How to… get best value when purchasing

31 January 2012
How to… get best value when purchasing

With the latest figures from Experian's Insolvency Index showing that hotel and leisure businesses had the third highest rates of insolvencies of all sectors, up 30.65% on the same time last year, there's never been more pressure on businesses in the sector to review their cost management strategies in detail.

As part of this, a review of supplier contracts now, to establish best possible value, could pay dividends throughout 2012.

Remember that reducing costs is not about compromising your product or service levels but, instead, it's about making sure you have the best contracts in place for your business and ensuring that suppliers understand your particular needs. A bit of due diligence in this area should help to maintain and improve standards, not the reverse.

Whether you run a large chain of hotels or an individual restaurant or café, before you get started on any review or cost-cutting exercise, remember that working with the largest or best known supplier doesn't always mean the best price and service. You might also choose to follow the lead of many an efficient business in the industry by consolidating suppliers. If you currently purchase a range of products and services from a host of different suppliers, you're likely to have high volumes of small invoices to process.

Using a smaller number of suppliers will allow you to develop closer working relationships with those that offer the best value for money and cut down on financial administration. Another option is to introduce a preferred list of suppliers - this can be particularly beneficial if you operate in a number of locations and can negotiate a saving by using the same supplier at each outlet.

five areas to address to get best value
1 Waste not, want not Most waste contractors operate 12-month rolling contracts. Often, unless notice is given three months prior to renewal, you are automatically locked in for another year. Make sure you know renewal dates for this and other business contracts to avoid missing out on the chance at renegotiating a better deal.

Know what tariffs you are paying for different types of waste, make sure waste is being separated accordingly and encourage staff to recycle - the more you recycle the less tax you pay.

2 Don't get taken to the cleaners While laundry is a huge overhead for many businesses, make sure the quality of your laundry and service is fit for your business. Negotiations to get the best value and service should also focus on ability to deliver at a time to suit your business, ability to guarantee delivery, especially during busy holiday periods, and the supply of clean, undamaged linen.

3 Keep talking Fixed landline contracts for 12 or 24 months are the norm but check that you are not subject to an auto-renewal clause and not able to take advantage of any new tariffs from better value competitors.

Mobile phone costs can be another huge area of expenditure, but there are many simple ways to save money here. For example, it might be more expensive to administer a scheme to ensure staff pay for personal calls than simply absorb the costs.

4 Get energy efficient Companies need to be smart when negotiating new utility contracts. In a volatile market that changes on a day-to-day basis, this may be achieved by simply approaching the market at the right time and not when the market is at a peak.

Companies can also obtain an advantage by trying to bring all energy contracts under the umbrella of a single supplier with a single contract end date. Not only does this simplify the administration, it will also allow companies to take advantage of better pricing as energy providers will offer better rates depending on the level of business being placed.

5 Look after the pennies While waste, laundry, communications and energy costs make up the mainstay of many hotel and leisure businesses overheads, don't neglect smaller ticket items. Many hotels, for example, no longer offer a complimentary morning newspaper or sewing kit as a matter of course, but supply them if requested. Think about which items you could do the same for without compromising your particular offer.

Rob Alison is managing director at Expense Reduction Analysts, a cost, purchase and supplier management consultancy

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