Business Breakfast: The real cost of procurement

18 July 2014
Business Breakfast: The real cost of procurement

In the latest of The Caterer's Business Breakfasts, three speakers lined up to explain how businesses can identify quick wins from smarter purchasing. Rosalind Mullen was at the event, which was sponsored by Beacon

The room was abuzz with chat about best-buying practice as speakers and delegates gathered at London's Mandarin Oriental hotel to share their experiences.

Areas explored included how to improve profitability through online ordering, the need to monitor wastage, which department should be responsible, and why it was important to understand your e-procurement systems to make best use of the data. Another hot topic was whether to outsource purchasing.

Leading the discussion was Paul Connelly, director of operations at Beacon, which manages budgets of £110m across 2,000 customers and more than 150 suppliers. He argued that growing hospitality businesses should be making the most of their procurement opportunities by consolidating their supply chain.

Not only would this standardise the quality of furnishings, ingredients and so on across multiple sites, but it would be more cost-efficient and even increase their clout in tackling issues such as sustainability.

"As businesses evolve, it can be difficult to know when to seek support. A restaurateur may have a passion for service, but not procurement. You need to consider if and when you need to outsource to procurement professionals," said Connelly.

Of course, while savings allow the business to reinvest, you need to have good systems in place to achieve this. Procure-to-pay e-procurement systems, for instance, help track supplies from order to delivery and payment, providing insight into future cashflow and helping you to budget effectively.

Smart technology links hospitality businesses with suppliers and provides data analysis so you can monitor costs, consumption rates, inventory tracking,
pricing and menu planning to increase profitability.

"Make sure, whatever systems you have, whether EPoS, online ordering or e-procurement, that they fit with the business. If you have multiple sites, make sure you are not over-engineering, and don't get an expensive system unless you are in a position to use it to your advantage," said Connelly.

These issues were also picked up on by the guest speakers, restaurant consultant Iain Donald and Benito's Hat founder Ben Fordham, as they each took the stand.

When to outsource
With management and operational experience in companies, such as contract caterer Compass Group and restaurant chain Est Est Est, restaurant consultant Iain Donald shared his thoughts on when to outsource procurement.

"I prefer the flexibility of keeping it internal," he said. "But if you do outsource, the golden rule is to have someone to control what is being procured and to
have a strong conduit to the procurement company."

He also said that as businesses grow, you can work with suppliers more effectively, particularly through e-procurement.

"Data capture is more high-tech nowadays. Rather than going through till receipts you can get information on trends and expenditure at the push of a button," said Donald.

One area that always needs scrutiny is stocktaking. In Donald's experience, businesses that thrive are those that employ a dedicated stocktaker who can analyse data, build patterns and spot changes on a weekly basis. It is essential to avoid overstocking or ending up with a pile of de-listed products.

It is also crucial to know the price of everything - right down to the cost of a lettuce. "It's very important to know the commodity value of wastage," said Donald.

10 ways to improve purchasing

1 Set a clear strategy with processes to create efficiencies.
2 Be fair and firm with suppliers, hold regular meetings and visit their trade shows.
3 If you use e-procurement systems, make sure you know how to use them efficiently.
4 Manage waste levels by monitoring trends - get worried if one restaurant is using 10% more loo roll than the others.
5 Create a culture where all staff focus on purchasing - add incentives, such as bonuses, around stock management.
6 Collaborate. There should be a two-way conversation between the operator and the supplier. Share your values and find a supplier who is in tune with you.
7 Build a procurement strategy that balances quality with gross profit so you don't compromiseyour trade.
8 Don't let finance own purchasing - involve the food and beverage and design departments, too.
9 Either monitor procurement yourself or appoint a manager and ensure you track the successof your supplies and make sure products work before rolling them across your business.
10 Hold regular meetings. Businesses often underestimate the time they should allocate to procurement.

Have a clear plan

As a purchasing partner, Beacon director of operations Paul Connelly believes it is important to work with all departments in the client company. "There is rarely just one decision-maker, whether it is the chef or finance director, or whether gross profit or sustainability is on the agenda," he said.

Clients work with Beacon in different ways, Connelly added. "Some just want a good deal and to be introduced to suppliers. Others want us to help them deliver their business strategy - costs and so on. They choose us because they are trying to run their business and focus on their customers, and they may have no time or expertise in house."

Independent hotel management company Then Hospitality approached purchasing specialist Beacon in 2010, when the company managed only one hotel. Its aim was to reduce costs and save time within the business by tapping into Beacon's purchasing expertise.

Beacon's remit covers the purchasing strategy for the hospitality group and the sourcing of items ranging from food and drink to furniture, fixtures and fittings.

Then Hospitality has subsequently expanded its portfolio to 12 branded and privately-owned hotels across the UK and now has an annual procurement expenditure of £3m, managed by Beacon. Through regular category reviews and a clear purchasing plan, Beacon has made a positive impact on its client's bottom line. Since January, for instance, it has reduced the organisation's food and beverage spend by about 12%.

Stuart Broster, managing director of Then Hospitality, added that another benefit is that the company has been able to concentrate on its core business
and focus on managing large projects.

"As a partner, the [Beacon] team understands our aims as a business in terms of reducing costs across our portfolio and saving time internally," said Broster.

We know that when new hotels are added to our estate, the addition of these properties to the purchasing plan will be quick and simple."

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