVs for corporate-owned Red Roof Inns will continue to go through Dallas for funding approval.

Richardson said franchised Red Roof Inns have credit and billing issues they will have to work out with suppliers first, but the properties should begin Phase II in the summer. Accor's Motel 6 and Studio 6 properties will roll out on-line procurement systems next year after its systems capabilities are upgraded.