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Hospitality Procurement:Heading for a Digital Tipping Point

While hotels notwithstanding their size, stature, location, etc., are busy harnessing the digital platforms for marketing, distribution, customer acquisition, experiences in a big way. They seem to be lagging behind in leveraging the benefits of digital advancements for a highly important activity – Hotel Procurement. P Krishna Kumar explores the opportunities and challenges associated with digital procurement in the hospitality sector.

Thursday, May 4, 2017, 17:03 Hrs  [IST]

As I sat down to write this piece on digital procurement in the hospitality industry, I came across a news report in one of the daily newspapers about a political spat going on between the ruling and opposition party on some alleged malpractice on government’s own e-Marketplace platform - GeM. What caught my attention was not the authenticity of the allegation, but the claim of the Union Commerce and Industry Minister as to the savings that the digital procurement platform delivered to the government within a short span of time. The government, the Minister claimed, saved over INR 100 crore in the total procurement of about INR 450 crore that has so far taken place through GeM. Isn’t that figure encouraging, considering the money saved is money earned? If governments have started the process of digital transformation at the hustings, then why not private enterprises emulate for transparency, efficiency and ultimately savings.

But the track record of the hospitality industry is not very encouraging when it comes to harnessing digital platforms for procurement processes. According to a report by Accenture, while the industry-wise record in effective management of their spends is 50%, in the hospitality industry, where management of processes are less mature, the efficiencies in terms of its spends is 33%. “Only a third of expenditures in the hospitality industry are under effective management. Even in the third being managed, savings are slipping away due to ineffective oversight of the full source-to-pay process,” the report states. Even when companies have policies, negotiated contracts and e-procurement systems, the savings are slipping away. The causes include inefficient structures for procurement organisations and non-existent data analytics to monitor compliance, the report adds.

Digital Efficiency
Going digital in procurement can deliver huge benefits for the industry, all believe in unison. Still the industry is yet to harness it to its full potential. The industry experts believe that digital procurement can bring in the much needed transparency in the deals compared to conventional methods, save time, energy, etc. Above all, it can also create a level playing ground for all sorts of vendors irrespective of their brand visibility, size, stature, etc.

“Digitalisation leads to lower manpower costs, saving of time and elimination of tedious paperwork. It also allows infusion of fresh vendors into the system, leading to fair price competition which can only benefit the buyers. The less obvious advantage is that it allows small time vendors who have good products but poor infrastructure facilities to take part in supply to larger organisations,” informs Jaideep Gupta, Director, Aanyah Management, a consultancy firm.

Besides the basic goals of savings in terms of time, cost, manpower, etc., there are other benefits which are rather vital in today’s business environment, feels Ayman Sheet, CEO and Founder of Foodlinked, a food and hospitality professional business network. “Today, hotels are very concerned about maintaining customers’ data into their systems, and the same should apply for vendors’ data, and without using digital procurement no hotel can maintain vendors data in an effective way to be analysed and monitored,” he argues.

If digitalisation has been able to increase productivity in our personal and office life at least three times over the years, same can enhance efficiencies tenfold if implemented properly in procurement processes, believes Amit Shukla, CEO & Founder of Pursuite, a B2B hospitality procurement portal. The benefits are too many including elimination of errors that might happen while processing the bids manually, reducing inventory carrying and working capital requirements, extensive product and supplier options, ease of discovery of right vendor, speedier communication and order placement, etc., he says. “Digitalisation would unleash the power of the market and remove distortions arising from limited information and reach. All of these would translate into reduction of expenses and hence improved financial performance of hotels,” Shukla said.

State of Affairs
While digitalisation can deliver huge benefits for the organisation, there has been certain reluctance on the part of the hospitality organisations to streamline the procurement process using digital tools. “We have moved ahead in terms of project management. But in terms of procurement, it’s all the same thing,” concedes Aman Gupta, General Manager, Chris Garrod Global India, a leading purchasing and installation management company for hotels. Hotel industry is going ahead with digitalisation, but in terms of procurement, in the current scenario, there is still a long way to go. To rate the transformation in a scale of 100, the industry is still at 20. The US, the UK, etc., are far ahead, their projects are much more systemised, he said.

The biggest requirement of the changing world is the essence of time and quick decision making , and digital procurement is doing both, says Suprio Ghosh, Managing Director-India, Benjamin West, world’s leading FF&E and OS&E purchasing firm. “Traditionally, we like to do business face-to-face and not modem to modem. However, the ease of working online and establishment of the trust is making it easier. Still, today, when we have to place an advance we would want all the security mechanism, like a bank guarantee, etc. It is just a trust issue. In India the most popular form of purchase as per studies done by online shopping companies, is cash on delivery, this is just to ensure we get the goods before we take any financial exposure. On the flip side it is change of mindset to go online and make a purchase, which inevitably is easier,” he said.

There is a change happening slowly but steadily towards digital procurement. People in charge of procurement at the property level or at the corporate level affirm this gradual transformation, although it is not full blown. Says Nitin Nagrale, Vice President-Materials, Foodlink Restaurants India. “The transformation from conventional to digital procurement in hotels in India is increasing rapidly and there is no way stopping it. That’s the future and people have started to understand the relevance of going digital. It helps in extracting information in no time and provides MIS whenever required,” he stated.

Supporting the sentiment, Ganpat Dalvi, Director-Purchasing, Four Seasons Hotel Mumbai also confirmed the advancements towards digital procurement. “There are hotels which are rapidly adopting platforms which is easy, efficient and effective. Digital platform has helped in saving time for sourcing, ordering and reporting. This makes data readily available for audits and tracking. Digital procurement platform reduces the amount of investment in buying against actual demand and allowing manufacturer/vendors, for efficient delivery on time,” Dalvi said.

Challenges in doing business digitally
All industries are not alike, the business environment, style and operational challenges differs from one industry to the other. Hospitality industry has its own set of characteristic features and challenges associated with it when it comes to material procurement. Does it any way impedes implementation of digital systems and procedures in hotel procurements?

The industry professionals feel that while customised solutions are available and can be incorporated into the system, there are certain bottlenecks which need to be addressed. According to Gupta of Aanyah Management, the key hurdles, which are specific to India, have difficulty in arriving at a standard specification for products because of vast regional differences, non-availability of strong nation-wide supply chain system, distrust of online sites and products, etc. “The Indian penchant for haggling over price is probably a big hurdle to the setting up of a digital procurement system. As a habit, the purchase manager is tasked with ‘getting discounts’ for which face to face meetings are required. In India, the ‘best price’ is never the final price. Vendors also know this and as a result, they quote with some margin in place for negotiations. This habit is a serious deterrent to complete digitalisation,” he said.

“Online financial transactions and confidentiality of business communication may be a point of concern for some buyers and sellers. These issues can be addressed by taking benefits of advances in technology and tuning internal processes. At Pursuite, we have incorporated secure communication channel for all interactions between hotels and sellers to ensure business confidentiality. Secure multi-pay options and curation of both hotels and sellers ensure frauds do not happen. Besides these, two-way feedback mechanisms and associated downgrading/ upgrading of parties ensure only quality products are delivered,” says Shukla of Pursuite.

“There is no challenge actually. It is a matter of time that people realised that systems are more important. If the input is right, the systems will give you the right output as well,” says Gupta of Chris Garrod. Chris Garrod is currently working on a software to enable

project managers manage multiple projects digitally. “Currently, for 12 properties, we have 12 project managers. With this software, one single project manager handles three or four properties for the entire procurement. The dependencies on specific resources reduce if you have the right systems,” he added.

“Wherever we have repetitive item which is largely in operating supplies it is easier to go online. However, the purchases which entail decorative items and have more of human interface needs a face to face interaction, with augmentative reality coming that delinquency has been addressed,” Ghosh of Benjamin West remarked.

According to Sheet, it is a matter of right will to adopt systems which are efficient on the part of the industry. “Some parties think that digital sourcing and procurement might not be so effective for certain perishable items, yet from our own experience and perspective we urge those parties to use the digital procurement platforms to source low cost annual contracts and thus it will become effective for their employees to order on demand based on pre-agreed rates and all the ordering and delivery activity can be seamless and fast.”

Supply Chain scenario
A robust and matured supply chain is quite critical for digitalisation to be 100% successful. In the Indian scenario, not having a matured and developed supply chain is a major deterrent, industry experts opine. There are so many small time vendors who still do business conventionally. However, there are concerted efforts in this direction and major leap forward is expected sooner than later.

Supply chain in India is not yet up to the market requirements, but that should not stop from digital conversion, says Sheet, on the contrary, using the digital environment hotels can increase variety of choices and negotiate terms and the sourced vendors’ location and delivery time should be always considered depending on the required item.

One thing is sure, technology enabled disruptions are bound to happen in every stream of life and business, and those who embrace those changes and move in sync with those innovations can only stay afloat in the business. Digitalisation is the buzzword today, and that can deliver large benefits to the industry. These include savings in terms of cost and time, better control over the sourcing process, real time data gathering and analysis, better efficiencies in terms of monitoring and control of suppliers, etc. The e-environment has also evolved over the years which can enhance the confidence and trust while engaging with vendors online. Even emergence of dedicated B2B procurement portal for hospitality industry is something to look forward to.

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