Comment: Is your procurement department efficient?

The ongoing construction boom in the region has brought an extremely fast paced development to the hospitality industry. With various planned international events such as Qatar World Cup 2022 and potentially Dubai Expo 2020, the opening of new hotels shows no signs of slowing down, and reports reflect that more than 120,000 rooms are currently in the pipeline in the ME.

This vast increase in competition has therefore put huge pressure on properties to generate revenue, and in order for properties to sustain performance and remain relevant in an extremely competitive space there lies a need to shift their focus towards cost optimisation.

To achieve this, hotel chains need to develop ways to enhance employee productivity and leverage the scale of their operation across several properties to unlock efficiency opportunities.

With F&B commonly being the largest spend of any property, by focusing on finding synergies across hotel chains and standardising their purchasing procedures, operators will be able to achieve value for their properties through a combined effort.

The current view of the purchasing department in many properties is that of a mediator between suppliers and internal customers. Most decision making taking place in regards to supplier selection for F&B lies in the hands of the chef.

The problem with this approach is that it is very tactical in nature, and it leaves a lot of room for volatile decisions and irregularities in purchasing patterns. This non-standardized approach lacks the ability to capture synergies across different properties.

The fact of the matter is that the consolidation of the F&B requirement of every property within the chain can be utilised to generate savings for the group. Certain chains have up to 14 properties in a city, and utilising that purchasing volume will have stronger buying power than one property on its own. Standalone properties can look into forming a consortium.

Enhance Efficiency
To further enhance productivity, the purchasing operation needs to have a more efficiency oriented operation. This can be attained by splitting the purchasing efforts between the strategic sourcing of goods and transactional tasks of placing orders and following up on deliveries.

The sourcing teams can be split further into expense-based items, dependent on their size, so one buyer can buy meats, another produce and so forth. Each buyer would be responsible for developing a strategy for the items they are sourcing, done by analysing the expenditure, the key players in the industry, the feedstock price, what the competition is doing and what the current market trend is.

This information will offer buyers a better understanding of what is being bought, which will assist them in approaching suppliers in such a manner that would enable them to influence price and quality.

A product testing committee formed of a diverse group of members from several properties, credentials, backgrounds, and departments that has the responsibility to blindly test, rate and document all products bought under certain previously agreed upon criteria and standards will greatly affect the objectivity at which products are selected by hotels.

Reverse auctions as well as sealed bids that are all opened and verified at the same time upon receipt in the presence of finance without further negotiation remains to be amongst the most effective methods in attaining low prices. Pressuring the supplier to submit their best price from the first time will add efficiency to the tendering process.

For such a model to be effective, management needs to train all employees about ethical standards and their importance for the sustainability of the organisation. Unless this is communicated clearly to all employees and constantly reinforced, instead of being an “unsaid rule”, hotels will fall short on quality, price and service benefits.

At one point in time the market will start to shift from growth to that of value extraction and hotels need to be proactive in that shift to survive.

A purchasing operation that is efficiency oriented and has clear quantitative savings targets means hotel chains can realise huge benefits across the board. Not only will these benefits be monetary in value but also have the advantage of standard products across their various properties. Furthermore, the efficient and effective purchasing setup can potentially yield head count savings from hotels too.

About the Author:
Wissam El Cheikh Hassan is the managing partner of Al Dar Sweets, based in Abu Dhabi. He was previously purchasing manager of Proctor & Gamble in Dubai. Email: Wissam@aldarsweets.com