Feature

The business of procurement

Procurement in the hospitality industry has come a long way, from being a traditional supply chain to a well-organised IT enabled, hi-tech Materials Management System. Vikram Kharvi explores the new trends in the purchase department of the hospitality industry

Tucked away in the diverse and wide-ranging activities of the hospitality industry, the procurement department is without doubt the umbilical cord of a hotel. Though seldom given its rightful recognition for the critical role it plays. The day-to-day acquisition control of non-perishable items like stationery, guest amenities, housekeeping and other consumables makes it critical for the successful operation of a hotel.

The purchase department needs to be proactive, as it requires managerial skill to forecast the material consumption based on forecasted occupancy. Hence, there is the need for effective interface between the purchasing system and the other departments of the hotel like sales, housekeeping, engineering and so on.

Nand Kumar, materials manager from Grand Hyatt, Mumbai says, "While each department remains critical to the success of the hotel, materials are the entry point for all products and services of an hotel. This department is directly responsible for the quality, quantity and pricing which has an impact on the total procurement cost of the hotel. We also have to keep pace with external markets, which help our guests in getting updates on the new products available in the market."

Impact of procurement

The purchase department is the soul of the entire hotel procurement business. In other industries procurement is limited to a small circle whereas in the hotel industry, it is wide open and often calls for creativity to help satisfy the guests' needs. Requirements change with seasons, with events in the outside world and with many such variables. It is the first industry to get affected in case the suppliers are unable to deliver the right product and fail to maintain consistency in quality and price of goods and services, in which case procurement proves difficult.

"Sourcing for the right products, from the right suppliers and at a feasible price is of utmost importance, as the standards of quality that an organisation lays down have to be kept in mind while sourcing," substantiates Mukund Vichare, purchase manager, Le Royal Meridien, Mumbai. "There is no room for discrepancy or compromise on quality. There are limitless areas to be explored. Everyday something new has to be procured; there is a constant stream of suppliers one can and must deal with - as buying is a constant process in the hospitality industry."

Added to this and yet more important is to account properly for what has been purchased. S Venkatesh, head purchase department, Novotel Hyderabad and Hyderabad International Convention Centre, says, "The sky is the limit as far as scope of operations is concerned and expectations in this department are unlimited. A new concept, which is becoming a trend in some hotels is, that instead of maintaining stock at the property they outsource the same by just giving the required specifications and then fixing the rates. This will work out well in hotels owned by a single management. This is profitable, more economical and will ensure higher cash flow."

Progressive techniques

The hospitality industry has historically struggled due to fragmented supply chains, made even more unwieldy by complex and inefficient business processes in distribution and procurement. Today, with margins getting tighter through competition, the hospitality industry is on the lookout for efficiency as never before. A common approach has been to gain the advantages from streamlining and to use technology to centralise purchasing processes, combining spend from all locations to improve pricing and service from contracted suppliers to procurement processes.

Currently, several new techniques are being employed by purchase managers for procurement. According to Kumar these include eProcurement, Savings Strategic Management (SSM), Inventory Management, ERP Software packages, sourcing environment friendly products, organic products, and treating vendors as business partners and competitors as source of information.

There are reports of a large number of companies turning towards electronic procurement, either directly with major suppliers or via trading exchanges. Now eProcurement offers the potential for improving both ends of the equation to reduce costs, generate new revenue streams and improve audit control.

"In almost all industries, the Internet has made a major impact and same is seen in the hospitality sector with regards to procurement," confirms Venkatesh. "Compared to a physical market survey, an Internet based survey works out to be faster, economical and more accurate. It is also high on market intelligence. Global procurement has been growing faster and this helps us source better products to meet the needs of our guests and makes foreign tourists feel at home away from home."

A growing trend

Giant strides have been made in terms of technological developments in purchase and procuring. According to Vichare, brick and mortar facilities have made way for online portals of suppliers - which are just a click away now. Websites offer everything from names and contact details of sources to tips on where to buy the best caviar. As a result, lead times have reduced drastically. Also, the introduction of the ERP systems like SAP has made it easier to keep a check on the inventory and exercise control within the purchase department.

But doesn't this trend towards centralising the buying function and reducing the number of suppliers down to a handful of national suppliers fly in the face of an industry driven by local produce? If that is your business model, then yes says a hospitality procurement consultant. Technology can also help companies manage numerous local suppliers if that's their objective.

"For dealing with fresh produce that needs to be ordered and delivered within a short space of time, the software has been designed to facilitate short turnarounds," says, Somshekhar Shetty, materials manager, The Resort. "Suppliers upload negotiated prices on to the system, which can be compared with other suppliers. The same system is used to dispatch orders once a decision has been taken."

The Purchase department is aptly described as the 'facilitator' responding proficiently at the appropriate time to ensure that the inventories are in place, and that no department faces a problem in operating because of material shortage.