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All Back Issues » May/June 2006 Issue

Inventory Solutions
A sound purchasing systen has saved John Q. Hammons millions in just four years—and most are happy about it.
by Adam Stone

Under Vito Palmietto’s cost control and inventory systems, 80 percent of the food in John Q. Hammons hotels is coming from designated sources. Food costs are down to just 27 percent of sales. The company has saved $2.8 million over four years.

Palmietto doesn't call this an accomplishment. He calls it business as usual. “The main premise of our cost control is getting back to the basics, doing the basics correctly,” says Palmietto, corporate F&B director for John Q. Hammons, which operates 66 hotels under such flags as Embassy Suites, Holiday Inn, Hilton and others.

Basic it may be, but Palmietto’s cost-control system is an intricate structure, bringing together high-level thinking and ground-level implementation in an effort to manage expenses in the kitchen. Putting it all together was “a monumental task,” Palmietto says.

As he set out to create the system in 2001, Palmietto began by defining product specs, whittling down a 1,400-strong list to just 350 items. The plan was to capitalize on economies of scale.

“We would look for a manufacturer with a strong presence in the market, with quality and brand recognition—say, Hellmann’s. We want to partner with the manufacturer, so we say, let’s make them our brand for mayonnaise. Now we ask, what other products do they carry? We would try to consolidate as many items as we could into that manufacturer group."

Palmietto didn’t make the cuts and consolidations in a vacuum. “I am a firm believer that you have to get feedback from the field for a program to work. It can’t be top down,” he says.

Conference calls, formal surveys, and historical analyses of past purchase trends all helped to ensure that the final specs would fulfill needs all around. “When you are dealing with this many [hotel] brands, you have to make sure that whatever program you put in, it will work with all of them.”

Reports from the field say the spec list hit the mark. “Having national contracts makes life a lot easier for us, in that our prices are predetermined,” says Tom Quatrochi, F&B director at the Tucson Marriott. “We don’t have to shop for vendors all the time and it contains a promise from the vendor to take care of us in times when prices are rising.”

There are minor drawbacks, as for instance the lack of constant contact with the industry.

“When you had salesmen coming by five or six days a week, they would give you new ideas,” says Bob Chapman, F&B director at the Greensboro Embassy Suites. “Now you have to spend a little time on the computer looking at new products and going to food shows. We really need to get out there now to look at different things.”

Still, Chapman calls it a worthwhile trade. The spec list helps control cost and simplifies the purchasing process considerably.

Paired with the specs is the food transmittal system, a deal to buy 75 percent of food product from Sysco. Properties get annual bonuses based on compliance, and the system has been running at 80 percent and above.

To help ensure compliance and track participation, Palmietto makes available a computer program tailored to the need. “Instead of them handing in a stack of invoices with a printer tape from the calculator, they have a program that organizes their invoices, that gives them raw food cost awareness, primary purchase awareness— and moreover, it is a system that is standard across our company.”

Chapman gives it high marks. “You can look at it every day and know exactly where you are and what you are spending,” he says.

Inventory Management
Looking beyond purchasing issues, Palmietto also has put in place an inventory system meant to free up cash throughout the system. “That allows us not to have too much product on the shelf that is not being utilized,” Palmietto says.

Chefs are asked to predict the standard use of a product for a given week. They are given an inventory budget, plus extra for banquets, and are measured against their ability to stick to the budget. Chefs report their spending monthly to corporate and regional leaders. If they go over by $1,000 they need to explain what happened: Did a banquet cancel? Did they over-order?

Palmietto describes it as budgeting based on reality rather than on wishful thinking. “In the past a lot of chefs were told, you can have X amount of inventory on your shelves,” he says. “I have thrown out that theory. I really believe it is more about the chef learning what they really need on the shelf, not what they want on the shelf.”

In the past, inventory ran at 10.5 percent of sales. Under the new “base par” system inventory hovers below 8 percent, freeing up some $3 million for other uses.

“It lets us reduce waste and theft in our inventories,” Palmietto says. “It reduces the time it takes to take inventory. It provides awareness of actual product needs and it raises a chef’s awareness of inventory levels.”

Systemwide specs, base par inventory—all these demand a high level of centralized management. It’s a notion that does not always sit well with the ground-level leadership.

Palmietto says he gets calls daily from chefs concerned about losing control of their operations. He answers with a kind of tough love. “We have to look at the system as a whole,” he says. “The system is there for John Q. Hammons hotels. Is it going to fit every hotel perfectly? No, that is not going to happen. But I have tried to create something that is going to work for the majority of hotels.”

In reality, chefs say, the small degree of autonomy they lose is worth the long-term gains.

“There are maybe certain things you can get less expensively from other vendors on a one-shot deal,” Quatrochi says. “But you are free to do that anyway. And, realistically, you are at the mercy of the marketplace that way, as compared with the security you get from the national contracts.”

National oversight comes easier at John Q. Hammons than it might elsewhere. These are heartland hotels, which means chefs’ more whimsical ideas typically don’t make the menu. This is turn simplifies management of the system.

“For some of the executive chefs out there, they are constantly changing and going with the new trends,” Palmietto says. “We believe in more consistency, we believe in a steady business plan. We know what works in our markets and we try not to go too far out on a limb when it comes to trends.”

That means Palmietto can set the specs with confidence. He can control costs overall, which in turn frees up chefs to handle more important things.

“There are areas I need the F&B team to focus on, rather than worrying about the basics,” he says. “If the purchasing system is solid, that is something they don’t have to worry about. They can go ahead and manage their people, they can manage productivity, they can manage their creativity. They can do all that because I am giving them the basic systems.”


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