Amarjit Singh Ahuja, Director-Procurement, Hotel Le Meridien, New Delhi, tells Vinita Bhatia how procurement heads can mitigate costs
Itâ€™s a very simple rule of thumb in business, but one that is often overlooked â€“ probably because it is so simple. If businesses take care of the smaller things from the very beginning, then they can avoid a lot of bigger challenges as they scale up. And all it takes is investing a little time in preparing a framework for a proper workflow to be followed and voila! One has a solid foundation for every division in the organisation â€“ including the procurement team. Executing hotels contracts is often very lengthy process and the initial set up costs can be ample, with deals taking up a lot of time to complete. By concentrating on establishing and developing long term relationships these costs can be compensated, as both the procurement professional as well as the supplier would be keen to avoid any unnecessary costs that may arise from re-tendering, re-negotiating or being forced to close an existing contract early.
BECAUSE PROCESSES HELP
Automated systems help in improving efficiency, minimising supply costs, cutting administrative costs, shortening the purchase cycle and reducing human error, thereby reducing shortages. It can also simplify order tracking and make it easier to manage purchasing budget by creating expenditure reports. To get better value for investment, procurement heads need to engage with suppliers regularly and share their viewpoints, so that they can mutually look for avenues of improvement, and share in the resultant gains. This could include changing order cycles, considering automatic purchase ordering and increasing inventory levels for fast moving products, although the latter is risky, because of storage costs. However, the idea does hold merit especially when one looks at procurement optimisation strategies.
CHECKING ALL THE BOXES
When it comes to servicing of products, it is not costeffective to have all items covered under service level agreements (SLA). Hence, it is important to ensure that SLAs cover only the more important products and components. Before working out the SLA with suppliers, procurement heads must work out the below mentioned points with vendors:
â€¢ Response time: It will measure how long it takes the supplier to respond when a request for support is raised.
â€¢ System uptime: This applies to functional time when the important equipment, software or services needs to be up and running.
â€¢ Exclusions: Some products might have spare parts or components that the supplier might have to get from a remote location. In such a case, exclusions can be integrated in the SLA, depending on the nature and criticality of the product.
â€¢ Payment contingency: Usually, SLAs are applicable on working days during business hours. In case of an emergency, the hotel would have to pay extra for the service and support.
While these strategies can ensure you have a cast-iron formal contract with your supplier, they cannot replace the camaraderie and kinship that a procurement professional can share with a vendor. This comes only by having mutual respect for each other and building a good working relationship with a supplier you trust