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Mitigating Cost Price Inflation Via Supplier Management

Technology alone can’t affect the causes of cost price inflation. Hospitality systems can’t undo labor legislation, failed harvests or political turmoil, and with hotels in urban markets still seeing revenues dip as much as 52 percent compared to 2019, operators need to utilize every possible method to cut costs.

But the new connections and deeper insights technology provides can mitigate many of the negative effects of rising prices and declining revenues, especially when it comes to the purchasing relationships between operators and suppliers.

First, let’s talk about supplier lists. All operators have them, but often they drift from being prescriptive to becoming optional with ad-hoc orders being placed across a variety of suppliers. It’s no surprise that top performers use procurement technology to agree and lock down supplier lists, ensuring that all sites can only purchase from specified companies for the lowest rate possible. No more special cases.

Not only does this deliver greater control, but negotiated rates also help avoid the inevitably higher costs that come from buying with petty cash. It’s good for customers too, as dishes are consistent and quality control stays high. Which leads to a better experience — and repeat visits.

Smart operators take purchasing management further by using electronic trading platforms. These allow them to set fixed pricing agreements, such as guaranteed prices for an item over a given period irrespective of market fluctuations, or rebates once certain order quantities have been met. This kind of agreement not only helps operators track costs but ensures that the gap between actual and theoretical profit is both accurate and as low as possible.

Once the purchase is made, the most successful operators use their ordering system to set the supplier delivery schedule. This means that any order placed outside the schedule is rejected, so no extra costs are incurred. One longer-term benefit is that sites have to be more disciplined in planning their orders.

Finally, no matter what’s happening with cost price inflation, it’s important to maintain a responsible, traceable sourcing policy that respects both the company’s ethical policy and the health and safety of staff, customers, and suppliers.

Find out more about how your brand can take advantage of these supplier management strategies and more through Fourth’s purchase-to-pay and inventory solution.

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