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CAVEAT EMPTOR! 
Simple Steps to Selecting an 
E-procurement Solution

 
To view more articles covering technology for the hospitality industry please visit the Hospitality Upgrade Web site or to request a free publication please call (770) 953-2300 or email.
This article is from the upcoming Spring 2001 issue of Hospitality Upgrade, formerly the Hotel & Restaurant Technology UPDATE magazine.
By Mark Haley

Buyer beware is good advice for any transaction.  When you are buying something that affects your customers, your suppliers and your operations as intimately as e-procurement, take extra precautions.  

Like any complex process, you can break the steps involved in system selection down to surprisingly simple smaller steps.  That doesnít mean they are easy to execute, but relatively straightforward to define and understand.

Use a Structured Process

Plan your work, then work your plan.  The elements of a system selection process can vary significantly depending on what you are choosing and the nature of your organization.  For an e-procurement selection, this structured process should usually include:

  • Internal needs analysis
  • Market evaluation
  • Request for proposal
  • Formal evaluation of responses
Then the fun begins and you can negotiate in earnest.  Letís examine each of these key elements of the process in more detail.

Internal Needs Analysis

Understand what it is you want e-procurement to do for you and how your organization will adapt to e-procurement.  First, look at your companyís overall business strategies and understand how the procurement initiative fits into that.  If cost reduction is the major driver in your hotel companyís strategy, an e-procurement solution that calls on you to create and maintain your own marketplace isnít a good fit.  If the culture in your firm is to command, control and communicate, and you have extensive IT and procurement infrastructures in place today, then an in-house solution might be appealing, not to mention politically salable in your company.

Questions to Ask

  • What are you trying to do with e-procurement?  What problems are you trying to solve?
  • How do you expect to fund the costs associated with e-procurement?
  • To what extent do you want to control your marketplace vs. join in with others?
  • Does this initiative have the support of top management?  And at the hotel level?
  • To what extent do your existing accounting, communication and control processes support this effort?  Will some of these key areas have to adapt?
  • What will be the impact on the vendors you use today?  Will this effort lead to changes in any critical strategic vendor relationships?  Are there contractual commitments to current vendors that you need to consider?
Market Evaluation

You are likely to find that doing a thorough job of the needs analysis requires an intimate understanding of the offerings in the marketplace.  You need to understand the differences between the various structural forms and business models found in the marketplace today, and where those forms will go in the future.

At this point you are ready to look at the overall e-procurement marketplace, recognizing that hospitality is a unique vertical market to you, and an interesting sub-vertical to some of the major players in e-procurement.  

This can be done several ways:
 

Informally ó Talk to the salespeople who have been banging on your door for the last couple years anyway.
Formally ó Issue a request for information (RFI).  Not as well known as itís big brother the RFP, a good RFI will help you crystallize your thinking and provides an opportunity to explore the market.

As you talk to the different service providers you will likely notice that the differentiators and distinctions are sometimes minute, yet important.  Keying in on elements of the business model will highlight critical differences for you.  Keep asking who pays for what in any given vendorís business model.  Note that some of these players will offer multiple business models and approaches.  

Rather than get confused, define the different offerings along these critical dimensions:

  1. Is it open to all comers that register and establish a relationship with the operator?
  2. Do you, the operator or some other party control what buyers are admitted?
  3. Do you, the operator or some other party control what sellers are admitted?
  4. Who funds the use of the system?
Request for Proposal

Now that you clearly understand what you need and what the marketplace offers, it is time to go shopping.  Use a formal request for proposal (RFP) document to ensure that what you are sold is what you need.

Define the combination of services and business model you are looking for in detail.  Wrap the RFP around that definition with a format that requires respondents to answer exactly as you specify in detail.  Nobody said that this would be easy.  
Identify exactly what software functionality you seek, such as:

  • Catalog, create and maintain
  • Search and select
  • Custom catalogs (at various levels)
  • Reverse auction capability
  • Auction capability (typically for liquidation purposes)
  • Requisition approval workflow automation
  • Order tracking
  • Order history
  • Invoicing
  • Invoice approval workflow automation
  • Inventory functionality or interface
  • Accounting interface
  • Reporting
Understand the environment and tools that the software is built upon.  The RFP is your opportunity to learn this.

What services do you require in order to launch the project?  These might include custom programming, business process consulting, training and deployment services and more.

What services do you require on an on-going basis?  These might include content management, customer care (both technical support and the more difficult transaction support), re-training and more.

What are your expectations for the future growth and development of the product?  What are problem escalation procedures?  What protection against fee increases can you negotiate? 

One crucial question I am too familiar with is the providerís financial stability.  What is the vendorís cash position?  Are they making an operating profit?  If not, when do they expect to?  What backing do they have that makes them believe they can last until they are profitable?

A good RFP will help to crystallize your thinking and provides an opportunity to explore the market.  

Formal Evaluation of Responses

Assemble the responses.  Because you worked hard at properly structuring the RFP, the answers are readily comparable.  Line the responses up on key attributes in a weighted spreadsheet.  Give each response a raw score for their response to each attribute and calculate the weighted value.  Sum the raw and weighted scores separately.  You may want to re-evaluate some of your weights and re-calculate if you see gross disparities.  

Evaluating Your RFP

  • Does the proposal accurately reflect the model you proposed in your RFP?
  • Does the software functionality support that model?
  • Will the impact on your vendor base be as you defined in the RFP?
  • Who will conduct the crucial and laborious tasks of vendor acquisition and content acquisition?
  • Is the deployment and training process fully developed?  The most difficult thing in the world is to change peopleís behavior and to get them to use the system.
  • Do the references supplied by the vendor have other reasons to give a glowing reference (usually an equity position in the provider)?
Negotiation

By now you should have narrowed the field to a short list of finalists.  Negotiate fairly but firmly with each of them.  Your objective here is to strengthen weaknesses in the proposals to make them even closer to each other.  Frequently, a vendor will significantly enhance the strongest parts of their proposal as well as the weakest, always to your benefit.

More often than not, by the time you are negotiating on price you will know where you want to be and the chosen provider will be equally comfortable with you.  You and your new provider will enter this relationship with comfort and certainty largely because of the process you have administered.  The process outlined here ensures that you know what you are looking for and what is in the market, and that the respondents work from equal footing to win your business.  It is a lot of work, but well worth it to you, your hotel company and your suppliers.


 

Mark Haley is president of High Touch Technologies, Inc., a consulting practice serving the hospitality technology industry, (978) 521-3600 or e-mail, MHaley@HiTouchT.com.  High Touch Technologies specializes in helping hotel industry clients move their business processes to the Web.

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Contact:


Geneva Rinehart
Associate Editor
Hospitality Upgrade magazine 
and the Hospitality Upgrade.com website
http://www.hospitalityupgrade.com
grinehart@updateplus.com

 
Also See: A High Roller in the Game of System Integration / Elizabeth Lauer  / Hospitality Upgrade Magazine / Spring 2001 
Choosing a Reservation Representation Company / John Burns / Hospitality Upgrade Magazine / Spring 2001 
Understanding and Maximizing a Hotelís Electronic Distribution Options / by John Burns / Hospitality Upgrade Magazine / Fall 2000 
The Future of Electronic Payments - From Paper to Plastic and Beyond / J. David Oder /  Hospitality Upgrade Magazine / Summer 2000
Timeshare Technology Steps Up / by Elizabeth Lauer / Hospitality Upgrade Magazine / July 2000 
Your Bartender is Jessie James and He Needs to Pay for College / Beverly McCay / Hospitality Upgrade Magazine / Fall 2000 

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