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Hotel Procurement Who Calls the Shots?

Monday, September 11, 2017, 15:40 Hrs  [IST]

Procurement function of a hotel is quite complex considering the unique nature of the business. At the same time, it is strategic in the sense that efficient procurement is integral to achieve the short and long term goals of the organisation. In the whole process, the role of a Purchase Manager is critical. However, do the Purchase Managers enjoy absolute freedom and power to determine procurement decisions in the current hotel business environment? In the hospitality world where either brands or the owners call the shots on matters of procurement, P Krishna Kumar tries to provoke a debate on the value, relevance and credibility of Procurement Managers in the hotel hierarchy.

Ifelt some impropriety on the part of a keynote speaker, who is a renowned hotelier with chain of hotels in the East and North East, when he said from the platform of the Purchasing Managers Forum not long ago that in his organisation he leaves very little for a Purchase Manager to do, as most of the material procurement functions are done by him. It is a different matter; the Forum rewarded the Purchase Manager of the same organisation for Innovative Purchasing! But it talks volumes about how purchase and procurement related functions are dealt with in an owner driven hotel environment.

On the other side, in brand managed hotels, brand standards are sacrosanct and there is hardly anything the owner or his Purchase Manager can tweak with hampering the brand standards. There are set vendors that each brand hotel has to work within a brand environment, with very little scope for innovation or creativity.

These are precisely two extreme scenarios in the hotel business and where do Purchase or Procurement Managers stand in terms of value, relevance and credibility is a big question. Since the subject touches the very core, it is difficult to expect a candid answer on it. Admitting the challenges, Nitin Nagrale, VP-Materials, Foodlink Restaurants, said, “I have experienced both the extremes in my career while setting up a few Five- Star Hotels in India and abroad. Owners are the kings and ultimate authorities while finalising goods for the hotel and they also understand the importance of the brand standards. But in a few cases they would like to still get involved in item finalisation stage for negotiations while maintaining the brand specifications.”

Whether it is a branded hotel or owner driven hotel, the procurement head will have to first of all understand thoroughly what exactly is the requirement, says Shivshankar Menon, a Procurement Consultant who was head of Procurement for Karnataka Region for Taj Group. In a branded hotel, the team will consist of Interior Designer, Housekeeping Head, Maintenance Engineer and the GM along with Procurement Head. Keeping in mind the budget, the requirement of the customer, present trend and competition they will decide and get the fixtures accordingly. But in case of owner driven hotel it will be one man army who would take his own decision. But still he has to keep in mind the trend, competition and requirement of his customers.”

The role of a well informed and knowledgeable Procurement Manager is crucial in today’s “dynamic market scenario”, informs Amarjit Singh Ahuja, Director – Procurement, Le Meridien New Delhi. Because of the dynamic nature of the market, new products make market entry on a regular basis and product specifications keep changing or upgrading at a rapid pace. “This is very well understood by owners and they have delegating this power and responsibility to the professional people. And by transferring this purchasing duty to professionals, owners started enjoying the best deals for their property. So, nowadays it is only a myth that purchasing professional does not have freedom to take individual decision in owner driven hotels.”

Supporting the argument, Sanjay Verghese, Director Materials, The Imperial New Delhi also said that even owners of independent standalone hotels have started recognising the value that autonomy in procurement decisions can bring to hotels. Confining his views to his own experience of working and heading the procurement responsibilities of The Imperial, Verghese said that all operational requirements are discussed and deliberated within a committee comprising the Sr. VP & GM and the Procurement Head and the concerned departmental heads. Once identified and finalised, based on the operational needs and the international standards where we pitch our hotel the specification are approved immediately by the Managing Partners.”

Outlining the need for a “balancing” approach in finding a “mid-way” in a brand - owner relationship in all expenses associated issues including purchasing, Ganpat Dalvi, Director-Purchasing, Four Seasons Hotel Mumbai said that while guest experience is supreme in all decisions, relationship with owners is equally important. “We have worked hard with our owners to reach a trust level where both sides are aware why a product is procured and the long term benefits of maintaining good relations based on high business values with our vendors has reaped us better rewards. We also have a very transparent tender negotiation and procuring process which too has helped tremendously in maintaining both quality and autonomy in procurement,” he added.

Finding Relevance
Procurement is a very important component of the overall management in any industry. Any kind of laxity or inefficiency in purchase or procurement management can result breakage in supply chain leading to over all service delivery and experience in the hospitality industry. That ultimately could make dent on the reputation, goodwill, etc. especially in modern times where a dissatisfied customer can turn lethal on social media and review sites.

In this context, the role of a dedicated and efficient purchase manager is integral to make the supply chain work seamlessly. But what could make him relevant and integral in the system in a quite challenging relationship-oriented environment where owners, brand managers, department heads, vendors all pulling the thread in multitude of directions, although the meeting point is one, that is business?

Putting forth his views on the issue, Harvey Rodrigues, Director of Purchase, Meluha The Fern, said, “The Procurement Manager has to have the drive to influence the change, getting stakeholders to embrace new approaches. He has to discover how to negotiate volume rebates. He has to create a value stream map that reduces and eliminates waste in your organisation. Develop commodity strategies and contract language that drives value to your firms. He also has to learn languages to be used as negotiation tool.”

Being a facilitator between the market and the organisation, a procurement professional should have the ability to ‘research and propose’, says Verghese of The Imperial Hotel. As knowledge is power in the digital era, the Procurement Manager has to keep updated on all aspects of the market and be able to use all available platforms including digital space. “He should also be able to integrate online information like blogs, online communities, and social media to allow people to interact, share opinions, and read information posted by other users should be dovetailed into their purchasing decisions. Electronic Word of Mouth (eWOM) is information shared on the Internet about a product, which allows the Procurement Manager to receive information from others they may not otherwise encounter,” he states.

Credibility Management
For people involved in the purchasing and procurement processes, there are chances of fingers getting pointed at them from different quarters for being biased in deals, favouring a vendor or a brand over another, not following the due processes of selection, diluting specs or setting higher benchmarks than required, etc. Credibility and transparency are quite important in the supply chain and vendor management. Although modern technology has helped in improving the credibility and transparency to certain degree, there is still a long way to go.

Highlighting various precautions to be taken to ensure transparency and credibility in the supply chain process, Ahuja said that one has to have an “open mind” in involving everyone and make sure that each one “understands the elements of the process, that is, the procedures, timescales, expectations, requirements, criteria for selection and so on.” The Procurement Manager also should be aware about the commercial and legal implications of the processes.

Offering a different perspective to the company – vendor relationships, Menon said that it is no more a sin to talk about “external customers” openly. “Gone are those days when Procurement Head was skeptical about speaking openly in favour of an external customer, partner. In my more than three decades of my purchase career with Taj while training my staff I used to proudly say that I am comfortable because of my external customer backing. They are the ultimate species who come handy and rescue you from any last moment requirements or difficult situation. Over time, you establish such a reputation in the market with your partners they come very handy under most difficult situation. This all can only happen keeping in mind the reputation of the organisation as well as your commitment to deliver both to internal as well as external customers,” he stated.

Verghese like to see credibility as more of a “personal trait” while there are always authorised manuals, rules and policies that govern the materials management operations. “At the end of it what holds good for the all purchasing decisions’ is market research, parallel quotes and comparative offers, and finally a fair effort in engaging with all stake holders to negotiate the best for the organisation is the only way to maintain transparency, and this definitely results in gaining individual as well as organisational credibility.”

While procurement as a function of the management is quite critical in a service industry like hospitality, it is still not clear whether people assigned with that task are getting the right kind of visibility and exposure to assert their views to the stage of influencing a purchase decision in the prevailing business environment. In the new digital environment, it is also critical for procurement professionals to widen their horizon of knowledge about new products and services by using the new research tools. Moreover, the technological disruption and the growing influence of B2B e-commerce will entail professionals to take their vendor relationship to a different level, demanding more transparency and openness.

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