There are over 91,000 hotels and motels just in the U.S. as of 2019, with over half being hotels. Worldwide, there are over 4 million rooms available for booking. Hospitality is a huge industry made of several subindustries.
When we talk about the hospitality industry, we’re not just talking about hotel rooms, but also food and beverage, recreation, travel, tourism, and meetings and events industries. This all adds up to a colossal hospitality complex. Every year, it moves hundreds of billions of dollars.
With so much money involved and so many locations, businesses, employees, and moving parts, the procurement process within the hospitality industry is complicated, to say the least.
With many hospitality companies having multiple locations and back offices, rogue spending and odd systems of procurement and filing abound. In this article, we’ll discuss procurement and eProcurement within the industry, giving you everything you need to know for a streamlined, efficient business.
Procurement vs. Purchasing
First of all, what is this “procurement”? Is it a fancy word for purchasing?
Turns out, it isn’t just a synonym. Procurement is a process exclusive to production environments, while purchasing is exclusive to wholesale environments. Procurement involves the entire process of identifying needs, information sharing, sourcing, tendering, auctioning, and product ordering.
Procurement proactively identifies and fulfills needs, while purchasing is a reactionary internal need fulfillment. Lastly, procurement focuses on long-term relationships with vendors, from whom the company will be buying high volumes and frequently, while purchasing is generally just a one-and-done transaction.
Procurement personnel negotiates contracts with suppliers for ongoing exchanges of goods and services for payment. A hotel will need contracts for soap and shampoo, toilet paper and towels, as well as washing machines, vacuums, all-purpose cleaner, and mints.
The business will not go through the entire research and purchasing process every time they need more Lysol, but will rely on contracts and relationships they have formed with a Lysol vendor.
B2B vs. B2C
Procurement involves business-to-business (B2B), as well as business-to-costumer (B2C) transactions. B2C transactions are what you’re involved in when you book a flight, a hotel room, or a massage.
As the customer, you’re making a purchase just for you or your household, based on your own research maybe, but also on advertisements, influencers, and recommendations from family or friends. You’re more concerned about the product or service you’re getting, and not about the relationship you have with the business from which you are buying.
In B2B transactions, relationships between the buying business and the vendor business are key. B2B transactions are generally large purchases with high dollar amounts and longer, more complicated sales cycles.
While a B2C purchase may be spur-of-the-moment or compulsive, B2B transactions are calculated decisions based on many factors, like long-term goals and business strategies.
The Steps of Procurement
Procurement is the entire process of obtaining goods and services for a business. It has several steps, each of which needs special care and attention.
- Recognition of Needs. This is the first step of procurement, where the business starts its research. What does a hotel or casino need in order to be up and running? We’re talking lights, chairs, bedclothes, shower curtains, refrigerators, poker chips. How many? How quickly? How good of a price can you get?
- Purchase Requisition and Review. The purchase requisition is a formal, written document to request permission to make the expense. It includes the product you want to purchase, the quantity and price, the department it’s for, and any other key data. Managers and department heads will then review the requisition and check to make sure it’s within the established budget. Once they approve, the requisition becomes a purchase order (PO).
- Solicitation Process. Once the PO is in hand, it’s time for a procurement plan and solicitation process. Simply put, solicitation is the process of requesting bids from potential suppliers. You’re looking for the best supplies at the best price and dependability.
- Evaluation and Contract Negotiation. Next, the solicitation process is closed as the procurement team evaluates the best price and fit based on vendor performance, referrals, and quotes. When the vendor is chosen and acknowledges and accepts the PO, a legally-binding contract is activated.
- Order Management and PO-Matching. The goods or services will then be delivered within the agreed-upon timeframe. The buyer will compare what has been received with the PO, receipt, and invoice. Then the invoice is sent for approval.
- Record Keeping. If there are no disputes about the invoice, the company accounts for the transaction. Records are kept for future reference and any potential audits by the IRS.
What Is eProcurement?
We know what procurement is, so what’s all this about eProcurement? eProcurement is the process of requisitioning, ordering, and purchasing goods and services online.
Unlike e-commerce, which is a B2C transaction, eProcurement is a B2B process. It facilitates interactions like supplier evaluation and selection, contract management, and invoice management. And it uses a web interface to do it
eProcurement’s goal, much like that of its rather outdated, older brother Procurement, is to acquire goods and services at the best price and in the best timetable.
But instead of requiring manpower – heavy research, tasks, and time, it uses the internet and software to do so. eProcurement takes care of laborious tasks like exchanging supplier contracts and filling out onboarding questionnaires that would otherwise need to be completed by a busy employee.
Manual procurement is the slower, more expensive, and manpower-consuming way to do business. If you are still using a manual, paper-based system you’re likely dealing with higher processing costs, long procurement cycles, and a lack of visibility. With eProcurement software, like that at BirchStreet Systems, you can fully automate your procurement process.
eProcurement software can streamline and tighten all the steps of procurement. It will connect you to all your suppliers, big and small, on one interface. With all your suppliers in one place, it will be easy to start the research to pinpoint your needs.
The purchase requisition and review will all be done digitally, saving paper and delivery time to other offices or departments. The approved PO will then be ready to be fulfilled by bidding suppliers. All this will be digitized and easier to keep track of, compare, and delineate. Choosing the best supplier at the best price has never been easier.
Likewise, the contract negotiation and activation will be online and easy to receive the needed signatures. Contracts, like the purchase requisitions and POs, will be stored safely in the cloud. There they will be neatly and intuitively organized, easy to access, and safe from floods, fires, and computer crashes.
With eProcurement, all the order management and PO-matching will be done by the software. This ensures a quick, accurate review and matching process. Any discrepancies will be picked up and flagged by your software.
Invoice management is a breeze with eProcurement software. You’ll be able to receive, review, pay, and file invoices in one interface. If you’re still writing checks, this software will come as much-needed relief.
Checks are expensive, take a longer time to process, and are more susceptible to fraud than ACH payments. Automated Clearing House payments are fast, cheap, and secure. Services like BirchStreet Pay let you pay vendors with the click of a button and earn cash rewards while you’re at it.
eProcurement Benefits Information Transparency
The benefits of switching to eProcurement are hefty and numerous. In today’s world, you’re either automated or you’re left behind. 81% of people traveling want greater digital customer service from their hotels.
If things like requests for more towels are being handled by automated, online systems, then something as essential as procurement should not be left to slow, error-prone manual systems. And the benefits are nothing to sneeze at.
eProcurement creates information transparency. As it is transferred from one business to another, data is made more visible to both parties through eProcurement software. This facilitated way of viewing your data can help recognize purchasing behaviors, reduce rogue spending, and leverage buying power.
eProcurement Helps Companies’ Bottom Lines
eProcurement helps companies to save money. Manual systems often result in overlooked expenses, costing companies a lot of money, and often over a very long time. eProcurement software can eliminate these oversights and errors, saving the company money which can be used for other business-boosting practices like advertising.
eProcurement Saves Employees Time and Energy
Employees feel valued and fulfilled when they’re doing work that requires them to be creative and learn new things. Data-entry and analytics do not fall under this umbrella. eProcurement can save employees the time and boredom associated with these monotonous tasks.
eProcurement Shortens Procurement Cycles
Manual processes take time. The time that you don’t necessarily want to give, and time that may cause your vendor relationships to suffer. With automated processes, you’ll be able to shorten process cycles and increase productivity, save on costs, and generate a larger profit.
eProcurement Improves Inventory Management
Companies need to have a crystal-clear understanding of their inventory status at all times. Automated systems can keep track, in real-time, of what’s going in and out of your locations and warehouses. Having this improved understanding of inventory can help your business to make better-informed decisions.
No matter how big or small your hospitality business, it will benefit from switching to eProcurement. Take the first steps today by researching which service and software best fit your company’s needs, then prepare to improve accuracy, timetables, costs, and vendor relationships.