Imports changing our purchasing policies

By Ryan Kelly, Westmont Hospitality

Ten years ago when offshore imports started slowly creeping into the hospitality market you would hear such phrases as "poor quality", "cutting corners" and "taking work away from domestic factories". At the time these were indeed major areas of concern and no one could accurately predict the impact, nor outcome for that matter, on domestic manufacturers in North America.

The North American hospitality manufacturing sector nervously moved forward in 2000 and I believe it's safe to say, "My how things have progressed into the present day 2010."

These days, offshore purchases are considered mainstream in the marketplace with much less concern on quality control when sourced through reputable suppliers. Domestic manufacturers who once spoke of "keeping the work at home" and "North American quality" have since repositioned themselves as offshore importers and downsized their domestic footprint both in production and infrastructure and in many instances have eliminated it.

Manufacturers are now putting emphasis on overseas relationships and entering into agreements with foreign factories with the intent to expand their capabilities. The process of reaching these agreements is not all that complex in theory. A company must source a foreign manufacturer who satisfies their requirements, establish funding transfer paths, ensure importer of record status with a customs brokerage firm and register with their respective governments. To date, companies that have adopted this business model have proven to be very successful.

The USCBC (U.S.-China Business Council) reports that just shy of $40 billion was exported from China to the world with $16 billion imported into the U.S. on furniture alone in 2009. That raises the question, why can't some of the larger hospitality companies become their own "importers" of goods and take a bite out of the $40 billion piece of the import pie?

In January, 2010, Walmart announced that they had entered into a sourcing agreement with Hong Kong buying group Li & Fung in an effort to consolidate their purchases and essentially "cut out the North American middle man".

"The alliance between the companies is expected to allow Walmart to benefit by consolidating a part of its multibillion dollar sourcing portfolio that supplies the goods it sells in stores," said an article in The Wall Street Journal. "The core of the company's overall global sourcing strategy will be to continue increasing direct sourcing of it's own brands."

The deal is reported to be worth $2 billion within the first year of the agreement.

I realize that Walmart is indeed in its own elite category, and I am not trying to compare retail goods to hospitality, however the idea of "cutting out the middleman" and directly importing for the hospitality industry may not be that far fetched. When I evaluate the logistics and consult industry experts, there are no legitimate reasons why a hospitality company could not develop a similar business model for offshore imports in the near future.

However there are still many reasons to be wary of becoming a direct importer. For example, China is a progressing nation in terms of its labour structure, which currently provides them with their competitive advantage over most North American competitors. In addition we continue to see a global rise in raw materials costs and fuels, so time will tell if China continues to be the best place to source from. That being said, offshore manufacturing isn't limited to the Peoples Republic of China. Obviously, a well drafted action plan consisting of new infrastructure, bilingual personnel and a company that is willing to invest in such a model would be essential, but certainly not unobtainable considering the competitive advantage sought by successful companies.

In the future, the thought of hospitality companies directly importing may not be as far off as one might think. For example, over the past year Westmont Hospitality has made small steps in how they import product from overseas.  By taking a more active role in managing the importation process they are able to obtain better pricing and manage many of the hidden costs associated with the importation process.

I believe there is still a lengthy time frame before hospitality companies are able to develop the infrastructure to allow such purchases. However, if companies are not at least considering this model, then quite frankly they may be very well missing the boat.

Ryan Kelly is purchasing manager, capital projects for Westmont Hospitality Group. E-mail: Ryan.Kelly@whg.com.

Westmont’s purchasing team. Back (left to right): John Aitken, Abdul Hafeez. Front (left to right): Manuela Kennedy, Ryan Kelly, Linda Secord, Zhaleh Golwalla.