How Hilton Stabilized a Disrupted Supply Chain
HSM supports more than 11,000 properties in more than 120 countries. (iStock/User10095428_393)
Hilton Supply Management (HSM) takes pride in being on top of its game — as well it should. Like one of Hilton’s flagship properties serving a major city, everything about HSM is big.
As the world’s only truly global hospitality procurement powerhouse, HSM engages in a head-spinning array of activities. That includes supporting more than 11,000 properties (4,500 of them non-Hilton-branded hotels) in more than 120 countries. With billions in spending power, HSM works with 1,200-plus suppliers to procure more than a half-million SKUs.
“Hospitality procurement is what we do, and all we do,” says Anu Saxena, the global head of HSM. She explains that the work of HSM is divided into four main areas:
- Volume sourcing — “This is where we started our operations 52 years ago and what we know and do best,” Saxena notes. “We’ve aligned our team internally to leverage our scale globally in several sourcing areas categories like food and beverage, operating supplies, equipment and service contracts.”
- Purchasing and logistics service for renovations or new construction — This includes items such as furniture and fixtures.
- Brand programs — “We work with our brands to develop new products, and we ensure that by the time they launch that they are cost competitive and have a supply chain to support [them],” Saxena explains.
- Corporate procurement — HSM also drives savings and synergies for Hilton’s internal organization.
Hilton takes hospitality procurement so seriously, in fact, that it launched “HSM 2.0” not long ago. The global initiative reinvented the company’s supply chain to be more agile through the adoption of seamless and simplified procurement steps and new sourcing processes.
Improved bottom-line performance was a goal, but HSM 2.0 also aimed to better prepare Hilton for supply chain disruptions. In fact, in 2017, the year it launched HSM 2.0, Hilton properties around the world were impacted by no fewer than three hurricanes. Talk about trial by fire (or water).
With all of its experience and resources, HSM was in a better position than many other organizations to navigate the treacherous currents of the COVID-19 pandemic. Even so, challenges abounded.
With properties throughout Asia, Hilton saw the devastation of COVID-19 early on, before it had made its way to the United States and elsewhere. “Bracing ourselves for COVID-19 meant that we had to examine our supply chain across all categories to determine how to mitigate the impact of potential breaks in the supply chain,” Saxena explains.
The pandemic had a double impact on the hospitality industry’s supply chain: Not only did it greatly curtail guest business at its regional properties, but it put many of its suppliers temporarily out of commission. As a result, Saxena says HSM acted swiftly to mobilize in support of its hotels and people in the region and took steps to limit disruption in its global supply chain.
“We realized that the outbreak would impact us on a global scale,” she recalls. “And that ended up being true.”
“The first thing we did was assemble a dedicated global task force whose main goal was to identify disruption and work with the rest of our business to create supply chain stability.”
Faced with that unsettling reality, Saxena says, “the first thing we did was assemble a dedicated global task force whose main goal was to identify disruption and work with the rest of our business to create supply chain stability.” That was no simple undertaking for an organization of Hilton’s scale, and the task force’s work included Zoom calls with team members in China, Japan, Southeast Asia, Europe, the Middle East, Africa, United Kingdom, the United States and Canada.
This task force created a three-pillar strategy to address cost control, contingency planning and hotel operations support. “We’ve also been working with our CSR [corporate social responsibility] teams on community impact,” Saxena notes.
For the first pillar of its effort, HSM took a multifaceted approach to cost containment. “We approached our suppliers right away to negotiate ways we could ease cash flow burdens on hotels, and many were responsive and agreeable on things like deferred contract price increases, temporary discounts and extended payment terms,” she explains. “This allows us to give our hotels more room to operate as occupancy levels decrease.”
Most of HSM’s cost-containment strategies were developed in partnership with what Saxena calls Hilton’s “amazing supplier community.” She adds, “And you know, our supplier partnerships have been ever so important during this time. We have been very proud that we’ve been extending the same hospitality to our suppliers as we do to our owners, team members and guests, and we’ve seen them be extremely supportive during this time.”
HSM also explored ways to reduce recurring expenses for properties that had suspended operations. “For example, uniform rentals or maintenance fees,” she relates. “We also provided a tip sheet and checklists for hotels that [contained] cost-containment measures such as reducing the frequency of waste removal pickups, powering down restricted floors or wings, or suspending subscriptions like newspapers. These were all temporary measures to cut costs without compromising service.”
A careful approach to contract management was another way HSM controlled costs. “As a procurement partner, our negotiated prices are protected from dramatic increases or gouging,” Saxena says. “Our category managers regularly monitor their products to ensure that there are no $100 hand sanitizers in our supply chain. We also recognize that we need to remain laser focused on operations through the crisis, although we pride ourselves on our continual growth and innovation.”
Corporate spending also came under the magnifying glass, and HSM worked with internal Hilton departments to eliminate unnecessary expenses.
Pride in the Hospitality Community
For its second recovery pillar, the HSM task force developed contingency plans for suppliers impacted by the pandemic. “At the beginning of the year, our focus was really on finding manufacturing facilities outside of China, which of course were shut down not just in Wuhan but across the country due to the tragic spread of the virus,” Saxena recalls. “And you know, while not everything is made in China, a lot of parts are made there, which meant it complicated certain areas of our supply chain.”
“In many ways, we’re helping our suppliers with effective use of their inventory on hand.”
Every hotel depends on a steady supply of textiles such as towels, which became another challenge. “We found that many of our manufacturing facilities were based solely in China, and so we worked with our suppliers so that they quickly identified alternate factories in other regions,” Saxena says. “And, in many ways, we’re helping our suppliers with effective use of their inventory on hand.”
HSM tackled the final pillar — hotel operations support — by developing detailed processes for hotels as they prepared to reduce or suspend operation. These covered everything from how to communicate with suppliers to how to properly shut down equipment. The HSM field supply team worked around the clock with general managers to provide guidance and updates.
The disruption of the pandemic has been exhausting. But it also has reinforced the importance of HSM’s partner relationships and the roles that all stakeholders play in the success of this multibillion-dollar organization.
“This has been a truly unprecedented time for all of us, but I’m proud to be part of this hospitality community — we are a truly resilient industry,” Saxena says.
Editor’s note: Anu Saxena’s comments were made in a webinar of the Asian American Hotel Owners Association.