Procurement in Hospitality: Our Time to Shine?

by 4C Insights | Jun 13, 2022

In early May, 4C brought together a group of senior thought leaders in the hospitality and leisure industry to discuss the current challenges and opportunities in the sector.

The procurement space as we know it faces a challenging era impacted by inflationary and supply chain disruptions. The traditional approach of supplier consolidation and single source of supply is being favoured instead by dual or triple supply to ensure availability, and whilst this might be a more costly option, organisations are prepared to pay the cost to maintain stable supply chains. On the positive side, with the increased awareness of the global supply crisis, procurement departments are no longer facing internal barriers or lack influence – today procurement has a seat at the lead table, being recognised as a vital element of business operations and growth.

How are businesses addressing hospitality labour shortages?

The labour crisis is one of the biggest issues the industry is currently facing. Brexit has led to businesses having to re-think their staff demographic, with the government encouraging a move towards a high wage, high skilled workforce, and away from immigration as a source of employees. The pandemic has also caused many people to move away from the industry, seeking more stability and a better work environment than has traditionally been found in hospitality with its long hours, high stress levels, and low pay.

The industry is facing a challenge of attracting talent to join the workforce on a career path with an unknown progression journey. Overall, there is a prejudice in the industry and a requirement to break the bias to attract new talent. One of the main ways businesses have been tackling staff shortages is by improving their incentives for both current and prospective staff as well as offering better development opportunities and benefits.

What does the procurement function of tomorrow looks like?

Over the last few years, the function has been transitioning to the ‘new normal’ – but how can procurement executives predict the unpredictable? It’s difficult to know what is transitory and what is permanent in commodity price movements, requiring procurement executives to strategise, map, plan and prioritise for the future. Procurement is no longer the procurement department’s challenge; it is a challenge impacting all areas of businesses. But engaging in a business-wide conversation requires a common language between CPOs, CEOs and CFOs.

Involving operations and other business partners from various teams can help communicate end to end value and demonstrate impact. The key to successful procurement is leadership and breaking the barriers, with CPOs becoming commercially driven. In addition, thinking and acting outside of the box can turn savings into investment back into procurement and improve team and supplier collaboration, and drive sustainable initiatives, as well as turn into an investment in recruitment and people.

Procurement’s time to shine

As for any strategy to work effectively it is essential to set business priorities. Is it product or price? Do you trade partnerships for price, and how will that come back at you when you face the next supply chain challenge? The future involves both giving and taking and working through problems together.

Businesses have no spare margins to negotiate anymore, so how do we move back to collaborative, true partnerships in the long term – will procurement increase risk to find savings? The pandemic tested relationships and those that survive and thrive are those that share growth objectives and risks. All supplier relationships are different and contracts now reflect this, because re-investment in supplier relationships adds value on both sides and creates opportunities to work together in a sustainable manner.

Customer expectations are also changing. There is more flexibility on menu design – both paper and digital, providing an opportunity to react much quicker to challenges and changes. Forecasting and intelligence within demand management is key – but can customers be tempted back to promotions to drive volumes or is it realistic to trade already low margins to steal market share?

Sustainability will also play a critical role in the future – although spending might be lower in the inflationary market, Generation Z customers have high expectations on ESG. We also know that sustainability can drive better relationships, longer term partnerships and margin in the long term. The relationship and the way organisations work with suppliers has never been more important – but is it a skill that procurement teams have?