How hoteliers are balancing procurement challenges

Hotel procurement continues to face challenges due to a confluence of factors that have reshaped the landscape of the hospitality industry. This, in turn, has necessitated the constant juggling of inventory as hoteliers grapple with limited storage space while attempting to maintain adequate supplies. Add to that the rising cost of goods, and hoteliers are now forced to scrutinize every decision even further.

Despite some improvements over the past couple of years, lead times due to supply chain issues remain a challenge for procurement, sources said. For example, Jason LaBarge, senior vice president at Raines, said lighting units can take 18 to 20 weeks from the time of order until items are received for installation. Similarly, custom items such as drapery that are not manufactured until time of order can have an 18- to 24-week lead time when adding up measuring, manufacturing, shipping and installation.

“Balancing costs and quality, along with the continued supply chain shortages, are the issues that keep us up at night,” said Rob Auerbach, senior vice president of purchasing at Island Hospitality Management. He added that long-term supplier relationships have been critical to keeping hotels running smoothly throughout these issues. “These vendors constantly keep us updated on the back order and issues timing. These relationships have been instrumental in keeping the supply chain running smoothly.”

For some hotels, stocking up on supplies to combat long lead times isn’t a solution. “One of the biggest challenges we face is limited storage space at our select-service and focused-service hotels, which requires us to be strategic when ordering supplies in categories that are still experiencing supply-chain issues,” said Travis Murray, president of McNeill Hotel Co. “It’s crucial to inform our procurement service provider about any specific challenges we encounter, so that they can assist us in making the necessary adjustments to our ordering or delivery processes.”

The Process

For LaBarge, reviewing the procurement process happens every time the team begins a new project. Evaluating the previous process is key. The team wants to know whether the process worked, the team was pleased with the procurement company and whether they made the best decisions to keep the hotel owner’s best interest at heart. 

“We will also review our decisions in light of competition in the marketplace and the exit strategy for the asset. Right now, these considerations are extremely important,” LaBarge added. “The industry as a whole is extremely active with remodels and brand conversions to be competitive within individual markets and to enhance longer term asset value.”

Technology also has played a big role in improving the procurement process for hoteliers, according to Auerbach. “Hotels now can make use of real-time, forecasted budgets. As a company, we can control spending based on occupancy and forecast.  These tools have allowed us to better understand buying patterns and helped with price negotiations,” he said.

And when it comes to ensuring that suppliers meet quality and sustainability standards, Murray said it’s important to choose a provider whose goals and standards align. “Established hospitality providers are typically very knowledgeable about brand standards, but we also make sure that our procurement specialist understands the specific standards we want to establish for our organization,” he said. “This way, we can be confident that our suppliers are meeting the high standards we have set for them.”

However, the procurement process shouldn’t happen in a silo. Sources said involving other hotel departments is critical for success. “Our department leaders are well-versed in our procurement system and ensure that each department’s budget and forecasted spend are coordinated effectively. Maintaining hotel-specific order guides ensures that all departments are working together towards our common goals,” Murray said.

Transparency and fairness are also paramount for a successful procurement process. For one, Island Hospitality Management has put in place several steps to achieve goals here, including:

  • Develop clear procurement policies and procedures
  • Implement a competitive bidding process that encourages competition among vendors and ensures that the organization receives the best value for its money
  • Maintain a vendor registry to ensure that all potential vendors are evaluated equally and without bias of any sort
  • Conduct due diligence on potential vendors before awarding any contracts to guarantee all applicants have the necessary qualifications and experience
  • Provide regular communication and feedback to vendors and build a positive relationship that ensures all parties understand the procurement process 
  • Document the procurement process to create transparency and provide a record of the decision-making process

Savings vs. Quality

Especially as cost of goods keeps rising, hoteliers need to grapple with how to cut expenses without diminishing quality. It starts with evaluating the “why” behind any project.

“While renovation is a necessary part of a hotel’s life cycle, we always consider whether there is a value-add to the product that is being installed or replaced,” LaBarge said. For example, when redesigning a room at a property, one can choose to take out a whirlpool tub and install instead an extra queen-sized bed in a market where there is demand for double occupancies. “We will be able realize increased revenues with this strategy,” he said.

LaBarge said the team will also pursue value engineering approaches such as standardizing and pooling orders for multiple properties at the same time. “In those cases, we save on design and logistics costs and make practical materials choices,” he said.

Auerbach said long-term relationships with suppliers is once again critical to balancing cost and quality. “We continue to audit the suppliers for quality, and the proprietary software we use allows us to audit price discrepancies down to the individual line item,” he said.