REPORT FROM EUROPE—Small chains and independent hotels typically have less clout than multinational chains when it comes to ensuring the best rates, timeliness, quality and service along the supply chain, but striking key partnerships can help small hotels act big, according to sources.
Michael Dewey, GM of 110-room Hard Days Night Hotel in Liverpool, said relationships and an understanding of the entire process of procurement are key.
“Yes, (independents) do not have the clout of a huge chain, but there are (hotel-chain) organizations you can connect into such as (Beacon) and Hilton Worldwide’s Hilton Supply Management.
“One pays an element of commission, the first port of call being to establish how much you’d save, the cost of being in (one of these organizations) taken against what you are saving,” Dewey said.
The potential savings are high, he added, especially in relation to needs such as utilities and laundry.
Roberto Pajares, GM of the 111-room Ampersand Hotel in London, underlined that the current competitive market allows independent hotels to have the same negotiating strength as chains.
One issue to keep in mind, he said, concerns volume discounts, which independent hoteliers are more able to keep track of on their profit-and-loss accounts.
“In my previous experience of working for larger companies, retrospective discounts on volume that should go back to a central pot are generally absorbed in larger companies,” Pajares said. He added that those discounts come back to the property, depending on the supplier and contract, on a quarterly or half-yearly basis, and an eye should be kept on them
Commodity pricing
A key message is that independents should not put all their eggs in the same basket.
“It is important to have two suppliers for everything and play one off against the other, while always maintaining quality. Suppliers are not under any illusion that you are not comparing them against someone else,” Hard Days Night Hotel’s Dewey said.
Utility costs are not the hot-potato issue they were at the end of 2013 and in early 2014, but they still constitute a major expense.
The main piece of advice is to have an energy broker you trust, sources said.
“Our agent will get in touch when they think the (energy) market is in the best place, but when a number is mentioned, you have 24 hours to accept it,” Dewey said.
Keeping on top of developments is critical, but for some supply chain management issues the ball is not in the hotelier’s court.
“Once you are locked in to a price, you cannot take advantage of further price changes, although you can sign a new deal five months before the contract finishes,” Dewey said.
Pajares said independents are blessed with flexibility in other areas of supply-chain management. For the majority of his suppliers, he said he has worked with the same ones since The Ampersand debuted in August 2012.
“Some commodity prices are easy to compare between suppliers, but where it is more difficulty is for things such as fresh food. It is hard to keep track of this on a regular basis. … Where independents do have the advantage is that they have more flexibility. For larger chains with large procurement offices, it often is more difficult to change suppliers,” Pajares said.
Pajares gave the example of purchasing alcoholic drinks following the U.K.’s most recent budget.
“For an independent with flexibility, that provides an excellent opportunity to go back out into the market,” he said.
Being in a large urban area such as London also helps, Pajares added.
“Big chains have an advantage in rural locations, as suppliers will still go to them on the back of all the business they have with that chain elsewhere,” Pajares said.
With a little help from my friends
Some hoteliers cited Beacon, a sister company to Best Western U.K that provides purchasing services.
Paul Connelly, Beacon’s director of operations, said all hotels, regardless of size, need to have a widescreen view and a deep understanding of how procurement is managed.
“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 organizations,” he said.
Though Connelly said the key objective of getting a firm grip on procurement is to drive the best price, “simply consolidating supply to leverage better prices ignores other critical elements, which are the foundations of improving profitability.”
Connelly outlined a few points for successful supply-chain management:
- Make sure there is 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. The process needs to begin with the board.
- Make sure strategy embraces a clear understanding of the factors that affect the achievement of profit over and above product price, and ensure that effective, robust control measures are in place with performance effectively monitored.
- Make sure you understand what the business is buying. Purchasing is all about knowledge and management information, so start with an analysis of the purchase ledger to identify the highest spend categories.
“80% of spend will generally be with the top 20% of suppliers or, put the other way round, only 20% of what is spent comes from 80% of suppliers. That’s a lot of small purchases from a lot of suppliers and brings with it a cost,” Connelly said.