Purchasing in Hospitality Operations - Assignment Example

 Purchasing in Hospitality Operations This study deals with a significant aspect of commercial transaction in the hospitality industry- procurement policies and practices. It takes the form of a face-to-face interview, conducted with the procurement manager, Mr Gordon Brown, of a large hospitality setting in Las Vegas: Interviewer Ian Stafford interviews the Manager Mr. Gordon Brown. Head of Procurement, Sea View Hotels and Holdings Ltd. Las Vegas: Interviewer: My first question to you, Mr Brown. What are the measures adopted to ensure that the best ordering practices are maintained? Mr. Brown: Ordering practices are in conformity and allegiance with the present ordering norms laid down and the guidelines that are being issued by our hotel’s management from time to time. Considering the size and magnitude of the scale of operations involving near $2 billions turnover, and a hotel occupancy rate of 90% it is but natural that the entire ordering practices be well streamlined and regulated to ensure the optimum and effective investments in inventories and achieve economies in this vital area of our operations. Interviewer: Mr. Brown, just how could an effective inventory control mechanism in this area is formulated? Mr. Brown: “An integrated purchasing system can help your property: Take full advantage of enterprise buying power to secure better terms and prices from Suppliers, improve inventory management and reduce waste by better monitoring supply levels, provide managers and employees with fast access to information to help them better server guests” (Purchasing systems solutions. 2004). Inventory controls is a double edged sword that could cut both ways. Too little stocks could dampen customer spirits and may result in lower levels of goodwill for the company, while too much could involve overwhelming investments and carrying costs, which, in the long run, makes the hotel business, unviable and would put a premium on profits. Therefore, it is necessary that the economic ordering quantities (EOQ) could be arrived at, for each item of ordering quantity, in order that there are no superfluous investments locked up during ordering. There are dominant procurement policies in place in our hospitality unit. Depending upon the computer indents, placed by the respective departments, and authenticated by the departmental heads, Orders are placed to the Panel of Approved Vendors along with the quantities, specifications, time and mode of delivery and the estimated costs involved are simultaneously forwarded to finance and accounts department for their verification and accounting purposes. It is important that “right selection and procurement of food and suppliers, suppliers selection and distribution systems including the forces affecting them” (Purchasing for the Hospitality Industry. 2007). As far as our hospitality industry is concerned, we have a well controlled chain of events beginning from the receipt of indebted goods till its accounting in Stores. Upon receipt of the goods, it is checked with the Purchase Orders and discrepancies, if any, are notified immediately to the vendors. Interviewer: Sorry for the interruption but, is this intimation by word, or by letter. Mr. Brown : by telephone or email to the vendor. He emails his reply by return mail. The ordering of the goods form a large part of the decision making in the procurement since the final ordered goods form part of the inventory costs. In our hospitality industry, the main types of ordering would be Foods, liquor, Beverages, Housekeeping items, furnishings and interior decorations of the rooms in the hotel. Since the aspect of reputation, of our hospitality also needs to be considered, it is felt that highest standards of ordering needs to be maintained, and a great deal of control mechanism, need to be enforced, in order to maintain high levels and conformance of ordering performance. Ordering in this hospitality industry is strictly according to the approved panel of suppliers and vendors, and even small purchases are routed through empanelled procurement parties to ensure quality, quantity, servicing and pricing parameters. Even for emergency purposes, we have vendors, who deliver within 24 hours, so the question of any non-standard purchase does not occur at all. Interviewer: Mr. Brown, What are the specific techniques employed for receiving of goods by the unit? Mr. Brown: Our hospitality unit follows a regulated and realistic enforcement of receiving goods. The delivered goods are first checked at the gates by the Security Department. They compare the received goods with the Delivery notes and the Purchase Orders, and if found okay, the goods are sent to the Goods Inwards Department. Here, the goods are thoroughly checked for quality, quantities, adherence to technical specifications and regulations, if any, In the case of approved goods the delivery notes are sealed, signed and entered into Stores Inwards Computers Information as Stores Inwards. The physical stocks are then also accounted in the inventory records and Bin Cards (computerized) found in the Stores Department. Now the approved inwards goods forms a part of the stock and are issued to the various departments upon Materials or Goods Requisition Notes, duly approved by the departmental heads and certified by the Central Stores. Interviewer: Mr Brown, What are the advantages of this system? Mr. Brown: The advantages of this system are that it is more or less, fool-proof, and the margins for errors or commission of frauds are minimized. Since in this hospitality industry, there is enforcement of internal checks and internal controls at each level of the transaction, it follows that the present system is fool proof. The main advantages of the Receiving Dept. is that this Department enters the goods into the terminals and therefore, the concerned depts. would immediately be notified about the latest stock position. In case of urgent replenishments to the stocks, it would be possible to have it done urgently. It ensures perpetual inventory system, by which the stock position of any item is known immediately. Interviewer: And the costs involved? Mr. Brown: Immaterial, when compare with its long range benefits. Interviewer: What about areas that need to be improved? Mr Brown : This system of receiving could be further improved by ensuring that urgent materials could be immediately sent to the requisitioned Department through a “green channel “ route in the goods inwards dept., so that the concerned dept need not suffer, for want of materials. In our hospitality unit, we follow the TQM (Total Quality Management), Sigma Six and other scientific management programs, including Just- in- time (JIT) inventory, and through this, it would be possible to cut lead time for use of consumables and keep just enough materials to cater to the immediate requirements of the initiating department. It needs to be appreciated that in a large hospitality industry, the control of inventories is a complex task and needs to be responsibly handled in order to achieve savings and cost effectiveness. Moreover, there are always pressure from the top management to reduce cost of carrying inventories and achieving savings in material costs. Unless we, as procurement managers, set examples of cutting inventory costs, we could not expect our workforce to follow suit. Interviewer: What are the present Storage methods being employed? Mr. Brown: By far, in a hospitality industry, the aspect of storage is an important one since we deal mainly with fast perishables like foodstuffs, hot drinks and consumables with low shelf lives. If a thoroughly extensive and well knit system is not enforced, a great deal of storage losses could result, which could, in turn, affect the profitability and revenue generating capacity of our hospitality industry. Therefore, it is ensured that all possible foodstuffs that need to be kept refrigerated, be kept in cold storage facilities with regulatory temperatures. These should be made available whenever there is a requisition, from the various housekeeping department and the kitchen. The number of days foodstuff are in storage are also important, since there is an aspect of exposure, storage contamination and spoilage if not kept under proper conditions and within specified time frames. The reputation of our hospitality company is important and therefore, storage is important. Interviewer: How does it contribute to overall efficiency determination? Mr. Brown: It could be possible to have better methods of storage using modern methods of storage and its upkeep. The efficiency of the storage department could be gauged by the measure of control and the minimum storage losses that occur. Especially in our hospitality industry, the control aspects of storage are important, and it is important that a regular check of storage items are made, in order to identify problem areas, and take necessary steps for its elimination or control. Interviewer: what are the lacunae in the storage areas which need to be ironed out? Mr. Brown: Regular reporting of storage losses and damages need to be presented to the hotel’s top management along with the causes and material implications, in a bid to control them effectively. Where storage losses occur due to inherent reasons, changes may be initiated to effect economies, or if quality complaints are the underlying causes, there may be changes in vendors or supplier, in order to improve quality and ensure standardization. The gradation of inventory items according to dollar value impact on total inventory bill also need to be assessed. Interviewer: Why, in your opinion, is it necessary to constitute an effective and permanently featured inventory control procedural system? Mr. Brown: Inventory control forms an integral part of the operations of any enterprise, and this is more so, in the case of service industries like catering, hospitality etc. A large part of the company’s investments are locked up in inventories, which constitute a sizeable chunk of working capital needs. Hence, for most hospitality industries, it is imperative that adequate returns on investments be made and inventory coasts should be maintained, as low as is possible, in tune with the needs of the industry. Also, the inventories directly affect the bottom line of the business, since uncontrolled spending could eat into the revenues and severely reduce profits of the company. In the hospitality industry, it has been found that nearly 20-25% investments constitute inventory. If this could be lowered, by using of scientific inventory control and management systems, it may be well reasoned that the profit margins could be increased and better resource availabilities could be effected, including optimum uses of the existing inventory resources at their disposal. Interviewer: One last question, Mr Brown, What are the ways and means by which inventory controls could be further reinforced and bought on parity with the organizations’ needs and requirements? Mr. Brown: It may be concluded that there is no one method that could ensure an effective and permanent inventory control systems. A lot would depend upon the demands of the industry and how well existing systems are in place. New techniques should seek to compliment the existing ones, since there is a lot at stake for the stakeholders in our Hospitality Company through use of appropriate inventory systems. As mentioned earlier, today we are operating in an extremely competitive and elastic market. Pricing is an important determinant since it commensurates with the level and standards of hospitality services provided. Although our unit has high occupancy ratio throughout the year, due to its central location and excellent infra-structural facilities, the traveler has a host of options available. Since significant inroads in profits through revenue enhancement cannot be made, it is necessary to achieve bulk cost savings. To conclude, through use of TQM, implementation of Six Sigma, Just in time concepts in inventories, liasoning with other Hospitality companies in the city, and making available an array of services to the customer, it needs to ensure conspicuous cost savings in major areas like inventories and procurement costs. Interviewer: Thank you, Mr Brown, for this scintillating interview which has also been most informative and enlightening to all of us. Mr Brown: My thanks to you, too. Good day. Works cited Purchasing systems solutions. Microsoft Hospitality. 2004. 12 Dec. 2007 . Purchasing for the Hospitality Industry. Pikes Peak Community College. Ask Edu. 2007. 12 Dec. 2007 . Read More