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NEWPORT BEACH, Calif. — The president of one of the top e-Procurement builders speaks to Blue MauMau about the recent move of the independent Asian American Hotel Owners Association to the services of his firm, software designer BirchStreet Systems. The move enables hotel owners to better use their collective numbers to drive deals when purchasing products and services.
“AAHOA prides itself on being able to provide superior benefits for our members, many of whom have built their businesses from the ground up,” said AAHOA president Fred Schwartz. “With such a pronounced foothold in the industry, which includes owning more than 40 percent of all U.S. hotels, we continue to look for innovative ways to leverage that reach for the collective good of our membership.”
The BirchStreet Systems platform that AAHOA members have chosen for great deals is a web-based procure-to-pay portal used by restaurants, country clubs and some of the world’s largest hotel franchisors, including Hilton Hotels, Hyatt Hotels and Marriott International. Its applications are delivered over the Internet, using the “Software-as-a-Service” (SaaS) model, which reduces the total cost of ownership compared with the traditional method of buying and maintaining enterprise software.
The results? Some 500 AAHOA members have almost immediately signed up for the online purchasing cooperative, which gives them access to deals from more than 160,000 suppliers.
Doug Sanborn, chief operating officer and president of Newport Beach, California-based BirchStreet, spoke on the phone with Blue MauMau about the online purchasing tool that the hotel franchisees commissioned and launched. He describes what lies ahead for online procurement.
BMM: What's coming down the pipe for online purchasing portal designs? Where is BirchStreet Systems being pushed?
Sanborn: There is a big push into tablet and mobile applications. We've developed a number of features and functionalities that are specifically designed for a tablet computer environment or a smartphone environment. So we see that coming down the pipe for sure.
BirchStreet has applications that run on those devices today. Last year we launched an application called the RecipePad, which is an iPad version of our recipe system. It allows chefs in the kitchen to search and find recipes, looking at cost of the recipes. It's fully integrated with our regular web-based enterprise recipe system. We also have applications on the iPad and smartphones like iPhone or Android that enable you to review orders through your cell phone.
More of those applications are going to come out later this year. We also have an inventory control application that's going to be launched for the iPad later this year.
BMM: The information sounds like it is cloud based, so no matter if I access information about my hotel through my smartphone, iPad or on my desktop, the information is all there in real time. It's just the presentation of it that is slightly different. Is that correct?
Sanborn: That's correct. It's all cloud-based software — hosted and accessible over the Internet. So whether you are on a smartphone, tablet, or PC or whatever, the format of the screen will be different to accommodate the different form factors, but the data and functionality will be the same.
BMM: What are the benefits of your platform to a franchise owner, say a Super 8 franchisee?
Sanborn: BirchStreet has a special user interface designed for that kind of hospitality property. We call it BirchStreet Express. It's a lighter, more streamlined, consumer-like user interface. It's designed for limited service properties or select service properties. Whether you are doing your own purchasing or maybe you're hooking up with purchasing programs from an organization like a vendor or a group purchasing organization, those programs can give you good deals on products. But you need to make sure that you are buying off the contract for your brand. So if you have a contract and a really great deal from Samsung to buy TVs, but your people are buying Sony televisions at cheaper prices, then you're not getting value for the contract. Our value proposition to users is that BirchStreet software allows corporate offices to monitor purchases and transactions that properties make.
Franchisees purchase from approved vendors and get full advantage of whatever negotiated prices they are hooked into, whether they be linked into deals that are sponsored by their brand, they're in a sponsored group purchasing organization like AAHOA with lower prices, or whether they are doing their own negotiations.
We're constantly improving our products, listening to our customers, and making the adjustments. If they have suggestions on a way to make things better or a way to make things easier, we're always making those changes.
BMM: How many members would an association, franchisee cooperative or chain need in order for BirchStreet to look at it?
Sanborn: We actually have some restaurant organizations that are using the system today. There's a company-owned chain with 14 restaurants that use BirchStreet. We're in discussions with other restaurant groups right now. We do get some customers from the restaurant area. We can certainly accommodate that sector.
Our software doesn't care what product is bought. There are already a number of food and beverage features because food and beverage is such a big part of the hotel space.
We're also doing work in senior living and assisted living facilities that order food and beverage and other similar types of products like linens and chemicals and so forth.
BMM: What cost savings do you provide your customers?
Sanborn: The savings can be dramatic for customers that spend a lot. Hotel owners many times can save 10 to 15 percent off street price. [That's because] many customers don't measure compliance rates, which is the percentage of dollars spent off contract versus the total dollars spent. Without a procurement system like ours, it's very hard to achieve a very high, negotiated compliance rate. We've had customers that started with a compliance rate well below 50 percent, which meant that more of their dollars were spent off [their negotiated and reduced] contract [price] than on contract. When they move up to an 85 or a 90 percent compliance rate within the procurement system, all those incremental dollars are now being moved on contract and then franchisees save maybe 15 or 20 percent on all these incremental dollars.
The savings can be quite significant.
BMM: Other than smartphones and tablet platforms that you already have, where else is the industry going that you feel pushed towards?
Doug Sandborn: Another major feature is the Accounts Payable Automation. With AP you can make sure that suppliers are charging the right price. After all, because you buy the right product from the right vendor doesn't mean vendors always charge you the contract price. So the AP side has a value proposition of efficiency gains.
The way it works is when you pay your bill there is a three-way matching system that compares the Purchase Order, Receiving Events and the Invoice to make sure you are charged the correct payment amount. Manually tying all that information with paper is time consuming. Most people who don't have an automated system can't really do it on a consistent basis.
What our system does is process orders following rules without any human intervention. Those orders of the invoices that fail will be brought to our workflow system for someone to investigate and decide what to do — determining if they short pay or if there is an error on the purchase order.
For a lot of our customers, especially those with lots of limited service properties (like Super 8) where the property itself doesn't have a lot of resources to do Accounts Payable accounting, a lot of times the customers will want to centralize it into a shared services center. Our product can be a part of that and make that functionality much more effective for shared service centers because of its web-based nature.
Calculations and information can go from the property to the shared service center and back to the property seamlessly over the Internet through our application. So a number of our customers use our application to automate and centralize their AP for their hotel properties.