Font Size

- Aa +

Wed 5 Nov 2008 04:00 AM

Font Size

- Aa +

Transporting fear

The transport and logistics industry, crucial to hoteliers across the Middle East, is facing increasing domestic and global pressure - a situation that is leading to rising prices, discovers Laura Warne.

The transport and logistics industry, crucial to hoteliers across the Middle East, is facing increasing domestic and global pressure - a situation that is leading to rising prices, discovers Laura Warne.

Over the past year, issues such as rising fuel prices, global economic crises, a boom in the cost of property and an influx of low-cost Chinese products have all played a part in changing the face of the transportation industry in the Middle East.

For hoteliers, this means increased costs, rapidly-shrinking storage facilities and a longer waiting time for international freight deliveries.

Many are faced with the dilemma of whether to buy from local or international suppliers and in most cases it has become a difficult question of whether to prioritise price over quality.

It has become a difficult question of whether to prioritise price over quality.

Wrong from the start

Several years of growth and unexpected economic shifts have played havoc with the forward projections of many new hotel developments, according to Kuehne + Nagel Management AG's vice president of hotel logistics Achim Glass. When drawing up the budgets for new hotels projects, Glass says designers used to allocate around 8-10% of the overall budget for logistics costs.  However, thanks to a range of pressures both locally and globally, that figure is now substantially higher.

"It has increased by 2-3%, which is a lot. People don't consider that, especially because you put a budget together today for a hotel project that is due to open in two years," says Glass.

As a result, projects that were calculated based on the freight rates of two years ago are now facing unexpected cost increases that can seriously affect the profitability of the development.

Even without budget blow-outs, logistics can cause major headaches for hotel owners and operators during the first stages of property fit-outs.

As Glass explains, for maximum efficiency, hotel fit-outs need to run to a very specific schedule to avoid delays and hidden costs.

"For example, if a hotel is under construction, if you don't have the bathtubs, you cannot bring in the carpet," says Glass.

"You must do all the work in the bathrooms before you move on to the guestrooms. And you cannot bring in the bed if the carpet has not been installed.

"Our job is to bring the products in the right sequence."

The trend towards subcontracting labour, often a result of staff shortages, can lead to unreliable workers and a greater risk of mistakes, says Glass.

As an alternative, Kuehne + Nagel offers a turn-key solution to hoteliers that involves delivering cargo, unpacking and waste disposal, as well installation. Glass says this completely in-house service model is popular with hoteliers as it does not rely on subcontractors or outside companies.

However competition is fierce, with many new players springing up in the market, offering rock bottom prices that are too good for many hoteliers to pass up.

"There are many ‘cheap Charlies' out there, but eventually customers come back because quality has its price - and not just quality, but accountability and reliability," says Glass. "We have been around for 130 years, so we will not just disappear and vanish. We are not just any other transportation company."

Product placement

Fit-outs may be difficult to get right, but at least they are a one-off event. Once a hotel is open, transport and logistics becomes a whole new ballgame.

Rising warehouse costs are forcing hoteliers to change the way they view product management and replenishment.

Glass explains that in the past, hotels had the luxury of ordering too much of a product and storing it until needed, ensuring a surplus was always on hand.

But it is no longer economically viable to have masses of stock sitting in storage, he explains, so hoteliers must be fastidious when ordering to ensure they do not run out.

"Property rates are going through the roof [in the region] and the same applies for us in the warehouse," Glass points out. "Companies who used to hold stock in Dubai don't want to anymore. There's no alternative to not stocking, but you should not overstock."

Storing products in-house is simply not an option, according to Glass.

"If you're talking about a luxury hotel, you are using every square metre in the hotel to make revenue," says Glass.

Purchasing stock locally is one way for hotels to cut out storage costs and ensure that products will arrive on time.

Radisson SAS Hotel, Dubai Deira Creek's general manager Andreas Flückiger says his solution is to source international products through local suppliers.

"Most of the products come from overseas, however we buy from local suppliers so they do all of the imports and they store it and eventually deliver it," says Flückiger.

"Sometimes there are specific products which we would buy directly from overseas but mostly we buy locally because that is much easier."

This policy applies for both branded and general items.

Jumeirah's group director of supply chain and logistics Andrew Wilson says the group has committed to buying local products and services where possible, although he admits many goods are still imported as sea and airfreight.

Despite the advantages of buying locally, Glass explains that there are also several major drawbacks, beginning with the unreliability of the local market.

"If you buy locally, the company that you bought from last year may no longer be around - companies come and go," says Glass.

"If you run out of plates and have to replace those, if the company is no longer there, you start getting patchwork plates. That's OK for a three-star, but for a five-star that's a no-go."

Furthermore, hoteliers will pay a premium on international stock bought through a local supplier.

Ordering at the right frequency is the key to efficient product management, says Glass - and yet he says many hotels struggle with this task.

"The right frequency should be standard. If someone wants to order every five days, let them order every five days," says Glass.

"Ideally they should order once a month, but it depends on their products. If you are talking about guest amenities, which are not perishable items like flowers or fish, once a month is typically what the hotels do.

"That gives the international supplier planning accuracy."

Wilson explains that Jumeirah Group places approximately 1200 orders per day for perishables, consumables and plant (engineering and maintenance) equipment.

"We need to be very flexible to ensure we always have exactly what we need without knowing what the next guest is going to order for breakfast," says Wilson.

"We need to consider all options and plan our supply-chain logistics accordingly so that we are prepared for the exception as well as the norm.

"To this end, we have developed and fine-tuned an endurance inventory model that orders goods on the basis of forecasted consumption with consideration of delivery lead times."

However Glass adds that if things go wrong and unexpected delays occur, costs can skyrocket for hoteliers.

"If things are late, you may have to switch from sea freight to air freight, and rule of thumb says that it is seven times more expensive to go by air freight compared to sea," he warns.Glass says hoteliers are sometimes left with no choice but to source pirated products.

"If you are waiting for executive slippers and they don't arrive in time, you cannot be without slippers, so you go to the local marketplace and you buy fake products," says Glass.

"It means that the original product you have ordered is still on its way, but you have to buy this secondary product, so you are doing a double purchase."

Glass says Kuehne + Nagel has developed an efficient solution for hoteliers to manage and replenish  stock.

There are many ‘cheap Charlies’ out there, but eventually customers come back because quality has its price.

"We hold from numerous international suppliers in our Jebel Ali facility," he says.

"We bring it to Dubai in bulk, so hotels can buy from international suppliers so they get the quality they want, but it is stored locally and you are bringing in products in bulk so you benefit from economies of scale.

"The hotels place their orders on our e-commerce platforms and we deliver within 24 hours. In the past, what used to take weeks now takes a mere day to get replenished."

Glass says it is now the responsibility of the supplier to ensure they have enough stock in the warehouse and, ultimately, he remains confident in the industry.

"Honestly, I believe that, especially in the UAE, the supply chain is fuelled very well - there are hardly any hiccups," he says.

The Monarch Dubai has implemented a unique in-house model to cope with its supply issues. Its procurement department is responsible for managing the entire supply chain for products coming in to the hotel. 

Procurement manager Soney Mathew heads up the department, which is split into three sections - purchasing, stores and receiving.

As Mathew explains, hotel departments such as reception or F&B will forward product requests to the purchasing department, which sources directly from the market.

Purchasers will look at both local and international suppliers for the best deals, but Mathew says local is the best choice for managing cash flow and ensuring the product is available on time.

Once the purchaser has sourced a product and confirmed with the department that requested it, they will send a purchase order to their supplier with a requested arrival date or ETA.

Procurement is all managed via ACOM solutions software.

Once products arrive, the receiving department will check quality and quantity and pass the goods on to the department that ordered them.

The storage department is responsible for storing and maintaining all day to day items used by the hotel. These are separated into general (stationery and office goods), guest supplies (including branded products and room supplies) and food and beverage. 

Again, inventory is managed through ACOM. 

The storage department will keep this stock regularly updated to ensure the hotel is always well stocked.

Mathew says the system - which he believes is one-of-a-kind in Dubai - works extremely well based on trust, loyalty and efficiency.

However, he admits there are stumbling blocks in place.

"One of the major challenges has been all the recent price hikes and fluctuations in the market," says Mathew.

"Before we'd see it maybe once or twice a year, but now we have quarterly price increases.

"Also, because of the economic uncertainty, long-term contracts are harder to obtain; people don't want to deal in contracts of more than three months."

He says that while the demand is growing in Dubai, supply is not keeping up, which affects the service levels of all industries. Mathew says many of his suppliers will now only deliver to certain areas on specific days to avoid being stuck in traffic.

People movers

While successful fit-outs and efficient product management are both important, a hotel simply cannot function without people - both staff and guests.

Getting people to and from the hotel on time is absolutely essential for the hotel's reputation and general operation. Flückiger admits that despite his best efforts, transporting staff remains a challenge.

Radission SAS Hotel, Dubai Deira Creek works with a transportation company that operates staff buses to and from the hotel.

Approximately 600 employees currently use the service. However, the hotel faces a constant battle, with drivers often arriving late or not showing up at all.

 "Like many of these services you buy in Dubai, you don't get very good service because there is excess demand," says Flückiger. "Many companies don't care enough about the services they deliver because they know there's a lot of demand.

"Also, these companies are facing problems with their own staff; there is a shortage of skilled labour which then also has an impact on the service that these kind of companies deliver."

Company policy at the Radisson is to wait for 20 minutes for a driver. After 20 minutes, staff members are instructed to take a taxi and forward the bill to the transportation company.

Employees with their own transport are expected to arrive on time - Flückiger says that for him, traffic is no excuse, even in Dubai.

"Everybody knows that there is a lot of traffic in Dubai, so you just have to leave early enough to make sure you are on time," he says.

"Sometimes the roads are really blocked because there is an accident, but a lot of people use the traffic in Dubai as an excuse for coming late.

"To me that doesn't really count - it's not an excuse."

Similarly, when it comes to transporting guests, Flückiger leaves nothing to chance.

The hotel uses a Lexus 4WD, taxis, and partners with Emirates' drivers to take guests to and from the hotel. Despite the occasional traffic jam, guest transportation runs smoothly at the Radisson SAS.

What to do

With costs continuing to rise and space remaining at a premium, it is unclear what the future will hold for the transport and logistics industry in the Middle East.

The only practical way for hoteliers to properly combat this uncertainty is to employ efficient management systems.

This includes monitoring product usage, placing regular orders, and leaving a time buffer to allow for potential delays.

Unfortunately, avoiding the traffic remains near-impossible.

For all the latest travel news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.