A new horizon in hotel sourcing

Hotel sourcing processes are undergoing seismic shifts, discover ACTE Research and HRS in a joint study published this month.

Hotel sourcing is one of the most important and time-consuming tasks that corporate travel managers do. In an effort to understand strategies and challenges in this fraught arena, ACTE members around the world were surveyed from February 20 to March 5, 2018, for their insights on strategies, challenges and solutions.

Changes in negotiations
Change is challenging. In hotel sourcing, it requires time and effort to evaluate the process, research various options, obtain internal buy in, and implement the change.

Results suggest the investment is worthwhile.

Of the 51% of travel executives who had changed their negotiation process in the last three years, most of them reported saving money and other intangibles, regardless of which way the business moved. The most common change was to begin working with a third-party hotel focused specialist or consultancy services (48%), or a TMC (31%) (Figure 1).

The size of a company’s hotel programme influenced the type of change implemented. Companies with large hotel spends (US$10 million or more annually) were more likely to have started working with a consultancy service or third-party hotel focused specialist. Companies with mid-sized hotel programmes (US$5 million to US$10 million) primarily moved hotel sourcing in-house. Those with small hotel programmes (under US$5 million) often started working with a TMC.

Travel executives who started working with a consultancy service or third-party hotel-focused specialist saved an average of 7% on hotel costs, and those who introduced a TMC saved 4% (Figure 2). Firms that moved hotel sourcing in-house report an average savings of 8%, though it is possible that increased time and labour costs counteract some of these hotel savings.

The top non-financial benefits of changing strategies were similar across approaches, ranging from increased bookings with preferred properties, increased bookings via self-booking tools to improved communication with travellers and administrative assistants, and fewer preferred hotels in key markets.

In a review of the last two charts, it’s clear that the 51% of programmes that have implemented some change in their hotel sourcing process are – for the most part – reporting cost savings and other benefits. Those travel managers who have not considered adjusting their sourcing process can be encouraged to explore proven alternatives that support improvement efforts in both fiscal performance and traveller satisfaction.

Hotel sourcing today
Travel executives employ a variety of strategies to manage their hotel sourcing. More than half (59%) handle hotel negotiations internally, and about one-third (30%) outsource the process (Figure 3).

Depending on the size of their hotel programme, companies will use different strategies to negotiate sourcing. Those with small and mid-size hotel programmes are more likely to handle negotiations internally — 70% for small companies with an annual hotel spend of less than US$5 million; 80% for mid-sized companies with a spend of US$5 million to US$10 million. Among companies with large hotel programmes (annual spend of US$10 million or more), only 44% manage negotiations internally.

Today, about one-third of executives are highly satisfied with their current negotiation approach, and the majority is only somewhat satisfied (Figure 4).

Executives who handle hotel negotiations solo are most satisfied with their approach (41% highly satisfied), followed by those who work with an internal team (34% highly satisfied). This satisfaction could stem from their hands-on approach where they know exactly what is going on and can act on it immediately; travel executives who outsource their negotiations are most concerned about data transparency.

Challenges with hotel sourcing
For large programmes, the top issues are market fragmentation (40%), high expenditure of time and labour (40%), and increasing hotel prices (39%). Mid-size programmes are struggling most with market fragmentation (34%) and increasing hotel costs (31%), while small programmes face challenges with hotel prices (40%) and data transparency (33%).

To remedy the situation, travel executives need solutions that reduce costs, save them time, provide access to data, and provide benchmarking information to set goals and evaluate performance.

In addition to these challenges and unmet needs, executives are looking hard at their own resources. Do they have the right in-house staff to address these issues? If they outsource, is their TMC and/or third party properly engaged? For international programmes, which have all of these issues but in different magnitudes in different regions, are they properly weighted to meet the company’s global sourcing goals?

Monitoring the programme and auditing rates
Before switching things up, travel executives need to understand how their program is performing and whether travellers book at the negotiated rates.

It is recommended that internal teams audit rates at least quarterly. For companies with large programmes and those who outsource, monthly audits are recommended. Currently, the majority of programmes report auditing less than quarterly (Figure 6).

Travel executives also are tasked with staying abreast of business changes that could affect their hotel programme, such as an emerging need in a new geographical market or an increase in room nights. It is noteworthy that one-fifth of travel executives say they do not consider these changes unless it’s RFP season. The most common monitoring methods are through a TMC (49%) or preferred hotel supplier (45%) (Figure 7). Continuous Sourcing may help address these challenges, allowing travellers and travel executives to have a more transparent view of rate trends and how they impact evolving hotel programme goals year-round.

Travel managers and procurement leaders should consider what sources they currently rely on to stay on top of hotel-related issues that impact their programmes. Do those sources offer two-way communication? Are they able to parse developments with evolving travel goals in mind?

Continuous Sourcing: benefits and barriers
To make the most of their travel programmes, a small but increasing number of executives have completely upended how they source. They’ve launched a Continuous Sourcing process, in which they audit rates and hotel programme needs year-round, not just once a year.

Continuous Sourcing is a relatively new concept in hotel procurement. Twelve months is a long time for hotel prices to remain stagnant. Like in the consumer market, many factors can cause hotel rates to spike or drop. Early adopters of Continuous Sourcing find they can snag savings with more frequent negotiations, whereas the traditional once-a-year RFP process allows too many savings opportunities to slip by.

However, there are many reasons companies have not implemented Continuous Sourcing. The primary barrier is lack of familiarity with the approach; four in 10 (42%) travel executives who have not implemented Continuous Sourcing are not familiar with it (Figure 10).

About one third (31%) cite lack of time or resources. Since few travel executives (10%) believe Continuous Sourcing would not reduce their workload, it is likely that those who experience lack of time and resources as a barrier to implementing this new approach haven’t had time to investigate the options, not that they believe Continuous Sourcing would increase their workload. In fact, when implemented correctly, Continuous Sourcing disperses sourcing efforts across a longer period of time, resulting in a potentially less intense workload.

Obtaining buy-in from senior leadership or from partner properties is not an issue for many. Just one in 10 executives credit lack of internal support or external cooperation.

As programmes look for incremental hotel savings and happier travellers, travel executives and suppliers, including hotel solutions providers, consultancy services and TMCs, should make education about Continuous Sourcing a priority for the remainder of the decade.

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