By June 1, 2005 Read More →

Leveraged Procurement | Article

Most Innovative Value Creation  

Outsourcing Excellence Award – Most Innovative – Fairmont Hotels and Avendra LLC

Fairmont Hotels & Resorts operated Chateau Purchasing until 2001, procuring the goods and services needed internally. In 2001, Fairmont joined the effort to form an innovative entity to provide procurement for the hospitality industry, a purchasing consortium to be known as Avendra. In joining the effort to form the consortium, three matters were of key importance to Fairmont: economies of scale, leveraged buying opportunities, and improved knowledge for procuring products and services. In response, Avendra’s contracting experts work deep into the supply chain, going beyond the distributor to negotiate attractive pricing with manufacturers and sometimes raw material suppliers. Avendra employs 230 associates, utilizes 900 suppliers, and has 4,200 customers with annual spend of almost $2 billion.

Avendra’s scope of services ranges from food and beverage to golf pro shop management and grounds maintenance to administrative and financial services.

In just three years, the consortium has proved a success.

Transitioning To a New Business Model

In the transition to a new company, Avendra and its founding partners faced two substantial challenges. The first was to create a unique business model for an industry procurement consortium and make it succeed. The second was the challenge of creating the processes of a new business including finance, sales, operations, systems development, etc. During start-up, Avendra took associates from five entirely different hotel and club companies, each with different cultures, and was able to inspire them with a new vision that integrated the various cultures into one. Associates fully participated in building their culture — creating a new spirit focused on growth and success.

Beyond Transition To Standardization

As Avendra and Fairmont’s relationship evolved beyond the transition phase, it again faced two different challenges. First, there was the challenge of restructuring its contracting processes to meet the needs of hundreds of companies. Avendra dramatically revamped its entire contracting process, pulling together the best industry practices in each product or service area and then implementing these solutions throughout the hospitality business. Most importantly, Fairmont set all the standards and specifications.

Second, Avendra standardized the procurement offering so that each Fairmont hotel property accesses the same product. Through this process, Fairmont leverages its relationship with Avendra to buy on the same basis as a larger hotel company. In Fairmont’s case, this means standardizing products across borders, and some products and services do not cross borders easily. Despite this obstacle, today whether a Fairmont manager is in British Columbia or Washington, DC, they buy the same standardized “Fairmont bed.” Managers are not bothered about the details that Avendra had to negotiate two separate contracts for Fairmont’s US properties and Canadian properties; they simply order the products they need regardless of borders.

The Model Works!

The idea of leveraging procurement across the hospitality industry and then turning the function over to an independent company was a totally unique concept, never tried and hardly believed. Further, the idea of Avendra was not just new, but also untested. But in a little over three years, Avendra validated the idea of leveraged procurement and has grown from a few founding partners to thousands of satisfied hotel, golf, airport, and cruise line customers. “The car companies tried it, and what they couldn’t get over was their alleged individuality, and the loss of control. In the hotel business, there’s a lot of stuff like toilet paper – does it really matter if we buy the same brand as Ritz Carlton? Probably not. So we’re able to get past that concept,” says Patava.

The Fairmont-Avendra relationship is a partnership and a relationship built on trust and respect. Fairmont and Avendra meet often, communicate regularly, and work through any difficult issues. Avendra’s dedication to Fairmont and Fairmont’s customers goes far beyond just a buyer-seller relationship. Avendra understands the hospitality business, has deep expertise in that business, and integrates its hospitality know-how with Fairmont’s processes. Avendra’s understanding of Fairmont’s needs allows Fairmont to spend time being better hoteliers and focus on Fairmont customers.

Before Avendra was Fairmont’s procurement solution, Fairmont spoke of itself as “a proudly Canadian hotel company with a proudly Canadian procurement team.” Working with Avendra, Fairmont has been able to retain its roots while moving the procurement function into a modern, international, yet seamless operation that is more efficient than when Fairmont was on its own. Fairmont gains greater leverage, better prices, and improved product/category expertise and is able to invest substantial savings back into operations to provide its guests a better quality experience.

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