Transcript No Slide Title

INTRODUCTION TO AVENDRA
April, 2005
Comprehensive Procurement Solutions
Background & Context

At the April 6, 2005 HAMA meeting in Atlanta, Avendra
participated in an educational segment regarding
procurement.

Brian Weed, Avendra’s COO, made a brief presentation to
the group. The presentation material was pulled from the
following slides, which provide a more comprehensive
overview of Avendra’s positioning, sales process and
offerings.

Avendra plans to continue discussions with the owner
community in an effort to educate owners on its business
and on procurement opportunities in the lodging market.

If any HAMA member would like to talk with Avendra, or
would like to connect Avendra with their property
manager(s), they should contact Brian Weed at
[email protected] or 301-825-0008.
Comprehensive Procurement Solutions
Page 1
Introducing, or Reintroducing, Avendra
Avendra, LLC is an independent company founded in 2001 by some of the most
respected names in the hospitality industry:
Individually, these companies fielded effective and highly-regarded purchasing
organizations. Avendra has integrated these resources, and made significant
investments in new capabilities, services and tools. The result is the most
effective procurement services company in the hospitality industry, comprised
of 200+ professionals.
In 2003, Avendra’s client base of 175 management companies and
4,000 properties procured nearly $2 billion in goods and services
through its programs.
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Avendra Has Deep Expertise in Key Procurement &
Service Functions
Contracting
Expertise:
Program &
Customer
Services:
Infrastructure
& Growth:
Food &
Beverage
Products
Food
Distribution
& Regional
Programs
Rooms &
F&B
Operating
Supplies
Engineering
Products &
Services;
Kitchen Eqt
Other (Golf
Pro Shop &
Grounds;
Admn Svcs)
(21 people)
(11)
(7)
(5)
(9)
Quality
Assurance
& Price
Audit Svcs
Field
Support &
HQ Call
Center
Account
Management
Services
Change
Mgmt,
Operational
Consulting
Replenishment
Products
(17)
(36)
(15)
(6)
(11)
Spend
Tracking
Operations
Technology
(customer,
supplier, ecommerce)
Program
Management &
Marketing
Sales &
Business
Development
Other
(Finance,
Legal, HR,
Exec, etc.)
(18)
(19)
(6)
(16)
(35)
Note: all headcount numbers reflect existing positions as of June, 2004
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Challenges in Today’s Hotel Management Market
The issues are often the same across competitors . . . the challenge is aligning
operations and tactics to each company’s unique mix of issues, strategy and culture.
None
Issues Impacting ALL COMPANIES in Market
- Internet impact on pricing power
- Increasing interest rates/cost of capital
- Underlying economy; war impact on travel
- Spiraling healthcare costs; inflation in key cost categories
Issues Impacting SPECIFIC COMPANIES
Company’s
ability to
control
- Strategy/tactics of direct competitors
- Shift in power of owner/manager relationship
- Consolidation & scale: pros/cons; company standing
- New property development & local economies--impact on key properties
COMPANY STRATEGY
- Market positioning/differentiation
- Portfolio size & growth plan
- Portfolio mix (types of properties/brands)
- Operational strategy (central/decentralized)
- Customer/channel mix (group/IT/leisure)
- Capital strategy (public/private/institutions; leverage)
COMPANY OPERATIONS
High
- Property decision processes
- Role of influential properties
- Supplier relationships
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- Property market positioning (local delivery of brand “promise”)
- Regional infrastructure
- Takeover/start-up capabilities
- Effectiveness of HQ programs
- Performance mgmt/metrics
Page 4
Linking Procurement to Strategy, Operations and
Culture
Avendra’s deep experience in hospitality and procurement allows us to identify the right
procurement approach given the management company’s particular circumstances.
Management Co. Profile – Example 1
• Manager for activist Owner.
• Portfolio of 20 independent, luxury properties.
• Individually positioned properties, with decentralized
decision making.
Critical Managerial Implications
• Owner relations critical—reporting, transparency.
• Difficult to leverage operational benefits of
portfolio’s scale given management approach.
• Use “Corporate Programs” judiciously, involve key
field influencers in design (test before rolling out).
Essential Procurement Capabilities
• Savings and benchmarking data important for owner
reporting.
• Rebates need to go back to properties.
• Product and service quality more important than
price—invest any savings into upgrades.
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Management Co. Profile – Example 2
• 3rd party Owner/Operator.
• Portfolio of 150 limited service properties; 7
different national brands; 4 primary franchisors.
• Rapid growth, primarily via conversions.
Critical Managerial Implications
• Compliance to franchisors’ brand standards critical.
• Staffing (property & corp) very lean—cost focused.
• Takeover capabilities can make or break ROI from
property acquisitions.
Essential Procurement Capabilities
• Managing spec requirements across flags.
• Reporting purchasing compliance against specs.
• Centrally managing (challenging) product quality to
optimize profit at unit level, but doing so with
limited overhead.
• Smooth supplier transition program for takeovers.
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Customer Testimonials: Avendra Adds Value in
Different Ways to Different Customers
“Avendra has the ability to leverage its expertise in purchasing to provide additional
consulting advice and services that can really make a difference to my results.”
 Scott Monell, Executive Chef - Fairmont Hotel Dallas
“Outsourcing through Avendra has allowed us to offload a lot of man-hours and
management expense … they act as partners in our day-to-day operation.”
 Tony Richardson, VP F&B and Procurement - Davidson Hotel Company
“We knew the quality we had to provide to hold our edge (as a AAA Five Diamond
Hotel). Fortunately, Avendra has brought us more leverage and across-the-board
product knowledge.”
 David Benton, Vice President and Managing Director - The Rittenhouse Hotel
“We increased productivity at the hotel level in 2003…by leveraging our buying
power and systems. We reduced food and supply costs through greater participation
in programs offered by Avendra, a procurement services company.”
 Bill Marriott, Chairman - Marriott Hotels and Resorts (2003 Annual Shareholders Report)
Comprehensive Procurement Solutions
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Avendra 2001 – 2003: Single (Inflexible) Offering
Provide customers access to contracts, bundled into “programs.”
 Over time, Avendra added new services to support the program offering
 Single (opaque) revenue model for new customers
Avendra Offering
Contracting, Supply Chain Management,
and Customer Access to Resulting
Programs
Specification Development/Rationalization
Quality Assurance Audits & Services
Purchasing Information & Analysis
Change Management, Customer Support
& Services (Corporate to Property-level)
Comprehensive Procurement Solutions
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Avendra Today: Flexible, Customized Solutions
We have a new process of engaging with prospective customers:
Discovery
Unbundle . . . . . . . then Customize Offering
Custom
Contracting
Services
Analyze
Operations,
Needs and
Culture
Operational &
Best Practices
Consulting
Specification
Development/
Rationalization
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Info, & Analysis;
E-Commerce
Select
Components
Appropriate
Given Needs
and Culture
Determine
Preferred
Fee Model
Execution
Implementation
Expertise
Results Tracking
Expertise
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
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Framework for Assessing Account-Specific Needs
Deep Understanding
Of (Unclear) Needs
Diagnosis
Clear Needs/
Basic Understanding
Standard
Product/Service
Product/
Service Plus
Modifications
Abstract and
Unique
Solutions
Customized Solution for the Account
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Objectives of the Discovery
For each procurement topic, we will assess 1) importance of the topic to
the account and 2) the account’s current performance.
Illustrative Example
H
Opportunity Space
• QA – Safety
• Compliance
Importance
• Specification
Development
• Owner
Reporting
(Determined by
strategy, external
drivers, company
preferences/culture)
• Scale Buying
• Supplier/Spec
Audits
• Supplier Service
Management
L
L
H
Performance
(Determined by interviews, analysis,
Avendra best practices, observations)
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Discovery: Process & Rough Timeline
Start-up
(1 week)
Information Gathering
(2-7 weeks)
Synthesis
(1-2 weeks)
Field and
Corporate
Interviews
Joint Scoping
& Objective
Setting
Data
Collection &
Analysis
Meeting to
Discuss Findings
Proposal
(if requested)
Avendra Best
Practices
Benchmarking
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Avendra 2004 Offering: Contracting & Supply Chain
Management
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Information &
Analysis
Avendra’s Core Program “Bundles”
• Groups of highly leveraged contracts organized by
function—F&B, Rooms, Engineering, Admin Services,
Golf Grounds Maintenance, Golf Pro Shop, Spa
Products.
• Avendra has contracts with 650 suppliers, covering
over 1,000,000 SKUs and ~$2B in annual purchases.
• Customers typically experience significant savings vs.
previous purchases.
Avendra’s Program Development Processes
• Structured, efficient process Avendra uses to ensure
contracting activity is driven by customers.
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
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Avendra 2004 Offering: Custom Contracting Services
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Contracting Services
• Account-specific Contracting.
• Property-specific Supplier Agreements.
Supplier Diversity Services
• Supplier Diversity (MWBE) Program Development and
Reporting (Corporate-level).
• Property-specific MWBE Compliance (for high targetgoal properties).
Purchasing
Information &
Analysis
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
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Avendra 2004 Offering: Specification Development
Services
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Information &
Analysis
Corporate Specification Development
• Corporate or Brand Standards.
• Cost/Value Engineering.
• Maintenance of Corporate/Brand Specifications.
Property Specification Development
• (Where properties have discretion relative to corporate
specifications/standards.)
Product Cuttings/Comparisons
• Broad category comparisons as part of program
development process.
• Narrow product comparisons to support product
change-outs.
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
Comprehensive Procurement Solutions
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Avendra 2004 Offering: Quality Assurance Services
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Information &
Analysis
Avendra’s QA Supplier Audit Program
• Regular, proactive audit plan driven by ongoing risk
assessment.
Customer Advisory Management
• Product Recalls
• Advice on Major Food Issues (e.g., Mad Cow crisis)
Other QA Services Available
• Property-based Food Safety Operational Reviews
• “Meet the Truck” Audits (Delivery/Receiving)
• Food Safety Education Seminars
• Custom Corporate QA Audit Program Development
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
Comprehensive Procurement Solutions
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Avendra 2004 Offering: Purchasing Information &
Analysis
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Information &
Analysis
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
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Customer Reporting - Basic
• Standard reports provided on a scheduled basis to
designated customer contacts.
• Includes: spend participation by property/supplier,
product-level compliance, program savings reports,
supplier service level reporting, issue tracking, etc.
Customer Reporting & Analysis - Advanced
• Basic reporting, PLUS:
• Self-help analysis tools and access to data warehouse.
• Online push/pull reporting to properties.
• Custom report development for customers.
Spend Tracking for non-Avendra Suppliers
• Requires customer to assist in making suppliers
provide data links to Avendra.
• Compliance Analysis for non-Avendra suppliers.
Financial & Pricing Audit Services
• Standard services (part of Core Program Offering).
• Customer-specific financial audit services.
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Avendra 2004 Offering: Customer Support & Services
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Information &
Analysis
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
Property-level Rollout Implementation
• Property education regarding Avendra offerings.
• Develop and manage supplier transition plan.
• Track initial orders; troubleshoot as needed.
• Measure early satisfaction; troubleshoot as needed.
Account Management
• Proactive resources for corporate-level customers.
• Assist with Owner Relations, as needed.
• Facilitate use of additional offerings, as appropriate.
Field (property/regional) Support
• Proactive property visits to ensure smooth operations.
• Issues resolution assistance.
• Aggressive property compliance service, as directed.
Call Center Support (866-AVENDRA, online options)
• Issue tracking, resolution and follow-up.
Transactional Purchasing Services (for properties)
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Avendra 2004 Offering: Operational & Best Practice
Consulting Services
Services Available in this Offering Component
Custom
Contracting
Services
Operational &
Best Practices
Consulting
Specification
Development
Services
Avendra
Core
Offering
Customer
Support &
Services
Quality
Assurance
Services
Purchasing
Information &
Analysis
Core: Contracting, Supply Chain Management,
and Customer Access to Resulting Programs
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Best Practice Benchmarking
• Corporate and/or Property levels.
Development of Standard Operating Procedures for
Purchasing
Food & Beverage Operational Consulting
• Property-based Food Cost % Improvement.
• Menu development.
• Local market menu price benchmarking.
Other Operational Consulting
• e.g., Spa development & operations.
Disaster Readiness Programs (Prop- or Corp-level)
Corporate Business Development Support
• Due diligence assistance—assessment of potential
purchasing synergies from corporate transactions.
• Integration of corporate purchasing functions after
corporate transactions.
• Mgt Company takeover/transition assistance.
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Common Questions and Comments
1) “I’m already a large purchaser, and you can only squeeze suppliers
so much. How can Avendra get more savings than I can on my
own?”
2) “I worry that I’ll need to trade off product quality and/or service
to get your savings.”
3) “We seem to do pretty much what you do with a lot less
overhead.”
4) “I don’t like the idea of rebates. Why can’t you get rid of rebates
and just lower the prices?”
5) “As long as the properties can pick and choose among the Avendra
suppliers and other competing suppliers, they will get the best
pricing and value, right?”
6) “Even if I see initial savings, how do you make sure I continue to
get, and measure, the savings over time?”
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Economies of Scale in Purchasing
1)
“I’m already a large purchaser, and you can only squeeze suppliers so much. How can
Avendra get more savings than I can on my own?”
The economic benefits of increasing scale (size) have been studied
thoroughly. Related to purchasing economies of scale, it is generally
accepted that:
 Cost reductions do FLATTEN OUT
as volume increases beyond a
certain point, but they CONTINUE
TO DECLINE. Typically, costs
reduce about 3% every time
volume doubles.
 As an example (shown at right),
when spend goes from $100M to
$200M, costs decline 3%; but, it
will take double the incremental
volume to get the next 3% cost
reduction.
Typical “Scale Curve” for Purchasing
$30
$29
$28
$27
Cost per $26
Unit/Case $25
($)
$24
$23
$22
$21
$20
$0
$1,000
$2,000
$3,000
$4,000
Aggregate Spend Volume ($M)
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Property Savings Are Compelling
1)
“I’m already a large purchaser, and you can only squeeze suppliers so much. How can
Avendra get more savings than I can on my own?”
Avendra typically performs market basket analyses during the sales process.
 Representative sample of items purchased, weighted by $ volume.
 Perform over a hundred analyses each year.
Results show significant savings can be generated.
 Average of 14% for all baskets.
Food Only
# of
Avg. %
Baskets Savings
By Property Type
> Full Service Hotels
> Limited Service Hotels
> Golf Clubs
> Miscelleneous
Total - All Properties
Non-Food Only
# of
Avg. %
Baskets Savings
Food & Non-Food
# of
Avg. %
Baskets Savings
All Analyses
# of
Avg. %
Baskets Savings
82
32
24
4
12.1%
15.9%
14.1%
8.5%
17
9
8
2
12.4%
28.1%
13.4%
11.7%
9
3
0
0
10.1%
7.9%
n/a
n/a
108
44
32
6
12.0%
18.3%
13.9%
9.6%
142
13.2%
36
16.5%
12
9.6%
190
13.7%
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Customers Set Product & Service Specifications
2)
“I worry that I’ll need to trade off product quality and/or service to get your savings.”
Customers, not Avendra, select the products their properties will use.
 Avendra’s programs comprise ~650 suppliers with over 1,000,000 individual products.
 The breadth of our offering serves the needs of customers ranging from Holiday Inns to
Hyatt Regencies to Four Seasons.
 Each customer determines their specifications. Avendra provides options that meet that
requirement, and include the economic impact of each option. Then, customers have the
final say on product selection.
Distributors’ service levels are managed through rigorous contracting, tracking and
issue resolution.
 Unlike most distributor agreements, Avendra puts service level requirements (e.g.,
minimum fill rates, on-time delivery performance) into its distributor agreements.
 Avendra tracks and reports service level performance for distributors.
 Avendra’s customer service, field support, and contracting professionals respond to
customer issues and/or if service level performance doesn’t meet expectations.
 Avendra’s QA team conducts unannounced “Meet the Truck” audits that check
distributors’ delivery performance (timing, condition of product, etc.).
Comprehensive Procurement Solutions
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Customers Leverage Our Investments & Expertise
3)
“We seem to do pretty much what you do with a lot less overhead’
Given their scope and size, most companies don’t have the luxury to make
significant investments in procurement.
 On contracting, many have a small staff of contracting people that focus on distributor
agreements and a handful of manufacturer agreements.
 Rarely do companies invest in QA programs, information tools to track/analyze spend
patterns, or dedicated property support personnel.
Avendra’s size and scope allows it to make large investments in contracting
expertise, value-added services and procurement infrastructure, then amortize
these costs over a very large base of business. Our customers directly and indirectly
benefit from these investments. Following are examples of these investments:
 Deep category experts: Avendra’s 50+ contracting associates each typically focus on 4 or
5 product or service types.
 “Assurance” expertise: Avendra’s 15+ QA and price auditing professionals have extensive
scientific and audit process training and experience.
 “Customer Care” experience: Avendra’s 50+ associates typically have many years of
industry experience to better relate to and address our customers’ needs and issues.
Comprehensive Procurement Solutions
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Rebates: Why They Are Good for Our Customers
4)
“I don’t like the idea of rebates. Why can’t you get rid of rebates and just lower the
prices?”
Primary reason for rebates is to allow Avendra customers to enjoy dramatic
discounts while protecting suppliers’ pricing structure
 Effective price extended to Avendra can be kept confidential
 Some manufacturers go to market with a single price (no deviation), and ONLY provide
discounts through rebates (e.g., Heinz ketchup)
 Avendra and suppliers constantly at odds on how much discount to reflect directly with
market (property) prices (back-end rebates vary from 0% to 10%+)
In more “controlled” environments (e.g., fast food restaurants), companies will
use rebates to capture all of the excess value
 Provides protection for manufacturers
 Provides method for customer to see savings materialize
 Hotel environment is different—given competitive distributors, need to keep a large
portion of savings at property-level
In addition to the above reasons, the existence of rebates provides a mechanism
to pay Avendra, avoiding the need to charge properties separately.
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Cherry Picking: Why it Doesn’t Work
5)
“As long as the properties can pick and choose among the Avendra suppliers and other
suppliers, they will get the best pricing and value, right?”
While it seems like seeking the best price for individual items across
multiple distributors is the right thing to do, it is NOT
 At best, it erodes the program and indirectly harms the customer
 At worst, it directly harms the property
 Bait and switch tactics common
 Can reduce drop (delivery) size and/or lead to higher effective drop fees
 Regardless, it consumes valuable time from the property purchaser
Avendra programs are developed to provide the best value on a full
market basket basis
 Not every item will be priced lower than every competitor in the market, but the overall
costs will be lower than alternatives
 Some distributors will run loss leaders to entice customers
 Some distributors will run specials due to inventory levels or temporary supplier
promotions
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Avendra Provides Ongoing Savings Validation
6)
“Even if I see initial savings, how do you make sure I continue to get, and measure,
the savings over time?”
Most challenging aspect of our program is tracking savings over time.
 Best method—market baskets—are difficult for Avendra or customers to perform.
 Tempting to look at trends in cost ratios, but these typically include many other factors
beyond price of comparable products/services.
 For example, changes in food cost % are impacted by changes in menu mix (change in items
purchased), menu pricing, kitchen efficiency, degree of prepared food used, as well as
changes in the prices of certain products.
Given the importance of the topic, Avendra has developed methods to
track customer savings after they have adopted our programs:
1. Regularly share results from market basket studies we perform for other
companies (once we “sanitize” the data to maintain confidentiality).
2. Share our Price Trends Index Report—compares changes in Avendra prices
vs. changes in market prices (data from government or industry sources).
3. Engage 3rd party research firms to perform market basket pricing
comparisons.
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Questions HAMA members should ask the managers
of their properties

How much of your spending is cost-controlled at the
manufacturer level?

What information tools do you use to ensure compliance to
contracted suppliers?

What do you do to assure our property is safe from foodborne illness outbreaks?

How much property labor is spent on purchasing-related
activities?

Have you seriously looked at outsourcing procurement?
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Why Outsource? Why Avendra?
 Scale: savings, resources and tools
 Expertise: deep domain expertise
 Flexibility: however the manager (or owner)
wants to do business
Are you interested in discussing these topics further or
connecting Avendra with you’re property manager?
If so, e-mail [email protected]
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