If your property or hotel company is considering a new supplier, sometimes basic research isn’t enough. There are at least three critical – yet often overlooked – areas that hoteliers need to seriously consider before making a final decision and signing on the bottom line.
When utilizing requests for proposals, the responses from suppliers may seem to be on target with the hotel’s objectives – the prices seem competitive and the services will meet your needs. References are reassuring, and after conducting due diligence (negotiating with all companies presenting a proposal and conducting site visits with the suppliers being considered), everything appears to be progressing smoothly. But even the best-laid plans can meet with unforeseen problems. To proactively remove the inevitable “but” from the RFP equation, here are three key questions to ask suppliers to ensure your engagement together turns into a prosperous and mutually-beneficial long-term relationship.
1. Does My Hotel Have Most-Favored Customer Status?
Most-Favored Customer status is a featured term in many procurement contracts. It means that suppliers will not sell their goods and services within the defined marketplace at a better price than they are giving to your hotel. It sounds simple, but it’s not. Hoteliers need leverage with suppliers to receive the best pricing every day.
2. Is My Hotel Completely Covered for Risk?
There are many risks associated with the hospitality industry’s supply chain, and none of them can be considered a minor incident. Whether one person trips on a rug or several people experience food poisoning, each event can have a disruptive and costly impact on your business. An indemnity offers peace of mind when a guest or employee gets hurt while using a supplier’s product or service. Indemnification provisions generally obligate the supplier to defend the hotel operator and owner from claims relating to the supplier’s goods or services should an incident with a guest or an associate occur. Under an indemnity, the supplier will protect the hotel from any losses or damages caused by the supplier’s goods or services.
Before signing any procurement contract, make sure that it carries strong indemnity language to protect your hotel. Due to the nature of the services provided, determining appropriate levels is essential. This can be complicated, but it is critical your suppliers – throughout the supply chain – have appropriate indemnification and insurance coverage to protect your investment and to limit your liability.
3. How is the Supplier Being Managed After the Contract is Signed?
Certain that you are a MFC and that your hotel is indemnified, it’s okay to sign the contract; however, the day-to-day management of the supplier should be thorough and ongoing to ensure accurate pricing, high quality products and consistent service levels. Ideally, hoteliers will have the clout to hold suppliers accountable and have a process in place to successfully and quickly resolve any issues which may arise. In addition to cost, quality and service, it is imperative that the hotel diligently manage and controls the entire supply chain, measuring each supplier’s performance with consistent audits and standards against which those suppliers must perform.
If the hotel does not have a quality assurance program, then one needs to go into effect. In the food-and-beverage area, for example, ongoing regulatory mandates stemming from the Food Safety Modernization Act require a high level of transparency in the supply chain. Hoteliers should have confidence that periodic checks and surprise audits are in place to help ensure the supply chain is safe – from monitoring fields where produce is grown, through the supply chain and to the hotel’s door. This means, for example, ensuring the produce is chilled properly, that bruised or damaged products are culled and replaced and that the product has been subjected to the proper QA testing. If there are issues or delivery hiccups, it’s important that the hotel’s supplier partner has the resources to fill the gap so business as usual is not disrupted.
Another important aspect of supplier management is consistently monitoring and auditing supplier pricing to ensure its accuracy against the contract. The cost of goods and services are not stable, particularly in the food and beverage areas. Supply and demand, seasonality, and the fluctuating costs of raw materials impact pricing. Therefore, hoteliers should have a comprehensive price audit program throughout the supply chain for assurance that all contracted pricing is reviewed on a regular basis. If transactions with variances are uncovered, procurement staff need to research the problem and resolve it with the distributor or manufacturer.
Chip McIntyre is senior vice president, strategic sourcing for Avendra, a North American hospitality procurement services provider. McIntyre oversees Avendra’s contracting and supplier management functions, as well as the company’s supply chain development team.