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Why The Hotel Industry Needs To Digitise Purchasing

JodyP 17 December 2019
Why The Hotel Industry Needs To Digitise Purchasing

By Dave Brittain, Head of Amazon Business UK

Gone are the days when Excel lists, faxes and e-mails were essential to procurement functions in the hospitality industry. Digitisation is becoming increasingly important to companies who want to secure their future, and today, many procurement departments are relying on digital processes too.

It’s safe to say that purchasing departments are benefiting hugely from the cost and productivity advantages that these modern-day processes bring – especially those in the hotel industry.

We still live in a world of paper where documents are printed, and some invoices are sent by post. Procurement teams will know all too well, the thick paper catalogues that are used to source new products. But while many hotel procurement departments still follow these analogue processes and methods, they don’t do much to optimise cost and resource efficiency.

Advanced digital technologies and systems are making their way into purchasing, but not without consequences. For instance, work and release processes have to be adapted to support new online structures and the actions of individuals become more transparent. But while these issues may need to be addressed by businesses that introduce digital shopping, they’re easily addressed.

The role of the purchasing manager in hotels is changing too – as purchasers take on more responsibility, they also contribute towards the sustainable success of the business, through the procurement systems they use.

The role of Millennials in hotel procurement

It’s no secret that hotels and restaurants have to shop regularly, from everyday necessities to major purchases such as furnishings and software solutions, but a lesser-known fact is that Millennials play a major role in these purchasing decisions. According to a study by the Merit agency, more than 70 percent of 20 to 35-year-olds are now involved in purchasing decisions, and about a third are even solely responsible as chief buyers.

It’s safe to say that the Millennial generation, born between 1980 and 1999, are in favour of digital processes. Because Millennials have grown up being exposed to shopping apps, comment functions and product reviews, they’ve become accustomed to the benefits of online shopping – such as a wide selection, transparent comparison options and fast delivery. Now the Millennials are rising to leading positions and naturally they are bringing their personal shopping experiences into the business world.

The purchase of small-scale products drives up costs

It’s easy to forget about the “tail spend”- i.e. the purchase of non-production materials, which usually takes place outside the formal procurement processes. In hotels, this mainly includes small-scale product orders such as office, restaurant and hotel organisation supplies, administrative materials or IT accessories. Generally speaking, these items account for the majority of suppliers, which means that they’re often also responsible for a large portion of procurement expenditure.

According to the latest study by the Hackett Group, companies in every sector, including hotels, could reduce their purchasing costs by around a quarter by making business purchases online.

Significant increase in productivity through digital purchasing

Digital platforms have many advantages for hotels. All divisions and branches can purchase via one account – without complex processes and long approval loops. The ability to store an order number with every order makes the process more efficient. Hotels therefore benefit from leaner processes, lower process costs and, thanks to the marketplace concept, also from the best prices.

The result is often a significant increase in productivity, as the time required for catalogue negotiations, supplier qualification and the creation and checking of contacts is reduced. The fact that spontaneous purchases become possible also simplifies tail spend management, which is often faced with time challenges, especially in the hotel and service industries, where speed of response and flexibility are often indispensable.

Online shops for businesses are a key element of digitised purchasing and a powerful automation lever. For purchasing managers, they should therefore be a central factor in shaping their procurement strategy.

The nitty-gritty: how hotels of all sizes can benefit from digitalisation

In smaller hotel chains, there is often only one person responsible for purchasing, who is therefore also responsible for all important phases of procurement – from price negotiations to purchasing to incoming goods inspection. It’s a wide range of tasks, often complemented by internal consultation and coordination with the in-house marketing department, the chef or the housekeeper, who are not always happy to participate in making procurement decisions.

If purchasing is regulated via an online shop, the process can be considerably simpler. If it is determined together with each specialist department, which suppliers to work with and which staff members can purchase certain products and within what scope, then each department head is able to act independently and quickly as required. This way, the chief buyer can still hold the reins and fully exploit the economic interests of the hotel on the market.

Larger hotels also benefit from deciding to buy electronically at an early stage. Decentralised purchasing, but with central controlling, is particularly suitable for hotel chains whose hotels are spread across many locations and national borders. This means that each hotel does not need to buy independently for its own needs, nor does a central purchasing department have to take over orders for all locations and manage large collective purchases.

Often the buyers are not familiar with the regional requirements, which also makes the process inflexible. The chief buyer of the hotel chain, on the other hand, has the option of creating each hotel with its own hotel name and billing address in the online shop. The purchasers from the various departments and locations can then use their own accounts to act independently within a defined purchasing framework and react quickly to local requirements without any uncontrolled growth. Company and design guidelines can also be taken into account in the displayed product selection, which excludes purchases of unsuitable furniture or decorative elements from the outset.

A further advantage is that using the online shop allows expenditure to be consolidated if the same invoice number and payment terms have been defined for all orders, and the chief purchaser can keep a reliable overview of the tail spend and all associated expenses. Especially for large hotel chains, purchasing can be managed in a much more coordinated way.