Overview of Supply Chain Management PDF

TH2305 OVERVIEW OF SUPPLY CHAIN MANAGEMENT Supply chain management differs from the logistics concept. Logistics refers to managing how resources are acquired, stored, and transported to the final destination. Managing the supply chain recognizes all conventional logistics and...

TH2305 OVERVIEW OF SUPPLY CHAIN MANAGEMENT Supply chain management differs from the logistics concept. Logistics refers to managing how resources are acquired, stored, and transported to the final destination. Managing the supply chain recognizes all conventional logistics and practices, such as marketing, manufacturing of new products, finance, and customer support. It entails that every product offered by tourism and hospitality businesses undergo different processes before being sold to consumers (Baluyot, 2022). What is a Supply Chain? (Jacobs & Chase, 2023) Supply chain refers to the processes involved in procuring, producing, and delivering goods and services to customers. It involves getting the raw materials from the source, turning them into sellable goods, and delivering them to customers. The purpose of a supply chain is to coordinate the flow of materials, services, and information to maximize customer value and meet their expectations. The Hospitality Supply Chain The hospitality industry focuses on delivering customer value at the cheapest possible costs. It results in an increased focus on the practices and improvement of supply chain management. Therefore, the performance of an organization is not only determined by its actions and decisions but also by its return on investment and profitability. A well-established supply chain management can help give hospitality businesses a sustainable competitive advantage since it improves the quality and service of a business and drives down costs. In a restaurant supply chain, the restaurant will identify food suppliers such as farmers and wholesalers and negotiate contracts with them (sourcing), followed by finding transport providers to move the raw materials to the restaurant (logistics). However, in most cases, the suppliers will also move the goods to the customer (restaurant). The raw materials are turned into sellable goods (production), such as the food and beverage items on a menu, which are then served to the customers (distribution). To ensure optimum operations, a restaurant should keep track of its supplies to determine appropriate reorder amounts and schedules, known as inventory management (Lightspeed, 2021). The above concept also applies to hotel operations. For instance, a hotel also undergoes the sourcing process when looking for suppliers for its guest room amenities, furniture, and appliances. These items form part of the guestrooms sold to guests (Fraser, 2022). Some businesses may have a simple or a more complex supply chain, depending on the types of products offered, in what form they are sold, and who can supply the different materials or goods for the customers (Collier & Evans, 2020). Types of Inventories (Jenkins, 2023) Inventory refers to the materials or goods maintained to support production or satisfy customer demand. The following are the different types of inventories used in the supply chain: Raw materials are the components to be used in production. These are basic materials a hospitality business buys from suppliers and are converted into the final products the customers buy. Examples include the livestock, fruits, and vegetables supplied by farmers/wholesalers to restaurants. Work-in-process inventories (semi-finished goods) are the stocks of unfinished goods in production. These are raw materials taken out of storage and are currently being converted into final products. Examples are the fabricated cuts of meats and poultry and sliced fruits and vegetables. 01 Handout 1 *Property of STI  [email protected] Page 1 of 4  TH2305 Finished goods ready for sale are the final products obtained after applying the production process to raw materials and semi-finished goods. These are saleable goods, and their sales contribute fully to the revenue from the core operations of a hospitality business. These are the end products sold to the market ready for consumption, such as a rib-eye steak served with a cocktail on the side. Service inventories refer to how much service a business can provide for a specific period. For example, a hotel with 20 rooms has a service inventory of 140 one-night stays each week. The hospitality industry functions with the cooperation of the supply chain members (suppliers, distributors, and customers) and the proper use of inventories. Proper coordination between the members leads to efficient use of limited resources. A hospitality business should select reputable suppliers, efficiently map out distribution networks, and properly monitor and schedule inventory and employees for optimal efficiency. Challenges in the Hospitality Supply Chain (Baluyot, 2022) The purchasing department is responsible for acquiring goods a hospitality establishment needs to operate. They project and order sufficient stocks to avoid falling short and having out-of-stock/unavailable products. The following are the challenges faced by the department: Raw material costs. Bulk purchasing (acquisition of large quantities of materials for a unit price cheaper than the regular price) is a common practice in the hospitality industry to reduce costs. However, most materials are perishable, which, when not fully utilized due to insufficient transactions, increases cost due to spoilages. Material Ordering Costs. Hospitality departments often utilize handwritten requests and transactions independently, which gives the purchasing department trouble consolidating these items. It results in placing several orders instead of ordering them on a one-time basis, which leads to increased operational costs. Inventory Handling. In some cases, due to factors such as foreseen fluctuation in prices, hospitality businesses tend to stock large quantities of materials. Stocking inventory requires storage space. Additionally, materials not fully utilized may lead to costs due to spoilage. Emergency Purchases. These are purchases made on the spur of the moment due to unforeseen fluctuations in demand. These may contribute to more costs since they require urgent delivery and are not given the advantage of bulk purchasing since only a few items may be required for the operations. In the competitive hospitality industry, where success is measured through actions, decisions, return on investment and better profitability, an organization needs to efficiently manage the supplies used in the operations. This way, the organization can apply the different considerations and techniques appropriate for a given situation. Supply Chain Management (Simchi-Levi et al., 2021) Supply chain management is a set of approaches involved in procurement (obtaining or purchasing goods or services for business purposes), production, and delivery of goods and services to customers. It includes sourcing raw materials, storing, producing, and distributing finished goods to customers (Soliman, 2023). The purpose of supply chain management includes the following: It considers that every stakeholder impacts cost and plays a role in making the end product conform to customer requirements. It aims for the processes to be efficient and cost-efficient across the entire system, considering the customer service and value requirements, from total production costs to transportation and distribution. 01 Handout 1 *Property of STI  [email protected] Page 2 of 4  TH2305 Levels of Decisions (Planet Together, 2020) Since supply chain management is important in maximizing customer value and gaining an overall competitive advantage in the marketplace, it is essential for an organization to understand the following levels of decision: The strategic level is responsible for the long-term decisions of the company that lay the groundwork for the entire supply chain process. It includes deciding what products and services the company will offer, managing inventory life cycles to combine new and current goods optimally, keeping track of market trends and customer feedback to introduce new items, and coordinating the whole corporate plan with the supply strategy. This decision level is essential for creating an advantageous process that integrates all business divisions and ensures that every choice appropriately reflects the company's overall objectives. It will guarantee that every link in the supply chain functions to deliver the products to customers and enable the business to profit. The tactical level involves the supply chain's short- and medium-term decisions. It is where the specific processes are defined, such as the manufacturing process specifying that a high-quality product can be made for the lowest possible cost. The focus of tactical-level decisions is to control costs, minimize risks, and achieve the overall best end value for the customers. Specific decisions made at his level include sourcing and procurement, competition benchmarking, purchasing choices (inventory size, location, and consistency), and determining customer demand and habits focus. The operational level refers to the day-to-day processes, decision-making, and planning to keep the supply chain running. The operational level must assess the options being encountered and make decisions aligned with the overall strategic and tactical decisions that have been made. Examples of decisions are the daily and weekly forecasting for resource and capacity planning and monitoring logistics to ensure enough inventory and materials are available on time for production. An organization must understand and differentiate these levels of decisions to identify everyone’s role throughout the supply chain. When there is clarity for the tasks and responsibilities of everyone involved in the supply chain, all decisions will be aligned to the company's goals and objectives. However, there are still circumstances where the supply chain will have difficulties in certain areas. Management Difficulties The following are some of the difficulties in managing the supply chain: Supply chain strategies (supply, produce, distribute, and sell) cannot be determined in isolation since they are directly affected by the development chain (the planning/designing, sourcing, and producing activities involved in introducing a new product). The development chain intersects at the production point, where the characteristics and decisions made will impact the supply chain, and the supply chain's characteristics will impact the product design strategy. For example, in the development of a new menu item (development chain), there will be brainstorming (planning) of what will be introduced, followed by determining the ingredients and who will supply them (sourcing) before it is produced. The production meeting point referred to is when the supply (ingredients) to be used will meet the requirements of the business before being produced. It is challenging to design and operate a supply chain where costs are minimized while service levels are maintained because of the following factors: o The supply chain is a complex network of facilities over different locations, which may affect the lead time (time that passes from the start of the process until the conclusion) of the products and services; 01 Handout 1 *Property of STI  [email protected] Page 3 of 4  TH2305 o Multiple performance measures, such as the cost, time, and service levels, are not easy to optimize because each part of the supply chain has different and conflicting objectives. For example, suppliers would want to commit to purchasing bulk quantities of inventories in consistent volumes with flexible delivery dates. However, producers would want to have long production runs so they would not be pressed with the deadlines and compromise the quality of their products. o The supply chain is a dynamic system that evolves over time. Customer demand, supplier capabilities, and supply chain relationships change over time. For example, when the customer’s purchasing power increases, there is increased pressure on the producers and suppliers to produce in-demand products of high quality. Uncertainty and risk are inherent in every supply chain because of the hospitality industry's varied customer demand and travel factors. For example, customer demand can never be forecasted accurately, and travel times will never be certain; therefore, the focus is to design and adjust the supply chains to eliminate or reduce these uncertainties. A one-size-fits-all strategy is not appropriate since different customer segments, channels, or products require varied supply chain strategies. Understanding these difficulties will allow organizations to adjust their strategies to what is currently needed. Though these difficulties may vary per organization, these are the most common and generic difficulties that organizations will face throughout the supply chain management operations. References: Ayers, J. and Odegaard, M. (2021). Retail supply chain management (2nd Ed.). CRC Press Bandyopadhyay, J. (2016). Basics of supply chain management. CRC Press. Baluyot, B. (2022). Supply chain management in hospitality industry. Rex Printing Company, Inc. Blanchard, D. (2021). Supply chain management best practices (3rd Ed.). Wiley. Collier, D. and Evans, J. (2020). Operations and supply chain management. Cengage Learning. Dumitrescu, E. (2022). A better way to drive your business. Retrieved 1 September 2023, from https://www.mckinsey.com/featured- insights/mckinsey-explainers/what-is-supply-chain Fraser, G. (2022). Visioning 2023: Sourcing green: Sustainable procurement in hospitality. Retrieved 19 September 2023, from https://www.hospitalitynet.org/opinion/4113945.html Jacobs, F. and Chase, R. (2023). Operations and supply chain management (6th Ed.). McGraw Hill, LLC. Jenkins, A. (2023). What is inventory? Definition, types, & examples. Retrieved 18 September 2023, from https://www.netsuite.com/portal/resource/articles/inventory-management/inventory.shtml Jha, M. (n.d). Top 3 types of inventory. WallstreetMojo. Retrieved 1 September 2023, from https://www.wallstreetmojo.com/types- of-inventory/ Lightspeed. (2021). The new restaurateur’s guide to restaurant supply chain management. Retrieved 19 September 2023, from https://www.lightspeedhq.com/blog/restaurant-supply-chain-management/ Monserrat, P. (2022). The rise in commodity prices and the impact on the P&L of your hotel. Retrieved 1 September 2023, from https://www.linkedin.com/pulse/rise-commodity-prices-its-impact-hotels-pau-monserrat Planet Together. (16 December 2020). The three levels of supply chain management. Retrieved 1 September 2023, from https://www.planettogether.com/blog/the-three-levels-of-supply-chain-management SBS and Company LLP. (2 April 2017). Significance of supply chain management in hospitality industry. Retrieved 1 September 2023, from https://www.sbsandco.com/blog/significance-of-supply-chain-management-in-hospitality-industry Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E. (2021). Designing and managing the supply chain: Concepts, strategies, and case studies. McGrawHill, LLC. Soliman, K. (2023). Supply chain in hospitality industry. Retrieved 19 September 2023, from https://www.linkedin.com/pulse/supply- chain-hospitality-industry-kareem-soliman 01 Handout 1 *Property of STI  [email protected] Page 4 of 4