Best practice: Centralised procurement at Jumeirah

Why Jumeirah Group’s centralised procurement department is supporting the hotelier’s mission to drive efficient, transparent and locally responsible business

As a salesman with previous experience in procurement, and currently an efficiency consultant, I have come to take notice of procurement standards at hotels and the opportunities that lie within them. While a few of the many properties I have interacted with reflect a truly efficiently defined procurement process, none stand out as much as that of Jumeirah Group.

I was exposed to the Jumeirah Group’s standard earlier this year, and although it does have some room for improvement, namely its manual tendering process, the practices can be compared to those of any multinational company.

The centralisation of its procurement department, consolidation of spend across all properties, dedication to commercial agreements, and corporate governance are indications of a progressive approach to business.

Some may be under the impression that change came about after a much publicised trial of a handful of staff members back in 2012, which I won’t dwell on, but actually, the group began to overhaul its approach to procurement as early as 2009.

Leading this process and the reformed department is Mohammed Kapital Al Bastaki, Jumeirah Group vice president supply chain and logistics, who has created a value-oriented operation via the centralisation of the procurement departments for the Group’s Dubai properties (with an endorsement to its Abu Dhabi property), plus Jumeirah Restaurants, Wild Wadi, Jumeirah Living and Jumeirah International.

This gives the group the advantage of space reduction at each property and a reduced head count, not to mention significant cost implications.

Bastaki explains that when the team started moving towards buying at a group level in 2009, “the result was an average saving of 6% on our expenditure”.

“We cut all the extra fat, which gave us the chance to drive change and attain better value. The purchasing power of all our properties combined is much larger than that of each property on its own. It would be a waste not to make use of this.

“For example, one particular raw material had seven different suppliers and every property had its own supplier that boasted better quality. We did blind tasting sessions with all the stakeholders and selected two suppliers, which resulted in a 15% saving on the purchase of that item,” says Bastaki.

Even though the hotels buy as a group, this does not necessarily mean that one standard product is found in all the properties. “We remain true to our slogan: ‘Stay Different’ and that extends to every property. Each hotel has a degree of flexibility in selecting its own products, but not its suppliers, since this of course still goes through our central procurement process.

“For certain standard items that are still purchased outside the group agreement, certain approvals need to be documented, and the cost implications of these decisions are routinely circulated,” adds Bastaki.

The second and even more attractive element in Jumeirah Group’s procurement standard is that the winning supplier is bound by a contract for a certain period of time.

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This is something that Jumeirah takes seriously, to the extent that 100% of its F&B spend is bound by commercial agreements. This compares to just 10 or maybe 15 contracts in place at most hotels, according to my experience as a supplier.

“Extremely important,” were the words Bastaki used to describe Jumeirah’s dedication to contracts.

“Around 75% of our total spend is contractual,” he reveals. “It makes more sense and the process is much more efficient. Instead of constantly meeting suppliers, reviewing quotations and sampling products throughout the year, we launch one inquiry on each purchased item and the selected supplier is bound by a contract for a certain period.

Most are one-year contracts, some are two-year, and others are a few months long. Any new supplier contacting us during a contracted period will be requested to reconnect with us before the renewal, Bastaki explains.

“This way our department can focus on each spend on its own to be certain that the best value is chosen. As long as the supplier’s products and service supplied are up to par with quality, there shouldn’t be any issue with changing supplier.”

Bastaki goes on to explain that the supplier for the contract period must focus on delivering quality products, without the concern of losing business to a walk-in. “Since we are contracting the business, our department has to make sure they do everything from selection, invitation, sampling, tendering and negotiation to securing the best deal for the contract period.”

However, having a contracted supplier isn’t necessarily an unbreakable covenant, a concern that I have noticed is common with many purchasing managers. Aside for the contracted period and given that there are no product or service issues, all contracts due for renewal are reviewed and new suppliers are considered. Jumeirah Group focuses on achieving a balance between building a strategic relationship with suppliers and allowing for healthy competition between them.

“We’ve had situations in the past where we we’ve changed from long-term suppliers to new ones that offered better value and quality,” says Bastaki. “We look at all our suppliers as our partners, however, this does not mean automatic renewals of contracts. Every contract that is up for renewal is taken seriously.

All active contracts are evaluated at the end of term on the basis of pre-agreed KPIs. This is a healthy way of opening the market to new suppliers, or existing suppliers that may have improved. We want our suppliers to constantly work on reinventing themselves to be better, whether they become more competitive in pricing — as a result of being more efficient — or providing better service or quality of products.”

“The decision of awarding the business to the supplier is done after an approval process by Jumeirah’s technical experts that is done anonymously,” he says.

The sheer number of suppliers pursuing a Jumeirah Group contract makes assessing the suppliers a challenge.

“Being a globally recognised hospitality chain, there is always a responsibility on the colleagues to maintain the high standards of the brand. With the growth in the Middle East economy, we have been regularly approached by new and prospective suppliers, who want to be associated and work with Jumeirah Group,” observes Bastaki.

“It can be challenging to meet everyone and at the same time maintain strategic supplier partnerships. There has to be balance and transparency. Therefore, we have a supplier pre-qualification process in place where we ascertain strengths, weaknesses and risk profile of the new suppliers, before we can start working with them.”

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Today, Jumeirah Group’s KPIs include colleague development, compliance with corporate governance, and as per its supplier evaluation process, all of its strategic business partners have to be 99% compliant by the end of the year. Jumeirah’s corporate responsibility programme takes this a step further by giving back to the community, adds Bastaki.

“We generally prefer a local supplier to support the local economy. Part of our corporate responsibility programme focuses on increasing the contribution of Sheikh Mohammed Bin Rashid Establishment for Young Business Leaders (SME) businesses in our supplier base.

We do this by working with local suppliers for them to be able to reach the level where they would have the capability to be considered a Jumeirah Group supplier. We now have up to 35 local suppliers in our supplier base who are part of Dubai SME,” he reveals.

INDUSTRY IMPACT
Jumeirah Group’s procurement strategy becomes all the more interesting in light of results of this year’s edition of the Hotelier Middle East Supplier Survey, published in the March 2014 issue.

It revealed that almost 55% of hotel suppliers have been asked to offer an incentive by a hotel employee, and that 72.6% of suppliers know of other supply firms using incentives to facilitate their sales efforts, 10% higher than 2013 survey results — implying that not all hoteliers are following such transparent processes. It’s not just Hotelier that has observed such worrying trends either.

According to procurement software suite provider Zycus, in an article entitled The State of Middle East Purchasing published in Q4 2013, the author stated: “Ten years ago, companies in the Middle East viewed procurement as an administrative function ... [with] no strategic approach to choosing the best suppliers. Unfortunately, this approach to procurement is still dominant in … pretty much all sectors except oil and gas.”

The responsibility of such figures and predictions falls predominately on the leadership of any organisation, and unless such issues are proactively tackled, the problem is only going to get worse. It is perhaps time for the hospitality industry, one that is rapidly maturing, to progressively start viewing procurement departments as a more strategic role in the development of businesses.

This would unlock several opportunities, part of which includes an undeniable increase in bottom line, a high level of compliance, and overall efficiency of organisations. Jumeirah Group today stands as an example of what driving change can result in.

About the Author:
Wissam El Cheikh Hassan is the managing partner of Provident Solutions Ltd, a hospitality management consulting start up with focus on efficiency and procurement solutions. Email: wissam@providentsolutionsltd.com.