The ‘go to’ people
Whether it is exotic imported foods for special guests or everyday objects required for running a hotel, Procurement Managers are the ‘go to’ people in any hotel. Hotelier India goes behind the scenes to see how this backbone of the hotel industry functions.
What are the new trends in the modern procurement process?
CK BALANI: Procurement has changed from a narrow purchasing role, into multifunctional role including integrated relationship, assign, buying, logistics, commercial terms, vendor development, vendor performance assessment, innovation and ensuring the flow of goods for smooth operations of organizations, ‘E’ procurement is the modern tool available to procurement manager on finger tips. Name the products and you get various options on the net and you can make your choice.
FLORENCE MONTEIRO: Focus on B2B relationships – to leverage economies of scale and also bring in healthy business partnerships.
LALIT KAPOOR: There are no major changes in the overall procurement process since it was always a very well tested and full-proof system. However, the means of communication have changed.
The introduction and advancement of technology has made it possible to hasten the process of procurement and has helped in having a wider reach to the vendors. There is no more a need considered for inviting sealed bids and any information received over mails is considered good enough. Also, it has become easier to have access to the overseas vendors and the proportion of imports under the EPCG scheme has gone up.
Is it always possible to keep the owning company as well as the management company happy at the same time?
CK BALANI: One has to do a tight rope walk to keep both of them happy. The management company prefers to stick to its brand standards, which is always not easy specially so in the Indian scenario, importing products in compliance with brand standards sometimes can be a costly and tedious job, hence the procurement manager’s expertise to suggest/source alternate products without adversely effecting the brand standard.
FLORENCE MONTEIRO: This may not always be the case. At times there will be a clash of interests.
LALIT KAPOOR: As a procurement management company, it is our first responsibility to strike a balance between the owning company and the management company.
While the operator needs to be assured that their brand standards are being met and followed, the owning company needs to be confirmed that the procurement is taking place as per the Budgets and it’s an ongoing focus on reducing the costs without compromising the quality.
With the kind of projects we have already handled in the industry and the kind of experience we have gained by having worked with many owners and operators at the same time, we can satisfy the owning as well as the management company at the same time.
Is it true that identifying opportunities and risks are the newest focus areas of global sourcing?
CK BALANI: Yes, there are ample opportunities available to procure products globally.
One must constantly be updated about the latest products designs and companies in the market by visiting trade fairs, vendor contact, trade journals and surfing the net.
With the opportunities of global sourcing also comes the risk of delay in supplies, spares not available due to change/improvement in products, it is often seen that companies do not respond quickly in case of spares required.
FLORENCE MONTEIRO: Yes
LALIT KAPOOR: Yes, it has become a very important aspect of procurement, the reason being that the distances are making quality-assurance and payments little difficult, which have to be secured by way of monitoring the supplies and signing proper contracts.
What are the techniques for diversifying the supply chain?
CK BALANI: It is important to maintain an open line of communication with all the suppliers/supply chain diversification is not a simple method of making suppliers compete with each other.
It is a tool to develop them in adapting to market forces and changes for mutual benefit, for example if one supplier sells a product at INR100 for a delivery period of one week, another supplier sells the same products for INR80 but the delivery time is two weeks.
Here you have to make that trade-off decision between cost and time. This challenge between price and time will make both suppliers to do better in future. In essence, supply chain management integrates supply and demand management within and across companies.
Current supply chain techniques include globalisation, increased cross border sourcing, collaboration with cross border suppliers for low cost benefits and global operations, which require increasingly, global coordination’s and planning to achieve optimum results.
FLORENCE MONTEIRO: Performance evaluation within and outside your organisation, and attending trade fairs (international and domestic).
LALIT KAPOOR: With the kind of detailed data available on the net along with the manufacturing profile and product details and other technicalities, it is quite easy to find new vendors.
However, getting the right vendor and getting the right product with the right price still remains an art of purchasing.
Would you please list strategies to identify and mitigate the risks
of global sourcing in 2011 and beyond?
CK BALANI: Risk are several such as regulatory risk: imports and exporting country’s law can be a hurdle; you need to assess the same before entering in purchase contract; supplier commitment: ensure that supplier has good reputations otherwise there can be delay; design change: often in the global market there is constant design improvement, this will may not suit you specifications, ensure that you are buying the right item; spares: after you have imported the products the spares may not be available with manufacturer or he may not be interested in selling the spares because of its relatively small value, it is worth importing critical spares along with the purchase of the equipment itself; cost overrun: while placing import order you are not same of freight, insurance costs etc.
Sometimes more than expected custom duty, freight, etc., can increase your cost. Hence be sure of all these costs before importing; installation and services: this can be another hurdle in global sourcing.
To overcome this issue make sure the manufacture has a technically qualified agent distributor locally who can install the item and service it when required.
FLORENCE MONTEIRO: Firstly, one ought to analyse the spend base and identify high value items that have to be sourced globally. Secondly, compare global prices with the indigenous procurement practices and thirdly, maintain partnership with both as indicated above.
Weigh the strengths and weakness of both as well as monitor the progress and accordingly plan the future course of action.
LALIT KAPOOR: Identifying the right vendors – this is a challenge since most of the people who advertise are traders and therefore, do not have a clear understanding of the product.
It’s important to ensure with the research team that we reach the manufacturing company for supply of products. Verifying the vendor and the credentials – it is of utmost important that from the history and from the past clientele of the manufacturer to find out if the supplier is capable of producing quality, quantity and specifications of the product required.
Ensuring quality, specifications and other aesthetics of the product – then comes the issue of the particular product we need, therefore, to know if the manufacturer has been dealing in such raw material and catering to similar or equivalent products in the past and finding out user satisfaction levels in the past. Sometime, it becomes necessary to sent QS people for ensuring the above.
Do you think Sustainability – solving the economic, social and environmental challenge is a key to a successful procurement process?
CK BALANI: Yes and very emphatically at that! Sustainability is when a process or production of a product can be maintained indefinitely.
Supporting local and nearby businesses, industries, artisans, and farms. This not only makes the business an active and vital catalyst for the local community, but also creates the flavour of the region and staff pride in its regional products and services.
Our commitment to sustainability extends to everything we do – from how we travel, what we purchase, how we store our foods, and how we produce food and beverages, how we maintain our hotels, the heat, light and power requirements till disposal of garbage and waste water management.
We strongly believe that our planet has been threatened to the limit of viability by human behaviours, and it is our collective responsibility to stop doing harm and begin reversing the damage to our delicate home.
By supporting organic and sustainable agriculture, we are putting fewer chemicals into the earth, protecting rainforests (and all the incredible bio-diversity and carbon dioxide absorbing capacity they have), rebuilding watersheds and drawing lesser expendable resources from the Earth.
FLORENCE MONTEIRO: Sustainability should be kept in mind during the course of procurement process.
LALIT KAPOOR: Generally speaking, it is a social obligation of all of us to create a well-balanced society and focus on ensuring that the products meet the desired norms of environment and also ensure that such products do not imbalance the social environment of any particular area or country. The economic reasons have always existed and will continue to be there.
What are the risks and rewards of procurement outsourcing?
CK BALANI: In the hospitality industry most of the procurement is commodities and outsourcing is not very popular in hospitality industries in India.
Most of the large sized hotels are in big cities where everything and anything is directly available to hotels. Outsourcing can be advantageous to hotels which are in remote areas.
The risk of outsourcing is that you become too dependent on the outside agency, there can be quality problems cost over-run, stock out, etc. There are no advantages of outsourcing for the hotel industry.
FLORENCE MONTEIRO: The reward is to enlarge the existing vendor base while the risk is consistency of supply.
LALIT KAPOOR: If the procurement outsourcing is assigned to a professional organisation, the amounts of risks involved are lower than handling the procurement in-house.
As far as rewards are concerned, since the procurement management company’s sole focus is on procurement only, with their volume-buying experience and close monitoring of the process, it ensures that the clients get maximum value for their money and that too, as per the requirements and schedules of the project.
What role does design play in a hotel’s overall image?
PREM NATH: A hotel is perceived to a great extent just by its design. Design creates a visual image of the hotel. Some of the good hotels are marketed in the media with the help of their design visuals alone. A hotel’s elevation, décor, theme should be able to make a statement.
ABHAY KULKARNI: Everything is important. What I want to emphasise is that design is not just visual. It has to be a thought out process. For me, design comes from all aspects. The superficial visual needs to be supported by the actually functional aspects of the hotel.
RAJIV KHANNA: Design is an integral part of a successful hotel and its overall image. The design format evolves the elements, which blend together to create the desired image, both visual and functional.
How do you trace procurement’s impact in the bottom line?
CK BALANI: The prime responsibility of a procurement manager is to put the company’s finances to optimum use by finding the best possible prices, take advantage of promotional slab discounts, anticipate price increase and shortages to avoid risk purchase, reduce obsolete inventory by using KANBAN technique to take advantage of management tools like ABC, VED analysis.
Large hotels who earn foreign exchange are given special incentives by the government to import goods duty free or at low rate of duty (EPCG) take advantage of these schemes for better profitability of the company. Maintain right inventory to reduce carrying costs.
FLORENCE MONTEIRO: The procurement department is the back end support to any company. By ensuring best practices and introducing innovation in procurement, the materials function will positively impact the company’s bottom line.
LALIT KAPOOR: As we all know that though the purchasing function is the biggest drain of any organisation, there is direct impact of savings in the bottom line and tracing the same is very simple through the product costing methods.
Do you think embedding professional procurement across the business helps organisations to grow?
CK BALANI: Yes, procurement can help business by looking beyond the traditional workings limits, having broader vision of the company profile. Procurement can help a company prepare a realistic expense in co-ordination with the finance department. It is the procurement manager’s duty to buy the right thing at the right time at the right price, in the right quantity, from right vendor.
FLORENCE MONTEIRO: Yes.
LALIT KAPOOR: Yes, of course since if you buy the right product at the right pricing, you can better compete in the market not only qualitatively but also pricewise.
How can you use advanced supplier relationship management tool to drive innovation?
CK BALANI: Supplier relationship is the most important aspect of procurement management. The supplier is an equal partner for our business growth. The word innovation is not merely technical improvement or cost reduction.
Procurement manager and supplier can jointly be the change that creates a new dimension of performance. Establish fast and open communication with key supplies by developing relationship, trust and awareness.
Reward suppliers for good innovation by long term commitment and recommending the product to other hotels for benefits to all. Do not be afraid of failures.
FLORENCE MONTEIRO: The development of advanced supplier relationship will work towards driving innovation in a big way as the constant communication between supplier and purchaser will keep both informed about the various developments in the field.
LALIT KAPOOR: This is a very important part of procurement and the procurement management companies have regular supply relationship with various manufacturers in order to ensure commitments are honoured from all sides, that products supplied are as per quality commitments and that pricing is always right.
Hence relationships matter a lot in the procurement process.
MATERIALS MANAGER, CORPORATE MATERIALS GROUP, THE INDIAN HOTELS COMPANY LIMITED
She has been with the Taj since 1981, having begun her career in the Administration Department in ‘81 and moved to the Purchase department of Taj Mahal Hotel, Mumbai in 1982.
Here she was responsible for procurement at various levels. The major portfolio handled at Taj Mumbai was the Imports. She was part of the procurement team that handled the procurement of medical equipment for the Tata Medical Trust, Kolkata ( a state-of the art hospital for the treatment of cancer) which is due to open up shortly.
She is currently with the Corporate Materials Group of The Indian Hotels Company Ltd.
C K BALANI
GROUP PURCHASE MANAGER, RAMADA PLAZA PALM GROVE, JUHU, MUMBAI
He started his career in 1974 as store keeper with Airport Plaza Hotel and Flight Kitchen, Santacruz Airport Mumbai. He was also associated with ‘Courtyard by Marriott’ Chennai at the project stage.
He joined K Raheja Hospitality group in 1981 as Materials Officer. He is currently Group Purchase Manager, and looks after projects and operational purchases of all the K Raheja Hospitality Units, viz., Ramada Plaza Palm Grove Juhu, The Retreat at Madh Island, The Classique Club Andheri in Mumbai and the Carlton Hotel at Kodaikanal.
MANAGING DIRECTOR, HOSPITALITY PROCUREMENT MANAGEMENT SERVICES PVT LTD
Currently the Managing Director of Royal Kapsons Hospitality Pvt Ltd, which is the corporate entity for ABL Hospitech Pvt. Ltd., Project Management International Pvt. Ltd. and Hospitality Procurement Management Services Pvt. Ltd.
Kapoor has previously worked with IHHR Hospitality Pvt Ltd as their Vice President and with Oberoi Group of Hotels.