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Q: Purchasing for the Lodging/Hospitality Industry ( Answered 5 out of 5 stars,   0 Comments )
Subject: Purchasing for the Lodging/Hospitality Industry
Category: Business and Money
Asked by: kalatraza-ga
List Price: $200.00
Posted: 11 Aug 2006 17:32 PDT
Expires: 10 Sep 2006 17:32 PDT
Question ID: 755170
I'm researching how purchasing for both FF&E and OS&E occurs
throughout the lodging and hospitality industry.  How large are these
markets?  Who usually makes purchasing decisions? How much influence
does the franchisor/parent brand have on purchasing?  In a perfect
world, your answer would outline the structure of the lodging industry
with an emphasis on key influences on the supply chain for FF&E and
OS&E.  Recent data/information will be a lot more useful than older
stuff (circa 2001) because of the ecommerce trends that bloomed then.
Subject: Re: Purchasing for the Lodging/Hospitality Industry
Answered By: belindalevez-ga on 13 Aug 2006 07:49 PDT
Rated:5 out of 5 stars
<Purchasing for the lodging/hospitality industry.

The US lodging/hospitality industry.
The $124 billion domestic lodging industry is a growing segment of the
hospitality industry. It is generally divided into various segments
including lucxury, upscale, middle scale and economy. In 2004, the
U.S. lodging industry had approximately 47,600 properties which
included more than 4.4 million guest rooms ? 3 million of which are
found in franchised hotels and 1.4 million in independent hotels.
2006 pre-tax profits - $25.6 billion
2007 pre-tax profits - $30.3 billion.

Source: Wyndham Hotel Group.

This report gives an overview of the hospitality industry around the world.
Source: Ernst & Young.

The 2006 U.S. Lodging Report.
176 pages.
Source: Ernst & Young.

The procurement market.
According to Zoho, the hospitality industry spends $150 billion
globally a year on procurement.

According to Avendra hospitality industry procurement is an $80 billion market.

According to the hospitality supplies industry is worth $10 billion.

According to the hospitality supplies industry is worth $50 billion.

According to the hospitality supplies industry is worth $50 billion.

Luxury hotel supplies and consumables are a $1.5 billion business.
Many hotels manage the re-order funcion in-house.
Source: Boxport

US hotels spend around $15 billion on direct purchases.
Source: Reengineering a Hotel?s Purchasing Process.

The US hospitality procurement market was worth $15.85 billion in 1999.
The operating expenses segment was worth an estimated $2.89 billion.
FF&E spending:
Non-capitalized - $2.51 billion
Capitalized - $3.85 billion.
Source: HRG.

Online procurement.
The Hilton Hotels Corporation is obtaining 30% of their $1 billion
annual procurement over the web. They are building and managing online
business-to-business communities and trading exchanges.

16% of purchase orders are done over the internet.
16% of strategic suppliers sourced over the internet.
16% of strategic sourcing dollars spent over the internet (Source: InternetWeek).

Past year purchasing
Construction materials 27%
Carpets/Rugs 16%
Foodservice Equipment 13%
Furniture 13%
Furnishings 12%
(Source: Hospitality Design, 2001.)

The full results of the survey from Hospitality Design can be found here.

Who makes the purchasing decision?

US hotels spend around $15 billion on direct purchases.
The current purchasing process in non-standardized. 
Hotels follows four kinds of business model which have different
systems for purchasing.
This report demonstrates the procurement process with a flow chart
(see figure 1: The procurement process in hotels is manual or

Hotels generally have a decentralized application environment with
moderate levels of automation and a very high degree of

Even chain hotels tend to operate as individual concerns for
purchasing maintaining their own stocks and rarely transferring stocks
between different locations when they have excess stocks. Instead of
transferring stocks, each hotel will order fresh stocks resulting in
inefficiencies and greater costs.

Cost of purchase can range from 15% to 30% of sales depending on the
type of hotel. Compared to other industries the cost of purchase in
the hotel industry is substantially higher.

Hotel models:

The physical ownership and operation stays with the owner and the
brand owning company provides the distribution network, purchasing
system and loyalty program.

Operating contract.
The hotel chain takes the onus of operation of a hotel. The ownership
status stays with the local owner. The owning chain generally shares a
part of the profit with the pysical owner of the hotel, or is paid a
fixed sum by the owner. This is the second most prevalent form of
structure in the industry.

Every large hotel chain has some part of their portfolio exclusively owned.

The hotel chain lends its brand to a hotel. Along with the brand,
generally, the loyalty program and reservation network is extended.

In a franchised or operating contract model two hotels in a city
possessing the same brand name may be owned by two different owners,
each having a different agreement with the brand. This makes
consolidated purchasing a difficult proposition.

A purchasing manager will be responsible for the purchasing decisions.
A diagram shows the purchase managers position in the hotel hierarchy
(see figure 3.)

This report looks at the problems with the current system of
purchasing and suggests solutions.

Influences on procurement:
Cost of transaction.
Cost of product.
Cost of inventory.
Quality control.
Forecasting occupancy.
Customer centricity of the industry.

Source: Reengineering a Hotel?s Purchasing Process. By Subhankar
Bhattacharya, Abhijit & Sandeep Dham. 2004

A leading hotel operator appointed EC Harris to analyse the operating
and maintenance spend within hotels in their London portfolio.
Following this review, recommendations were made to implement a
procurement rationalisation programme as it was found that there were
over 165 suppliers carrying out maintenance works across 14nr hotels
located in the London region. It was found that the individual
suppliers carrying out maintenance works were often chosen by each
hotel?s chief engineer and therefore opportunities to reduce costs
were not being fully realised.
Source: EC Harris.

Operating supplies, referred to as ?OS & E? include items like towels,
sheets, lightbulbs, soap, toilet paper and pens. These items are
typically ordered monthly by the executive housekeeper or chief
engineer at the property.

FF&E ? fixtures and equipment is purchased once a year to as long as
every ten years. An FF&E purchasing decision is driven by the need to
maintain or significantly upgrade the property.

This report looks at the purchasing system used in varous hotels.

Radissson Plaza Hotel in Minneapolis has its own purchassing
department  and works with Provisions (Carlson Hotel?s Worldwide
procurement program) at the corporate level.

Great Lakes Management's hotels orders individually, so corporate
executives can maintain a tighter grip on things because the company
has a supply-chain management policy in place, Becker said.
A good supply-chain management program starts with a hotel operator
knowing the upcoming business demand, said Carla Gold, g.m. of the
142-room Radisson Hotel at Gateway in downtown Cleveland.
Organize where your inventory is kept--no one I know has excess
storage areas these days--so you know what you have in stock while
also knowing what your short-term and long-term business looks like,"
Gold said. "Why lay out expenses when you work on a cash-flow basis
for your daily business?

Managing inventory has become more refined because it weighs so much
on the bottom line," said Fred Pozin, owner of a 152-room Ramada Inn
in Jacksonville, Fla.

Establishing ordering parameters improves the speed of the ordering process. 
Hilton develops regional programs. Orders are executed at individual hotels.
Gold's hotel uses vendors recommended by Radisson and Carlson's
Provision procurement program. They don?t have a purchasing agent.
Each department orders what it needs.
New technology which gives the ability to perform comparison-shopping
functions has resulted in price transparency Most notably, price
transparency has become a buzz word because of the ability.
The internet has sped up the purchasing process. Instead of taking a
week to put a bid process together it can now be done in four hours.

Gold's property uses some electronic purchasing, but also performs
some purchasing the old-fashioned way--with paper and a supplier's
sales representative.
Buddy Simpkins, owner of an 80-room Wingate Inn in Cleveland, Tenn.,
eschews the technology in favor of a traditional system--mostly
because his property isn't large enough to need a full-fledged
purchasing department, he said. "We do purchasing using par
inventories," Simpkins said. "That helps keep things in line."
Depkon's Hilton properties use a software application called Birch
Street that manages the procurement and inventory at the property
level. It allows the properties real-time access to suppliers'
Source: Advanstar Communications. Gale Group. 2004.

Outsourcing trend.
With the advent of the internet a number of companies have been
established that outsource the procurement process introducing greater
efficiencies and reducing procurement expenditure.

In January 2001, Marriott International, Hyatt Hotels, ClubCorp USA,
Bass Hotels and Resorts and Fairmont Hotels and Resorts partnered to
establish Avendra, an independent company. Each company contributed
its procurement groups, employees, and processes as well as its annual
expenditures in managed locations to Avendra giving Avendra an
estimated $80 billion market, making it the largest professional
procurement organization in the hospitality industry.
Source: Avendra CEO Baker Shares e-Procurement Insight. By Krisitn
Amarante. Hotel Interactive.

About Avendra
900 suppliers
2,200,000 products
4,000 customers
55 contracting professionals
$2 billion in purchasing power.
Source: Avendra.

Avendra customers save on average 14.7% across all properties and all products.

Outsourcing of purchasing will give La Quinta Inns estimated savings
of between 12 and 15 percent.
Benjamin West, LLLP, headquartered in Boulder, Colo., is one of the
nation's largest hotel FF&E purchasing firms. The firm provides a full
range of purchasing services, including specification, bidding,
technical analysis, code compliance, financial management and
installation for hotels in the mid-market, upscale and luxury
Source: La Quinta.

Case study.
This study describes the procurement process for a 250+ bedroom hotel.
On typical hotel projects, the FF&E and OS&E can account for up to 15%
of the construction budget.

IOTA, a web based database solution was used for the following:
Quantification or requirements per room, location, area, package and commodity.
Identification of the supplier required for each of the 1500+ items.
Cost analysis against budget.
Managing client generate revisions.
Production of purchase order and the tracking/expediting of orders.
Producing a Room Data Sheet to assist installation contractors.
Room by room and room type analyses of the clients requirements.
To improve communication for all parties involved.
To mimimise delays and reduce errors.
Increase productivity by reducing standing time.
Reduce project resources required to track and expedite purchase orders.

This system reduced the FF&E budget by 16% and the OS&E budget by 29%.
Source: EC Harris.

This site outlines the purchasing process for FF&E items.
Source:Chris Garrod Partnership.

This site outlines the purchasing process for OS&E
Source:Chris Garrod Partnership.

International Society of Hospitality Purchasers.
ISHP, a non-profit organization, is composed of independent and
corporate hospitality purchasing executives, who, as a group, spend
approximately $3 billion annually in the hospitality industry. ISHP
members' common goal is to enhance the professionalism of hospitality
purchasing by establishing high standards in ethics, efficiency,
etiquette and education. In addition, the organization is involved in
community service activities, concentrating on Camp Pacific Heartland,
a national camp for children infected and affected by the AIDS virus.

A typical budget for OS&E is $8,000 to $10,000 per guest room for a
typical four-star property. The list of goods typically exceeds 2,500
line items. Typical guest room items include bedding, clock radios,
hangers, laundry bags, laundry ticket, iron, ironing board, organizer,
luggage rack, guest amenities (soap, shampoo, lotion etc.), hairdryer,
shower curtains and shower curtain hooks.

Housekeeping equipment includes vacuums, carpet shampooers, carpet
extractors, housekeeper carts, laundry bins, garbage trucks, valet
delivery carts and shelving.

According to this report the ordering process for uniforms is one of
the most complex.
Before ordering a number of questions need answering including:
Do we need summer and winter uniforms?
Will the uniforms be laundered by the hotel or the hotel associates?
How many extra servers are needed for a capacity dinner function in the ballrooms?
Is the intent to have a large percentage of part time staff??
Once these and other questions are answered the selection process begins.
Operations and the interior designer review the options available on the market.
An order is placed 90 to 120 days before the first uniformed staff is hired.
To quantify sizes a typical bell chart sizing curve is used.
The uniforms are delivered and sorted prior to the individual fitting process.
The staff is measured for uniforms on their second working day. 
Seamstresses then alter the uniforms to fit.
The fitted uniforms are issued a few days before the opening.

Purchasing, warehousing, delivery and installation of the OS&E.
The 500 purchase orders are issued 6 months before opening.
Most goods are delivered to a local warehouse and pulled for delivery to the site.
Some goods are shipped direct to the site (including bed sets,
televisions, banquet tables, guest room safes).
Linnen is shipped to an off-site laundry for initial washing.
Goods are typically staged in the largest ballroom for unpacking and distribution.
Unpacking requires a large number of workers.
For the 525-room Kona project it took two people, three days to
install the clock radios, five days to install the show curtain hooks,
shower curtains and shower liners.
During the five-week installation process over 3 tons of packing
material were generated every day.
Source: The Art and Science of Opening a Hotel. Wiley.

This report also gives an overview of the lodging industry structure.
html version

Further reading:
Purchasing: Selection and Procurement for the Hospitality Industry,
Student Workbook, 6th Edition
Andrew H. Feinstein, John M. Stefanelli ISBN: 0-471-69314-6  Paperback
184 pages October 2004 $35.00>

<Search strategy:>

<"hospitality purchasing" market billion>

<hotel  "purchasing process">

<"hospitality industry" procurement>

<"hospitality industry" overview>


<"OS&E" "FF&E" purchasing>

<Hope this helps.>
kalatraza-ga rated this answer:5 out of 5 stars and gave an additional tip of: $5.00
Very comprehensive answer.  Thanks!

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