Securing the supply chain could be a show-stopper for the hospitality and hotel boom according to Rob Alexander, from procurement specialists Occumen.
2015 is predicted to be an exciting year for the hospitality industry, with the likes of PwC forecasting growth across the UK over the next 12 months, and with ten major hotel projects alone set to open in London in 2015 – from the 43-storey Four Seasons Heron Tower in the City, to the boutique Zetter Townhouse in Marylebone.
The cloud on the horizon
While this can only be good news in the Boardroom, where ambitions are starting to rise dramatically after the recession, there is a cloud on the horizon that could mean rain on the hospitality industry’s parade.
Both Procurement Managers and Finance Directors are already recognising the signs of a shortage in the supply of skilled and unskilled labour as well as specialist products and services. Only last month, it was reported that there is a 36 per cent increase in the availability of UK hospitality jobs which are becoming increasingly difficult to fill – but skills shortages are even more acute in the UK’s construction sector, and this is taking its toll.
One of the ‘big 10’ London projects has already hit problems, with construction company Balfour Beatty reporting delays to the £30m Citizen M flagship hotel. And analysis by EC Harris has highlighted a shortage of luxury construction companies in London which is delaying projects. This has a knock-on effect for the rest of the country which is also trying to make the most of the hospitality boom.
Security of supply
It is clear that the availability of suppliers with the right expertise, products and services for the hospitality industry is already becoming squeezed. This may seem to be good news, because it reflects good times, but the reality is bad news for the senior management of those hospitality companies that have not already planned ahead for the boom.
Since around 2008, a buyers’ market has shifted dramatically in favour of the suppliers and that means the buyers – in this case hotel and hospitality companies – are having to secure their supply quickly and early to beat their competitors. With suppliers calling the tune, this will now require some deft footwork and strategic thinking.
Five principles of security
There are basically five principles that can help ensure security of supply for any hospitality project. Some are simply procurement best practice, but others require a change in attitude to procurement strategies and, to some extent, wider financial thinking at Board level.
- Attraction. In this current seller’s market, particularly in the construction industry, the ‘beauty parade’ is now conducted by supplier looking for the best purchaser rather than the other way round. So, while choosing the right supplier is critical, it is the purchasers that have to make themselves attractive. This can be by bundling work together to create scale; agreeing more attractive commercial terms; or simply presenting a procurement culture that is fair, reliable, but pleasant to deal with.
- Due diligence. Whether sourcing specialist skills or general services, it is critical to review regional, national and even international supplier networks. This should include looking at outside indicators such as progress with their pipeline of other projects and, if listed, movements in their share price. Establish whether suppliers can meet delivery deadlines to keep a project on track, have the capability to fulfil the contract, and will stay in business long enough to do so. If they can’t, consider whether they are the wrong supplier, or whether the project or timescale is unrealistic?
- Clarity. The tender process needs total clarity, from brief to appointment and beyond. As well as clearly-written initial documents, establish framework contracts to speed-up the process of awarding new pieces of work – another way to remain attractive.
- Stage gates. Procurement best practice now recommends ‘stage-gate’ processes for any project. This means the project is segmented, and suppliers are only allowed through the ‘gate’ to the next stage if the previous stage has been delivered according to the contract. But it also means the purchaser has to avoid unplanned design/supply changes that can move the goalposts of time and cost.
- Relationships. The most secure supply chains come from building close, long-term relationships with professional teams and contractors. This needs strong communication and collaboration skills from in-house financial and procurement teams at all levels. It also requires smart strategies, such as considering companies that can provide a bundle of professional services for one project.
The importance of securing supply is critical from the very start of the project. This may add pressure to procurement teams and senior management but, with the right skills, they can make the difference between staying ahead of the competition, or being another statistic on the ‘still waiting’ list.
The writer is Rob Alexander, Partner at Occumen, the procurement specialists.