A recent “Talkback” article on Purchasing.com caught my attention. Hilton Hotels' purchasing organization says "The bucks start here". In quick summary, the article explains how Hilton Hotel’s purchasing department is in fact a profit center for the business.
Although it is impressive what Hilton has opted to do in order to maintain their own purchasing and supply chain departments as a cost-neutral entity, I had to read the article carefully to really understand what they were saying. I would argue that the article (or Hilton) is a bit liberal in defining what they call their “purchasing department” as it includes a marketing department and its own finance department. It is in fact, a self contained consulting firm or outsourced purchasing company.
Looking at the numbers, Hilton is managing $2 Billion in annual spend, with 147 people. That works out to just $13.6 million of managed spend per person, and only has an annual impact on the corporations spend of about 1% in savings. By using the numbers that they published in this article, I calculate only a $145k annual cost savings per purchasing department employee, or as high as 180k/person if you factor in their revenue. Also, keep in mind, these numbers simply talked about savings and revenue, and did not account for any overhead costs. With what Hilton is doing, I would expect there are some significant annual software licenses and infrastructure costs that need to be accounted for, which could drastically reduce these numbers.
The numbers indicate that while Hilton is maintaining a cost-neutral procurement center, they probably are not very focused on the actual strategic sourcing. I am sure that a large portion of the staff is dedicated to maintaining contracts, collecting fees, marketing, and managing finance, and can’t help but wonder how much resource is actually left over for the actual strategic sourcing aspect of procurement. Although I commend Hilton for the team that they have built and the obvious success they have achieved, I believe Hilton could still benefit greatly by supplementing their strategic sourcing resources with the outside consulting world.
Although it is impressive what Hilton has opted to do in order to maintain their own purchasing and supply chain departments as a cost-neutral entity, I had to read the article carefully to really understand what they were saying. I would argue that the article (or Hilton) is a bit liberal in defining what they call their “purchasing department” as it includes a marketing department and its own finance department. It is in fact, a self contained consulting firm or outsourced purchasing company.
Looking at the numbers, Hilton is managing $2 Billion in annual spend, with 147 people. That works out to just $13.6 million of managed spend per person, and only has an annual impact on the corporations spend of about 1% in savings. By using the numbers that they published in this article, I calculate only a $145k annual cost savings per purchasing department employee, or as high as 180k/person if you factor in their revenue. Also, keep in mind, these numbers simply talked about savings and revenue, and did not account for any overhead costs. With what Hilton is doing, I would expect there are some significant annual software licenses and infrastructure costs that need to be accounted for, which could drastically reduce these numbers.
The numbers indicate that while Hilton is maintaining a cost-neutral procurement center, they probably are not very focused on the actual strategic sourcing. I am sure that a large portion of the staff is dedicated to maintaining contracts, collecting fees, marketing, and managing finance, and can’t help but wonder how much resource is actually left over for the actual strategic sourcing aspect of procurement. Although I commend Hilton for the team that they have built and the obvious success they have achieved, I believe Hilton could still benefit greatly by supplementing their strategic sourcing resources with the outside consulting world.
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