Purchasing Firms Prep For Coming ‘Crunch’

NATIONAL REPORT— Many purchasing company executives are viewing the months ahead with trepidation as the economy continues to slow and competition heats up. They also anticipate further consolidation in the e-procurement arena. “New hotel construction is down drastically, and renovations are slowing,” said William Langmade, president, Purchasing Management International. Noting that business is down for architects and designers, Langmade said, “We’re next in the cycle. This time next year there will be a real crunch.” With the number of hotel projects shrinking, there is more competition for jobs, he added. “There are more bidders [for hotel projects]and new competition from start-up companies. Our fees are getting slammed.” Up until this year, “there was a significant amount of work, a really extraordinary amount of business,” said Mitch Parker, executive vp, Leonard Parker Co. “One of the biggest challenges now is to obtain continued profitable business and adequate purchasing fees for the services we provide. We have to face the smaller shops who can be very competitive, but they don’t have the expertise.” The growing number of “under-qualified purchasing companies” serving the hospitality industry is a major concern for John McDonald, executive director/business development for Provisions, the purchasing arm of Carlson Hospitality. McDonald related a story about a hotel owner who recently contacted him for help regarding a serious product quality issue. “What is disconcerting for us is that the purchasing company used by the owner for his renovation did not support the owner in resolving this issue with the product manufacturer, especially because this manufacturer was re-selected separately from the interior design specification,” McDonald said. Higher Freight Costs Less new construction and fewer renovations may help alleviate the perennial problem of long lead times from manufacturers, Langmade noted. But the problem of steeper freight costs is not going away. “They are just going higher,” he said. Provisions has taken steps to help ease freight costs, according to Dave Gatzke, senior director/vendor relations. “We have recently consolidated 95% of our Carlson Hotel’s most commonly used OS&E products into 22 warehouses across North America,” he said. “This program allows our hotels to buy only what they need when they need it, and it all arrives on a single shipment. Less work interruptions and reduced process costs help moderate the increase of fuel.” Much like higher freight costs, the issue of product quality remains ever present. Parker said with more pressure from owners to look for overseas sources, the purchasing agent is often in a difficult position. “There is the impression that product can be found cheaper overseas, but finding quality sources is always a gamble, lots of things can go wrong,” he said. A Bright Spot Langmade feels the current decline “will go on for another 24 months and then will settle out.” He noted there is a bright spot. “Hotel profits are still high and occupancy is not slowing down,” he said. Maintaining an upbeat outlook is important, according to Neil Locke, president of Neil Locke & Associates. “The biggest challenge is to remain positive about the economic environment. I don’t believe in a doom-and-gloom scenario,” he said. “Although new construction is down, renovations are still being done as owners continue to put money into their assets,” Locke continued. “Good deals still seem to be getting done, new hotels are being developed and the hotel business as a whole remains profitable.” Many Challenges Beyond concerns about the economy, purchasing companies have several other challenges to contend with, according to Alan Benjamin, who is managing partner of Benjamin West and president of the International Society of Hospitality Purchasers (ISHP). “The number one challenge is clients hiring us early enough in the process. Our fee is the same, but if we’