Michael Caruso

Optimizing Purchased Services

Data, we are drowning in it. But how can we use machine learning and BI to help purchasing managers make educated decisions around their key vendors? There are many different software solutions that make up enterprise ecosystems for hospitality, hotel/casinos and transportation companies. While my past few articles have focused on customer-facing digital mobility solutions, we should also look at solutions that help operators control costs around the purchasing and supply chain.

How can hospitality companies take advantage of AI and analytics platforms that have helped organizations in industries such as higher education and healthcare uncover saving on components of their spend business, specifically purchased services? Sometimes service spend is not covered in legacy solutions. We know how many cans of tomato sauce were purchased and possibly which vendors were used, but what about pest control? For example, a hospital’s overall cost structure can come from services such as staffing, HR, banking and IT. Hotels and casinos have used legacy purchasing solutions that focus mostly on food and beverage and some FFE, but when it comes to service purchases how are those vendors and purchasing decisions made?

Hotels and integrated casino resorts have long handled many services internally, using employees in maintenance engineering, HR to manage benefits and healthcare and IT to manage technology services. Staff may be used for landscaping and even valet parking. However, with the ability to review cost benefit analysis more of these services can become outsourced. Large hospitality companies may use solutions such as Cognos, Ariba, Tableau even Excel for non- food and beverage spend. These solutions can provide visualizations around raw data but won’t cleanse data – so garbage in, garbage out! However, using analytical software tools available from companies like Valify, organizations have been able to easily view expenses, break down each vendor and show what work has been done. BI algorithms break down costs at a granular level within each purchased service category through integrations to ERP, financial management systems and purchasing SCM systems. Below are a few examples of the breakdown of service analysis.

Purchased Services (Category)

HR Services

Staffing

HR Software Services

(TriNet, ADP, Nextep)

Valet Parking

Parking Solutions, Inc.

IT Managed Services

Switch

IBM

Purchased Services (Category)

HR Services

Staffing

HR Software Services

(TriNet, ADP, Nextep)

Valet Parking

Parking Solutions, Inc.

IT Managed Services

Switch

IBM

Hotels and integrated casino resorts have long handled many services internally, using employees in maintenance engineering, HR to manage benefits and healthcare and IT to manage technology services. Staff may be used for landscaping and even valet parking. However, with the ability to review cost benefit analysis more of these services can become outsourced. Large hospitality companies may use solutions such as Cognos, Ariba, Tableau even Excel for non- food and beverage spend. These solutions can provide visualizations around raw data but won’t cleanse data – so garbage in, garbage out! However, using analytical software tools available from companies like Valify, organizations have been able to easily view expenses, break down each vendor and show what work has been done. BI algorithms break down costs at a granular level within each purchased service category through integrations to ERP, financial management systems and purchasing SCM systems. Below are a few examples of the breakdown of service analysis.

Using analytics and BI platforms we can identify unique categories across multiple lines of business for hospitals in the healthcare industry. For example, using proprietary software analytics, look at how these solutions are able to identify that staffing expenses reached $19.9 million on average per healthcare system in calendar 2017.

$19.9m average spend in staffing per health system
54 unique staffing vendors used
42 unique staffing sub categories

Using the data in this example, companies can make informed decisions around optimizing labor and staffing by property or location in addition to enterprise wide by incorporating spend visibility as an overall part of the workflow. Also, as employee healthcare benefits become more competitive and costlier for hospitality companies to provide, having data and spend analytics available to compare costs for internal vs. outsourcing to a third party like ADP, TriNet, or Nextep could be paramount.

Figure 1: Sample Spend Analysis

Having the ability to pull real-time spend data from purchasing systems – such as Lawson, Microsoft Dynamics, Oracle and NetSuite – into their cloud AI platform, would allow CPOs to analyze the top spend categories and vendors in any current period. For example, an arena or theme park may have contracted food and beverage services under the Facilities Support Category (maybe multiple vendors were used across the country as outlined below). Valify will benchmark and monitor these categories to be sure you’re realizing the expected savings and eliminate scope creep, adding money to the bottom line.

Spend Analysis

With this available data, a purchasing executive can decide which vendors are most utilized, if spending is trending up or down within a user defined timeframe and whether the organization is utilizing negotiated rates and consistent pricing across the enterprise. These analytics can be applied to any purchased services vendor not configured in the standard purchasing “procure to pay” system (e.g. Financial Services banking with Bank of America, Orkin pest control under Facilities Support, IT consulting under IT Services and Utilities under Facilities Support).

In the healthcare industry, purchased services makes up 45 percent of non-labor budget. Those dollars are often spent on unnecessary costs such as duplication of services, rogue vendors or hidden contract fees and penalties. The overall savings that can be realized using a service spend BI tool is 20-30 percent on average per category within the healthcare industry, resulting in millions of dollars to the bottom line.

Non-Spend PO

As we are all too familiar within large enterprise organizations, staff in leased outlets, executive offices and even IT departments will initiate non-PO spend or BPO orders across multiple service categories. Using a spend optimization tool for complete transparency view into all spend decisions, including those made outside of a PO, could result in additional cost controls and improved operational efficiencies. Ancillary service spend can account for as much as 35 percent of total spend and thousands of individual transactions (29 percent) with hundreds of unique vendors (30 percent). Examples of ancillary services include document management, marketing, transportation (shuttles, air, fuel, taxi and valet), courier, fleet management (works well with EAM systems), office supplies and moving/storage. Imagine having data available that would break these categories down by sub category, vendor and property. Because non-PO spend is all too common, having analytics and visibility into those transactions would be valuable in negotiating better fees or rates with those vendors by tracking the invoices.

Data Quality

Data quality can impact the information needed to make good purchasing decisions by the CPO, CFO or purchasing manager. Files that include multiple vendors and bad data can lead to inaccurate reporting which impacts budgets, reporting and proactive spend benchmarking. Using cloud-based algorithms to automatically clean up your purchasing data can add a human element to the categorization of service spend information. There are applications that can identify all duplicate vendor entries with name variations. For example:

United Healthcare
United Healthcare Group
United Healthcare Insurance
United Healthcare Group Recovery
United Healthcare – different vendor numbers


In the example above, a single vendor is listed in multiple entries and transactions that are posted under a single or multiple category like insurance; however, having the ability to fix these mistakes to correctly identify the total spend with a vendor creates value.

Figure 2: Sample Contract Dashboard

Rogue Spending

This has always been a concern of purchasing managers. Current industry purchasing solutions or Excel spreadsheets don’t offer a quick view into vendor consolidation opportunities. Augmenting using spend analysis tools not only can rank all categories where spend is centralized around a single vendor, but also where three or more other vendors are being used to provide the same service – gaining insight into total spend per category top vendors, and the number of total vendors.

Community Expertise

Having new modern tools available to hoteliers built on a cloud platform that can connect your business to a digital social community of hospitality experts would be valuable. Imagine results when you are able to analyze your data and categorize spend through a database of over thousands of vendors bringing transparency to the entire market. BI tools can disrupt traditional purchasing processes by building the first hospitality services knowledge network of experts, bringing them together to collaborate and share best practices and be part of the next generation story.

Figure 3: Sample purchased services Dashboard

Solution Options

Here are a few solutions worth researching:

Valify – With a cloud solution that has become a leader in the healthcare space, Valify has been able to help companies identify savings opportunities around service spending. Using their cloud BI platform, they are able to run assessments to identify real costs savings around legacy vendor spend data. The results provide the ability to standardize around key vendors that represent most of the spend for specific categories and savings. Using an automated API and BI tool you can create categories of services “on-the-fly” in as little as five days, and present in a visual format that allows operators to see vendor spend that are most used.

AgilysysStratton Warren & Eatec – These are food- and beverage-centric purchasing and inventory management solutions. These solutions have been providing end-to-end procure to pay for hotels, restaurants and casinos for more than 20 years. With integrations to finance and POS, operators can budget and plan using forecasting tools for Par levels and hotel occupancy. Both solutions have the ability to manage vendors and items down to the “by the each” level which is very powerful for restaurants. Both solutions are offered on-premise or hosted.

Cognos – Cognos is a leader in BI and data aggregation and graphic presentation to create on demand reporting. Cognos has been a solution that allows business leaders to augment their legacy solutions to find the answers using BI and machine learning that aren’t available from your legacy purchasing solution. Use integrations, ODBC and APIs, to create system recommended visualizations in diverse formats. Cognos is available on-premise or in the IBM Cloud.

Other – there are many global SCM solutions provided by ERP companies such as: Infor, Microsoft Dynamics, Oracle, SAP, NetSuite and Ultimate. These solutions provide their own analytics and BI tools, usually integrated into their platforms, that can be configured through costly service contracts to extract and analyze data from purchasing solutions. It is widely known that these solutions are not hospitality centric “out-of-the-box,” but can be configured and implemented through large service contracts to fit an organization’s purchasing environment. Many companies in the hospitality space choose to implement industry leading solutions such as: Birtchstreet, Agilysys, and Adaco by Fourth. However, what is lacking, and what this article looks to focus on, is not the purchasing/receiving features but the data analytics around service spend that may be lacking for the CPO in hospitality solutions.

Michael Caruso has over 20 years of experience in the casino, resort, hospitality and travel industries. Michael is an entrepreneur, thought leader and trusted advisor helping hotel companies with digital transformation of the guest experience and shifting legacy applications to the cloud. In addition, Michael enjoys working with software companies and contributing strategies that drive meaningful organic sales growth. Previously Michael worked in sales leadership roles managing global business development with Agilysys and Infor. Contact Michael.