Value for Money when Purchasing for Hotels: Introduction

BurjKhalifaPrettyA couple of months ago, I was asked to come in by a studio that was starting work on a five star hotel in the Middle East. They wanted me to brief them on how to achieve value for money, prior to a meeting that they were having the following week with the owner. We were overcome -- though value for money is a main topic of conversation between suppliers, this issue is never normally raised by specifiers or purchasers. In fact, it seems to suppliers of lighting (and presumably, of other goods as well) that purchasing decisions are not based on value at all. Instead, the only consideration is price. The impression they get of the process is:

1.     the interior designer specifies a light that is within the budget she has been given. A lot of time and money is spent by potential suppliers (general support, samples, designing and costing of specials, visits, calculating lower prices for quantities) helping her to do this.

But the suppliers have not being carrying out all this work with their potential customer! The specifier does not actually buy the lights. Instead, she passes the specification to the purchaser.

2.     The purchaser either:

a.    negotiates a lower the price with the supplier (there's nothing wrong with this), or

b.    more typically, bypasses the designated supplier altogether, assuming that it will be cheaper to get something from another source (so the owner of the design is not even given the chance to meet the new target price).

Then, if the price is not right, either:

3.    the manufacturer value-engineers the design (good), failing which

4.    an alternative light at the right price is bought from a reputable supplier (good), or

5.    a crap light is bought (bad) or

6.    a fake is bought (bad).

This is a pity, because the focus on price has no advantages, only disadvantages:

a.     poor value is delivered to the client

b.     the final result is compromised, because the items that were specified by the designer are not what is bought and installed.

In addition, staggering amounts of time are wasted. This waste of time is as serious as the waste of money: both have severe negative effects both for design studios for manufacturers (and even for the purchasing team).

So, how doe we get value for money when purchasing for hotels?

A.    Set a budget.

B.    Buy from reputable, reliable manufacturers, who are appropriate to the project.

C.    Buy lights that are clearly marked with the maker's brand.

D.    Do not specify more lights than are needed.

E.    Do not specify what can't be used.

F.    Specify standard catalogue items.

G.    Specify specials very carefully.

H.    Consider value engineering.

J.    Order on time.

K.    Avoid fakes.

How do I know? I am a chartered accountant who for eight years has been involved in procurement for hotel projects at the most detailed level.

I'm also adding a postscript...

How to Purchase for Hotels, Not Waste Time and Avoid the Pitfalls. order to be really constructive and helpful!  ;-)

Note: this series of posts builds up into a single Briefing, a PDF of which is downloadable here: A Briefing on Value for Money when Purchasing for Hotels.

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