Hilton Worldwide’s Supply Management

Customer requests in the hospitality industry can be many and varied, and it is the job of Hilton Supply Management to make sure that whether a customer requires a toothpick in Syracuse or a new pillow in Singapore that it is there. Such attention to detail and unfailing service has made the Hilton name synonymous with a high level of hospitality among a variety of the world’s cultures. It also requires constant attention and evaluation of systems to deliver such service reliably.

The supply chain that serves Hilton’s properties is not exempt from this examination. “So fundamentally – what we need to do as Hilton, as an organization – we want to be able to serve any customer anywhere in the world for any of their lodging needs,” Senior Vice President of Supply Management Bill Kornegay says. “As a procurement company, we have to make sure their goods are at the right location in the right quantity at the cost that we agreed upon.”

Consequently, Kornegay instituted an examination of the supply chain when he joined Hilton Supply Management in late 2010. “What I found was a procurement organization that was technically strong and had good, constructive relationships with our suppliers, but was a bit out of touch with our business partners from a global perspective and how we did business around the world,” Kornegay recalls. “Over the last four years, we have gone through a process of really redesigning our organization – challenging our processes and system capabilities – and trying to drive earnings back into cost mitigation and into the business.”

Hilton has 12 brands of hotels, resorts and timeshare properties with more than 4,250 locations in 93 countries. Additionally, Hilton Supply Management – a limited liability corporation owned by Hilton Worldwide – also serves approximately 1,100 properties that are non-Hilton.

Some Hilton brand properties are owned and managed by Hilton, while others have Hilton employees managing them but are owned by other companies. Some that are franchised are run by their own employees or other companies that specialize in hotel management. So Hilton Supply Management has a full slate of varied companies it has to satisfy along with – by extension – the customers of those companies’ properties.

Global Management

The system in effect when Kornegay joined the company was to manage the supply chain for Hilton properties outside of the United States from Watford, England, which is near London. “We were managing in theory the Americas and what we called at the time the rest of the world,” he remembers. “The reality is that the rest of the world is not a homogeneous group of people. So we needed to be able to manage the world how they wanted to be managed.”

As a result, Hilton Supply Management examined the services it was providing to its customers. “We recognized that because we were not engaged with the business, that the things that we were delivering weren’t necessarily appreciated by the business,” Kornegay maintains. “The first thing we did was fundamentally ask the business what their expectations were for our company. What did the brands and our corporate partners – the operations people – expect from us as a procurement company?”

As managers began to examine, understand and analyze the data, they noticed several things. “We realized we didn’t have the right people in the right locations to support our business,” Kornegay says. “How you do business in the U.S. is significantly different than how you do business in the Middle East, Africa and Asia.”

To represent those differences more accurately, the international supply chain function was relocated geographically. “We aligned senior supply management resources in the international space with the regional presidents that were responsible for those business regions,” Kornegay says. Hilton’s regions are the Americas, Europe, the Middle East and Africa, and Asia-Pacific.

Boots on the Ground

Having supply chain personnel in each regional office helped Hilton Supply Management obtain data. “The first step was getting boots on the ground to help us understand what the needs were,” Kornegay says. Laws and customs differ within various countries, he points out.

“The way we execute in the Americas may not be optimal in different regions of the world,” Kornegay emphasizes. “As we built out our capability, we began to understand what the business needed from us so we could build our process to be more globally aligned and not just U.S.-centric.”

Differences in language and training were discovered. “We started to understand that some of our systems that worked well in the Americas were not working well in other parts of the world,” Kornegay says. Updated systems and software were installed that allowed Hilton Supply Management to “slice and dice our spend,” Kornegay says. “We could understand our spend from a global perspective and do analysis and what-ifs. We bought some software tools that give us the ability to manage smarter and not necessarily work harder.”

The software also manages the contract process. “It allows you to have all your contracts in one dedicated location,” Kornegay explains. “It’s a smart tool that tells us when contracts are coming due, and when we need to revalidate contracts.”

Training Improved

During research with properties, Hilton Supply Management discovered that although new software had been installed in the past, the training to operate it had not always followed. “So we took our time and developed a process to fully integrate the properties with our processes,” Kornegay says. “We developed training programs with the properties to keep them up-to-speed on all of our processes. That’s really important, because we can’t wait for a property to open and then go in and train it to use our procurement systems. We have to be there before the property opens, teaching and training, so we can get things to them and they can open on time. As we started to understand what the business needed from us, we became better business partners because of the things we were focusing on.”

The supply chain teams in the regional offices work directly with the employees responsible for sales, financing and marketing who are stationed there. “The regional presidents now have a one-stop person for all things supply management,” Kornegay declares. “They have a person that they rely on as their single source of information, and we make sure we understand that region’s needs and laws, so we build our processes with enough breadth to cover the world.”

For the most part, additional manpower was not required to accomplish these staffing changes because the new software enabled employees to accomplish more. In some cases, existing employees were relocated to regional offices. “Some people from one country had specific expertise we wanted to get in that region, and in some regions, we wanted to hire people with language capabilities,” Kornegay says. “So we were hiring in Russia, Turkey and China because we needed procurement professionals who had language capabilities so we could do business in the language in the region.”

Kornegay calculates that Hilton Supply Management’s overall improvements have saved more than $360 million over the last four years among all the properties that Hilton owns, manages and franchises. This was accomplished “by using the aggregated purchasing volumes that we have to drive cost out of our system to get the lowest price for our portfolio properties,” Kornegay says.

Supplier Diversity

Another program of Hilton Supply Management encourages diversity in its supplier base. “Since 2010, we have spent more than $1 billion with women- and minority-owned businesses in North America alone” Kornegay says. “We do that by identifying capable women- and minority-owned businesses. Last year, we created a minority logistics summit with C.H. Robinson, our prime partner from a logistics standpoint.”

During the summit, 30 companies met with representatives of Hilton Supply Management and C.H. Robinson, which handles all the logistics including the myriad laws, taxes and tariffs in transportation worldwide for Hilton. That group of 30 was narrowed down to five companies based on a multitude of factors including capabilities, profitability and longevity. Ultimately, 10 percent of the companies that were at the summit – three – were hired to do business with Hilton. The company’s goal is for 20 percent of its supply expenditures in North America to be with women- and minority-owned businesses.

The company also focuses on environmental performance with many initiatives, programs and efforts, including enhancements to its LightStay management system. LightStay is a proprietary platform developed to calculate and analyze environmental and operational impact. It measures more than 200 performance metrics including energy and water use and waste and carbon output at Hilton Worldwide properties around the globe.

Another environmental challenge Hilton has tackled is keeping the thousands of mattresses it replaces every five years out of landfills. “Where we used to pay $25 a mattress to dispose in a landfill, we now pay $10 a mattress to take it and break it down into all its components,” Kornegay asserts.