Business profitability is controlled by two factors – generating income and controlling costs. As the hospitality sector faces immense challenges to increase revenue post pandemic, procurement has become more critical in driving the profitability which will determine development and, ultimately, survival for many businesses. And the value derived from efficient procurement processes will also include being able to source products and services with the right availability and delivery timescales to maximise business efficiency.
With the potential returns of effective procurement being so important, an automated system will undoubtedly secure better rewards through reduced admin costs, 100% accuracy and visibility, defined control measures, and a proactive approach to increasing profit margins. Where a business relies on manual procurement processes, the time taken to submit spreadsheets and reports from various sites, added to the potential for human error, can result in a significant time delay and inaccuracies in interpreting the data so you are always a step behind the curve. In contrast, using a technology solution to manage the process gives immediate visibility of multiple KPI’s across the business, enabling you to take a proactive approach to increasing business performance and profitability.
However, your supply chain is managed, it is important to have a robust system in place and identify some simple areas to focus on if procurement savings are to be maximised, with changes having a positive impact on reducing costs and increasing gross profit.
Review Purchasing Requirements
A procurement process that has been in place for some time may be out of date and not fit for purpose within an evolving operation. If bad habits have been allowed to creep in, ordering more stock than is needed will result in a high outlay, amplified storage costs and a potential increase in wastage. Buying what is needed, when it is needed is the most efficient way of handling supplies which do not require immediate replacement, but there may be opportunities to consolidate purchasing requests and the frequency of orders to reduce delivery costs and production of necessary documentation.
A regular review of specification can also rationalise expenditure. If a lower spec item or alternative product is available to deliver the same result without compromising quality or efficiency there is no point in maintaining the status quo just because that is what has always been used.
Review Suppliers
Supporting local and small businesses, and being loyal to suppliers, is admirable if their pricing is compatible with overall quality and availability but a regular review can highlight potential cost savings. By altering purchasing patterns, additional discounts may be available for higher quantities whilst consolidation of suppliers or delivery arrangements can also present lower rates.
Ensuring that all suppliers have been pre-authorised, and their goods and services are clearly defined within procurement technology removes the potential for duplication or inconsistency across several different providers. Channelling all spend for one product through nominated suppliers will create higher discounts and remove uncontrolled one-off purchases which generally attract higher price points.
Using a preferred supplier list on the right technology platform enables them to upload products and prices directly, with any changes automatically updated to highlight how your business might be impacted. You retain control over each product and can switch off whole categories or define category spend by a particular supplier, and even adjust approval processes for individual items.
Raconteur.net reports comment and analysis from academics and experts on the role of procurement to strengthen supply chain resilience, and although large manufacturing plants are particularly vulnerable, their advice can equally apply to the hospitality industry. “Knowledge from previous crises suggests that close collaboration with suppliers can provide early warnings of problems that may arise in the future,” says Dr Christos Tsinopoulos, a professor in operations and project management at Durham University Business School.
Simplify the process and control labour costs
The more links in a chain, the more likely it is to break, so automating all elements of the supply chain reduces the risk of errors. A technology solution can handle every step, from sourcing and agreeing terms with a supplier, creating and approval of a purchase order, matching receipt of goods against order placed and corresponding invoice to the delivery. All with the added benefit of saving time and money by using a paperless procurement process.
By removing complexity, technology simplifies the procurement process and details such as capturing cost centres in one location and assigning purchase orders to the correct location with accruals collected at the end of the process become automatic.
Manually processing invoices can be a time consuming and labour-intensive task. On that brief alone, giving time back to your people for other, more productive work by using purchase to pay software can make a significant impact on total overheads.
Capture those credits
With time at a premium, capturing credits might never reach the top of the ‘to do’ list because cross-checking prices is laborious and often not worth spending valuable resource on. Within the hospitality sector, only about 0.2% credit capture is typically achieved whereas the average when using purchase to pay technology rises to 1.5%. Suddenly, without any extra effort, the results can be transformational. If you know your F&B spend you can quickly get an idea of how much your credit capture should be using our ROI calculator.
Reporting
The impact that procurement has on the wider business operation is of such importance that detailed reports are increasingly made into company owners or directors to demonstrate transparency in areas such as ethical operating practices, preventing bribery and corruption, and doing everything possible to avoid modern slavery. Waste and sustainability are also key issues for responsible businesses in 2021 and creating easy to use monitors helps all members of a team to understand common trends and identify how and where waste can be reduced.
An ideal procurement technology solution will provide group-level reporting with live data giving significantly improved visibility across all aspects of generating revenue, controlling costs and managing all aspects of the purchasing and supply chain. The ability to identify trends, monitor peaks and troughs in the operation and compare performance across different sites provides a rounded overview of the whole business. This enables response mechanisms to be put in place so that immediate actions can be activated or reviewed should nominated tolerance levels be broken.
We can signpost companies that, between them, have secured millions of pounds of efficiency savings through implementation of the right Purchase to Pay solutions for their business. Through streamlining procurement, reducing indirect spend and automating invoice processing they have benefited from cost savings that contribute to long-term sustainability and help strengthen their position in a challenging market. With the stakes so high, making your procurement process work for you should be a top priority in any business plan and the quicker it is implemented, the sooner the advantages will be felt.