Importance of Effective Procurement Practices for Successful Hotel Operations

Written by Wang Min, DPSM

by Wang Min, DPSM

The role of procurement in a hotel operation is not immediately apparent. However, procurement costs are a core part of the profitability performance of a hotel business. The sustained availability of products and services used in the generation of revenue streams as well as for internal consumption keeps the business running like a well-oiled machine. Moreover, such availability at the best quality for the least cost is what businesses strive for. Procurement costs are different for an operating and opening hotel. However, before we look at that, it is important to understand what constitutes procurement and what costs are involved in that.

Terminology of Procurement versus Purchasing

To begin with, we need to understand clearly the difference between procurement and purchasing. Purchasing refers to the process of ordering and receiving goods and services. It is a part of the procurement process. Purchasing refers to the process involved in ordering goods such as request, approval, and the creation of a purchase order record and ultimately the receipt of goods. On the other hand, “procurement” is the function that describes the activities and processes to acquire goods and services. The key difference can perhaps be explained from the PP Organogram, as shown in the diagram below. Procurement requires active engagement with internal customers, as well as with suppliers.

PP Organogram of Procurement vs Purchasing

Thus the procurement function consists of a complete mechanism that includes processes closely involved with the vendor community, goods and services markets and the world of contracts.

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About the Author: Wang Min has substantive years of experience in the hotel industry, specifically in cost management and control. In recent years, she has embarked on effective procurement practices for successful hotel operations. Wang Min is a member of Singapore Institute of Purchasing and Materials Management (SIPMM), and is completing a course at SIPMM Academy on Diploma in Procurement and Supply Management (DPSM).