“It’s not enough to ask what’s going on in a particular factory, you have to do the deep dive. If a factory is OK for one order, it’s not necessarily OK for other orders.” Alan Benjamin, Benjamin West
The coronavirus pandemic has disrupted the global supply chain.
In a recent report, Deloitte asks if the new-coronavirus pandemic is the black swan event that will force companies to reexamine their supply chains. It notes the COVID-19 crisis’s impact on the worldwide economy “will be felt through global supply chains, from raw materials to finished products.”
The U.S. hotel industry’s procurement specialists are dealing with a mixed bag. Some are scrambling to get supplies to properties that remain open while others see hotel development and renovation projects moving along as brands opt for Plan B – and in some cases Plan C – in obtaining design-standard FF&E.
LISTEN: Episode 262 of Lodging Leaders podcast features interviews with hospitality procurement and logistics specialists managing disruptions and mending broken links in the hotel industry’s global supply chain during the COVID-19 crisis.
With most whole goods and components coming from China, the U.S. hospitality industry launched into action in January to keep supplies coming ashore.
Manufacturing has resumed in China as the crisis has reportedly eased there, but the outbreak has yet to reach its peak in the U.S.
As COVID-19 continues its rampage across the country, factories are closing or retooling to make medical supplies. Finding manufacturers and suppliers for the hospitality industry is a fluid situation that changes day by day.
Standard Textile of Cincinnati, Ohio, makes towels, linens and other products for the hospitality and health care industries. Earlier this week, the company announced it was expanding its health care manufacturing to make face masks, plastic shields and reusable gowns for health care personnel.
Meantime, hospitality procurement specialists have been working to stay ahead of the COVID-19 wave and find manufacturers and suppliers that can support the hotel industry.
In an April 1 webcast with AAHOA, Anu Saxena, president and global head of Hilton Supply Management, said Hilton first became aware of a possible disruption in its supply chain when the new coronavirus shut down Wuhan, China.
China plays a monumental role in global trade. In particular, the city of Wuhan is home to many manufacturing plants. More than 200 Fortune Global 500 companies have an office in Wuhan, reports Deloitte.
HSM provides a vast catalog of supplies and goods to 9,500 properties around the world. It serves its 700 owned, leased and managed properties, its 5,400 franchised assets and other non-brand-affiliated hotels.
“In bracing ourselves for COVID-19, we had to examine supplies across all categories,” Saxena said.
HSM formed a task force to mitigate the impact the crisis would have on its business.
Hilton’s brand-mandated FF&E and amenities are part of HSM’s inventory, and its COVID-19 contingency plan was to find other makers of goods and supplies.
“At the beginning of year, we began to look for manufacturers outside China. Not everything is made in China but a lot of parts are made there,” Saxena said. For example, hand sanitizer is made in the U.S. but the cover for the top of the pumps is made in China.
Towels used in Hilton’s hotels are made in China and HSM worked with suppliers to identify other manufacturers.
The company also found suppliers that had inventory on hand before the viral pandemic.
The new-coronavirus outbreak is in nearly every nation in the world, reports Statista.
Fortunately for the U.S. and others dependent upon China for whole goods and components, the country’s manufacturers built up inventory ahead of the Lunar New Year, a time when plants close and workers go on holiday, reported MarketWatch.
But the plants did not reopen as scheduled because of the virus outbreak. That gave manufacturers and buyers in other countries a stockpile from which to draw on for a month or two.
At this point, most factories in China have reopened and shipping has resumed.
Now HSM has switched its focus on the U.S. as it works with producers and suppliers to find factories and inventory that can continue to make and ship a wide variety of goods, including FF&E, OS&E and guest amenities.
In a recent report on the COVID-19 pandemic’s impact on the global supply chain, Deloitte notes, ‘New supply chain technologies are emerging that can dramatically improve visibility across the end-to-end supply chain and support much more supply chain agility and resiliency, without the traditional “overhead” associated with risk-management techniques.
Do the Deep Dive
Like HSM, he, too, knew the coronavirus gripping China would become a global pandemic and got proactive.
Benjamin not only contacted suppliers in China, he connected the dots in the supply chain to spot kinks and create solutions for his customers.
“It’s not enough to ask what’s going on in a particular factory, you have to do the deep dive,” Benjamin said. “If a factory is OK for one order, it’s not necessarily OK for the other three to five orders already in the factory.”
The procurer’s exploration involves learning about the resources and raw materials that make up a specific product and how available they are.
Case goods are made from different types of wood. Some involve veneer or high-pressure laminate. A bureau that features a specific type of glide on it drawers may get hung up in production because the glide is not available. In that case, it’s time to move to Plan B, Benjamin said.
When he started connecting the dots in the supply chain in January, Benjamin was braced for an overwhelming task. Surprisingly, the “overall the affect is not nearly as bad as we all thought it would be,” he said.
Benjamin West buys for more than 300 hotels a year. Almost all its current projects face minimal delays in obtaining items.
Like HSM, Benjamin looked beyond China for suppliers. He had experience navigating the roadblocks created over the past two years by the U.S.-China trade war and knew he could hunt down goods at manufacturers in Vietnam and other parts of Asia.
Benjamin said he’s had to summon a lot of creativity to find the best solution when faced with kinks in the supply chain.
“Our role as a purchasing agent is we are a liaison between 2,000 plus different manufacturers of FF&E and what the designer, owner or brand require. We are working as a good team player, saying, ‘We can do one of two things: Is it OK to wait two weeks or find an alternative?’”
With regard to shipping and warehousing FF&E and other goods for hotel development and design, Darlene Henke closely monitors activities at ports and transmodal facilities around the country.
Henke is founder, president and CEO of Audit Logistics in Colorado. The company manages freight and shipping for hotel projects in the U.S.
For the most part, shipping ports in the U.S. are experiencing little disruption, Henke said.
She sees the coronavirus pandemic mostly playing out across the trucking industry.
“We’re starting to see a little bit of capacity crunch,” she said, noting the Federal Emergency Management Agency is competing for truckers by paying double and triple the usual rates to get goods to areas in high need faster.
The American Transportation Research Institute last week reported trucks are continuing to move and respond to demands. The institute notes fewer rush-hour bottlenecks in high-traffic areas such as Atlanta are resulting in trucks doing 50 mph versus the typical 15 mph. Drivers are reporting similar speeds on interstates in New York, Chicago and Los Angeles.
The American Transportation Research Institute shows current changes in rush hour traffic at the junction of interstates 85 and 285 in Atlanta as most of the metro’s 6 million residents shelter at home during the coronavirus pandemic. No bottlenecks in cities throughout the U.S. are helping truckers make critical deliveries in good time.
Some economists compare the economic fallout caused by the coronavirus pandemic to a natural disaster rather than an emerging recession.
When hurricanes, tornadoes, earthquakes or wildfires devastate a region, FEMA responds by paying high rates to trucking companies to get goods delivered to affected communities.
This causes a backlog in deliveries elsewhere in the country. For example, when Hurricane Harvey hit Houston, Texas, in 2017, FEMA paid trucking companies more than double the going rate to transport goods to the flooded area.
That made it hard to find trucks and drivers for normal business distribution in the rest of the country.
In addition, some hospitality construction projects may be suspended or scaled down during the crisis. To pay a high premium for goods in that case would be penny wise and pound foolish.
“We’re actually in a mode right now that before we deliver, we call ahead and make sure job sites are still running,” Henke said.
Henke also sees drivers unwilling to venture too far from home during the coronavirus outbreak.
“We’re starting to see capacity tighten because drivers don’t want to go more than 500 miles from home. Or they don’t want to travel at all,” she said. “We’re starting to see the strain.”
Manufacturers throughout the country are closed or retooling to make items such as ventilators for hospitals. And in some municipalities warehouses that do not stock essential items are forced by officials to close.
The situation is constantly evolving, she said. “Every day, news is coming in.”
AT A GLANCE
Here are some updates regarding the impact the new coronavirus outbreak in the U.S. Long Live Lodging will continue to update this chart as well as other information as part of its Special Report on Coronavirus and the U.S. Hotel Industry.
The coronavirus pandemic is forcing hoteliers to deploy new technology to run more cost-efficient businesses and to ensure customers that properties are safe by providing such services as contactless check in and mobile key. Long Live Lodging explores how the COVID-19 outbreak has invigorated hotels’ adoption of tech solutions and looks at what types of products owners and operators are investing in during the coronavirus crisis and for the post-pandemic era. This report is part of Long Live Lodging’s ongoing coverage of the coronavirus crisis and its impact on the hospitality industry.
Hotel appraisers and brokers expect distressed assets to come to market as the pandemic recession continues into 2021. Analysts say billions of dollars in private equity are waiting in the wings to acquire hotels underperforming as a result of the coronavirus crisis. But pricing will be different than in previous economic downturns. While a transaction may be distressed, it will not necessarily reflect distress pricing,” said Daniel Lesser of LW Hospitality Advisors. Long Live Lodging explores the state of hotel values as well as what may lie ahead with regard to transactions in 2021 as the spread of COVID-19 continues to stifle lodging performance. This report is part of our ongoing coverage of the coronavirus crisis and its impact on the hospitality industry.