| Panel of experts: |
| – Ashok Bhatt, Procurement Manager Pullman New Delhi Aerocity. – Asit Das, Purchase Manager, Indore Marriott Hotel. – Pankaj Chopra, Procurement Manager at Andaz Delhi. – Rahul M, Assistant Procurement Manager, Courtyard by Marriott Bengaluru Hebbal. – Shivakumar Ganeshan, Director of Finance, The St. Regis Mumbai. |
- How do you get high-quality products and services at the lowest price for the longest term from your suppliers?
Ashok Bhatt (AB): When it comes to quality, we believe in following a proper process during vendor selections. We ensure that we tie up with authentic suppliers with standard quality products and services. This is, of course, done in a manner where we are flexible with our approach, which includes setting deadlines for payments, procurement of high-quality products regularly, and quality checks of the highest standards, amongst other things. This not only ensures good business but also helps in maintaining good relationships.
Asit Das (AS): Many aspects control production costs. A positive working relationship with your supplier is a great way to start. Larger material orders often lower the price per unit and entice suppliers to provide discounts. Many suppliers have established a MOQ or Minimum Order Quantity, an average of the amount typically purchased for that particular product. MOQs are a solution that controls smaller orders, reduces operating expenses, and provides a more sustainable production approach. Inherently, MOQs give a more predictable and efficient way to order and manufacture products, giving your company more opportunities to reap profitable benefits.
Pankaj Chopra (PC): I believe one should stop evaluating products based on the initial purchase price and look at the long-term total costs. A high-quality product will always become a more low-priced product, as it pays for itself in value in the long run.
Rahul M (RM): Applying the ‘ABC Principle’ – advance planning, benchmarking and collaborative approaches – can result in creating an opportunity to select the best competitive quotes from potential suppliers, and it gives us enough time to do a market survey, product analysis, vendor audits and negotiation with multiple times with vendor to do better annual contracts which will provide best quality products with the best price.
Shivakumar Ganeshan (SG): The supplier selection and management process are critical for procuring high-quality products and services at the most effective price for the most extended term.
We have various steps and benchmarking methods involved in our supplier selection process. Over and above, we have consolidated procurement processes for most high-value items, which helps suppliers to get large volume business, which further encourages supply partners to offer us the most competitive pricing without compromising on the quality and service.
- Does the management team get actively involved in the procurement division from a strategic point of view?
AB: The entire procurement process in the hotel involves a committee that collectively decides to get any vendors on board. The committee comprises the finance department, procurement manager, user departments and the hotel’s General Manager.
AS: Yes, they play a key role in the processes that are essential to get products or services from requisition to purchase order and invoice approval.
Every procurement management process consists of 3 Ps’:
i. Process: The list of rules that must be followed while reviewing, ordering, obtaining, and paying for goods/services. Checkpoints/steps increase with the complexity of the purchase.
ii. People: These are stakeholders and their specific responsibility in the procurement cycle. They take care of initiating or authorising every stage of the process. The number of stakeholders involved is directly proportional to the risk and value of the purchase.
iii. Paper: This refers to the paperwork and documentation involved in every stage of the procurement process flow, all of which are collected and stored for reference and auditing reasons.
RM: Yes. The management team is involved in various stages of procurement to ensure transparency in the procurement process and, support understanding of the material, quality and cost, and contribute towards the right selection of material or service. We ensure that the purchases committee has been actively working on the procurement process.
SG: Yes, the procurement eunction is one of the most important and effective streams for hotel operations and cost management, and guest satisfaction management is actively involved in all procurement strategies. Management representatives are part of the procurement committee.
We do involve procurement committees basis different categories and sourcing. This committee includes the hotel general manager, the director of finance, the purchase manager, the user department, the corporate procurement team and owner representatives and so on. Basis the category and value of the procurement engagement, participation may change.
- Has the management started viewing the procurement team as a value centre rather than a cost centre?
AB: Without a doubt, the management has always supported the procurement team and has thought of it as a value centre rather than just a cost centre. It is well known that all business runs on building relationships and vendor management as a whole. The management has slowly evolved with the perception of better negotiations, better quality and ultimately, a long-term benefit for the property.
AS: Yes, the supply chain function within your company has many responsibilities. From planning, negotiating, buying, moving and processing goods, to managing data and inventory. These responsibilities are at the core of making a company run. Hence, it would be right to call the procurement team the Value creator.
RM: Absolutely, yes. The procurement team plays a vital role in the hotel industry. The right procurement team will not only look for cost-saving measures, but will also analyse the value addition to their procurement. So the procurement team is always looked at as a value centre, where the value addition is created for the hotel.
SG: In these times of high inflation in the market, the procurement team plays a vital role in bringing the overall cost down by means of either cost reduction or cost avoidance which definitely adds value to the organisation. Considering the importance of the procurement function, senior management gives the highest importance to the procurement department and its various initiatives, such as global contracts, regional contracts, national contracts, and market segment contracts which are initiated to add value to the whole procurement process.
- How do you map service level agreements with vendors to warrant lower TCO?
AB: By appointing technical sound companies for particular services, preferably the OEMs for their products and services.
AS: A service-level agreement (SLA) defines the level of service you expect from a vendor.
It’s recommended that the client and vendor work together during the SLA contract negotiation to eliminate misunderstandings about the process and method of support and management and reporting methods.
Depending on the service, the types of metrics to monitor helps to warrant lower TCO, Service availability, Defect Rates, Technical Quality, Security & Business result.
PC: SLA should not be warranted to ensure lower TCO but rather to maintain high availability.
RM: We always do preliminary analysis before finalising a service agreement. Internal discussion with the user department will always help understand the scope of service, and analysing previous agreements will help get a baseline for pricing. So based on both these data, we will confidently explore bidding for scrutiny and expertise purchases committee will be involved in the negotiation process to warrant lower TCO.
SG: Every procurement is considered based on the impact of the total cost to the owner and the vendor negotiation with a clear understanding of the life of the product or the service availed. It is important that all negotiations lead to a win-win situation rather than being beneficial to either the hotel or the vendor.
At The St. Regis Mumbai, we believe it’s vital to evaluate every procurement with the right benchmarking process to avoid paying too low or too high a price. Either for product sourcing or for service contracts, it’s important to define the details, product specification or scope of service while engaging with the supplier/vendor to ensure optimum TCO.
We also focus on hyper localisation and diverse supplier sourcing to maintain healthy competition among supply partners to bring in the right product and service at the right time and price.
- How do you work with various departments, like the finance and technology teams, to incorporate innovations and save costs?
AB: This is done through continuous team meetings discussing the requirements, market analysis and trends. Along with this, by taking the team through the existing inventory.
AS: Smooth collaboration between any two teams requires that both sides understand who’s responsible for what. For the most efficient collaboration, procurement and finance team members must be aligned on who is responsible for each key activity.
This isn’t important only for the finance team’s sake. Indeed, procurement team members should be able to identify and understand the return on investment of their choices and actions. This helps procurement adopt some of the values that drive finance decisions. The procurement team can then demonstrate the positive impact they’ve achieved for example, through cost reductions or cost avoidance.
RM: To improve your data foundation, it’s imperative to have a monthly meeting with various departments like finance and technical teams, which always helps us keep strong data. This will help us look into areas where we can work on cost savings. The hotel has a monthly tracker for savings reports. The procurement team creates a report by taking technology support & doing a complete review to understand the position of savings to achieve the yearly target.
SG: The procurement process is an integral part of every department, and we are connected with all stakeholders involved in operating our business. In today’s competitive environment, innovation is the only way of existence and moving towards success. When we take our focus away from innovation and cost saving, the impact is felt for a long period. We at The St. Regis Mumbai, always look for innovative ways of cost saving. Here, we constantly upgrade our IT systems to suit business demands while
focusing on training and engaging closely with various stakeholders. As mentioned earlier, we form a procurement committee for multiple categories to be updated and align our practices with the latest market developments.
- What new systems and methodologies have you started in your hotel to enhance processes like vendor-managed inventory, cyclic buying, etc., and improve efficiency?
AB: We have started quarterly tendering for most of the inventory items. Thereby, keeping our costs and inventories in control.
AS: We have identified all the product specifications with PAR stock set up, which helps ROL. This auto indicates by highlighting what is to be ordered. We have set up local alternative suppliers where we can manage to get the stocks locally, reducing our inventory cost with cash flow and avoiding waste.
PC: We have initiated greater communication with vendors, releasing orders and payments in time to enhance and elevate our internal processes.
RM: Before awarding any contract to vendors, it’s better to give the approximate consumption, which will help the supplier maintain the stocks and ensure timely supply. So it will help us to save the cost of storage and avoid the block of funds on raw materials. As a best practice, maintaining the PAR level in the hotel to plan the purchases better to prevent the last movement orders, and the hotel is following a cyclic purchases pattern for storable items.
SG: Here are a few examples:
1. We have introduced The National & Market Segment (cluster) Procurement Process, which results in higher volumes for effective negotiation with multiple reputed vendor options from various categories, further assuring service guarantee and quality assurance. Also, this enables control over cyclic buying and improves efficiency.
2. We have also worked towards Items Master Rationalization or Vendor Master Rationalization, which helps us to focus on higher consolidation and remove inefficiencies in the system.
- What are your top three successful strategies for the business?
AB: In my opinion, the most important strategy is to negotiate without compromising on the quality of the product. Secondly, there must be better vendor management to ensure timely deliveries, and lastly, it all narrows down to relationship building for smooth execution of the procurement process in the long run.
AS: Knowing your customer and their preferences: When we begin to understand their wants, needs, and goals, we know the problems they’re facing, and we have a solution we can present to them.
Maintaining a high standard of excellence: We need to ensure that the team always reacts with this excellence because we have targeted people out there who are watching our brand and products.
Creating personal experiences: Once we know our customers, we begin to see which marketing strategies are more desirable for them. People love targeted strategies designed especially for them.
RM: My best successful strategies are:
ï‚— Team Work: Better coordination with internal departments on their requirements till the fulfilment will reduce the communication gap.
 Vendor management or vendor development – Create a better network with vendors that will always support easy and effective procurement. Giving opportunities to new vendors will always develop an additional strong base and add potential vendors for the set category, leading to vendor development.
 Market analysis – Market analysis will play a vital role in the procurement process and better awareness of the market will route the effective procurement.
SG: In my opinion, the top three successful strategies for business are:
ï‚— Innovative procurement through innovation
ï‚— Volume consolidation through cluster procurement to leverage volumes, and
ï‚— Supplier engagement and transparency.
