Purchasing 101: Renovation pitfalls for managers without a purchasing department

by Margit Whitlock-Espinosa, AIA
Principal
Architectural Concepts, Inc.

Your resort has a beautiful, functional design ensured to enhance the guest experience. Each item is pinpointed to perform a specific function and fulfill a targeted need. Are you ready to be the designated point person and act as the purchasing professional?

Where do you start?
First, upon final design approval make sure your design team prepares a specification book for all items you will need in order to install your resort’s new look. This book needs to have complete specification sheets for each product to be ordered.

Items to verify on the specifications are:
• Correct job name, address and client information
• Item name and quantity
• Item number and location
• Vendor or manufactures contact information
• Model number / color / written and graphic description of item
• Warrantee requirements (you may need to add these in the RFQ)
• Code requirements if applicable
• Installation plans for each area identifying each item, its location and/or special install instructions.

What’s in your budget?
Ask your design professional for an estimated control budget. This should be approved along with the design and prior to the purchasing phase. Remember the cost of goods is usually 70% of your total budget. Just because a chair is $300 does not mean that is the final price. Shipping, warehousing, installation, PA fees and taxes can be anywhere from 28-30% on top of your cost of goods. This percentage is higher for lower quantity and the opposite for higher quantity. Also a phased installation causes your overhead to increase.

What kind of time allowance should you plan for?
We suggest you leave yourself as much time as possible to maximize the bidding and negotiations aspect. A rushed job leaves you subject to significant price increases. Allow 4-6 months depending on the complexity of the job. Many times managers do not realize the time involved in the whole design – renovation – installation process. A typical project takes 8-10 or 12 months from beginning of design to the day operations can occupy.

Do you use a professional purchasing agent?
For smaller jobs, like a lobby or clubhouse we suggest you have your in-house accountant or controller manage the process. The person that manages the process needs to be skilled in organization, negotiation, and trouble shooting. He or she also needs to be able to crack a whip when needed. The process of purchasing is time consuming and takes tenacity. The person you designate must have the skills and time to do the job property. If you do not have the staff, have a professional PA ( Purchasing Agent) take care of the project.

For larger jobs such as guest rooms or multiple projects on the same schedule we suggest you hire a professional purchasing agent who specializes in the hospitality market. A professional PA charges a percentage of the budgeted cost of goods. This percentage is usually the same or higher than your labor cost but it is guaranteed a professional PA will save you money in the cost of product and in the long run save money, liability and be able to get the job done.

Do you understand the process?
Whether you have in-house assistance or a professional PA, you need to understand the process so you can better manage the result. Here are some questions to ask your operations team.
• Do you have a business purchasing policy?
• What insurance is required by the HOA or management entity
• Who has authority to sign off on the final budget?
• What are the criteria for vendor / manufacture selection?
• Are there prevailing wage requirements?
• Do you have a credit application on file?
• What kind of information is considered confidential?
• What is the process for disputes?
• What are your warrantee expectations?
• What are your rules for onsite construction and installation labor?
• Do you take a stance on child labor issues?
• Will you be committed to sustainable manufacturing principals?
• Do you have a standards manual for FFE?
• Will housekeeping be available for installation assistance?
These are just some of the questions to resolve when initiating the purchasing phase of your project.

So what is the process?
1. Prepare your RFQ (request for quotation) for each vendor and send with the specification and indicate a deadline for the quotes to be returned. Identify any alternates if value engineering is being pursued.
2. Upon receipt of the RFQ’s prepare a spread sheet to compare pricing, delivery dates, exclusions etc.
3. Narrow down your selection and check references if the vendor does not have a previous history with your company.
4. Once all vendors are selected do a “longest lead time schedule”, prepare a purchasing schedule based on the lead times.
5. Release PO’s and deposits with ample time to be received on schedule.
6. Track weekly every vendor to check: did they get the PO and deposit check? Are they on track? What is their ship date:? Any problems? Keep on top of every PO.
7. Schedule warehousing and installation crews. Make sure they have insurance to meet the value of your goods on warehousing.
8. Have ample on-site staff to assist with the installation. Make sure there are water and provisions for the crew. They will work harder for you if you have cookies and strong coffee!
9. Make sure you have ample garbage containers for trash from un-boxing.
10. At the end of installation assess each vendor’s performance.

So it sounds easy?
It is not easy and be prepared for some entanglements from customs hold-ups to strikes. This is why we stress to leave yours elf time for all the little things that can and will go wrong.

What was your real bottom line?
It is important to assess your final costs at the end of the project. If you are providing in-house purchasing you need to adjust the values to include your salaries, benefits, associated percentage of business overhead and insurance. With a PA you should have the total cost of the job in the fee plus cost of goods.

Can you plan everything?
No. You cannot plan everything. Any renovation project is trying on management. The design phase is always the most fun and then construction usually puts an end to that. So do not let the purchasing phase bog you down. A well-planned process with competent personnel will be your greatest asset when it comes to crossing the finish line.