Web buys work well in virtual private marketplace

By By William Atkinson -- Purchasing, 3/22/2001

Sunstone Hotels, San Clemente, Calif., is making such a strong commitment to e-procurement that John Noller, former corporate director of purchasing, has recently assumed the new title of chief operating officer for Sunstone's virtual private network. He is now responsible for the e-procurement activities of the company's 72 hotels.

"We began investigating e-procurement in late 1998, and it didn't take us long to realize that an electronic solution was a given for us and would be a natural progression to a new way of doing business," says Noller. "In fact, we believe that this revolution will become so prevalent that what people call 'e-commerce' today will simply be called 'commerce' tomorrow."

Sunstone investigated the idea of being a participant in a buying marketplace, where it could join with a number of other companies that subscribed to an e-procurement service with a cadre of suppliers already available online. It rejected this strategy, though. "We decided that we didn't want to select a provider simply because of the relationships that provider had with other suppliers," Noller explains. "Instead, we wanted to find a provider that could offer a solution that would allow us to work with our own suppliers."

As a result Sunstone now has what it calls a VPM (virtual private marketplace). "We are licensed by Purchase Pro, a Web-based software enabler," he says. "They provide us with a platform where we can develop specific formulas and functionality that work to our advantage." Under the system, Sunstone works directly with its own existing suppliers, using the technology to facilitate Web-based transactions.

While some systems are set up in such a way that suppliers are charged transaction fees to participate, Sunstone's system is not. "We don't see the point," Noller says. "If you charge transaction fees to suppliers, they will just mark up their costs in the front-line prices to cover these fees."

Being a "private marketplace," Sunstone doesn't expect suppliers to have to pay to play. "This allows us to receive the best prices, because suppliers know we want to do as much business with them as possible and not charge them to participate," Noller adds.

Currently, authorized users at Sunstone sites purchase products and services in three areas: operating supplies and equipment (everything from guest supplies through MRO items), food and beverage, and FF & E (furniture, fixtures and equipment). Suppliers are set up under either national or regional contracts, and users order directly from the suppliers via electronic catalogs. "Users may go outside the system if they need something not available through the contracts," says Noller. "However, the system is still able to track and report on these purchases."

Progress has been rapid. After launching in early 2000, the company is already running about $2 million a month through the system and expects to be running about $4 million a month through by next year.

Operating and equipment supply costs have dropped substantially, according to Noller. "In addition, our ability to capture and retain rebates and incentives that come from manufacturers and supplier programs has increased dramatically as a result of our system's electronic reporting capabilities."

Finally, the company has experienced significant savings on the back end through increased efficiencies, such as data entry keystroke reduction.

Despite the existing success of the system, Noller sees even greater opportunities. "We are looking into the idea of allowing other companies in the hospitality industry to participate in our system," he says. Under this membership-buying concept, other companies would be able to save the time and cost associated with system development, and all participants, including Sunstone, would be able to benefit from the additional pricing discounts that result from the increased volume.