Profiting from purchasing programs

Everyone is a buyer of goods, but many who take on the task in their hotels do not understand how to get the best out of supplier relationships and associated purchases.

By Jason Cheskes

People either seem to love to negotiate or abhor doing so. Some are quite good at it, and some just think they are.  Everyone is a buyer of goods, but many who take on the task in their hotels do not understand how to get the best out of supplier relationships and associated purchases.

Why work with established purchasing programs?  The first reason is the market. As suppliers face increased pressure from chains and groups to decrease costs (including pressures due to consolidation), unaffiliated and non-contracted market pricing and margins must increase to balance the equation and keep suppliers profitable.  

The operational factors may not be as immediately obvious.  It takes time to understand a supplier and for them to understand you. Without this, you probably won’t get the most out of the relationship. Ask yourself:  Do you or your general manager really have the specific knowledge about the suppliers’ business models and the skills required to negotiate each purchase you make effectively? Could that time not be better used focused on generating business and running your hotel?

Group purchasing in the hotel industry, whether affiliated with hotel brands or otherwise, is meant to address these issues. Ideally, utilizing these established relationships should save money in several specific areas of your business, and in some cases, even for the largest of entities. 

There are a host of reasons why hotels overpay, even when aligned to these available pricing programs. The most common reason is that the hotel owner/manager doesn’t take the time to get to know the programs and vendors available to them.  Some just like to do their own shopping and make their own deals.  Some believe they are better at buying than those arranging agreements for potentially hundreds or thousands of properties, or may have had bad experiences in the past with a brand or organization.  There is a misconception, as well, that the relationship between supplier and hotel will not be as strong if operating in conjunction with an established program.  

Hotel operators often don’t know that the lower price they receive is a result of the purchasing group arranging such on their behalf already. Conversely in some cases, hoteliers mistakenly assume that they will get the same arrangements, even when they deal with different people at the supplier’s company or through third parties.  While not every purchasing agreement made by others may be right for your situation, invest the time to understand what is available to you and ensure that any of your management and staff who may be involved in ordering are aware of those programs as well.  It will likely be one of the best long-term ROIs you can get for a half hour of your time.

Common purchasing mistakes:

See vendors as adversaries to be ‘beaten’;

Assume all offerings are equal and focus only on price;

Request quotes without having discussions about your needs and options that may be available;

Belief that you are getting the best pricing because of the length of your relationship with a company;

Lack of awareness of procedures in place when dealing with a vendor to ensure they get the right answers (and pricing);

Having a mentality of “if it’s not broke, don’t fix it”; and 

Not knowing what you do not know. 

My advice? 

Talk to the people that are there to help you. You don’t need to follow their advice, but if you’re working with the right group, it will always be worth the time. 

Read all the materials sent to you and ask questions if you don’t understand elements.

Manage your buying reputation. You may be surprised to hear so, but you likely have one and it undoubtedly affects how suppliers work with you.

Jason Cheskes has been both an operator and a vendor. He is president of Above The Line Solutions, and is considered an authority on group purchasing organizations in Canada.  Jason@abovethelinesolutions.com