The practice of outsourcing is on the rise in the hospitality industry.

Outsourcing in the
hospitality is driven by the desire to reduce costs while maintaining the same or elevating the
quality of service. One of the challenges the hospitality industry faces is that they do not separate
operational tasks from strategic ones.

The ancient culture being followed in the hospitality industry prevents management in many
hotels from focusing and dedicating the adequate attention required to either field of attention.
Through this over-stretched multi-tasking environment and culture makes hoteliers recruit people
with ambivalent skills. Hotels must look at sourcing some of their operations.

In the hospitality industry, there are two types of outsourcing:

• Selective outsourcing: Wherein only some of the activities are outsourced

• Complete outsourcing: Wherein all the activities are outsourced

In majority of the cases, the hotels outsource all their non-core activities and they concentrate on
improving their core competencies.

The field of hospitality procurement is a subset of the broader field of procurement or

purchasing. Hospitality procurement is focused purely on the purchasing of goods and services
for the hotel, restaurant, and resort industry. This industry has very specific needs that are not
standard in any other industry. There are four primary aspects to hospitality procurement:
sourcing, contract negotiation, payment terms, and end of life management. Although these
terms apply generically to all procurement, they have specific meaning in this sector.

The sourcing of materials includes the identification of suitable vendors, issuing of requests for
proposals or quotations, and inspection of various manufacturing plants. In the hospitality
industry, the materials used for furniture and appliances must be highly durable and designed to
be used by a wide range of people. Quality is an issue with all products, but the primary focus in
hospitality procurement is longevity and replacement. For example, a hotel may purchase
hundreds of chairs for the main lobby. These designs must be unique to the location, but can be
easily repaired locally.
The trend toward environmentally friendly solutions presents a unique challenge to hospitality
procurement. This industry requires a high rate of turnover for fixtures, furniture, appliances, and
consumable products. In addition to the durability issue, products that are made in mass
production facilities typically have a high impact on the environment, with the widespread use of
non-renewable resources. Although many firms are addressing client requests for
environmentally friendly service through reduction in laundry and other services, the actual
materials used remains a challenge.

A contract negotiation in hospitality procurement tends to focus on long-term contracts for a

range of different brand name locations. For example, a typical hotel chain has four to five
different brands that must all have a unique look and feel. The contracts are negotiated by the
chain, but may necessitate the use of local suppliers or multiple unique layouts or color and
design schemes to meet the different requirements.

Payment terms are a critical aspect of hospitality procurement due to the cash flow issues that are
common in this industry. Typically, the terms are quite generous, with payment negotiated for 90
to 120 days after receipt. There has been a recent trend to percentage of contract completion
payment terms, which creates a better balance of payment to suppliers while allowing the
hospitality firm to manage the project and timing.

End of life management is an ongoing challenge in the hospitality industry. Equipment is

generally replaced within a two- to three-year time frame, and may be shorter in higher-end
facilities. The need to continually refresh the look results in a range of products with useful life
remaining after being replaced. As a result, many firms have built a removal and reimbursement
process into the hospitality procurement contracts. The supplier is then free to pick up the
equipment, refurbish, and then sell these items again to other firms or direct to the consumer.

Some of the areas are:

1. Customer Service and Sales Support: Central reservation system, frequent guest
program management, global preferred account hotline

2. Hotel Accounting: Invoice processing, sales and use tax calculation, vendor statements
review, new vendor set up, re-bills, AP aging run, accruals, reconciliations
3. Fixed Asset Procurement: Budgeting, purchase order/contract generation, expediting,
tracking of budget, global LCC sourcing

4. Human Resources: HR Strategy and performance management, payroll and benefits,

HR administration, flex staffing

5. Knowledge Services: MIS, quantitative research, market risk assessment, decision

support, analysis, reporting