Hotel procurement more corrupt than ever

Suppliers say hotel groups must take a stance against bribes and put an end to foul play in purchasing

Almost 55% of hotel suppliers have been asked to offer a monetary bribe by a hotel procurement manager; 72.6% of suppliers know of other supply firms that are using bribes; and 46.8% of suppliers believe that corruption, in terms of bribery, is a problem in the Middle East hotel supply sector that is negatively impacting business.

These were the findings of the Hotelier Middle East Supplier Survey 2014, which received 108 responses during January and February of this year.

The results, published in the March issue of Hotelier Middle East, highlighted a major challenge for hoteliers and suppliers alike, revealing a tacit acceptance of foul play that has the potential to damage both businesses and personal reputations alike.

The most concerning finding was that levels of corruption are increasing, with only 35% of suppliers reporting that they had been asked for a bribe in 2012 and 2013 and a 20 percentage point increase on that number this year.

Ten per cent of suppliers admitted they might resort to bribery in 2014 and 6.7% said they would bribe to secure an order.

In 2012, just under half of respondents said they knew of corrupt suppliers engaging in bribery; this year, that number rose to almost three quarters of all respondents, with more than ever before also asserting it was a problem for the industry.

According to Simon Parke-Davis, chief representative, Rational, who commented on the results during Gulfood in Dubai, bribery is “normal in this region”, while Bakemart managing director TK Khaleel worried that it would not be “not easy for the industry to overcome this”.

“We don’t bribe anyone anywhere in the world. Depending on where you are – in China it’s the same situation, in Europe it doesn’t happen. But I hear it continually in this region. [As an industry] we brush it aside. We ignore it,” said Parke-Davis. “It’s very rife in this region.”

This was the consensus from suppliers; that there is an underbelly of corruption which to date, has often been ignored — even at the cost of lost contracts to legitimate operators.
Rashid B. Bahar, business development manager, TSSC, admitted he had “lost orders because of it”.

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“It’s something that does happen but it’s something we don’t support at all. It’s difficult because when you have smaller companies they just want to come in and sell — they just want to grow and so they’ll do anything to do it. In the long-term they will lose.

I’ve seen it happen with my own eyes — I remember a guy who did something like that and he’s no longer in Dubai. I think [if] more people are caught for doing this...maybe then the market will learn that it’s not acceptable,” said Bahar.

Vishal Tikku, vice president and area director Middle East, Mondel?z International said suppliers and buyers alike had to ensure proper checks and systems were in place.

“All vendors much be checked. We have a strict compliance for employees as well. We have whistle blower lines, off-the-record hotlines and more. We have the infrastructure in place to make sure it never happens,” said Tikku.

“We would go to the extent of walking out of the country if the country doesn’t support us. We would not work in a country where we could not work without integrity.”

John White, sales manager at Organic Foods & Cafe / Arab Beverages, suggested suppliers could develop fair incentive schemes for buyers.

“We offer incentives to chefs – if a hotel buys a certain amount of product from us we’ll give them something back for their staff party for example, but we’re not into bribing,” said White.

Nabil Najem, division manager, Food Services and Frozen Bakeries, Sunbulah Group, also offers rebate schemes.

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“If you buy in bulk or buy frequently or you make sure that my products are always on your menu, we incentivise and motivate the buyers and the chefs,” said Najem. “We try to overcome [bribery] by creating more innovative ways to reward people.”

However, White acknowledged that some people will be driven by greed over quality.

“It’s very hard – even if our product is better, our price is cheaper, our service is better, he’s not going to care because he’s earning three times his salary with his bribe so he’s not going to go elsewhere. It’s up to the hotels to nip it in the bud.

The Jumeirah Group had a big problem with it and now you can’t even send a Jumeirah Group chef an email – you have to go through procurement.

I believe there were two or three guys jailed for taking bribes so Jumeirah Group has nipped that in the bud, so I think hotels just have to regulate it a bit better,” said White, referring to the trial back in 2012 of the head chef and butcher at Burj Al Arab who were accused of taking kickbacks from four suppliers.

Wissam El Cheikh Hassan, managing partner of Al Dar Sweets, said that media exposure of this case was positive, as too often if situations occur, they are “kept in the dark and not made an example of”.

He said: “The result is that now Jumeirah Group has an extremely stringent, efficient and effective approach to purchasing. I know this because Al Dar Sweets won the contract to supply all Jumeirah properties in Dubai with Arabic sweets.

The tasting is done 100% blind, the chefs do not know who the suppliers that participated are. The supplier capability is assessed by purchasing, and if the selected supplier gives the price competitiveness that the chefs approved they win the business and a contract is put in place for a period of one year.

At no point does a supplier meet with the chef, purchasing remains to be a mediator between the chef and the supplier, and if a supplier requests a meeting with a chef that is not granted unless the chef requests to meet with the supplier”.

When shown the suppliers’ comments, a spokesperson for Jumeirah Group said: “Jumeirah has a very stringent business conduct and ethics policy that every employee signs up to”.

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The suppliers agreed it was down to hoteliers to take a firm stand against bribes and ensure appropriate security and regulations are in place to prevent individuals abusing the purchasing system for personal gain.

“I think it’s up to the chains of hotels and the GMs to put an end to it – and you can quote me on that,” said Thomas Haller, food business manager, Nestle Professional.

“They are the ones that have the power to do a strict non-bribe policy and go out to the suppliers and say ‘if anyone at our hotel is asking anything you call me’.

I’ve been a GM of Marriott and I was working in Pakistan and my policy was very clear. Every year you negotiate with your suppliers for various things and my speech was clear — ‘if anyone in this hotel is asking you for any favour you say no. but the next day you come and see me’.”

Suppliers must be equally strict, however: “We work with distributors; if we find out that they are bribing, they’re gone. It’s very clear. There are no two ways about it. We are against it and even if a Nestle employee would bribe anyone, he is gone,” asserted Haller.

Atlantis The Palm director of procurement Bhanu Pratap Singh — Hotelier Middle East’s Procurement Person of the Year in 2012 — said hotels had to take control of the process and suggested technology could help.

“It is the responsibility of the hotel that is procuring to demonstrate procurement maturity and isolate undue influences on their decision making. This is only possible if a hotel places a particular emphasis on using the best available electronic tools and technology to improve speed, efficiency and effectiveness of buying decisions, and continues to innovate the process to adapt to the ever changing business environment,” said Singh.

“Of course, it is also imperative for a company to demonstrate deterrents to such unsolicited activities to highlight the fact they will not be tolerated and to minimise such activities within the entire hotel industry.”

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Competitive e-bidding and periodic ‘supplier performance evaluation’ form key parts of Atlantis’ procurement process, said Singh, adding that the skills and experience of the head of procurement and receiver were vital.

“Receiving plays a very important role as they are the gatekeeper. Considering the sensitivity, this position needs to be represented by a middle level management person,” advised Singh.

“The head of procurement provides overall leadership to the purchasing team and ensures that procurement policies and procedures are followed. Typically, he also is constantly in search of better quality products and better prices. The role is thought to have grown more strategic in recent years as a result of globalisation, compliance factors, and other key industry changes that have triggered a trend toward centralisation of the procurement function for the purposes of standardization and leverage,” he added.

Singh was confident that corruption in procurement could be stopped if the industry as a whole continues to evolve in this way, “adapting to new tools and technology available for use to facilitate the process”.

Hassan added that with training, international best-practice buying standards, audits, and publicity of cases of bribery, the frequency of bribes would reduce significantly.

“It will not stop 100%, because there will always be people who lack integrity, but at least it will not be something that is considered an industry norm and more importantly it will not be easy for a bribe to take place. The people who should head this effort are GMs, property owners, regional offices of properties and boards of directors. It is something that should come from the top,” he concluded.