Delivery of savings and transformation on a global scale
Occumen helps a global hotel operator transform the way it procures goods and services, delivering $300m savings in the process.
Our client, a global hotel operator, wanted to reduce its cost base quickly but sustainably, and preferably without making swinging cuts to staff numbers. The CEO approached Occumen and asked whether there was an opportunity to reduce costs by improving the way the organisation procured goods and services. Data analysis suggested there was, but he wasn’t sure whether to believe the numbers or how best to deliver the potential savings if they did exist.
Occumen started with a diagnostic to identify and quantify the opportunities:
- We analysed accounts payable data from around the world to provide a comprehensive picture of spend by category and supplier
- We evaluated a sample of contracts to understand whether they had been properly executed, were current and whether they were commercially ‘fit for purpose’
- We reviewed the high level processes by which suppliers were selected and managed
- We interviewed a large number of senior managers and stakeholders to understand their business objectives, requirements from suppliers and expectations of procurement.
It was clear that there was a big opportunity across all indirect categories, the focus of effort to date having been restricted mostly to products and services supplied directly to the hotels. We set up three workstreams consisting of experienced Occumen category experts, and individuals from the client organisation. The workstreams covered technology (hardware, software and telecoms), Marketing Services (e.g. branding, design, PR, advertising, digital marketing, print, photography, hotel signage, loyalty schemes, in-room amenities and channel marketing), and Corporate Services such as HR, legal, and insurance.
Each team developed a ‘wave plan’ detailing the order in which sub-categories would be reviewed, the approach to each sub-category and an estimate of savings. The plans were reviewed with stakeholders, refined and agreed before work started.
About two thirds of the consultants were based in the US and one third in Europe, bringing a variety of deep category management experience together with strong stakeholder and change management skills. As the work evolved and moved onto new categories, consultants transitioned in and out of the team to ensure we always had the right mix of category experience and geographical presence.
To support the transformation we also provided programme and change management, benefits tracking, helped implement an expense management system and provided coaching and training to client team members.
Occumen built credibility and respect which enabled them to be effective in delivering very significant savings and driving change. The partners of the firm are approachable and always accessible - they are user friendly in a difficult role. I have described them as the procurement partner for business people
CEOGlobal Hotels Group
At the end of the first year, savings of $60m had been delivered, plus a $40m reduction in working capital worth $3m in cash terms. Not all sub-categories had been reviewed, so a second plan was developed, and by the end of that year a further $100m had been saved. We were asked to extend our work to Asia, establishing a team in China, and also to support the client team delivering direct procurement to hotels in Europe.
In the US, where many of the hotels are franchised, we were asked by our client and the association of franchisees to set up a platform to enable owned and franchised properties to order food, beverages, other consumables and services in a way that provided flexibility for the franchisees but also leveraged the scale of the network to deliver exceptional pricing and service. We worked with potential suppliers to develop innovative commercial arrangements to fund the start-up of the operation, which, after the start-up phase was self-funding based on a transparent cost-recovery mechanism. On average, franchised hotels reduced their costs by 10% and enjoyed an improvement in service levels. Feedback was extremely positive.
In total, we worked with our client for four years delivering savings of $320m on a spend of $1bn (excludes savings for franchisees). At the end of the programme the client had clear procurement policies and processes, appropriate management information, a higher calibre, more skilled procurement function and cross-functional decision making forums for selecting and managing suppliers.
The arrangement was never based on a long term contract – we continued to deliver a positive ROI and so the client continued to retain our services. When the CEO moved on, he engaged us to deliver a similar transformation in his new organisation.