As is common knowledge in business, transaction costs are expenses incurred when buying or selling goods or services. These are associated with the work required to bring goods or services to market. Irrespective of the size of business every hotel must choose between “make or buy”. This means they must decide to produce the goods and services that they offer themselves or not.
All Department Managers and leaders in the hotel industry are faced with crucial decisions related to either “make or buy” on a regular basis. While making these decisions, an important factor to consider would be transaction costs. These might be related to finding a vendor or trading partner, drawing the contract, monitoring if the terms of the contract are adhered to, enforcing the terms and amending it over time. Hotels can face transaction costs associated with the following: laundry, security, office equipment, vehicles, website, public relations, sewage, interior decorating, events/catering, guest services, and purchasing.
Outsourcing is the answer for the Hotel Industry
According to Transaction Cost Theory, when making the decision to take the in-house route vs. outsourcing, managers need to do whatever will minimize the transaction costs. The age of technology has posed strong competition for the hotel industry by offering a myriad of new options to customers. This has directed the industry to replace its traditionally insourcing-based strategies by outsourcing activities to reduce costs. Outsourcing of the purchasing and supply chain department is one of the strategic decisions that can help hotels reduce transaction costs. Source1 Purchasing can be your company’s purchasing department managing its entire supply chain.
Reducing transaction costs is made easy by the use of various tools offered by Source1 Purchasing. Managers don’t have to go looking for new vendors/ partners to trade with thus avoiding any costs incurred on communication, quoting, scope clarification as well as legal uncertainty etc. They can simply use our online portal, MySource1. Using Source1 Purchasing helps in cost-cutting related to: distribution, performance measurement, order fulfillment, receipt & acceptance, as well as risk mitigation.