Written by Nigel Draper, Founder and Managing Director of Sorsco
As hospitality businesses reflect on the last few years, it is hard to ignore the many challenges and disruptions that have plagued the sector. From labour shortages and the repercussions of Brexit to the profound impact of the COVID-19 pandemic; the hospitality industry has remained resilient in the face of adversity to navigate these obstacles. Although promising signs of recovery have started to materialise, the industry still faces some remaining challenges in 2024 – in particular being its increasingly fragile supply chain.
A recent study conducted by the Confederation of British Industry and the Office for National Statistics has highlighted several supply chain issues, with business stock levels reaching their lowest point since 1983. Additionally, other findings from the Business Insights and Conditions Survey by the Office of National Statistics, showcase the hard reality and impact of rising costs, revealing that approximately 1 in 10 businesses within the hospitality sector have either reduced or simplified goods and services – or plan to do so, to mitigate rising energy costs.
With hospitality a major contributor to the UK economy, generating an estimated £93 billion annually, it is crucial to address these challenges and to strengthen supply chain – and one of the best places to start is by implementing an effective procurement strategy. Let’s explore this in more detail:
What is a procurement strategy?
A procurement strategy focuses on acquiring goods and services. Serving as a roadmap, it allows businesses to outline and prioritise key actions and expenses, while streamlining the buying process to ensure that it is as effective, strategic, and economical as possible. An effective strategy encompasses factors such as supplier relationship management [SRM], cost control, market trends, and evolving consumer habits – with the aim to support both the immediate and long-term needs of the business.
Evidenced in research by McKinsey, top-quartile procurement capabilities led to a 42% higher total return to shareholders, showcasing the cost-saving and profitable benefits of implementing an impactful strategy.
Working to support, evaluate and accelerate acquiring processes, an effective procurement strategy is the blueprint to an efficient supply chain. However, to create an effective procurement strategy there are several tactics to consider:
Cultivate strategic vendor partnerships
A successful supply chain is built on clear communication and strong vendor partnerships. These partnerships go beyond transactional supplier-buyer relationships and involve a deeper level of cooperation to achieve shared goals and objectives.
One example of a strong vendor partnership is between Coca-Cola and McDonald’s. Initiated in 1955, it has become arguably the most successful supply chain collaboration. Serving as each other’s largest supplier and restaurant customer, the relationship has played a pivotal role in the growth of both brands. In fact, McDonalds has even gained a reputation for the taste of its Coca-Cola beverages as opposed to other restaurant chains, as – unlike other vendors that receive Coke syrup in plastic bags – McDonald’s specifically receives it in stainless steel tanks to maintain freshness to ensure the taste is ‘better’ at McDonalds.
This unique partnership demonstrates the central role that supply chain collaborations can play in the success of major businesses. This was also supported by McKinsey, which found significant benefits to cultivating strong vendor relationships, including higher growth, lower operating costs, and greater profitability compared to industry peers.
Utilise technology
The strategic use of digital tools and platforms is crucial in the process of procurement as it enhances transparency and strengthens the supply chain.
In a CEO Excellence survey conducted in early 2023, the top concerns of business leaders included economic uncertainty and geopolitical challenges such as the war in Ukraine. Faced with these issues, the report revealed that industry leaders are focusing on the development of AI technologies and leveraging emerging technologies to create resilience in supplier networks.
Notably, the digitalisation of procurement has been revolutionary in areas such as Supplier Relationship Management [SRM]. Utilising software such as SRM significantly enhances the decision-making process by providing all relevant data at the touch of button, to simplify and streamline the entire process. Moreover, effective SRM has the potential to automate or expedite many manual tasks, significantly reducing time expenditures and providing in-depth analysis of the importance of each supplier while taking informed actions based on that assessment.
These emerging technologies enable hospitality businesses to manage their supply chain more efficiently, resulting in more growth opportunities while reducing costs and streamlining processes.
Prioritise sustainability
It has been well-documented that consumers are becoming increasingly more environmentally conscious, often favouring businesses which prioritise sustainability commitments. A recent study by NielsenIQ highlighted that 78% of consumers deem a sustainable lifestyle important to them. This sustainability focus has been further supported in findings supplied by Yara International’s European survey, which found that 69% of participants would be willing to pay more for environmentally friendly food options, with an additional 31% stating that they already make sustainable choices when buying food.
These statistics reflect a growing awareness among consumers of the importance of making sustainable purchasing choices. To meet this demand, food and drink businesses must integrate sustainability into their core strategies to meet evolving market and customer expectations. Through initiatives such as reducing food waste, limiting plastic packaging, reevaluating logistics and delivery methods [to lower CO2 emissions] and sourcing locally – businesses can fortify their supply chain while also showcasing their commitment to sustainability.
Moving forward
As the hospitality industry looks ahead to the new year and the potential challenges it may face, now is the opportune moment for a reassessment of its operational frameworks, with a focus on implementing robust procurement strategies. As evidenced by McKinsey, hospitality businesses need to implement a transformative strategy that aligns with corporate goals, leverages technology, fosters strategic vendor partnerships, prioritises sustainability, and maintains agility in the face of uncertainty.
By doing so, the industry can not only weather the current challenges posed by supply chain issues but also foster long-term resilience and growth. Through reimagining procurement, the hospitality industry has the potential not only to overcome current challenges but to emerge stronger, more resilient, and better positioned for future opportunities in 2024 and beyond.
About the author
Nigel Draper is the Founder and Managing Director of Sorsco, experts in logistics and procurement for the hospitality sector.
