Strategic supply chain and the management of suppliers

1. Strategic supply chain and the management of suppliers Daniel Pfyl Lecturer in Hospitality Management Otago Polytechnic, Dunedin danielp@tekotago.ac.nz

2. My history and links to purchasing • Worked in the hotel, restaurant and food service industry for over 33 years. • Started my chef’s apprenticeship in Pontresina, near St. Moritz in the Swiss Alps. • Worked my as a commis chef through some of the best hotels in Switzerland. • In between all that I completed a one year compulsory army service and ended up head chef. • Started work & travel overseas.

3. My history and links to purchasing • Came to New Zealand as chef de partie with the THC Hotel Group, then Government owned. • Australia with Hilton in Adelaide and Mount Buller, a ski resort above Melbourne. • Grand Hotel National in Luzern and then at the Beau Rivage Palace Hotel in Lausanne, the French speaking part of Switzerland. • Sheraton Alice Springs, first time in a sous chef position.

4. My history and links to purchasing • Hyatt Borneo Management Services in Brunei where I was the Executive Chef to His Majesty the Sultan of Brunei. • From there I transferred with Hyatt to India as Executive Chef to the Hyatt Regency in New Delhi - talk about contrast! • Back to New Zealand, the George Hotel in Christchurch.

5. My history and links to purchasing • And finally Queenstown where he worked at the Holiday Inn again as Executive Chef, which later became the Novotel Queenstown. • Then F&B Manager responsible for the opening of the Grand Mercure Hotel St. Moritz. • 10 years ago educating and teaching, skills to chefs and now managers of the future.

6. How do I keep myself up to date? • Culinary Exchange between China and New Zealand for Trainers in the Hospitality Industry travelling through China delivering practical workshops for 3 weeks in 2002. • Back in Switzerland for a Bakery/Patisserie “Workplace Experience” for 10 days in 2003. • And in 2006 for 8 weeks at the Grand Hotels SPA Resort in Bad Ragaz, near my hometown also in Switzerland.

7. Aim of this session • Why has purchasing become strategic? • What is strategic supply management? • The theory behind the strategic focus to purchasing. • F&B Control and Manager’s Responsibilities. • Management of suppliers, what does this entail? • What are some of the problems you might face when trying to develop your department from clerical to a strategically focused one?

8. Introduction: Why do you think the Hospitality Business Environment is changing so rapidly? • Customer demands • Market trends • Technology • Globalisation • Increase in 'world-class' competition • Sustainability – environmental awareness • Laws and regulations • Franchising/Mergers

9. Introduction Businesses need to improve their management practices to stay competitive. Successful businesses are able to satisfy customers’ needs with high quality products and services at reasonable cost.

10. Why has purchasing become strategic? • Insufficiencies can no longer be passed on to the customers in the form of increased prices. • A strategic supply will sustain the competitive position and ensure consistent quality. • Companies take the holistic view of the entire supply process. • Promotes sound decision making for the use of resources. • Contributes to bottom line.

11. What is this new strategic focus to purchasing all about? • Traditionally purchasing has long been thought of as being responsible for the management of a firm’s inputs, i.e. raw materials and services into a organisation. Value Creation

12. What is this new strategic focus to purchasing all about? • Purchasing is the acquisition of inputs into the firm. Strategic supply is the management of inputs and the transformation process, which includes the structuring of the supply activity of the firm. Value Creation

13. What is this new strategic focus to purchasing all about? • Structured strategic supply management approaches are designed to give the firm a competitive position. • Competitive advantage, therefore, is derived from the value that a business creates for its customers.

14. What is this new strategic focus to purchasing all about? The competitive advantage from a new strategic focus to purchasing comes from: • improved responsiveness and flexibility for customers. • improved efficiency and reduced supply costs. • and win-win strategies involving collaboration rather than competition. • Reduction of risk.

15. ACCOUNTABILITY MENU PLANNING PRODUCTION MANAGER’S RESPONSIBILITY SERVICE FORECASTING PURCHASING ISSUES RECEIPT & STORAGE Introduction to F&B Control COMMUNICATION The Food & Beverage System

16. The strategic alignment model

17. The strategic alignment model

18. What’s your responsibility? PLAN A AND IMPLEMENT GOAL SETTING ACHIEVE GOAL EVALUATE AND COMPARE WITH PLAN TAKE CORRECTIVE ACTION

19. P L A N N I G Financial Policy Marketing Policy Purchasing Receiving Storing and Issuing Preparing Selling Set by senior management Catering Policy (Menu Policy) O P E R A T I O N A L Forecasting Day to day control by supervisors and departmental heads Day to day control by F & B Control department C O N T R O L Management control after the event

20. Management of supplier relationship, what does this entail? Discussion; What makes a good supplier?

21. Management of supplier relationship, what does this entail? • Food borne-illness incidents, regardless of the cause, have an impact on the reputation of the caterers and suppliers business.

22. Management of supplier relationship, what does this entail? Discussion; How do you check and control quality of goods and services?

23. Management of supplier relationship, what does this entail? • Clear specifications (High expectation = High performance). • Win-Win philosophy, both in negotiations and contracts. • Collaboration rather than competition. • Use of par-stock levels and shared information. • Tendency to move towards fewer suppliers, build relationships. • Just in Time Purchasing (JIT), less capital tied up in stocks.

24. Examples of maximum inventory level calculations; • Inventory turnover, average of approx 20 times per year for food. 8.5 times for beverages. • % of sales volume, food, non-food and beverage products in inventory that are equal in dollar amount to no more than 1% of its annual sales volume. • Rule of thumb, inventory should not be more than approx one-third of the average monthly product costs.

25. Example of a par stock system; • Maximum par stock 11 cases • Minimum par stock 2 cases • Lead time next day delivery • Order day Tuesday • Usage rate one case per day • Function request 5 cases for tomorrow night Your order would be; • 11-1(stock in hand on day of delivery) + 5 (for function that night) = 15 to order.

26. What are some of the problems you might face when trying to develop your department from clerical to a strategically focused one? • Shed old habits and build a new mind set. • Continued existence of the “opportunist approach”, seeing short-term price cuts against long term cost reduction. This traditional model of price driven procurement is hard to change.

27. What are some of the problems you might face when trying to develop your department from clerical to a strategically focused one? • Staffing skill levels lacking e.g. technology, development of supply strategy • A great many purchasing functions have little perception of the overall corporate strategy. • Getting top management on board to see the purchasing function as strategic.

28. MOTIVATION Functions of F & B Manager • Evaluation of performance • Training • Incentives • Rewards • Progression • Win-Win relationship

29. Do I really need a strategic / planned approach to purchasing? • Yes– things do go better with a plan • Need to figure out what/when/how and the associated resources you will need • Strategic Plans are management tools for success and important for communication with other parties (eg staff and suppliers) • Things can go horribly wrong without a plan…

30. Napoleon’s march on Moscow Charles Minard 1861

31. Why things would have gone better with my mother in charge: • Everyone would have worn a vest, jumper, coat, scarf, gloves... no arguments! • She would have asked questions: research • She would have made a long list: planning • Welfare of those involved would have informed her decision making: team-building • Explained to everyone why they needed winter clothes: communication & leadership

32. Summery • Strategic supply management can be complex and demanding. • Establishing and maintaining relationships with supply chain participants is the most challenging aspect. • Managers must work hard to build trust and inevitably, resolve conflict. • Adopt a leadership approach and develop supply strategies that are directly related to their overall business objectives.

33. Summery • These supply strategies must go beyond the narrow focus of cost reduction to managing the supply chain network to increase their competitiveness in many other ways.

34. Reference NRAEF Manage First (2007). Inventory and Purchasing. Pearson Prentice Hall. Eastham, J. Sharples, L. & Ball, S. (2001) Food Supply Chain Management. Butterworth Heinemann

35. The theory behind the strategic focus to purchasing.

36. Reck and Long’s strategic positioning tool

37. The transition modelSyson (1992)