It’s not just about how much you sell over the bar – it’s also about how well you buy. These days buying is key. Alastair Roy MCIPS, tells us why procurement (the act of obtaining equipment, materials, or supplies) is so important.
When procuring goods and services on behalf of your pub, club, hotel or restaurant, consider that any cost savings you achieve will filter directly to your profit line, resulting in more money for you to invest and grow your business.
The aim is to improve supplier terms and decrease product prices. Ways to do this include:
Frequently review your terms and discounts with suppliers –
Set up a master agreement and contract database – an Excel spreadsheet is fine. This really means make a list of when your current contracts are up, so that you can start negotiating in plenty of time. Discuss with your suppliers ways in which you may make procurement savings by altering your buying patterns. It may be that purchasing slightly more products will secure a higher discount.
Consolidate suppliers and deliveries and purchasing requests –
Make savings in delivery charges and the costs of accepting those deliveries. A by-product (no pun intended) will be a reduction in the often ‘invisible’ and real costs relating to Invoice and payment processing. For example if you are getting weekly invoices it may be beneficial to get one monthly invoice – it saves your staff time, and your supplier time too. You also may have suppliers providing similar products, just use one.
Constantly review procurement requirements –
Ensuring that only strictly necessary purchases are made. This will cut down on excess expenditure and storage costs.
Buy from agreed catalogues –
Make sure that only one brand or type of a product is purchased. Duplication can be expensive and is unnecessary. Furthermore, increasing order values with fewer suppliers attract better discounts.
Review stock levels – Stock unused is “dead money”. It costs money to store, can deteriorate and become obsolete.
Review product specifications – Investigate if you can buy a lower spec that will do the same job without adversely compromising on quality.
Ensuring that the correct management controls are in place – for ad hoc purchases more than a certain threshold should be subject to 3 quotations. ie purchases above £1,000.
Staff training – Are the correct people ordering the right product? Train on effective procurement practices and encourage them to save money whenever possible. This will help to reduce excessive or wrong procurement.
Explore electronic Procurement Solutions – linked to EPOS, Stock Control and Accounting Systems – This can save in staffing costs and reduce errors.
Strong Procurement practices are crucial to a profitable company and savings can only be beneficial. There are a many ways to make savings and all staff and managers should be aware of them.
Negotiation is a large part of the procurement process and key things to remember are:
• Prepare, Prepare and Prepare again…your counter party will have done their homework and you must too.
• Decide on what you want from the negotiation.
• Assess what you might get.
• Set yourself stretching targets.
• Prepare to give and take.
• Conclude and agree terms.
Remember that we are all born negotiators…although some are born more equal than others.
Conduct your dealings with suppliers in an ethical and even handed manner. Whilst it is fine to discuss target prices, do not be tempted to share supplier pricing with other suppliers, as this is not simply unethical, it is illegal.
Sustainability has become an increasingly important feature of procurement in recent years and this extends to customer expectations of businesses they frequent. Therefore investigate where your suppliers are sourcing products from to determine if their methodology is satisfactory.
Some areas you may wish to focus your activities include:
Water Supply – the market in Scotland became deregulated in 2008 and in the last 2-3 years incoming suppliers have increased their profile. There are savings to be made but make sure you choose your provider carefully. Check their records for customer service and billing accuracy. You have plenty of choice as there are currently 18 suppliers operating in Scotland.
Gas & Electricity – just as you do at home, it can pay to shop around for business rates. The same rules apply in terms of ensuring you deal with those companies providing exemplary levels of customer service.
Credit and debit card charges – Check your agreements as changes are taking place to align card processing charges in Europe.
Know what you’re paying – read carefully any correspondence you receive from your merchant services provider. In particular, check your merchant services statement from April onwards to see if any changes have been made to your charges.
Check contracts as they can often be for up to 5 years and although you can move your card processing the cost of cancelling is very likely to be prohibitive. So, before signing any new contracts or signing with a new merchant services provider, ensure you are clear on what they are offering and whether they will pass on credit card processing cost reduction. Explore selecting hardware that is “unlocked” or provider agnostic, keeping your options open to switch later.
Keep up to date with technology – it is a fast moving arena and you must ensure your business is up to date with the latest payment terminals, mobile solutions and payment gateways for on-line business such as gift vouchers.
Always remember, if something seems to good to be true… it probably is. Have fun and enjoy reinvesting your cost savings.
Alastair is a qualified member of the Chartered Institute of Procurement & Supply, experienced in the hospitality sector within PLC and privately owned businesses.