Procurement challenges in the hospitality industry

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With the recent talk on GDPR, you might think that British businesses have forgotten about that other looming challenge: Brexit. Not so, especially in the hospitality sector.

The UK hospitality industry has boomed in recent years; accounting for one in six of all new jobs created between 2010-14. It is Britain’s third largest private sector employer, employing 2.9m people. In fact it represents 10% of UK employment and 5% of GDP. It all sounds good.

However the industry employs a much higher proportion of EU nationals compared to the UK average – 12.3% compared with 6.9%. And this could halt the industry’s stellar growth. The British Hospitality Association warned that members could be short of 60,000 employees, depending on the outcome of free movement within the EU.

PROCUREMENT CHALLENGES

The combination of growth and uncertainty has created a number of challenges for procurement professionals working in hospitality:.

  • Protect recent growth by ensuring value for money from suppliers
  • Control rising costs and deliver targeted savings
  • Ensure flexible solutions due to future uncertainty of industry/workers

So for many, it’s a case of working with suppliers while also planning for future uncertainty. A process of supplier rationalisation is required, with the goal of optimising and prioritising your supplier base. This includes how you manage and interact with suppliers, as much as their pricing and the number of suppliers you have. This also reveals the extent of internal resources required to manage your supplier base.

Commonly the numbers don’t add up. Internal resources are reduced or required on other projects. In this instance many large organisations turn to consolidation. Consolidating your supplier base brings process, cost and reporting benefits across your business.

RATIONALISATION VS. CONSOLIDATION

Rationalisation has become more sophisticated. It can lead to an increase in supplier numbers as you map your supply base to business needs. Consolidation meanwhile, focuses on reducing supplier numbers. This implies that the process is about cutting numbers at the expense of best fit.

With a strategic supply partner, this is simply not true. A sole supplier will manage sourcing, management and delivery from a range of best fit suppliers on your behalf.

Meanwhile your internal processes will simplify as you outsource time-consuming processes. You take advantage of one order, one invoice, one delivery, one report and one review meeting. This frees your time to concentrate on other projects. As well as building a strong partnership with your sole supplier.

CONSOLIDATION BENEFITS

To analyse suppliers effectively visibility of information is critical. Do you have the necessary information to review who you are buying from, how much it costs, and the cost to your business?

Lack of information is a common; while research from Wax Digital reports other key procurement challenges below. Consolidating suppliers brings benefits that address these.

»» 83% of businesses don’t challenge suppliers on cost or performance with a sole supplier, it is easier to agree and monitor budget levels and SLA’s.

»» 79% of businesses are not driving innovation in supplier relationships as part of a strategic relationship it is in the interests of both parties to drive innovation, optimising cost benefits and efficiency.

»» 44% of businesses want to manage suppliers more effectively by managing a single source supplier you can proactively review spend reports and ensure more beneficial review meetings.

»» 39% of businesses said they need to improve their budgeting controls implementing an online order system for multiple locations, with budget levels and approvals, will ensure greater visibility and cost control.

»» 87% of businesses have too complex procurement processes consolidation will simplify your processes and lead to greater efficiencies across your organisation.

So if your organisational goals include controlling rising costs, improving process efficiency, or protecting profitability, consolidation is a smart solution.

SUMMARY

Whatever approach you take; the goal is to gain a supply base that is the best fit for your business. This is possible by consolidation; driven by internal resources and where they are best deployed.

Of course, any new supplier will be reviewed from the perspective of risk, process costs and sustainability. Hospitality businesses must satisfy stakeholders that ease of use and quality will not be compromised. Yet, from gym and restaurant chains to entertainment groups, many multi-site companies have found that consolidation delivers.

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