Supply Chain: Drivers and Participants

Drivers and Participants of Supply Chain Management

• An efficient supply chain meets customer demands for hospitality products and services
• A supply chain's profitability can be determined by the impact of each driver and participant

Participants in the Supply Chain

• Suppliers, the hospitality establishment, customers, and sometimes, third-party agencies make up the supply chain
• The main reason supply chains exist is to supply products and customers based on their demands

Suppliers

• Companies that provide raw materials to be used by firms
• Examples include farmers, meat, poultry, and dairy suppliers, furniture makers, and linen providers
• They may convert raw materials into work-in-progress inventories so that firms can easily convert them into finished goods for sale

Firms

• Businesses that store and convert raw materials and work-in-progress inventories into finished goods ready for sale
• Strategies involve establishing prices, product and service offerings, and comfort to attract customers
• Accommodations, food and beverage establishments are firms in the hospitality industry

Third-Party Agencies

• Agents acting as intermediaries between customers and firms
• Tour operators or travel agents who buy services from hotels and restaurants and assemble them into tour packages

Customers

• Individuals or organizations that purchase and use a firm's product or service

• Guests or tourists in the hospitality industry

• Suppliers provide goods and services after firms deliver purchase orders (POs) and upon agreed delivery dates and prices

• Firms process and prepare such goods for sale to third parties or customers

• After consuming a product or service, customers or third parties may provide feedback to firms

• Firms require feedback to determine areas for product and service improvement

• Re-evaluating arrangements with existing suppliers may be required if products and services are adjusted to address customer needs

• Information must flow both ways so the expectations for each supply chain participant are correctly relayed

Major Drivers of Supply Chain

• Supply chain management must meet customer's demand with the most efficient flow of products within a certain time frame
• Supply chain drivers are the tools that ensure the advanced performance of the supply chain management effectively and efficiently to achieve a favorable customer response

Logistics

• Accumulated planning, control, and implementation of the effective movement, storage, and facilitation of goods and services from one dimension to another

• Logistics Sub-drivers:

  • Facilities: The destination in the tourism industry; accommodation and food and beverage businesses, the cultures of the area, and national policies and regulations
  • Inventory: The industry must maintain an optimum number of inventories to deliver the required needs of guests; the types of inventories (cycle, safety, and seasonal) should always be considered
  • Transportation: The hospitality industry purchases important inventory and resources from different suppliers, which are then delivered through different modes that may be owned by them or through third-party suppliers
    • Upstream: The movement of goods and services from the supplier to the hospitality business, such as the delivery of food products and hotel supplies
    • Downstream: The delivery of goods and services provided by the hospitality business to their customers, such as offering rental car services, pick-up services, and delivery of food products to customers

Cross-Functional Driver

• Determined by teamwork of the following sub-drivers

  • Information links: The different participants of the hospitality supply chain
    • Quantity, quality, and specifications of products needed by a hotel or restaurant must be communicated well to suppliers so these can be met accordingly
  • Sourcing: Determines the firms’ operation and purchasing of goods and services
    • In-house: The services to be provided by the hospitality businesses, such as accommodation and food services
    • Outsourcing: Services to be provided by other businesses, including tour guide and guest transportation services
  • Pricing: Depends on the quality of services and seasonal demand; if the quality of services provided is high and it is the peak season, the prices for products and services tend to be high
    • If there is insufficient demand during the lean season or the quality of service is not on par with the competitors, prices tend to be low.
  • Quality: The standard of the products and services, determining why a customer will patronize a hospitality business

• A thorough understanding of drivers’ functions and roles will help a hospitality business remain competitive, profitable, and focused on the different strategies to maintain or improve its services

Aligning the Supply Chain with Business Strategy

• An organization’s supply chain is an important component of its approach toward achieving its goals
• A business’s supply chain must compete similarly as the entire company, and cannot be planned separately from its long-term goals and direction

Steps to align the supply chain with the business strategy:

• Define and communicate a clear corporate strategy

  • Corporate planning should establish concrete, achievable, and measurable target goals and determine how the hospitality business will differ from competitors
  • The strategies should prioritize the customer expectations and consider the unique features, price range, and way of delivery of the products and services to its customers
  • These strategies should be communicated to the business thoroughly and repeatedly to ensure that each employee works toward the same goal

• Identify the areas of corporate strategy enabled by the supply chain

  • A business’s strategic goals must be aligned with how these will be delivered; It involves defining which part of the supply chain a business should be good at, allowing it to prioritize certain processes
  • Identifying what part of their core competence falls within the supply chain activity
  • This step is critical in making in-house/outsource decisions for a business
  • A restaurant that uses fresh ingredients would need to make sure it can deliver and maintain the freshness and quality of ingredients

• Align supply chain performance metrics with the corporate strategy

  • A business should measure its supply chain operations based on its performance against competitors and its ability to meet its goals, not on common supply chain measures, which most companies may have used

• Structure the supply chain to optimize the strategic goals

  • All supply chain operations should be structured based on the business's strategic goals
  • An important consideration is to achieve cost-effectiveness along the processes to ensure the business's reliability, responsiveness, and profitability

• Align incentives end to end

  • Internal performance reviews and bonus systems must be consistent
  • There should be a balance between suppliers' incentives and the business's needs
  • There should be solid standard operating procedures (SOPs) that drive performance but should not negatively impact supply chain objectives
  • A common failure is when the sales and marketing team has no incentive to control inventory; they will overdrive the forecast to guarantee availability and leave the supply chain organization with the excesses

• Keep refreshing the strategy and alignment process

  • Some businesses have corporate planning every one (1) to three (3) years, but their supply chain strategies remain the same for decades
  • A business must often examine its supply chain strategies as it does with other planning activities
  • Different approaches must always be considered so businesses will grow and adapt to situations in the current market

• Strategic alignment with the business strategy is crucial for businesses to be successful in today’s industry because supply chains, like consumer preferences, should be able to adapt to changes and trends