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Insight Series: The Buying Game

25 January 2013
Insight Series: The Buying Game

Research conducted in association with on-demand supply chain management provider iTradeNetwork has revealed that purchasing remains only loosely controlled by the majority of operators. Ross Bentley explains how to employ online tools to tighten up your processes

Online procurement is recognised as offering greater control over purchasing costs than picking up the phone, but the majority of operators still stick with familiar purchasing processes, according to new research.

The survey of more 450 respondents working in all sectors of the hospitality sector was carried out in the last quarter of 2012 in conjunction with iTradeNetwork, a global provider of on-demand supply chain management and intelligence solutions to the food industry.

It reveals the types of online ordering tools businesses currently use and how much control head offices have over procurement. The results also highlight a greater understanding of the business challenges operators face in terms of purchasing decisions.

But how do we account for the low take-up of the technology at present? Part of the answer may be that over half the respondents (57%) define themselves as independents, a sector which traditionally takes longer to adopt new technology compared with corporate or multiple operators.

The snag certainly isn't from the supplier side - the survey showing that two-thirds of food suppliers (66%) and over half of drinks companies (51%) offer the ability for operators to order online.

Barriers come down
According to Alex Walters, iTradeNetwork's European sales director for hospitality, concerns about using technology are less of a factor these days. The big change is the advent of web-based or cloud-based systems, which make adoption straightforward, requiring only a secure broadband connection and an end device such a PC, laptop or hand-held device.

"Most of the old barriers, such as lack of the right technology, slow broadband, little understanding or use of retail online ordering and security fears have all been removed," he says. "Today, the challenge for us is to communicate the benefits of online ordering and to get customers to try it."

Walters believes telephone ordering is simply a habit that many operators have yet to break and that others fear they might lose the human contact they have with their suppliers. But, he argues, a move to online ordering does not mean an end to personal contact - rather a shift to a better-quality conversation.

"Online ordering means operators can place their orders at a time convenient to them - a key point in an industry where working unsociable hours is commonplace," he adds. "And when they do speak to suppliers they can spend their time more profitably - such as discussing new products and promotions with customer service or sales contacts."

Convenience and control
Findings from the research bear these comments out. Almost half (48%) of respondents who use online ordering say the reason they do so is because of convenience. A fifth point to better purchasing information and control as an advantage of ordering online. And over three-quarters rate their online systems either "good" or "very good".

For Andy Badger, managing director of technology firm Acquire, the current adoption rates for online ordering systems come as no surprise and hint at a "huge movement towards eâ€'procurement."

He says: "Even five years ago only around 2-3% of operators were using web-based procurement, so the figures show there has been a high rate of adoption over that time. One big change we have seen is that five years ago operators were signing up to a system provided by a supplier, such as 3663. Today, however, they are looking to use a neutral system that links to multiple suppliers."

Badger says the feedback he is getting is that there are a lot of operators out there looking at eâ€'procurement and considering their options in terms of the type of platforms that are available to them.

Indeed, this proposition is backed up by the survey: 58% of respondents said they would consider adopting online ordering if they were offered it.

Supplier performance
A clue to the reasons why operators - especially the multiples - are moving towards online procurement comes from the answers given when respondents were asked what 
factors they would like to improve in their ordering process. Top of the list is better monitoring of supplier performance - an important discipline when it is considered that respondents from head office and site outlets say 68% of all food and drink they order is "on contract".

Additional factors respondents want to improve include ensuring outlets are adhering to budgets, better reporting and reductions in time spent resolving invoice disputes with suppliers.

And, says Matt Kearslake, purchasing manager at online procurement provider, Route, web-based ordering tools can help tighten up operations in all these areas.
He adds: "Online procurement allows both pre-event and post-event control. Access to management information is easy and can be reported on in many different ways to suit what it is being used for."

One message that comes across clearly from the research is that many multiples are keen to ensure greater central control in their purchasing processes. Of those respondents hailing from head office or site outlets, 34% say their purchasing was "completely controlled" from head office. Of the remainder, 25% would like to see head office have more control over purchasing.

According to Walters, technology and especially cloud computing can help as it enables "collaboration" between all the parties in the process.

He says: "Suppliers, head offices and outlet staff can all see online every step in the purchasing process, from the approved catalogue of products available to order through to invoices. And all this can be viewed instantaneously from anywhere 24/7."

Room for improvement
Of course, there are areas where online procurement tools can improve. More than half of respondents (57%) point to more product information and additional promotions are the main ways to achieve this.

Walters continues: "Demand for more product information is being driven by consumers who want to make more informed choices. It could be to do with allergy information, or local sourcing and other ethical drivers.

"If suppliers can provide this kind of information in an easily accessible way online, they will be offering a true added-value service to their customers."

For the vast majority of independent operators (79%), any updates to product information is communicated on an ad hoc basis. Just over a third (37%) have scheduled times for these conversations. But most are happy with this situation, with 85% saying existing methods are effective.

The overall picture is of more operators moving to online procurement, although adoption of the technology still lags behind the percentage of hospitality firms who use menu planning software (50%) and have installed EPoS systems (71%).

And there are, according to Paul Finch, vice-president for hospitality at Micros, a number of operators who are linking EPoS systems with online procurement platform to fully automate the purchasing process.

"Direct supplier ordering is very popular with some of our customers," he says. "It offers a number of benefits. For example, it allows us to link directly to supplier catalogues so that purchase pricing is automated and it also supports more accurate recipe modelling.

"On top of that you've got the advantages of centralised reporting that allows you to see purchasing patterns for the whole business, or broken down for individual sites."

MacDonald Hotels get strategic

Hotel group MacDonald Hotels and Resorts adopted iTradeNetwork's web-based portal in May 2011 to manage online purchasing across all 49 of its UK properties.

According to purchasing manager Enzo Bertolone, the company uses the portal to order and purchase mostly consumable items.

"We use it to buy all food and non-food consumable items required by the hotels," he says. "It's quick and easy to use and orders can be placed 24/7. It is also auditable, so we can trace orders and control consistency and compliance across the entire estate."

Bertolone says he regards purchasing as a strategic practice rather than a clerical task and by consolidating purchasing for all properties the company is able to benefit from economies of scale. "My role is to set up the contracts with all suppliers who are currently linked into the system. The prices we negotiate are entered into the system, so that anyone purchasing that item locally from any one of our properties will benefit from that price. "The vast majority of our consumable products are purchased through the system this way although local managers are able to use their own discretion when buying local services." Oxford University caterers group together Since 2010, the 40 colleges and institutions that make up the Colleges of the University of Oxford have been able to order food and hospitality ![](https://cdn.filestackcontent.com/6duvPDJ7SdC4m4vVYrRK)items from suppliers using the epsys eâ€'trading platform. They have set up the Oxford Colleges' Catering Managers Group (OCCMG), which is a buying collective that enables the colleges to negotiate better deals with suppliers. However, while the collective approach makes sense from an economic view, each college also has its distinctive dining traditions. Therefore the system allows for colleges to make different supply choices. "The system has greatly assisted us to manage our procurement arrangements and brought about significant benefits through our ability to trade with appropriately qualified suppliers at known prices," says Brian Cole at the OCCMG. Since epsys is an established eâ€'trading system for hospitality businesses the system was already integrated with all the key suppliers required, enabling them to exchange product, order and invoice date in real-time. New suppliers nominated by colleges can also be linked into the system. ![ItradeSponsor's comment With sector prices predicted to rise, keeping a tight control over purchasing will be of paramount importance to hospitality operators of all sizes in 2013. Online or "cloud-based" purchasing systems can give operators complete visibility of products, pricing and transactions with suppliers, ensuring managers are better informed when making purchasing decisions. The results of this research, supported by our own experience, indicate that interest in this technology is increasing. Those who embrace it are likely to be better placed to manage the challenging economic conditions ahead. *Alex Walters, iTradeNetwork's European sales director for hospitality*
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