How We Buy
Should we use our in-house purchasing department or find a third-party procurement agent ? BY WILLAM LANGMADE
In the gaming industry , the use of inhouse procurement staff for furniture , fixture and equipment ( FF & E ) projects versus an outsource procurement agent has always been an interesting debate .
Third-party agents only started working in gaming during the early ’ 90s building boom . This coincided with Wall Street and the brands coming to Las Vegas , bringing many new players to the marketplace . Over the last 20 years , the gaming industry has seen in-house departments created , laid off , then created again . There has also been a large increase in outsourcing project purchasing to independent procurement companies and leaving the commodities and food procurement to the inhouse departments .
In order to determine which direction may be best for your organization , look at the amount of FF & E spend there is on an annual basis , the difference in costs , buying power , control , and the ability to find experienced personnel .
There is a large difference in cost of procurement depending on how many projects you have on the boards . Large casino companies typically have many projects . They even outsource to third parties when their in-house department is overloaded . For smaller companies that do not have many projects , it may not pay to have all the overhead of offices , phones , personnel , accounting , legal , etc ., to keep paying when there is little work to do .
Typically , a third-party agent charges a flat fee as a project cost . That fee includes budgeting , sourcing , bidding product , purchasing , expediting and coordination of delivery to the project . It is important to remember that most agents today also offer warehouse and installation coordination and vendor payable / check-writing services .
I have talked to many gaming managers that have stated their in-house purchasing department costs less than using an outsource company . I always ask them , “ In your analysis , did you include all the costs ?”
That ’ s not just purchasing payroll , but also accounting personnel costs , legal , offices and furniture , computers , human resources , travel , insurance , phones , office supplies , etc .— all of which are included in the third-party fees . If you have calculated all the costs of the in-house department , what is that cost as a percentage of the amount of spend per year ?
Let ’ s take a hypothetical 2,000-room renovation . The FF & E spend on this project could be $ 20 million . Let ’ s say a third party ’ s fees are equivalent to 3 percent or $ 600,000 . Can you staff an office for that amount ? You will need at least a purchasing director , project manager , administrative person , expeditor or two , job cost controller , accounting manager and the fixed equipment , software and offices to do that
A large buying power not only should get you the best pricing but also a constant stream of alternative vendors knocking on your door . The more vendors you meet and consider , the more sources you have .
project . If you can do it for that or less , are there sufficient projects in the pipeline to keep those people working ? When you hire a third-party procurement agent , when the job is done , that overhead stops until the next project .
Buying power is another element . A large buying power not only should get you the best pricing but also a constant stream of alternative vendors knocking on your door . The more vendors you meet and consider , the more sources you have , rather than relying on just a few vendors . While certain gaming companies have a large spend for FF & E each year , there are third-party agents specializing in gaming that have larger volumes than several gaming companies combined .
Another aspect of this decision is control . Most hotel companies outside of the gaming industry do not have in-house procurement . They usually align themselves with one or two large-volume agents to manage their projects .
Those hotel companies that do have in-house procurement typically charge fees to each property to offset the cost of the department . Most operators hire a project manager to manage the third-party agent . Conversely , some companies feel it is more important to have the purchasing people on the payroll so they closely control the process , even if it is more expensive .
Finally , in today ’ s market , it is increasingly difficult to find qualified procurement professionals . During the last recession , casino firms were laying off or not hiring new personnel . Most agents were also not hiring , and it left about a fouryear gap in new people entering the business . Hence , the competition between all procurement entities to attract experienced FF & E project people is fierce .
Most of the wasted costs of FF & E procurement do not occur in the buyout of product . The losses usually happen due to the mismanagement of timing the release and funding of purchase orders , logistics , warehousing and installation . If you do not have an experienced FF & E project manager , you run the most risk of overruns from expedited freight , storage and overtime installation costs . Moving a food or commodities buyer to FF & E project purchasing does not work without substantial project management training .
Most FF & E procurement professionals I talk to want to work for the independent companies , as they are not confined by the large corporate processes . The independents have more variety , can move faster and have more access to the industry resources and networking .
So the decision is not an easy one . One way may cost more , but it may give you more control . One way may cost you less but you are dealing with a third party . Either way has merits , but taking the time to analyze the differences can help yield what is best for your organization .
William Langmade owns one of the top FF & E purchasing companies in the country . Since 1994 , PMI has purchased over $ 2 billion of FF & E for casinos , hotels and resorts worldwide and continues to be the leading purchasing company in the gaming industry .
46 CASINO DESIGN 2015