Friday, December 3, 2010

Why is Corporate Hotel Program Compliance Important (Hotel Compliance 2 of 5)

There is a number of reasons why corporations monitor their corporate hotel program compliance metrics, and strive to retain them at high level. The top reasons include:
  • Credibility with vendors
  • Best practice procurement
  • Generate potential savings
  • Avoid conflict with strategic partners
  • Other issues like safety, consistency, brand, and equity

Credibility with vendors
High compliance metrics are typically a good indicator that the corporation is following best in class practices in managing its procurement and hotel program. Such indication is extremely useful when the company is sourcing new business or renewing its existing contracts. High compliance is often used as a proxy for corporate credibility with suppliers.

On the other hand, a company with poor compliance record may find it difficult to negotiate better deals with suppliers. When I manage on behalf of my clients RFP programs for their hotel, often the suppliers would ask about the client’s compliance record, especially when there is a new relationship forming. I find it very difficult to gain great concessions from these suppliers, when my client has a poor compliance record. Why is it that important for suppliers to know that the sourcing company has a strong compliance record, is because it would be harder for the suppliers to measure the size and value of the opportunity at stake. I may say that my client spends $1 million dollar on average at the supplier’s market, but if I add that the client compliance ratio is in low 20%, this means that being a preferred vendor does not really guarantee a business of nearly a fraction of the potential opportunity.

Best practice procurement
If you are a manager, you would like to see your compliance ratio in the 70-90% to be in the bull-park of best practice corporations. Low compliance ratio is frowned upon, and could mean that the corporation is not following best practices in procurement, or program management, or it implements a poor sourcing methodology. If you have a sound strategic sourcing process in place, then your compliance ratios should represent that with high percentages.

Generate potential savings
High compliance leads to satisfied preferred vendors, which consequently, leads to stronger relationship and partnership with them. Potentially, this will lead to better deals and favorable pricing down the road, with additional value and amenities to your travelers.

Avoid conflict with strategic partners
This is the opposite of the previous point. If you promise your vendors $10 million in hotel spend in 2011, and most of that spend leaks through to non-preferred vendors, you would be in a tough situation when it is time for your 2012 hotel program RFP.

In some cases, you would hear from your suppliers during your quarterly review, and some of them would withdraw their preferred rates or amenities since you are not fulfilling your part (sure there has to be legal document to allow them to do so, and many don’t do it to maintain good relationship with the client).

Other issues like safety, consistency, brand, and equity
This could be listed as an intangible value for compliance, but it is equally important. When travelers follow the policy and book at preferred hotels using preferred booking process, the company will be able to keep track of its employees. In many cases, the manager would specify certain safety elements at the properties her/his travelers stay at, especially in cities with lower safety standards. If travelers are non-compliant and stay at hotels that have not been checked by the manager or are not up to the corporate safety standards, this could put the traveler and the company in a risky situation.

Equity is another important matter. If a corporate policy states that employees must stay at budget or moderate tier properties, it would be unfair for a few travelers to be non-compliant and stay at upscale or luxury hotels, and still get the company to pay for their expenses.

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