Chapter 2

Significance of Supply
Chain Management in the
Hospitality Industry
 Any company needs to know when and where it is required to meet
orders, it will have the stock it requires. Nothing looks worse for a business
than running out of something that a customer needs, whether that be resale
items or goods that are part of delivering a service.

Six characteristics of a hotel supply chain

• The first one is the perishability of products and services rendered
and therefore to store.
• The second features deals with the dependence of the presentation
and interpretation of the products offered to the clients so that there
is a good quality hotel and customer interaction in order to generate
new demands, since the hotel industry is a highly interactive industry.
• The third characteristic is the inherent complexity of products
and services, resulting in a higher number of suppliers.
• The fourth characteristic deals with the uncertainty of demand
stemming mainly from two reasons: high competition and external
factors, such as seasonal variations and economic performance.
• The fifth characteristic is the inseparability between service
production and the end customer.
• Finally, the sixth trait involves the tradition sale of tourism
service packages, making the relationship and cooperation among
tourism organizations crucial.
FACTORS AFFECTING SUPPLY CHAIN MANAGEMENT IN HOTEL
INDUSTRY
• Guest or Customers are the utmost important for the hotel industry; custom
satisfaction is of paramount importance to the hotel industry, In the hospitality
industry the customer related activities such as food and beverage production ang
service housekeeping, Front office management are given utmost importance. The
back office operations such as the accounts purchases, supplies chain management
revenue recording etc. take a back seat.
• In the hotel industry all the efforts are customer oriented as a result lot of cost
reduction which can be attained through improved upstream functions of supply
chain management is lost. Current trends in the industry show that computerized
property management systems are used but mainly for front office management and
reservation systems
BENEFITS OF SUPPLY CHAIN MANAGEMENT

• The supplier and the hotel profit from a well-established supply chain
management framework. Due to competent management in the context of
developing proper buying strategies, the relationship between the supplier and
the hotel is better. Rather than getting a broad and inefficient supplier base, this
may also contribute to relying on a few reliable suppliers. Newer and more
efficient suppliers could be identified, leading to increased efficiency.
• It leads to significant reduction in costs and also helps continuous evaluation
and improvement in the buying process. It could increase the product range or
perhaps reduce it too, because of intensive market research undertaken.
• Improved management information to future requirements
THE NEED FOR SUPPLY CHAIN MANAGEMENT

1. Need to further reduce operational cost

-Over the last century, companies have done much to reduce their operations cost within
the organization through Business Process Reengineering (BPR) Enterprise resource
planning (ERP). Total Quality Management (TQM), Total Productive Maintenance (TPM),
lean manufacturing, Just-in-Time (JIT) etc.
-But there is still scope for improvement and cost reduction in the areas of supply
side. delivery side and logistics of the company.
2. Increased outsourcing requirements
-Out sourcing activities of companies are on the increase. This also increases the cost
associated with procurement, distribution and logistics, offering scope for substantial
efficiency improvement and coordination beyond its production activities
3. Increasing transportation cost
-Transportation cost account to 5 to 30% of
the operating expenses of the company. It needs
focus to reduce cost
 Importance/Objective of SCM
1. Achieve strategic advantage
SCM gives competitive edge to the firm by ensuring smooth and systematic flow of goods,
information and funds. Underperformance of one link in the supply chain can destroy strategic
advantage of all in the supply chain. It can help achieve capability to reduce product
development time and offer more new products to the customers.

2. Achieve Cost control/reduction

✓ Reduce all company costs by optimizing the cost of freight and logistics
✓Identify waste sources to avoid them in the whole supply chain.
✓Ensure quality in the logistics of warehousing, transport and handling.
✓Decreases Purchasing Cost Retailers depend on supply chains to deliver
expensive products to avoid holding costly inventories in stores any longer
than necessary.
✓Decreases Production Cost - Manufacturers depend on supply chains to
deliver materials to assembly plants to avoid material shortages that quickly
reliably would shutdown production.
✓Decreases Total Supply Chain Cost- Manufacturers and retailers depend
on supply chain managers to design networks that meet customer service goals
at the least total cost. Efficient supply chains enable a firm to be more
competitive in the market place
3. Enhances outsourcing capability
• Out sourcing generally reduces the cost of operation of a company.
• An efficient and cost effective SCM system will enable the firm to reap the
benefits of outsourcing.
4. Achieve Globalization
• Helps to operate across world market.
• Helps to make the product available in existing and new markets at
competitive price.
• Properly designed and executed SC make global out sourcing possible.
• SCM helps to meet global competition successfully
5. Better Inventory management
• Eliminate the necessity to stock the items in large quantities.
• Ensure availability of goods in right quantity at right price with right quality
at the right time.
• Systematic inventory management like JIT. ERP etc can be implemented.
• Prevent Bull whip effect of inventories in the entire SC. The phenomenon of
progressively larger inventories at different stages of supply chain from
customer to backwards is called Bull whip effect. Bull whip effect increases
the SC cost
6. Effective use of supply and logistic resources
• Few dedicated suppliers
• Dedicated transportation and logistics,
• participation of suppliers in quality improvement, design improvement, value
engineering and new product development through Design Collaboration
• Competitive, participative and collaborative providers by sharing benefits
mutually
7. Reduced lead time by design collaboration
• lead time for product improvement is less
• new product development time is shorter
8. Achieve on time delivery
• ensure prompt delivery of product and services to customers on time
9. Facilitate e-commerce
• Introduction of e-commerce and e-business gives an entirely new dimension
buying and selling using internet which enhances operational efficiency and to
customer satisfaction.
10. Boost Customer Service
• Customers expect the correct product assortment and quantity to be delivered.
• Customers expect products to be available at the right location.
• Right Delivery Time - Customers expect products to be delivered on time
• Right After Sale Support - Customers expect products to be serviced quickly
Thank You!