Marriott's Site Brings Hospitality To The Web - Marriott International Inc. Is Leading The Way With New Customer Service Features And An Aggressive Online Procurement Strategy

Source: CMP Media Inc.
Story by STEVE ZURIER

Compared to industries like financial services and retailing, the hospitality industry has been slow to embrace the Web. But that's changing, and Marriott International Inc. is leading the way with new customer service features and an aggressive online procurement strategy.

A major refresh of the hotel giant's Marriott.com site that launched this fall is expected to help push online bookings past $400 million this year, up from $150 million a year ago. About three quarters of those bookings take place directly at Marriott.com, the remainder at third-party travel sites.

The revamped Web site uses personalization to let customers opt into special e-mail offers based on their individual profiles. Customers that give Marriott the OK will receive targeted marketing pitches based on their individual profile, past travel patterns and so on.

In addition to delivering targeted marketing campaigns over the Web, Marriott is taking a proactive stance with purchasing, in the hopes of cutting costs, eliminating rogue purchasing activity and consolidating its vast buying power with that of other giant hotel chains.

Marriott is a founding member of Avendra, an e-marketplace that will formally launch later this month. Avendra combines the procurement organizations of Bass Hotels & Resorts, ClubCorp USA, Hyatt Hotels Corp. and Marriott International.

Avendra is one of three new procurement e-marketplaces vying to snag a piece of the $60 billion in products the hospitality industry buys to manage its hotels. Avendra's participants spend an estimated $8 billion on products for more than 5,500 properties, and more participants are being recruited. This puts Avendra well ahead of Starwood Hotels & Resorts Worldwide Inc., which spends about $3 billion and last May formed a company with e-procurement software vendor Zoho. Hilton Hotel Corp., which spends $1.5 billion annually to manage 1,800 properties, in June formed its own marketplace with vendor Purchase Pro.

"In terms of potential, Avendra is way out in front," said Mark Withington, an Aberdeen Group analyst. "All of the e-marketplaces need to achieve critical mass to achieve the Holy Grail of liquidity."

Robert LaFleur, an analyst at Bear Stearns who follows Marriott, emphasized the economies of scale that a procurement marketplace like Avendra can deliver to participants.

"Will Marriott's stock price double? No. But it may give it a competitive advantage by keeping the cost of goods down," said LaFleur. "Essentially, this is a continuation of Marriott's very methodical approach. It tends to make smart investments."

Marriott's financial results over the last several years support that assessment. Sales last year reached $8.7 billion, double the $4.9 billion posted in 1995; net income nearly doubled over that same period, rising to $400 million last year from $219 million in 1995. The company's stock opened at $32.13 in January and hovered around $41 in the middle of last week. Bear Stearns has a buy rating on the stock.

While Marriott would not disclose its investment in e-business, company execs are fully behind Avendra, and they say Marriott will continue to leverage the Internet on all fronts.

"Marriott International is interested in exploiting all Internet business opportunities that service employees, owners, franchisees, guests and customers," said Bruce Wolff, Marriott's senior vice president of distribution sales and marketing and chairman of Marriott's e-Business Council. Wolff is quick to point out that as a separate company, Avendra's systems are being developed independently of Marriott's systems.

Set To Go

As of late November, as Avendra was gearing up for its formal launch, the company had 13 properties running Procura, a hosted e-procurement system from GoCo-op; it was moving ahead with plans to roll out the e-procurement system to 600 Marriott properties over the next six months. Currently, there are 60 suppliers participating in the network, with a goal of having 450 online by late spring.

"We understand the hospitality industry and work very closely with the customers, and also do a lot of brokering with the suppliers," said Dennis Baker, Avendra's COO. Marriott has had a centralized procurement organization for 30 years, he added.

Avendra's salespeople leverage their procurement experience to extract better service levels, warranties and cost reductions from suppliers. One example: The Avendra contracting group worked with its vendors to develop a precooked bacon product that was virtually indistinguishable from a freshly cooked product in blind taste tests.

The savings are substantial. While the cost of 1 pound of precooked bacon was double that of its uncooked counterpart, 1 pound of precooked bacon yields the same amount of usable product as 3 pounds of uncooked product. This results in a net product cost reduction of 33 percent.

The savings come from the economies of scale gained by processing thousands of pounds of bacon in a factory, rather than a few pounds with all the added fat, as well as reduced shipping costs, because the precooked bacon comes in 6-pound cases, as opposed to 15-pound cases when the hotels used the old-style bacon.

In addition to the product cost savings, which Baker says justified the program by itself, customers also save on labor costs, as well as reductions in the amount of cleaning required in the ventilation systems, and reduced slips, falls and burns from spilled grease. Baker says the Avendra contracting group puts this type of effort behind many of the products that it contracts for, consistently finding ways to take costs out of the supply chain rather than simply using Internet technology, which forces suppliers to fight with each other for every sale and can erode supplier margins.

The vendor's e-procurement system-Procura-ties purchasing activities directly into the four consortium members' back-end accounting and ERP systems through internally developed interfaces. This is an important advancement because one of the major criticisms of e-marketplaces is that they leave transaction execution up to the buyers and sellers. In fact, InternetWeek's Transformation Of The Enterprise 2000 research found that 40 percent of e-marketplaces still use manual processes to complete transactions.

Avendra does not open up the e-marketplace to multiple suppliers in any one category. Under most circumstances, Avendra negotiates a sole-source arrangement with a supplier. A second supplier may be added only under unique circumstances, such as when a supply line is threatened.

The three main categories listed in the Avendra system are food and beverages; operations supplies, which includes soaps, sheets, irons, linens and vacuum cleaners; and furniture, fixtures and equipment. Baker says these three areas account for a majority of a hotel's procurement spending.

"We started with the concept of delivering procurement solutions first-and that the Internet is the right tool," Baker said.

The e-procurement model was designed to solve some problems specific to Avendra's members. While Marriott and other hotel chains have centralized purchasing, individual hotels are not always able to exert complete control over purchasing activities. This means that the chefs, housekeeping managers and engineers who do the work on the frontlines also do the buying, often as so-called "mavericks" separate from the central purchasing process. In the past, these central buying organizations struggled to get product information to individual buyers within hotels in a timely manner.

Procura provides a customized, aggregated catalog that reflects what's been negotiated with a supplier. Customers access Procura over the Internet via a unique URL. Upon logging on to the Procura system, an authorized buyer receives a custom page with products he or she can purchase.

"Instead of working with multiple catalogs, or buying over multiple Web sites, Procura offers one look and feel, one way to navigate the items over a standard Web browser and one place to store and manage all the data," said Len Smith, senior vice president and CTO at GoCo-op.

Procura runs on Microsoft Windows 2000 and Internet Information Server 5. The hosted servers running Procura are Pentium-based Hewlett-Packard systems: the Web servers are four-way LH4rs and the SQL Server database servers are four-way LXr8500s. Integration with partner ERP systems occurs through the e-Business Integration Server from New Era of Networks Inc. The software allows integration at the message, transaction and data-item levels from Procura to PeopleSoft and SAP ERP systems; interfaces to Oracle Financials and JD Edwards' systems are in development.

Craig Selwitz, Avendra's vice president of e-business, said GoCo-op's ability to integrate with back-end accounting apps-what he calls "procure to pay"-is one of the great potential payoffs of the system.

"If you go to any engineering or housekeeping department, you will find a very thick inbox with a stack of invoices that somebody has to research and sign off on," Selwitz said. "What are the engineers there for? They are there to maintain the asset so that the guests have a good experience-not to pay bills."

Avendra is representative of a broader trend toward marketplaces driven by prominent industry players, analogous to Envera and Elemica in the chemicals industry. While no one company can dominate, it appears those with established supply chains like Avendra are in the strongest position to capitalize on the Internet in streamlining their supply chain.