WINDSOR PLAZA WINDSOR PLAZA HOTEL HOTEL

FORECAST FORECAST ANALYSIS 2009 ANALYSIS 2009

andandCost Reduction Cost Reduction

an overviewan overview

Presentation by Presentation by s.jayakumars.jayakumar

WINDSOR PLAZA HOTEL WINDSOR PLAZA HOTEL STANDARD OPERATING PROCEDURES STANDARD OPERATING PROCEDURES

BUDGET FORECAST ANALYSISBUDGET FORECAST ANALYSIS

• Forecasting is a concise version of the budget , Budget is a well planned Document , with details worked out meticulously , the budget has a base logic to support any revenue or cost decision , budgets are usually worked on brain storming sessions , of the concerned department heads and the financial controller , its purely a financial tool ,offering guidelines and tracks the revenue and cost for a period of time normally synchronizing with the financial year of the company entity , the budget is a business plan document ,it’s a quantification of the sales and marketing plan defined for a period of time normally a year,

• Forecast is the short term Quantification of the business plans, it harnesses the marketing trends, of a current month or quarter, it’s the concise version of a budget plan

A budget for a given period of time is worked during a period back may be 2 or 3 months earlier , the conditions market and cost conditions , existing at that point of time ,the forecast is set on the basis of budget plan , at the current trend , it is analyzed from the current market event happening in the city ,country, with the available for sale room nights, and food average checks , from conferences , tour operator promotions , government diplomatic happening s , wedding functions , special events , sales and marketing strategies are to be focused , to tap the source of business , which are not planned , so forecast is a more contingent planned document , projecting the sales trends ,which are missed out in the master budget plan

Budget and forecast –comparisonBudget and forecast –comparison

• Forecast is conceived totally on the budget , variances between the two are only compensatory for budget revenue or cost can be postponed , due to an event getting postponed , at the end of the period, say one year , budget and forecast would not show any variance to actuals

• Although the budget is always the target, each month, each hotel submits a detailed line by line quarterly forecast.

• This is an extremely important tool which provides management with a firm grip on the future and allows timely actions to offset losses through expense controls and maximize revenue opportunities.

• Forecasting accuracy is tracked monthly by hotel. compare results versus forecast and budget as well

as other operational issues/concerns

Budget and forecast –Budget and forecast –comparisoncomparison

• Budgets are compiled for the long term , but forecast are short term analysis

• Vision for budget is more than 3months , but for forecast vision is

for the immediate

• Budget assumptions are many forecast there need not be assumptions at all

• Budget KRA.KPI are projections for a period of time , forecast KRA and KPI are realistic

• Budget cash flows are derivative projections , but forecast and actual cash flows ensures positive liquidity decisions , like holding to optimum inventory and receivables , thus forecast are normally cash flow decisions , and budget are profit maxims.

• Budget and forecast complementary ---a quantified forecast of operations, for a specified period, prepared for management control purposes; a quantitative, financial expression of a programme of measures planned for a given period. The budget is drawn up with a view to planning future operations and to making ex post-facto checks on the results obtained

• Budget is a financial tool analysis for the year , and forecast is a monthly analysis tool projected with almost meeting the actuals

• Variances of budgets and forecasts are only compensatory every month , variances of actuals to forecast should be justified , corrective measures to be taken ,

• Forecast are the direct foresight of the Departmental planner, whether there a revenue surplus or a cost saving

• Forecast enables monthly Revenue management analysis more effective

• Forecast Enables costs and value analysis more effective

• Forecast enables the management planner to achieve yearly budgeted Targets , variances are justified and corrective measures are taken

• BUDGETS are based on statistical tools Trend Analysis ,

• Mean , mode , median—Least square methods

• Market Research Analysis --Demand forecast –Delphi technique, Questionnaire, Interviewing Method, Empirical studies, Historical or past figures

• Cost saving concepts and Devices –FB costs, Energy cost, Maintenance cost, like preventive Maintenance ,material costing and Value Analysis , Human resources –effective man power utilization , BPR -Business process Re-Engineering ,

Modality of forecast implementation Modality of forecast implementation

Introspection to Departmental HeadIntrospection to Departmental Head • HOW DO YOU SET YOUR FORECAST FOR THE

NEXT THREE MONTHS • Forecast is an financial adjustment statement ,

when you know your Budgeted Revenue and Expenses , and if you have Digressions in the budgeted targets , than forecast would be the adjusted financial tool , where increases or decreases in income and expenses are justified , The extent of decrease is only an adjustment compensation , if the forecasted revenue is less in January 2009 than the budget , that difference would be adjusted in future months may be in march may or june 2009,

Forecast can be derived Forecast can be derived from the following sourcesfrom the following sources

• 1 sales call reports of the sales and marketing department• 2 Reservation• 3 Tour operators • 4 chamber of commerce activity spurt or postponement of events • 5 major events in the country city not taken into account in the

budget analysis • 6 The latest trends from the market share analysis report• 7 Revenue Par forecast • 8 Power cuts • 9 Renovations in the hotel • 10 wedding events in the city • 11 Shuffles in major conferencing to another date already fixed • 12 Happening of New events after the budget finalization• 13 any feature of revenue management feature which you would

subsist your revenue • 14 Revenue Management Analyses

• REVENUE is budget Achieved thru forecast analysis With the budgeted Revenue and Budget Departmental GOP –

• Thus Revenue centers apart from Revenue should also control the expenses budgeted achieved through Forecast

COST SAVING -GUIDELINES TO COST SAVING -GUIDELINES TO FORECASTFORECAST

• Expenses on non Revenue Centers such as Engineering, Administration, Sales and Marketing, IT Department, Human Resources, Security, Human Resources would be monitored by the relevant cost centre Department Heads

• Revenue center Heads –would Analyze the cost tabulated to their respective departments

Revenue department Revenue department savingssavings

• From –1, Cost of sales—Thrust areas of control could be food and beverage cost

Daily market list purchases, value analysis, control of breakages, finished food wastage

• 2. Payroll related expenses /deployment of contract and

casual labor • 3. Other Expenses –power and fuel cost

From cost centre departments savings • 1 payroll related expenses • 2 other expenses power and fuel cost , wasteful

advertisement expenses , sales expenses to be measured with results

REVENUEBudget

 Jan 2009

Forecast

Jan 2009

 

Budget fe

b09 

forecast 

Feb2009

Budget march0

9

Foreca

st march 09

 

   

Airlines Non-Crew 1,232   1,353   1,915      

Airlines Crew 64,146   59,376   65,112      

Corporate 220,990   154,82

5   231,446      

Internet 119,435   105,21

3   127,081      

Travel and tour 416,259   409,90

3   436,734      

Others 4,910   5,455   4,107      

Sub-Total Revenue826,9

72

 736,1

25

  866,395      

                 Less: Rebates /Discounts                Room Allowances 5,000   4,500   5,500      

Breakfast Board Transfer - Food 95,579   85,641   99,243      

Breakfast Board Transfer - Beverage 7,194   6,446   7,470      

Breakfast Board Transfer - F&B 102,773   92,087   106,71

3      

                 Add: Room Sales - Other 7,440   6,720   7,440      

                 

Add: 5% Service charge 41,349   36,80

6   43,320      

                 

NET ROOM REVENUE767,9

88

 683,0

64

  804,942      

VAT Taxes Contra not Evaluated As Rev 82,697   73,613   86,639  

Room Nights Sold 9,522   8,517   9,874  

Average Room Rate 86.85   86.43   87.75  

Room Available 11,966   10,808   11,966  

Revenue Penetration 69.11   68.11   72.40  

Occupancy % 79.57%   78.81%   82.52%  

Breakfast Board Transfer 102,773   92,087   106,713  

Breakfast Walkin 109,967   98,533   114,183  

Guest Number 15,860   14,211   16,468  

Room statisticsRoom statistics

REVENUE

Jan Budget

foreacst jan

Feb Budget

feb forecast

Mar budget

March forecast

budget quarterjan feb marc

h 2009

Forecast quarterjan feb march 2009

Food668,2

64

 659,7

45

 663,9

79

     

Beverage 74,138   71,32

9   71,380      

Room Service - Food 2,185   1,885   2,087      

Room Service - Beverage 298   257   285      

Breakfast Board Transfer - Food 0   0   0      

Breakfast Board Transfer - Beverage 0   0   0      

Add: 5% Service charge 37,244   36,66

1   36,887      

Sub-Total Revenue782,1

29

 769,8

77

 774,6

17

     

                 Less: Rebates /Discounts                Allowance Food 0   0   0      

Allowance Beverage 0   0   0      

Allowance Others 0   0   0      

                 

Add: Other Income 24,613   22,37

3   22,400      

                 

TOTAL F&B REVENUE806,7

42

 792,2

49

 797,0

17

     

COST OF SALES                

Food cost221,6

56

 218,5

34

 220,2

18

     

Beverage cost 20,713   20,01

2   20,068      

Tobacco cost 5,546   5,012   5,457      

TOTAL COST OF SALES247,9

15

 243,5

57

 245,7

43

     

PAYROLL & RELATED EXPENSES                

Salaries & Wages - Local 35,732   35,88

2   35,882      

Salaries & Wages - Expat 35,445   35,44

5   35,445      

Casual Labor - Local 8,264   8,264   8,264      

Service Charge 34,931   32,85

0   35,518      

Bonus 28,429   0   0      

Employee meals - Local 10,433   10,43

3   10,433      

Officer Coupon - Expat 2,900   2,900   2,900      

Allowances 0   0   0      

Social Insurance contribution - Local 2,707   2,719   2,719      

Health Insurance contribution - Local 361   362   362      

  0   0   0      

Unemployment Insurance - Local 180   181   181      

Union Fees - Local 361   362   362      

Employee benefit - Local 1,474   1,474   1,474      

Air Ticket - Expat 8,162   0   0      

Rental accommodation - Expat 1,800   1,800   1,800      

Visa extension fee - Expat 3,323   0   0      

Cell phone - Expat 144   144   144      

Provision for Increment - Expat 1,216   1,216   1,216      

Provision for Bonus - Expat 22,088   0   0      

Others 0   0   0      

TOTAL PAYROLL EXPENSES197,9

52

 134,0

33

 136,7

01

     

OTHER EXPENSES                

Chinaware 0   0   0      

Glassware 0   0   0      

Stainlessware 0   0   0      

Plasticware 0   0   0      

Linen 0   0   0      

Uniform 0   0   0      

Others 0   0   0      

Commission 79   78   78      

Contract cleaning - Pest control 396   389   391      

  0   0   0      

Contract security 0   0   0      

Kitchen fuel 13,574   13,32

7   13,399      

Laundry & Valet 2,813   2,768   2,788      

Music & Entertainment 2,866   2,826   2,837      

Advertisement 29,830   29,32

6   29,464      

Miscellaneous / Contingency 6,535   6,134   6,624      

  0   0   0      

Cleaning supplies 173   169   171      

Guest supplies 1,617   1,587   1,598      

Printing & Stationery 3,066   3,012   3,028      

Others 0   0   0      

Banquet expenses 0   0   0      

Decoration 3,054   3,013   3,056      

Licences & Fees 0   0   0      

Menus 458   451   454      

Utensils 0   0   0      

Local Transport 36   33   36      

Telephone & Telex 411   403   407      

Signage 54   49   55      

Building maintenance 140   132   140      

Painting & Decorations 131   128   129      

Computer purchased & maintenance 47   47   46      

Electrical bulbs 309   311   308      

Furniture maintenance 115   114   116      

Floor covering 47   46   47      

Mechanical equipment 38   38   36      

Grounds & Landscape maintenance 202   201   200      

Kitchen maintenance 114   113   111      

Plumbing 64   63   62      

Audio visual 76   76   77      

Other equipment maintenance 192   183   191      

Electricity 43,962   42,90

0   43,316      

Water 2,159   2,097   2,161      

Others 0   0   0      

TOTAL OTHER EXPENSES112,5

58

 110,0

16

 111,3

24

     

                 

TOTAL COST & EXPENSES558,4

25

 487,6

06

 493,7

67

     

                 

• Cost reduction—all department heads • Value analysis • Value engineering • Electricity power consumption –lights to be switched off,

water saving • Optimum use of gas , good quality procurement of diesel

and petrol • Recycle of paper, of files , -In house training programmes to

be conducted for all down the line staff on how to recycle, procurement of low cost paper for administrative use

• Set up your own printing press for guest stationery • Recycle of food, portion control , beverage checks thrice a

week of all outlets • TRAINING OF STAFF • Contract and casual labour dependence to offset seasonal

variation in business• Retention of good quality staff

PAYROLL & RELATED EXPENSES budg

et

forecast    Budget   forecast  Budget   forecast 

Salaries & Wages - Local 8,710   8,710   8,710      

Salaries & Wages - Expat 4,750   4,750   4,750      

Casual Labor - Local 0   0   0      

Service Charge 3,932   3,697   3,998      

Bonus 7,040   0   0      

Employee meals - Local 609   609   609      

Officer Coupon - Expat 310   310   310      

Allowances 3,300              

Social Insurance contribution - Local 660   660   660      

Health Insurance contribution - Local 88   88   88      

                 

Unemployment Insurance - Local 44   44   44      

Union Fees - Local 88   88   88      

Employee benefit - Local 250   250   250      

Air Ticket - Expat 1,480              

Rental accommodation - Expat 0   0   0      

Visa extension fee - Expat 350              

Cell phone - Expat 18   18   18      

Provision for Increment - Expat 152   152   152      

Provision for Bonus - Expat 3,040              

Others 21   21   21      

TOTAL PAY ROLL RELATED EXPENSES

34,842

 19,3

98

 19,6

98

     

                 

OTHER EXPENSES                

Uniform                

Utensils                

Postages 160   160   160      

Guest supplies 14   14   14      

Local Transport 917   917   917      

Telephone & Telex 672   672   672      

Commission 2,563   2,563   2,563      

Audio visual 3   3   3      

Inhouse Entertaiment 1,720   1,720   1,720      

Outside Entertaiment 484   484   484      

Laundry & Valet 53   53   53      

Printing & Stationery 2,053   2,05

3   2,053      

Cleaning supplies 2   2   2      

Decoration 431   431   431      

                 

Promotion 2,488   2,48

8   2,488      

Menus 30   30   30      

Travelling expenses 2,000   2,00

0   2,000      

Music & Entertainment 1,083   1,08

3   1,083      

                 

General Insurance 72   72   72      

                 

Subscription & Membership 476   476   476      

Miscellaneous / Contingency 744   700   755      

Giveaway 339   339   339      

Video & Photograph 45   45   45      

Brochures 792   792   792      

Marketing 1,350   1,35

0   1,350      

Trade show 1,790   1,79

0   1,790      

Advertisement 1,155   1,15

5   1,155      

                 

Electricity 527   527   527      

Water 41   41   41      

Signage 3   3   3      

Laundry maintenance 37   37   37      

Painting & Decorations 7   7   7      

Carpentry 1   1   1      

Computer purchased & maintenance

1,100   1,10

0   1,100      

Furniture maintenance 204   204   204      

General electrical 11   11   11      

Mechanical equipment 36   36   36      

Office equipment maintenance 230   230   230      

                 

TOTAL OTHER EXPENSES

23,634

 23,

589

 23,

644

     

                 

TOTAL DEPT. PAYROLL & EXPENSES

58,476

 42,

987

 43,

342

     

• VALUE ANALYSIS • To save cost by retaining the value of the

product • For eg in one of the hotels I did value analysis • Guest stationery paper was used for

administrative purposes, ordinary quality paper was ordered the cost saving was about 10% on the printing and stationery budget

• similarly files , were reused • Recycle of used paper –training should be

given

• Value Engineering • Is the method by which you retain the value at economic costs • Value Engineering (VE) is a means of evaluating the function, cost, and objectives of a design or

construction project with the purpose of improving the value (function) of the design of its components, or reducing the project cost. 

• The traditional energy system transfer to solar energy system is VE

• Energy Efficient Equipment• Energy Efficiency Considerations• The hotel industry is equipped with energy intensive equipment and lighting. Air conditioning,

heating, lighting,ventilation, refrigeration, motors, cooking, laundry, cleaning and office equipment • re necessary for hotel operations.Choices made when purchasing equipment can have a major impact

on the hotel’s operating expenses and on theenvironment; therefore, it is important that efficiency be considered before purchasing energy intensive equipment.

• Air conditioning (A/C) Efficiency• Purchase A/C equipment sized for the area of use.Look for a high Energy Efficiency Rating (EER); a• Seasonal Energy Efficiency Rating (SEER) of 10 or higher is recommended.Use high efficiency motors

for A/C air handling unit fans (fan speeds).Install heat recovery units on large A/C systems to• preheat water. Compare efficiency of gas and electric air conditioning systems before making a

selection.Purchase washable, commercial grade A/C filters and change them every four weeks during hot humid months.

• Lighting Efficiency--In purchasing light bulbs, as a general rule, the bulb cost is the smallest cost. Energy costs over a bulb’s useful life are many times the original purchase cost. Evaluate bulbs by comparing lumens per watt. Convert inefficient incandescent bulbs to efficient fluorescent bulbs in exit signs, guest room lamps and other areas where incandescent bulbs are used. The newer 95-watt incandescent bulb replaces the older type 100-watt incandescent bulb.16 Replace incandescent reflector bulbs with lower wattage ellipsoidal reflector bulbs .Install lighting controls (timers or occupancy sensors) to turn off lights in unoccupied areas such as storage rooms, employee rest rooms, walk-in coolers, etc

• Increase the energy efficiency of• fluorescent lighting systems by• purchasing:• high efficiency fluorescent bulbs; for example, replace aT-8 with a T-12 bulb,energy efficient ballasts that provide a

more efficient energy transfer,reflectors that direct more light out of the fixture into theroom,high intensity discharge bulbs (Low Pressure and High

• Pressure Sodium and Metal Halide) for parking lot lighting, security lighting, and for select indoor use,photovoltaic lighting systems for lighting advertising signs, walkways, plants, trees, decorative water fountains and remote out-door areas.

• Electric Motor Efficiency• Choose high efficiency motors with variable speed controls. Consider the hours the system needs to operate before

selecting motor sizes.Consult with a qualified energy engineer for a costsavings analysis; two small motors may operate more efficiently than one large motor.

• Kitchen equipment considerations include• purchasing: air-miser hoods that use outside air as make-up air instead of discharging conditioned inside air, a timer

for the kitchen exhaust hood that turns off the system when the kitchen is closed, smaller convection ovens to replace oversized conventional ovens,

• an air-to-water heat pump water heater for kitchen use,refrigeration equipment with high energy efficiencyratings,Note: Compare energy efficiency ratings before making a purchasing decision. Consult with refrigeration experts when replacing old compressors and motors to

• guarantee proper sizing.• Water use considerations:• Water use in hotels varies depending on geographical location, occupancy, property type and season of the year. The

average water use is 218 gallons per occupied room per day. Larger properties use more water due to the water intensive facilities often found in the larger hotels, i.e., pools, laundries and restaurants. Excessive use of water increases the cost of operation, increases electrical energy required for pumps, depletes the water supply and puts extra demands on waste water disposal plants.

• Increase water use efficiency by• purchasing:• dishwashing machines that use final rinse water for the prewash of the next load of dishes, water-saving

showerheads and sink faucet aerators: 2.5 gallons per minute (GPM) showerhead and 1.5 GPM aerators are recommended for water savings and guest satisfaction spectively. Showerheads with less waterflow often increase the number of guest complaints, a food-thawing machine instead of running water over foods for faster thawing, laundry washers which use final rinse water for prewashing of the next load of laundry, Note: Reduce the number of laundry loads per day by asking guests how often they would like their bed linens and towels laundered.. Some hotels are changing sheets every two to three days and towels every other day.

• Plan landscapes with plants requiring low maintenance. Xeriscaping ideas are available from the Cooperative Extension Service, The University of Georgia and/or The Georgia Water Wise Council.

• Office equipment considerations include• purchasing:• computers, monitors and printers with power down features that consume 60% less energy when machines are idle.

Look for the EPA “Energy Star” sticker on the computer. Additional information concerning the “Energy Star” can be obtained from the U.S. EPA by ordering EPA document # 430-K-94-006, July 1994.The U.S. EPA telephone number for Energy Star Computers is (202) 233-9114. copy and fax machines which have power down/stand-by

• features that operate when machines are idle.

• Power and fuel• To use dimmers to control the flow of electricity• To switch of lights in all non operational Areas , back office

areas • To monitor the power in front offices • Lower lobby upper lobby by switching of power during late

nights and midnights • Petrol diesel to be measured and utilised most effectively • Generators to be serviced periodically to avoid any excessive

consumption due to valve in efficiency • Petrol consumption to be controlled with reboring of Engines

• Monitor cost of guest supplies and Room amenities

• n the hotels I generally stay in, there are small bottles of shampoo, conditioner, body lotion and in some cases mouth wash provided with the room. In addition there is usually a small bar of soap neatly wrapped in some packaging. There are also towels - a bath towel, hand towel and flannels but more often that not there are more towels than I actually need. To provide these items costs the hotel money.

• However, many of the hotels are now providing bottled shampoo and conditioner in dispensers attached to the wall of the bathroom. Gone are the little bottles and the package of soap. As a customer, I noticed that these items had gone. However, the provision of the shampoo and conditioner in a dispenser - and quite good quality products at that - meant that my customer experience was not affected unduly. Indeed, I reflected that it was a very sensible policy by the hotel. The number of pieces of soap, for example, that get thrown away when they have only been used once must be huge - they cannot really be used again!

• This, therefore, is another good example of value engineering in practice. The hotel might have looked at its operation, identified the costs involved in providing all these items and arrived at a decision that there could easily be another way in which the same functionality can be provided but at a significantly reduced cost. The crucial point is making sure that customers do not feel that they are being 'cheated' out of a service or being provided with a sub standard or inferior product or service.

Food and beverage Food and beverage • Controlling breakages of crockeryIncluding glass ware • In many hotels the price list of all

stewarding items are projected at the wash up areas and waiter areas to create an awareness on the incidence of costs due to Damages and breakages

• Portion control• Food reycling • Cocktails and mocktails

Financial costsFinancial costs• Cost of interest on inventory holding• Slow moving , non moving items • Product obseletion • Japanese inventory from the shop windows • GAAP ANALYSIS-Accounting and Liquidity ratios should Optimise costs • Short term investment bank FDS etc on surplus funds , due aggressive and

surplus cash flow • Profit volume analysis –sales = cost plus Profit Profit = revenue –cost PV ratio = Ascertain profit thru profit plan work out cost and make a selling

target to maximize profit optimize cost • Break even sales point • Access , understanding all MIS reports • Cost control reports to be perused

Opportunity costs Opportunity costs • Opportunity cost are those were cost

are tangible benefits are intangible for eg , extending a facilitation may

be additional cost , but the benefit drawn from it is very high magnitude

by way of guest satisfaction • Cost Benefit Analysis• Tax

Human resources management Human resources management • Costs are reflected when manpower utilization are effective –dept head contribution • To sustain costs deployment of Part time workers , contract workers , students like to

work as part-time especially in hotel where the work environment is glamorous • Such work force should be deployed due to contingencies of work permit , seasonality

of business • Business process reengineering and Change management• Involving and Motivating Employees• No matter how well planned your waste reduction and recycling initiatives may be,

they probably won't succeed without the support of the hotel department managers and staff. Successful hotel recycling programs require employee involvement, training and recognition. Involve all employees in the recycling program. They are already disposing of waste as they perform their daily jobs. Recycling is simply disposing of job related waste in a different container from the one used for trash. Seek their ideas in organizing the recycling program and for methods of collecting and storing the

• materials. Employees are more likely to support a program that they understand and have helped design.Develop motivational programs that create opportunities for staff involvement and enthusiasm about the recycling program.

• Training• Develop employee training programs that include recycling techniques specific for

various departments .Include recycling information in new employee orientation programs.

• Inform employees of environmental issues and laws. Employees want to know why the• hotel is recycling.• Recognition• Develop a system of on-the-spot, weekly and monthly incentives for employees who• exhibit activity and leadership in recycling and waste reduction efforts. Recognize

employees and departments that show exceptional involvement in the recycling program.

Sales and marketing costs Sales and marketing costs • Advertisement Timing • Advertisement results assessing

response to advertisement cost • Reuse or recycle of decorations

material

Supply chain management and savings costSupply chain management and savings cost• ANALYZING THE HOTEL SUPPLY CHAIN• Supply chain in the hotel industry, like any

other• supply chain, has three distinct cost

elements to• optimize:• ! Cost of Transaction• ! Cost of Product• ! Cost of Inventory• In the following sections we discuss the• relevance of these cost components

• COST OF TRANSACTION• Approximately 30-50% of the products in the hotel industry belong to the low-value, high volume category. In Full Service hotels, many products like vegetables and fruits have a short shelf life and require repeat purchases. These products increase the transaction cost.• standardization/rationalization of the product portfolio, as well as automation in the

supply chain process • Due to absence of standardization and central purchase non effective the cost of

transaction is high • The indenting process in many hotels is• manual, or at best semi-automatic, requiring• manual consolidation (Figure 1). For example, if• the same product is required by four• departments, either paper indents are created• or the system does not have the facility to• consolidate the requests. This is usually true for• items that get indented separately by each• department in a hotel.• Hotels can potentially save an estimated• 8-20% on the cost of transaction, depending on• the level of automation and unplanned activities• that are present in the system.

• COST OF PURCHASED PRODUCTS Cost of purchase in a hotel can range from 15-30% of sales, depending on the type of

hotel. The level of consolidation among hotels belonging to the same chain is often nonexistent. These units lose the benefit of bulk purchase that consolidation can provide .In cases where a central purchasing organization monitors and releases central contracts, the adherence to the same is extremely poor. Contract leakage is a common phenomenon in hotels. There is also a tendency to use a large supplier base but not develop a strategic relationship with any one of them. As a result, concepts like product value re-engineering, joint cost improvement initiatives, and so on, which are the prevalent modes of cost reduction in the manufacturing industry, are rarely in practice .All these factors contribute heavily towards the increase in the unit price of products in the hotel supply chain. Hotels today may be losing an estimated 8-10% on products purchased.

COST OF INVENTORY Forecasting the material consumption based on forecasted occupancy is usually not very well managed. The lack of an interface with the sales and purchasing system and the complex association of purchase and physical occupancy can be cited as two major reasons for poor forecasting. The vendor-supplier relationship in the industry is also far from being perfect. As a result, concepts like vendor-managed inventory or Justin-time inventory that have been deployed by many industries to reduce inventory costs are generally out of context for many hotels. In addition, a large number of SKUs and lack of standardization often lead to a waste of valuable shelf space. This can be significant foremost hotels as they are generally located in high value real estate areas. Engineering spares and operating supplies form the most significant part of

physical inventory in the hotel inventory cost. Usually these numbers are well reflected in the balance sheet of many hotels where expensive inventory like wines may have significantly high inventory. Engineering spares can have an inventory turn of almost one year. 68

• FOOD AND BEVERAGE COST SAVINGS • To successfully reduce waste disposal costs, conduct a departmental audit to

determine the types and volumes of wastes generated for disposal. Plan your waste reduction initiatives by targeting specific products or materials that contribute the greatest volume and/or weight to your departments waste stream or which create disposal problems.Establish short and long term departmental goals for waste reduction and implement appropriate waste reduction

• strategies.• Reduce Waste• Use reusable metal or nylon coffee filters. Use only reusable dishes and flatware in• restaurants and employee cafeteria.Install a magnet on food waste containers to• recover silverware accidently thrown away with food waste.Use paper towel dispensers

in employee rest rooms that control the amount of paper being,dispensed or use less than standard width paper to reduce paper waste as well as litter.Use filters in deep fryers to extend the life of cooking oil. Distribute condiments, paper napkins, and

• straws upon request instead of offering them self-serve for take-outs.Replace individually wrapped condiment packages with bulk dispensers in restaurants

• and employee cafeterias.Use washable hats and aprons for kitchen• employees instead of disposable paper ones.Use only cloth napkins, tablecloths and

china for restaurants, meetings, and conventions.14 Use stained wash cloths and towels for cleaning rather than paper towels.Redye tablecloths and napkins to match new color schemes when remodeling; reuse worn table linens as cleaning rags or remake into aprons, laundry bags, mattress covers.Use glass or plastic coasters to reduce cocktail napkin waste.Eliminate paper place mats and use cloth

• ones.Reuse five gallon PVC buckets.• Request fruits, vegetables and meats to be packaged in reusable crates, or recyclable• boxes.

• Reduce Paper Waste• Use a centrally-placed or electronic bulletin board for messages instead of

making multiple copies of memos.Shred office paper and use it to package shipments.Eliminate fax cover sheets by using a rubber stamp or sticky notes designed for fax use. Reuse envelopes and folders for routing inhouse mail and correspondence.Include a statement requesting electronic addresses on all written correspondence.Electronic mail will save on postage, labor and paper. Decrease the number of hard copies of documents by establishing a central filing system to store documents.Use electronic mail for correspondence when possible.Prepare documents with small margins and double sided printing or copying.Make double sided copies when possible.Use the back side of paper that is printed on one side for drafts.Make scratch pads from paper used on one side by stacking paper and coating one end with rubber cement and cutting in half.Edit and proof read documents on computer screens before printing.Use staff routing slips when sharing information in-house to stop multiple copies.Purge mailing lists to reduce returned mail. This saves on paper use, postage and recyclingcosts.

• Avoid unnecessary print-outs by faxing directly from the computer.• Reduce unsolicited mail by sending each solicitor a postcard requesting that

they remove your hotel’s address from their mailing list;reuse their original mailing label for your return address.