The challenges to maintain revenue and margins are immense. Inevitably the focus turns to cost reduction and a review of the supply chain. While this may appear understandable, it demands the question "Why wait until tough times?"
All organisations, regardless of size, need to have a widescreen view and a deep understanding of how their procurement is managed and its effectiveness. Yet it is a source of constant surprise to find how few hospitality businesses have developed a formal procurement strategy and the extent to which emotional and "maverick" spending are frequently identified within both small and large organisations. Clearly, a key objective of any purchasing strategy must be to drive the best price. Supplier rationalisation can help to achieve this and should be a consideration in any purchasing review, but simply consolidating supply to leverage better prices ignores other critical elements.
So what are the key elements of a successful purchasing strategy? First, there needs to be real ownership and commitment at a senior level and very importantly, the authority to drive compliance throughout the business to centrally agreed deals and trading terms. So the process needs to begin with the board.
Second, strategy needs to embrace a clear understanding of the factors that impact on the achievement of profit over and above product price and ensure that effective, robust control measures are in place with performance effectively monitored.
From a practical perspective, begin by understanding what the business is buying. Purchasing is all about knowledge and management information. Start with an analysis of the purchase ledger to identify the highest spend categories - as a guide
80 percent of spend will generally be with the top 20 percent of suppliers or, put the other way round, only 20 percent of what is spent comes from 80 percent of the suppliers. (That's a lot of small purchases from a lot of suppliers and brings with it a cost.) From this analysis, category purchase priorities can be established and an initial plan can be developed.
Drilling down to product prices and volumes purchased can be challenging where this information is not readily available, particularly with complex purchases. However, this understanding is critical to enter into meaningful supply discussions and contract negotiation. This is where technology can add real value. Increasingly e-procurement solutions are being introduced in hospitality environments - at the simplest level to provide an online ordering system but this is only the tip of the iceberg. Full procure-to-pay solutions not only support compliance to agreed deals but enable the detailed reporting and analysis of spend data. Integrated into company accounting systems, productivity improvements and further savings can also be achieved.
This is truly the way forward, particularly for multi-site businesses. Of course purchasing in a hospitality business can cover anything from food and drink through to energy, insurance and refurbishment and it's critical to understand the factors that impact prices in any specific category before entering into supplier negotiations. For instance, wholesale food prices can be affected by factors such as frequency of deliveries and location. So if this knowledge does not exist within the organisation, consider consulting external purchasing specialists. In conclusion, implementing an effective procurement strategy can transform business performance.