Industry Q&A: Hilton Exec Retells Journey to Int'l Procurement Savings

| January 12, 2010

Steven Henderson has been working in the global hospitality industry for more than 18 years, both in senior operational management, and in consultancy roles for a variety of private and blue-chip clients.
 
In mid-2006, one year after joining the Hilton family, Henderson was promoted to the International Corporate Headquarters to project manage a re-branding feasibility study for the president and CEO, before being appointed to the newly created position of director - procurement systems Hilton International, the following year. Henderson's role was to develop a strategy to assess inconsistencies and opportunities in Hilton's international (ex-Americas) procurement policies and processes, and then to action necessary improvements accordingly. While he worked with several vendors across different procurement disciplines, BirchStreet Systems was selected as the sole global technology provider to help Hilton meet their current and future objectives. In order to further leverage the application benefits, and in recognition of the project's success, Henderson was promoted in 2009 to the position of senior director, international field operations, Hilton Supply Management; which will enable the application to become fully integrated into the corporate function in ultimately 69 countries. In this industry Q&A, Henderson recounts Hilton Hotels Corp path to procurement success.
 
What problems were you having/why did you decide to install this solution?
Steven Henderson: Hilton International, prior to its acquisition by Hilton Hotels Corp (HHC) had been historically focused in its procurement strategy on a regional basis, in that purchasing decisions tended to be made at an individual hotel, or country level. This was particularly the case for operational spend, and amounted to some potential US$750M of expenditure per annum that would potentially benefit from more strategic management through a more globally focused structure.
 
One of the greatest challenges in managing any spend is to quantify the latter, and to identify potential opportunities. In countries such as the UK, there were larger numbers of properties, supplier consolidation, and spend management was more successful; but across the Globe, disparate back office/procurement solutions (around 14 providers) as well as supplier fragmentation meant that there was a clear lack of accurate spend capture data. Even in countries where there were several hotels, there was also a lack of consistency in the procure-to-pay process, policies and procedures. Not only did the latter challenge the procurement function's effectiveness, but it also did not necessarily meet the requirements of additional internal stakeholders such as audit, finance, operations and legal.
 
In order to be able to make the best strategic procurement decisions it was essential that we should first be able to have the visibility of exactly what our hotels were buying, and also how this was taking place. In the U.S., our colleagues at Hilton Supply Management had been successfully utilizing BirchStreet Systems since around 2002, and, now that HHC was a "global" company, it seemed even more logical that we should also pursue a proven solution, and work towards a consistent standard. In consultation with these colleagues and our own stakeholders, it was agreed in late 2007, that we would have the goal of deploying one procurement application across the world, with a shared item taxonomy.
 
However, even with centralized capture of spend/increased visibility, it must be remembered that BirchStreet's application is an enablement tool and does not change the buyer/supplier relationships. It does, however, enable consistency in being able to centrally manage and price regulate catalogs, can standardize the procure-to-pay process, and deliver hard cost reductions through contract compliance and supply base consolidation. Ie: once we had visibility of spend, then this data could be used effectively to help manage our cost base. We conservatively estimated potential cost savings of around 2-5 % of captured spend, depending upon country of deployment and their existing systems.
 
One of the greatest attractions of the BirchStreet solution was, unlike all of the legacy systems that were deployed, it was web-based (SaaS model), meaning that the visibility of spend could be managed in real time, and in any location. In addition, as there was no hardware to purchase/install onto hotel servers (again, as was the case in legacy systems), the potential roll out of the application would be less challenging and potentially more cost effective than comparable, competitive products, with no local data storage requirements.
 
The other main attraction of BirchStreet was that the application has been designed for the hospitality/hotel business, and its functionality reflects true operational needs, with the ability for hotels to capture, record and create purchase orders for all operational spend within the application -- even services, cross charges and petty cash if required.
 
In a global context, this translates to multi-currency, multi-language functionality, the ability to regulate supplier pricing, and multiple supplier connectivity options (on-line, punch-out, XML, EDI, .csv, fax, e-mail, making it less challenging to on-ramp a diverse supply base ranging from sophisticated suppliers with thousands of products to suppliers with no catalog or Internet access). The system also had to be highly intuitive in order to minimize training resources, and be able to support a global taxonomy and in-country Vat/regulatory requirements.
 
Please describe the installation/implementation process, and what are the results of this investment to date?
SH: In order to ensure longevity in use of the application, as well as cross boarder co-ordination in the roll out of BirchStreet, we decided to implement the project using in-house resource as much as possible, although this could have been equally achieved utilizing the system vendor, or third party implementation teams.
 
A small, full time team of two (director and senior project manager) was internally recruited to drive the project forward, to be supported by BirchStreet, Hilton regional procurement offices, as well as additional local trainers. Crucially, within the in-house team, all such colleagues are from an operations background, which enables the implementation team to also use the project to look at a hotel's whole procure to pay process with a 'fresh pair of eyes' during the roll out process. The use of colleagues that have direct operational experience also tends to add weight in the inevitable change management process.
 
The methodology employed for the roll out was to begin with two 'pilot' properties -- a city center hotel in Paris, and an all-inclusive resort in Egypt. The reason for choosing two such contrasting properties was to benchmark the application in both a mature and fragmented supplier marketplace, as well as assess user impact in two very different cultures.
 
The main differences and challenges that we found when compared to the U.S. were ones of culture and change management. Internally, stakeholders that had historically made independent procurement decisions, required convincing of the benefit; and for some external users/suppliers this was their first experience of an e-commerce marketplace.
 
In addition, it was important to clarify exactly what expectations were being met by the application, and the degree of functionality that would be used. In the vast majority of hotels, in order to achieve the greatest impact over the shortest period, and with limited resource, we decided to adopt a layered approach to the roll out- beginning with the basic application (Supplier database, raising and approving POs, workflow approvals, receiving POs, reconciling POs). Over time, and once the hotel estate is comfortable with the base functionality, we will be able to return and offer additional benefits such as budgeting/declining check book, inventory management, back office integrations, recipe management, etc.
 
During the pilots, it became obvious that there was a much greater training need than compared to the U.S., and typically international implementations have relied on more face to face and 'on job' tutoring, than web-based classroom sessions. Providing that supplier data, approval workflows, etc are accurately loaded into the application beforehand, then training is carried out 'live' on the application, with one colleague able to train a hotel on-site, and then offer live support.
 
How did you describe the new system to your hotels and employees?
SH:
The new BirchStreet system is more intuitive (performance speed) and allows for easier navigation, offers additional supplier and data attributes, provides better reporting, and has the ability to customize the application to fit each hotel brand's needs. The system also offers "administrative leverage," which is a category of features designed to minimize the administrative burden for large-scale deployments including; powerful customization capabilities, flexible user access rules and maintenance features, open architecture for faster integration, intelligent catalogue features to lessen supplier and buyer admin, and flexible business rules. Plus it is deployable at the brand, user/user group, supplier/supplier group or property/property group level.
 
What would you say is the percent of spend that you've saved since utilizing the BirchStreet solution?
SH: Both 'pilots' were a resounding success, and achieved the dual goal of highlighting/capturing spend data, as well as providing the impetus for improvements to legacy processes and procedures. In Paris, the ROI was immediate, with annualised savings of $18,500 for the particular hotel identified in the first day of go-live. In addition, during the supplier adoption process and price regulation being enforced led to, for example a 21% reduction of price of photocopy paper, a $57,000 stationary cost saving and 2% saving on the meat supplier's catalogue for that particular property.
 
In Egypt, spend capture more than doubled, and we were able to consolidate our main supply base from 422 to 183 vendors. Productivity improvement led to the time taken to process one grocery order being reduced from 3 man days to maximum 1, and a huge reduction in paperwork -- typically 130 pages per weekly order from a large supplier down to 5. In Egypt, we are confidently forecasting to date annualised savings of over $1,000,000, spread over 19 hotels, and the projected savings / cost avoidance for remainder 2008 / 2009 is estimated at 3-4% of spend, when compared to hotel-centric purchasing. In more mature markets, such as France and the UK this forecast will be in the region of 2%.
 
What effect has the installation/implementation had on business?
SH: Following the success of our 'pilot' properties, we were, in 2008, able to begin the roll out in earnest, and by the end of the year, we implemented BirchStreet into 85 properties, in 3 languages (French, German, English), and in 5 countries (UK, Holland, France, Germany, Egypt). Spend capture during this period was over $100M, with over 120,000 PO's generated. We have trained over 2,600 users, and now have an on-line supply base of some 1,200+ catalog/ program suppliers, and 8,000+ other vendors.
 
Do you have any advice for colleagues looking to install this solution, and would you say it's been a good decision to implement the BirchStreet solution?
SH: The past year certainly has been challenging to achieve the above, and as we introduce additional functionality and languages, the number of properties brought on-line in 2009 may be slightly less, but the project remains core to our global procurement strategy. Was it a good idea? Yes -- it was a great idea, but what can be learned from our experience/give as advice to those considering e-procurement? Well, my favourite top tips are:
  • Don't assume that what is meant to be happening in legacy systems actually is: Ensure you find out the existing processes and procedures in practice, so that BSS is an enablement tool that can either: 1) automate existing processes, or 2) act as a change agent, or 3) both.
  • Keep it simple: Very often the greatest impact can be in the simple visibility and capture of spend -- without this, other functionality is meaningless.
  • Concentrate on the quick wins: Countries where there are larger numbers of properties or additional local procurement resource.
  • However, one size may not fit all: Be aware of any regional anomalies -- eg: tax, language, supply base maturity, etc : specify accordingly.
  • Once you have the visibility: Use it; do something with the data. The application is only a tool in the procurement toolbox.
  • Engage internal stakeholders as early as possible: Finance are the key allies here, as much of the application is process-driven. Project sponsorship at a senior level is essential.
A History of Hilton's procurement systems
1st Generation Technology (1986 - 1996)
  • Integrated Purchasing System (IPS) -- 250 hotels connected over a WAN
  • Limited view of non-graphical catalog data
  • Only connected hotels to Corporate office -- no ability to generate POs to local suppliers
  • Hilton Corporate transmitted POs to supplier via fax server/modem
  • Catalog content had to be maintained by Hilton -- no supplier interface
2nd Generation Technology (1996 - 2000)
  • Web 'enabled' Purchasing system
  • No supplier interface -- Hilton responsible for maintaining catalog content
  • National supplier data exposure only -- no local supplier information
  • No graphical user interface
  • Poor Internet connectivity
  • Thin client software had to be loaded on each user's PC
3rd Generation Technology (2000 - 2002)
  • Web based - Focus on transactional data
  • Thin client administration utilities -- not fully imbedded or integrated into the application
  • First attempt with supplier interface -- focus on EDI -- integration into ERP systems
  • Difficult to maintain / labor intensive (FTE's)
  • Suppliers tasked with maintaining data through an interface
  • Supplier pushback -- resistance to change
  • Limited 'canned' reports
  • Customers lacked high speed internet access
4th Generation Technology - BirchStreet Systems Technology (2002 to Present)
  • Administrative Leverage -- Position-based security rights
  • Easier to mass deploy application across all business units
  • More intuitive -- substantial reduction in training time/resources
  • Integration points for ERP systems (G/L, A/P, A/R)
  • Better Ad Hoc Reporting -- Client driven
  • cXML Supplier Integration -- Compliance to standards
  • Budget Management / Declining checkbook
  • Robust Catalog w/graphical user interface (buyers & suppliers)

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