Hotels face an uphill battle with their bookings in 2023. Websites for booking hotels, such as OTAs, offer a consistent flow of hotel reservations. They guarantee stable occupancy rates and cash flow for the property.  

Unfortunately, the flip side of this deal is the loss of revenue from commissions. OTAs charge up to 30% commissions on each booking through their platform. Independent hoteliers have the most to lose as they generally can’t negotiate for lower rates, unlike franchise hotels. 

Besides workers, commissions are frequently a hotel’s second-largest expenditure. Reducing reliance on OTAs through intelligent pricing models is one of the main goals of sales optimization. 

So, how do hoteliers stay afloat amid such competition?  

The solution: Inventory Management! Hotel inventory management is critical to the financial health of a hotel. It helps hotels compete and excel at meeting guest demands and cut down unnecessary waste.  

Let’s delve into the meaning of hotel inventory management and how it affects your bottom line.  

What is Hotel Inventory Management? 

Hotel inventory management is the process of maximizing revenue by creating and managing the demand of the hotel’s primary and secondary inventory. The core inventory in the hotel sector is rooms. The owners of hotels make sure they have plenty of openings at prices that will entice guests to reserve them. If these rooms aren’t available at a reasonable price, they’ll stay vacant and lower profits for the properties.    

The secondary set of inventories available at hotels are: 

• Gift shops 
• Restaurants 
• Spas 
• Rental taxis 
• Additional room supplies 

Secondary inventory requires a decent amount of planning before implementation. Experiential inventory like spas and restaurants are typically wise investments. In contrast, gift shops and additional products in rooms are hit-or-miss purchases.  

Providing the relevant secondary inventory can make all the difference during a stay. For example, guests coming from a long flight would appreciate in-hotel food and beverages.  

But there are always chances of risk when investing in secondary inventory. Imagine you invest in providing all guests with small perfume bottles. It’s likely that guests won’t feel any interest in such a product. Perfumes are also extremely subjective, as different people enjoy different scents.  

Investing enormous sums in items that don’t make a difference for your guests also affects your revenue. It means you aren’t putting money into a product that helps improve retention. Efficient hotel inventory management is the key to ensuring you don’t make such mistakes when investing in your property. 

Benefits of Hotel Inventory Management 

#1 Improves revenue

Hoteliers can accurately invest their funds with the help of inventory management. To boost revenue, managers use a well-thought-out inventory management plan to sell the ideal room using the optimal channel to the relevant end user at the right time. Integrated solutions are a must-have to increase the overall performance of your property.

The PMS and revenue systems should effortlessly integrate with a hotel’s channel management solution and exchange data in real-time. Real-time inventory management provided by an integrated system streamlines the process for hotels to handle room reservations, pricing, and inventory distribution across various channels and sites with a single click.

#2 Dynamic pricing

Hotel inventory management can help you boost profits by using dynamic pricing models. A hotelier can efficiently track the ongoing usage of its goods on a single screen in real-time when they use cloud-based inventory management systems. With it, you can predict when to raise and lower prices based on the season.

A tracking tool helps you analyze when you must provide discounts during the low season to increase occupancy. Additionally, it informs you of when to raise prices during peak seasons to maximize ROI.

#3 Time management

Real-time inventory management can empower hotel staff to keep track of all ordered and in-stock products. A hotel inventory management solution will ensure that your staff won’t spend an unnecessary amount of time tracking these minor details. It boosts productivity by freeing up your staff’s time and helps them focus on creating memorable guest experiences.  

#4 Detailed reports and analytics

Intelligent analytics are an essential feature of modern inventory management software. Inventory management software provides hotels with vital information regarding guests. It helps hoteliers better understand the industry, market trends, and pricing across demographics, needs, and other factors. These features further enable hotels to develop and map customer journeys that promote sales.  

#5 Guest segmentation

Hotels must modify their room inventory strategy to build client segments that suit the price point and preferences of their guests. For instance, one client might want an economical, standard suite for long-term stays. But another client might favor an opulent penthouse suite for a special occasion. Hotels can better promote rooms at various price points using customer segmentation techniques. Hotel inventory management software typically encompasses such customer segmentation features.  

#3 Prevent overbooking

Effective inventory management is essential to the occupancy rates at a hotel. Overbooking is harmful to the hotel’s reputation. It refers to multiple guests reserving the same hotel room for the same date. It can end up causing negative PR for your hotel. The guests you turn away or reject from your hotel are likely to spread the word about it on the internet or even among close friends. Negative reviews will inevitably lower revenue as people would rather invest in a stay with credible positive reviews.  

#4 Forecast bookings

Dynamic pricing requires a robust predictive tool that helps forecast booking trends. Your company should gather precise data to aid in the creation of an inventory strategy. This knowledge aids hoteliers in understanding how and why demand changes throughout the travel season. With hotel inventory management, you can accurately identify critical consumer trends and patterns. Additionally, it enables businesses to create a thorough room inventory model to target specific client segments during peak hours.  

#5 Manage channels

In order to increase bookings within a specific time period, hotels should adopt room inventory solutions that highlight the channels their business should use. Moreover, inventory management software can guarantee zero lead leakage. The platform should analyze and determine the most profitable channels for bookings and reservations. For instance, your business may decide when it’s ideal to use an OTA to increase occupancy. Similarly, it will help you analyze when to sell rooms through your website or a booking agent. 

Hotel inventory management solutions empower hoteliers and their staff in their daily tasks. Knowing effective inventory management gives your revenue a much-needed boost. This brings us to the next section, the steps involved in hotel inventory management. 

Steps in Hotel Inventory Management

1) Data Collection  

Gathering information and aiming to get a deeper knowledge of your guests and distribution partners is the first step. You can better determine which channels generate the most sales through data analysis.  

Run reports frequently so that you may make decisions based on the most comprehensive, accurate, and pertinent information possible. Figuring out the timeframes for raising and lowering room rates depends on your hotel’s data analysis.  

With comprehensive data collection, hoteliers can: 

Make more responsive, intelligent, and nuanced rate and distribution selections
Boost customer satisfaction and ratings
Maximize revenue prospects and hotel performance 

Additionally, you must track and record information about primary and secondary inventory items. That covers everything from meals and beverages to linens and cleaning supplies.  

Once you gain complete access to such information, you can figure out what helps boost revenue and customer satisfaction. Consistent data collection also ensures your hotel inventory is available year-round. You never have to worry about a shortage of inventory or a surplus. 

2) Inventory versus Occupancy  

Hoteliers need to calculate two KPIs of hotel performance using inventory and occupancy. One of the primary hotel performance metrics tracked by STR for a long time has been occupancy. Hotel owners analyze occupancy reports on a weekly or monthly basis.  

You can calculate occupancy rates by dividing the number of rooms sold (the supply) by the number of rooms available (the demand). This gives hotel owners an indication of the percentage of guests occupying the property at any time.

Hotel occupancy rate

For instance, you sell ten rooms for one week and have twenty suites available. So the hotel occupancy rate will be: 

Sold rooms/Total number of rooms x 100 = 10/20 x 100= 50%  

Earlier occupancy rates were more than enough to track the success of a hotel’s performance. In current times, inventory matters far more than occupancy. Calculating total room inventory is a crucial step when managing it.   

A brand new way of measuring hotel performance in terms of inventory is the Total Room Inventory method. After COVID-19, STR (Smith Travel Research) developed a new technique and integrated it into its reports to assist hoteliers in obtaining more precise figures.  

We can use it to calculate the market’s overall occupancy rate while considering recent events. We calculate TRI using the following formula: 

Total Room Inventory

It can measure how quickly the industry is growing because it fluctuates every month. We can say that “things are getting back to normal” when the numbers for regular occupancy and total-room-inventory occupancy are comparable. 

3) Predictive software for booking trends  

Statista reported that 68% of travel brands plan on investing in business intelligence or predictive analytics in 2019. Predictive software helps users spot patterns and trends using data. A crucial step that supplements data collection is its analysis and forecast.  

You can forecast their purchasing behavior and other preferences using the previously collected information. When we allude to other preferences, keep in mind that the visitor experience does not end with check-in. It begins there.  

Hotels suffer from a lack of knowledge about current and upcoming booking trends. These trends and patterns empower you to monitor the effectiveness of your management initiatives. For example, you will know which supplies require regular restocking and when occupancy will likely increase or decrease.  

Additionally, using predictive analysis, marketing activities will generate leads willing to book rooms in the immediate future. Forecasting future travel patterns will assist in selling or promoting the following stage.  

Furthermore, it will facilitate targeted content marketing. Predictive analysis will assist in determining what kind of content is ideal for the specific type of audience. 

4) Visualizations of reports for optimization 

The preparation and maintenance of numerous reports are undoubtedly necessary for hotel inventory management. Additionally, every department must undertake this, making it challenging to keep track of all of them. 

Although hotel inventory management software is useful to maintain the bulk of reports, some require manual updates. Some of them are: 

• Waste/discard report per day 
• Report on room supply
• Payments due report 
• Housekeeping Review: Pantry  

Hoteliers can better determine which offers and suites are most appealing to customers with reports. Every department must track guest information alongside hotel performance details daily.  

No matter the size or occupancy of the hotel, creating and presenting reports is crucial for a hotel to make wise decisions. Monitoring and reviewing your hotel’s performance is also essential for identifying areas that need improvement.  

As a result, you will be able to identify your inefficiencies and make needful improvements.

Now that we know a bit about how you can better manage your inventory, here are some techniques that will help you along the way!

Techniques in Hotel Inventory Management

1) First in, First out

First-in, first-out, or FIFO, is an inventory evaluation technique that many restaurants and hotels employ, especially as a part of their restaurant management strategy. Although the word has its roots in financial accounting, inventory management can also benefit from the approach. This method assumes that the products you buy first are also the products you must use and sell first.

Businesses that use FIFO are thought to be more profitable because of market fluctuations and the chance that the cost of producing items will increase over time.

The FIFO stock valuation method is frequently used by businesses that sell perishable goods or units vulnerable to degradation, such as food or designer clothing.

Hotels typically offer several items that are vulnerable to such deterioration over time. For example, most hotel rooms come with essential toiletries. Most of these items have a relatively long shelf-life.

But, they require routine replacement even if guests fail to use the products. Hotels that offer in-house food or restaurants benefit even more from using the FIFO method. It ensures you don’t unnecessarily invest in products and reduces overall wastage.

2) Dropshipping

Dropshipping is closest to the optimal scenario in terms of stock management. Instead of transporting inventory and hotel inventory yourself, whether you are using in-house or outside logistics, the distributor or manufacturer handles it on your behalf.

In essence, you do away with stock management in your company. It is likely to be a fantastic addition to your corporation, even if you only need to use outsourcing to test new arriving items before investing in them for the future.

E-commerce retailers employ Dropshipping extensively because it saves them a sizeable chunk of time. Dropshipping hotel inventory can help free up a massive amount of space. Moreover, it eliminates the need to employ people to manage and handle such items.

Furthermore, workers have more opportunities to concentrate on providing positive guest experiences when they aren’t worrying about inventory.

3) ABC analysis

The acronym ABC stands for Always Be in Control. It’s an inventory management technique that helps you identify the most profitable items in stock.

According to sales volume or profitability, “Class A” items are the most crucial stock-keeping units (SKUs).“Class B” and “Class C” products are less crucial but still necessary. Hotels can choose a classification scheme that divides goods into more than just those three categories.

According to the Pareto Principle, just 20% of initiatives or causes in any system produce the bulk of the results. ABC analysis determines that 20% of commodities provide around 80% of the value following Pareto’s 80/20 rule.

In hotels, these are the classifications:

  • Rooms come under the class A category. They are the most valuable asset and require regular upkeep and maintenance.
  • Class B items are in-house F&B, spas, and so on.
  • Class C items are typically toiletries, towels, complimentary drinks, and more.

The ABC technique ensures that you focus your expenditure on inventory that adds the most value to your property.

Inventory managers classify things according to how ABC prioritizes them based on demand, cost, and risk data. This enables executives to comprehend which offerings are most influential in driving revenue.

4) Just in time (JIT)

JIT is a method of inventory management that calls for close coordination with suppliers to ensure that raw materials arrive at the exact time when manufacturing begins, but not earlier.

The objective is to maintain just enough inventory on hand to meet demand. With this method, the hotels place orders by following the manufacturing schedule and guest demands.

For example, during peak seasons you can stockpile more toiletries and essentials for guests. Moreover, you can get fresh produce from grocers precisely when they arrive. If you have an in-house restaurant, you can create menus based on seasonal produce available using the JIT method.

It prevents the needless stockpiling of raw materials. Overall, it lowers inventory costs and boosts revenue. Additionally, it decreases inventory waste, as items can undergo damage or reach their expiration dates.

5) Demand Forecasting

In order to forecast upcoming guest demand over a set timeframe, hotels use historical data. This makes inventory management in hotels considerably more efficient. Additionally, it concerns projections for:

  • Turnover
  • Profitability
  • Cash flow
  • Capital expenditures
  • Risk analysis

In other words, the more accurate your forecasting, the better decisions your hotel can make.

Additionally, forecasting revenue is essential for hotels to remain profitable. With market information, such as competitive pricing and general market performance, you must predict upcoming scenarios to understand when and how customer demand will increase and decrease.

For instance, imagine the last month saw a massive increase in business at your seaside hotel. That does not imply that it will be the same this month.

People came to your area to surf and snorkel, which is why they reserved rooms at your hotel. Local snorkeling activities and surfing take place, depending on the tides.

Your hotel will experience a drop in visitors during high tides, and demand forecasting will help you better predict these drops in occupancy. You are essentially one step ahead and ready for the future season when you forecast this trend.

Demand projections from the consumer and business sectors aid in effective departmental planning and decision-making. Not to mention, it is a driving force behind optimized pricing.

These are some of the best techniques when managing your inventory. Before jumping into the task, keep in mind that inventory management comes with its fair share of challenges. In the next section, let’s delve into the most common challenges when managing inventory.

Challenges in Hotel Inventory Management 

1) Lack of data integration 

Each team in any hotel requires a varied amount of items from its inventory. For example, the housekeeping staff needs cleaning supplies. Additionally, F&B staff require fresh produce, cleaning supplies, and more.  

Knowing who needs what requires a system that integrates all the information in one area. Hotels that fail to integrate such data can never successfully manage their inventory in a way that aids revenue growth.  

A lack of data integration is particularly detrimental to the front-desk teams. Front-desk staff regularly communicate with guests regarding any concerns.  

For instance, if a guest rings up the front desk asking for extra bedding. The agent receiving the call should know whether this is available in the hotel’s inventory.  

Integrated data empowers your personnel to deliver the best possible guest experience.  

2) Multiple platforms and teams 

Most hotels implement a PMS to handle the majority of their tasks. But most PMS solutions don’t come with all the tools your hotel requires. This leads to most businesses using several platforms across teams.  

For instance, the financial team will make use of a revenue-tracking solution. Your front-desk team may use a PMS for guest data and booking information. But, each platform collects a different facet of guest data. 

Multiple platforms, or a platform for each team, resulting in scattered data across the hotel. Vital guest data gets concentrated in different pockets of the place.  

Inventory management benefits from a unified platform that encompasses all the necessary information. Compiling data for inventory needs from each team will drain a significant amount of time and effort from your staff.  

Instead, invest in a solution that unifies data in one platform. 

3) Lack of accurate tracking 

Tracking data across teams is the first step in data collection. Accurate tracking positively influences every aspect of your inventory management.  

The opposite is also true. It is time-consuming, inefficient, and error-prone to use manual inventory tracking techniques across programs and spreadsheets.  

An integrated central inventory monitoring system with accounting capabilities is essential for even small organizations. You must invest in a powerful tracking solution to successfully meet guest demands and boost revenue.  

4) Need for a robust analytics solution 

Hotels in 2022 cannot survive without knowledge regarding booking trends, seasonal demands, and consumer buying patterns. Demand forecasting, in particular, relies on a robust analytics solution. 

Without a robust analytics solution, you won’t be able to predict inventory demands over time. The need for an analytics solution is further bolstered by the effect it has on guest satisfaction. Guest segmentation and behavior analysis are essential to meeting their expectations.  

Inventory management is just one facet of the workplace that will benefit from analytics. Every other process will feel the damaging effects of not implementing an analytics solution. 

So, what is the solution to overcoming all of these challenges? 

 Hotel Inventory Management Software! 

There are several different solutions available for hoteliers to use worldwide. All of which come with their fair share of benefits and drawbacks. So, let’s first explore what features help you overcome these challenges in inventory management.  

Here’s a checklist of vital features you should look for when implementing a hotel inventory management solution: 

  1. Does the tool come with automated real-time inventory tracking for every team? Does it send alerts and notifications when stock is low? 
  2. Does it offer centralized and unified data collection with detailed information about each team’s inventory needs? 
  3. Does it empower your revenue with a booking engine that directs leads to the hotel website? Or does it offer integration to websites that help you do the same? 
  4. Does it provide robust analytics software that helps forecast and predicts booking trends? 
  5. Is it mobile-friendly, compliant across different platforms, and offers integrations to other necessary software through APIs?  
  6. Does it segment guests and give you insights into the channels that drive revenue?  

Finding a solution with all these features will eventually help boost your revenue and empower your hotel’s staff. If you’re looking for one such solution, LeadSquared’s CRM ticks off all the boxes.  

It comes with powerful report generation, and real-time tracking and unifies data across departments. Furthermore, it helps you identify upselling opportunities and the channels with the most success with booking.

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