In a post last week, I introduced the idea of procurement taking a look at room service as a cost savings opportunity. The idea intrigued Purchasing Magazine editor extraordinaire Dave Hannon to the point where he posted a comment asking others to share whether they’ve attempted to negotiate room service and how effective it has been.
Don’t be surprised if no volunteers come forth, Dave. Room service charges are one of the most hidden of the hidden costs. Usually paid as a reimbursement to employees with little to no line item detail or vendor identification, room service does not lend itself to being a visible spend category at this particular moment.
Many procurement departments have celebrated the win of lowering hotel room fees in enterprise-wide contracts. Yet, as I found out the hard way, room service costs almost as much as the room. And it is easy to argue that the value of a room service meal is far less than the value of the room.
Certainly the margin for room service has to be higher than the margin of the accommodations. Consumers shop based on room price, not room service price. Room service cost has gone unchecked.
Do you think that there is “juice” there? I do.
In the whitepaper I reviewed yesterday, it was mentioned that many companies manage employee food expenses through a per diem limit placed on the employee. The thinking behind this is that all employees eat somewhere different and there is no aggregate volume to be leveraged. You won’t find many business travelers going to the local steakhouse and negotiating the menu prices on a one-off meal.
But room service is different. You are dealing with a single supplier on an enterprise-wide basis. And just like for rooms, a company that procures 10,000 night-stays for its employees should pay a lower price for room service than the individual who purchases a one-night stay.
And what I bet not many procurement people know is the tax implications of targeting room service. You see, here in the USA, 100% of certain travel expenses (airfare, hotel, ground transportation, etc.) are deducted from taxable income. In contrast, only a fraction of the cost of meals and entertainment can be deducted from taxable income.
So, when your organization spends on room service, it is not only incurring an expense, but incurring an expense without all of the tax benefits of a normal expense. Yet another reason to shine some light on what is being spent by employees out there on the road.
Cutting a per diem limit in isolation won’t exactly help morale of your traveling employees. But if your organization attacks room service costs with the hotels, your employees can get the same benefits they’ve always had while your organization pays less.
The first -and perhaps hardest – step is gaining visibility into room service spend. If that can be done, the procurement department can go to the negotiation table with higher aspirations and can leave the table with even greater results. If not, the hotels I’m sure will be happy to charge ridiculous fees so that they can get their paws on 100% of a per diem that can’t be lowered due to the lack of options.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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