By Neil Hammond, Partner & Director of Air and Hotel Sourcing
If you were hiring to fill a new position on your team, I wonder how many resumes you would review. I expect your initial net would be cast to include more than a handful of potential candidates. In fact, in most sourcing exercises, you would probably be considered diligent if you had a candidate to position ratio of at least 5:1.
Yet in the numerous hotel sourcing exercises I have overseen, I rarely see that ratio exceed 3:2 (i.e. buyers are select two out of every three properties invited to bid). Why is this the case? The answer is fairly simple; someone has to be responsible for the following processes, which take significant time and attention on the part of the buyer:
For many midsize programs, where typically 500 properties could end up on the bidder’s list, doubling that number would represent an untenable workload for the buyer to handle directly. If the buyer is using an outsourced service to execute this process, then that effort is translated into cost. It is true that the travel management cost center is now truly a cost center, but the savings generated are recognized on the corporate level as opposed to the travel manager’s budget. So far more scrutiny is applied to the project costs when others are reaping the rewards of the investment.
In one program I managed last year, I was fortunate to see the benefits of what happens when the bid/accept ratio is increased – in this case, fairly dramatically to a modest 3:1 ratio. Many of the program incumbents were used to submitting bids and dictating the rates and terms, knowing that few changes had historically been made to the program.
For this year’s program, the initial bids were as expected from previous years, however more bidders were invited and some significant consolidation was undertaken by the buyer. When historical suppliers didn’t adjust, alternates were evaluated and in many cases selected. These incumbents were surprised at some of the rejection letters they received, and hastily submitted greatly improved offers. In some cases leniency was accorded, but in most cases they were told to try again next year.
The overall program achieved significantly better than industry results. In large part, this was due to the fact that the client had options available during the selection process. Buyers can achieve a great deal during negotiations, but if the supplier is unwilling to move and senses they have the upper hand, it is good to have more motivated candidates in the mix. With a 3:2 ratio, the program suffers when there are only three properties bidding in one market. Usually two properties are desired to serve different tier needs for the location. In this scenario, one of the tiers will be limited to one bidder – essentially giving that supplier a free pass at the negotiating table.
To avoid this situation, buyers should measure and manage the program churn rate (the percentage of properties removed from a program each cycle). This may only need to be at the 20% level to ensure bidders are getting the message that they are in a competitive bidding process and acceptance is not guaranteed.
In order to achieve a desirable churn rate, you need to invite enough bidders to the table. The incremental investment to achieve this will show results in your sourcing process outcomes. According to a recent GoldSpring survey, buyers are aware that hotel occupancy rates are increasing, and 92% believe increasing the number of bidders will be key to stimulating the marketplace.
This article originally appeared in the July 2015 edition of GoldSpring Insights, the official email newsletter of GoldSpring Consulting. To sign up for our mailing list, please click here.Back to all news