How to Improve Hotel Inventory Management: A Guide

For most companies, the concept of inventory likely conjures images of warehouses with aisles of supplies and finished products stacked high. In the hotel industry, inventory has a slightly different meaning. Sure, hotels need to stock physical products, such as toiletries, linens and food, but inventory also includes the rooms themselves, which are considered perishable goods that must be sold each night. Unlike traditional inventory, once a night passes, any unsold room represents lost revenue that can’t be recaptured. The dual nature of hotel inventory — both tangible items and time-sensitive room availability — requires a unique approach to management.

What Is Hotel Inventory?

Managing hotel inventory, particularly when it comes to room availability, is crucial for maintaining high occupancy rates, seizing revenue opportunities and keeping guests happy. Unlike traditional, nonperishable physical inventory, which theoretically is limitless, the availability of rooms each day is finite. Availability can also fluctuate daily based on factors such as seasonality, events and booking patterns, which can directly impact revenue. For example, an unexpected surge in bookings around a Taylor Swift concert might require quick adjustments to staffing and supplies to ensure guests have a memorable experience. These unique inventory characteristics demand a dynamic and flexible approach to hotel management because they require constant adaptation to changing demand and real-time decision-making to boost occupancy and profitability.

What Is Hotel Inventory Management?

In a perfect world, every hotel would always have every room booked at all times, zero customers would be turned away and each guest would enjoy a world-class experience. But in reality, that’s impossible. With a limited number of rooms and unpredictable demand, hotels need to strategically manage their inventory to maximize occupancy, revenue and profit by avoiding overbooking and underbooking. Overbooking means having to turn disappointed guests away, while underbooking means empty rooms and lost revenue.

Such is the art of hotel inventory management — a blend of accurate forecasting, dynamic pricing and deft resource allocation. Accurate forecasting helps predict demand so hotels can prepare accordingly, while dynamic pricing adjusts room rates in real time to maximize revenue based on market conditions. Resource allocation, meanwhile, ensures that every department, from housekeeping to food and beverage, has what it needs without overstocking, which can tie up capital and lead to waste.

Key Takeaways

• Hotel inventory includes physical items, such as toiletries, linens and food, as well as less-tangible items, such as available rooms, which are finite in number and expire daily.
• A limited number of rooms and fluctuating demand mean hotels must strategically manage inventory to maximize occupancy, revenue and profit by avoiding overbooking and underbooking.
• Hotels use a combination of pricing, distribution and segmentation strategies to market room availability and ensure peak occupancy.
• Property management systems (PMS), revenue management systems (RMS) and enterprise resource planning (ERP) systems help hotels allocate inventory more effectively, forecast demand, improve operational coordination and leverage tactics that optimize profitability.

Hotel Inventory Management Explained

Hotel inventory management is the backbone of hotel operations, directly impacting guest satisfaction and profitability. A hotel that excels in inventory management can anticipate a rush of guests due to a local festival, for example. As a result of the event, the hotel adjusts room rates on the fly and stocks all of the necessary supplies to maximize revenue and deliver a seamless, exceptional experience to guests. On the other hand, poor hotel inventory management can lead to lost revenue and unhappy guests, with empty rooms during peak season or a shortage of essentials, like toiletries and linens.

Effective inventory management involves continuously monitoring room availability, adjusting rates in response to demand and coordinating with various departments to maintain just the right stock levels. It also entails making certain rooms available via specific distribution channels, such as hotel websites and travel agencies, as well as tailoring hotel offerings to certain markets, known as segmentation. Tools like PMS, RMS and channel management systems, along with best practices, such as real-time data analysis and demand forecasting, help hotels implement these strategies effectively.

Components of Hotel Inventory Management

There are three primary levers hotels typically pull to manage inventory effectively. As described below, dynamic pricing, balanced and accurate distribution of rooms rates and availability, and tailored offerings aimed at specific market segments give hotels the best opportunity to avoid overbooking or underbooking rooms.

• Pricing:

  Managing pricing can have a ripple effect throughout a hotel because it directly influences occupancy rates and revenue. When hotels dynamically adjust room rates in real time based on factors such as demand, seasonality and local events, they are able to squeeze the most revenue out of every opportunity. For example, during high demand, hotels can sell rooms at peak prices. Conversely, offering lower prices at off-peak times can lure guests who wouldn’t otherwise consider staying at the hotel. The result is higher profitability, better occupancy rates and greater overall guest satisfaction when prices are competitive and fair.

  The process doesn’t come without challenges, however. Misjudging demand and setting prices too high or too low, for instance, can deter potential guests or leave revenue on the table. Using advanced tools, such as an RMS, hotels can analyze data, forecast demand and make smart pricing and budgeting decisions to help mitigate these risks.

• Distribution:

  Hotels have an ever-growing set of distribution channels they can use to make their inventory available to the public. These include direct bookings via their websites, phone, email and walk-ins; online travel agencies (OTAs); and global distribution systems that allow travel agencies and other booking platforms to access and book hotel rooms. According to Statista, by 2028 online sales for hotel rooms are projected to account for 76% of total revenue in the travel and tourism market. Managing distribution effectively means broadening reach to help increase visibility and occupancy rates.

  Maintaining rate parity across distribution channels and managing relationships with third-party distributors can be tricky. Over-reliance on OTAs, for example, may reduce direct bookings and increase commission costs. Hotels often use channel management tools to sync room availability and rates across all platforms in real time, preventing overbookings and maintaining accurate information for potential guests. These tools automatically adjust room availability on all channels as bookings are made, keeping information updated and synched.

• Segmentation:

  One way for hotels to maximize inventory is to tailor their services, pricing and marketing strategies to meet the specific needs and preferences of different types of guests. This segmentation involves dividing the market into distinct groups based on certain characteristics, including booking behavior, travel purpose and demographics. For example, a hotel might segment its market into business travelers, families and casual tourists. By understanding each segment’s distinct needs, the hotel can create targeted offers, such as discounted weekday rates for business travelers or family packages with additional amenities. The more personalized the experience, the more likely it is to attract and retain guests. When done purposefully, segmentation can increase booking rates, maximize pricing and improve overall guest satisfaction. But be forewarned: Misjudging a segment’s needs can lead to missed opportunities and lower guest satisfaction. Hotels often use data analytics and market research to refine their segmentation strategies.

Challenges in Hotel Inventory Management

Managing hotel inventory is a balancing act. As in many industries, hotels must contend with seasonal demand, which requires careful forecasting and accounting. They also must deal with last-minute cancellations, which lead to lost revenue opportunities. Finally, hotels typically must juggle multiple distribution channels to market their offerings, all of which need to be consistent and accurate at all times. Here’s an in-depth look at three common challenges.

• Seasonal demand fluctuations: The travel industry is highly seasonal. For instance, a beachfront hotel is likely to experience high demand during summer months and low occupancy in winter. Hotels need to predict these demand fluctuations as accurately as possible to avoid periods of overbooking or underutilization. Dynamic pricing strategies, such as promotions during off-peak seasons, can attract guests during lulls. Similarly, adjusting rates upward during high-demand periods makes the most of every revenue opportunity. A recent study on the use of dynamic pricing in hotels showed that the practice increased occupancy rates by nearly 25% and revenue per available room by 20%. Diversifying marketing efforts and creating packages that appeal to different customer segments year-round can also help smooth out fluctuations.
• Overbooking and room availability: A core tenet of effective hotel management is weighing the risk of empty rooms against the potential of overbooking and having to turn away guests. Last-minute cancellations are an inevitable fact of life for hotels, which often overbook rooms to account for no-shows. Unfortunately, this strategy can backfire if more guests show up than expected. To manage this challenge, hotels often use advanced forecasting tools and historical data to more accurately predict overbooking levels. This minimizes the risk of disappointing guests while maximizing occupancy.
• Integrating multiple sales channels: Hotels typically use multiple sales channels, including OTAs, global distribution systems and direct bookings through their websites, to fill rooms. Managing these channels is often a complex balancing act because hotels need to keep room availability, pricing and reservations synchronized across all channels in real time to avoid overbookings and confusion. For example, if a room is booked on an OTA but isn’t immediately updated on the hotel’s direct booking system, it could be double-booked, leading to unhappy guests. Hotels can overcome this challenge by using channel management tools that automatically update information across all sales channels.

Key Strategies to Improve Hotel Inventory Management

Technology obviously plays a key role in hotel inventory management, assisting with everything from forecasting demand to customer marketing, dynamic pricing, process automation and analytics. It’s a common thread that weaves its way through many of the seven strategies described below to help hotels overcome the most common inventory management challenges.

1. Implement Advanced Revenue Management Techniques

Revenue management techniques can help hotels increase revenue, improve guest satisfaction and optimize resources when managing inventory. As discussed earlier, dynamic pricing is a way for hotels to adjust room rates in real time based on demand, competitor rates and market conditions. This helps hotels generate the highest possible revenue per room. Forecasting involves analyzing historical data and current trends to predict future demand, which allows hotels to allocate resources more efficiently. Market segmentation is the process of dividing guests into distinct groups based on their booking behavior, travel purpose and demographics. This practice results in tailored pricing and marketing strategies to specific segments.

2. Leverage Technology Solutions

Technology plays an important role in efficient hotel inventory management, primarily through real-time insights and simplified processes. For example, a PMS can consolidate all hotel operations, from bookings to housekeeping, to provide a holistic view of inventory for better resource allocation. It can track room availability and maintenance schedules to prevent double-booked rooms.

Hotels can also use channel management tools to integrate various online sales channels, such as OTAs and hotel websites, into a single solution so pricing can be updated on all platforms instantly. In addition, RMS uses data analytics to fine-tune pricing strategies based on demand forecasts and market trends so hotels can adjust rates dynamically to generate maximum revenue.

3. Optimize Inventory Allocation

Allocating inventory in the hotel industry is a delicate process of distributing room availability across various sales channels to maximize occupancy and revenue. This allows hotels to respond dynamically to market demand and avoid overbooking and underbooking. The result is improved occupancy rates, better revenue management and a more balanced flow of guests that doesn’t rely too heavily on any single booking source, which can lead to high commission fees, among other issues.

As mentioned earlier, a PMS or channel management tool lets hotels automatically update availability information in real time across all platforms to maintain accurate inventory.

4. Focus on Forecasting and Data Analytics

When hotels are able to predict periods of high and low occupancy, they can adjust pricing, staffing and inventory for tangible goods, like linens and toiletries. Done well, this allows hotels to maximize room occupancy and revenue, while avoiding overbooking and underbooking. Data analytics help hotels develop insights into booking patterns, guest preferences and market trends that drive more precise forecasts. Software, such as an RMS or PMS, makes this process smoother and more efficient by collecting and analyzing data in real time to develop insights and informed recommendations.

5. Enhance Operational Coordination

Seamless communication and collaboration among all departments, from the front office to housekeeping to food and beverage, is vital for maintaining accurate inventory levels, optimizing room availability and delivering world-class guest experiences. For example, if housekeeping knows precise check-in and checkout schedules for guests, they can prioritize room cleanings to avoid delays. This not only increases efficiency, but it also reduces errors and improves guest satisfaction.

Integrated systems can provide real-time information sharing across departments to improve coordination. ERP systems can integrate RMS and PMS tools with financial management, human resources, supply chain and customer relationship management (CRM) systems for even greater coordination. For example, an ERP can automatically update room availability and pricing across all sales channels, manage staff schedules based on occupancy forecasts and track inventory levels for food and beverage and housekeeping supplies.

6. Strategically Overbook

Overbooking in the hotel industry doesn’t necessarily have to be bad. When done strategically, overbooking —the practice of accepting more reservations than the number of available rooms based on predicted no-shows — helps maximize occupancy rates and revenue by compensating for the inevitable cancellations and no-shows that can leave rooms empty. Overbooking must be managed carefully, however, to avoid overburdening the hotel’s capacity and disappointing guests who get turned away. Best practices include continuously monitoring booking patterns, training staff to handle overbooking situations gracefully and using advanced booking and an RMS to track and adjust overbooking strategies in real time.

Strategic overbooking involves analyzing historical data on cancellations and no-shows to determine optimal overbooking levels. It requires clear communication with guests, including offering alternatives, such as upgrades or bookings at nearby partner hotels.

7. Promote Sustainability Practices

In the hotel industry, sustainability helps conserve resources, reduce waste and build a hotel’s reputation as a responsible business. It can be an important differentiator for many guests in a competitive market.

But it’s not just about image. Effective sustainability practices lower operational costs, improve guest satisfaction and can lead to regulatory compliance and potential tax incentives. Best practices include implementing energy-efficient lighting, water-saving fixtures and waste-reduction programs. For example, using bulk dispensers for toiletries instead of single-use bottles significantly reduces plastic waste. Adopting digital check-in and checkout processes minimizes paper use.

Manage Your Hotel Inventory With Unified Management Software: NetSuite

NetSuite offers a set of integrated solutions tailored to help hotels manage inventory effectively, including NetSuite ERP, CRM and advanced inventory management tools. NetSuite ERP integrates core business processes to provide a centralized view of operations. NetSuite’s seamlessly connected CRM solution helps manage guest interactions and enhance customer service, and its advanced inventory management tools improve stock control and resource allocation.

NetSuite software integrates point-of-sale systems with back-office operations, providing real-time visibility into sales, inventory and financial data, which helps hotels make smarter, data-driven decisions. Additionally, its comprehensive reporting and analytics capabilities allow hotels to optimize their services, reduce costs and improve overall operational efficiency. All NetSuite products are cloud-native, meaning hotels get the benefit of lower upfront costs for implementation, instant scalability as they grow and automatic updates that ensure that they’re taking advantage of the latest innovations.

Managing hotel inventory is a balancing act that goes beyond just counting towels and toiletries. The nuances of managing rapidly perishable room inventory mean that hotels must continually adapt to shifting demand and market conditions. It requires a dynamic approach that takes advantage of the strategies described above, including real-time data, advanced forecasting and flexible pricing strategies.

Hotel Inventory Management FAQs

Why is inventory control important in hotels?

Inventory control directly impacts hotel operational efficiency, cost management and guest satisfaction. Done well, inventory control means essential supplies, such as toiletries and linens, are always available in the right amounts to meet forecasted demand. Inventory management also helps manage room availability, with the goal of maximizing occupancy, revenue and profitability.

How do hotels maintain inventory?

Hotels maintain inventory by using integrated management systems, such as property management systems and enterprise resource planning systems, to track and manage stock levels in real time and manage reservations. These tools also conduct regular inventory audits to maintain accuracy and prevent discrepancies. Automated alerts help with timely reordering of supplies to prevent shortages. Additionally, hotels train staff to follow standardized procedures for inventory handling and reporting.

What is overbooking in hotel inventory management?

Overbooking in hotel inventory management is accepting more reservations than available rooms, based on the expectation that some guests will cancel or not show up. It helps hotels operate at peak occupancy to maximize revenue by compensating for inevitable no-shows. However, careful management is required to avoid exceeding capacity and turning away guests. Effective overbooking relies on historical data and forecasting to predict cancellations accurately.

What are four types of inventory management systems?

Four types of inventory management systems are just-in-time (JIT), economic order quantity (EOQ), ABC analysis and perpetual inventory system. JIT minimizes inventory by receiving goods only as they’re needed in the production process. EOQ determines the optimal order quantity to minimize costs associated with ordering, receiving and holding inventory. ABC analysis categorizes inventory into three groups (A, B and C) based on importance and value. The perpetual inventory system continuously tracks inventory levels in real time through automated updates.

What is inventory management in the hospitality industry?

Inventory management in the hospitality industry involves tracking and controlling the supply of physical goods and room availability to maximize revenue and profit, while also keeping guests happy. It includes managing items, such as toiletries, linens, food and beverages, as well as room inventory. When hotels manage inventory effectively, they avoid shortages and reduce waste by marrying supply with demand. Inventory management leverages tools, such as property management systems, enterprise resource planning software and real-time data analytics, to streamline processes and enhance efficiency.

What are the four main steps in inventory management?

The four main steps in inventory management are tracking, ordering, storing and optimizing. Tracking involves monitoring inventory levels in real time to maintain accurate records. Ordering is the process of purchasing inventory at the right time to prevent shortages or overstocking. Storing involves organizing and managing inventory in a way that maximizes space and accessibility. Optimizing focuses on analyzing data to improve inventory processes and efficiency.