Introduction to Supply Chain Management in Hospitality PDF

“Introduction to Supply Chain Management in the Hospitality Industry ” SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY Prepared by: John Paul G. Buenaventura, DBA Liberty Buenaventura Gutierrez, PhD candidate After discussing this chapter, the students...

“Introduction to Supply Chain Management in the Hospitality Industry ” SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY Prepared by: John Paul G. Buenaventura, DBA Liberty Buenaventura Gutierrez, PhD candidate After discussing this chapter, the students should be able to: 1. Define supply chain management and its importance in the hospitality industry. 2. Identify key components of the supply chain in hospitality, including sourcing, inventory management, and distribution. 3. Explain the impact of effective supply chain management on operational efficiency and customer satisfaction in hospitality. 4. Analyze real-world examples of supply chain management practices in the hospitality industry. 5. Enumerate the challenges and opportunities associated with supply chain management in the hospitality industry.  This lesson will discuss the introduction to supply chain management (SCM) in the hospitality industry, with a focus on how important it is to maintaining business continuity and improving customer satisfaction.  To understand how supply chain management (SCM) functions best, this lesson will look at the essential components of SCM, such as distribution networks, inventory control, and procurement.  This lesson will equip you with the ability to evaluate the potential benefits and challenges associated with supply chain management in the hospitality industry, giving you the edge to effectively navigate complexity and seize fresh opportunities.  Activate Prior Knowledge Critical Thinking Question(s) 1. What is supply chain management in the hospitality industry? 2. Why is supply chain management important in the hospitality industry? 3. How can hospitality businesses leverage SCM to achieve a balance between cost reduction and maintaining a high-quality guest experience? Are there any trade-offs to consider? Supply chain management (SCM)  It refers to the flow of goods, services, and information involved in delivering a product or service to the end user. In the hospitality, this encompasses everything from sourcing fresh produce for the restaurant to ordering cleaning supplies and guest amenities.  An efficient SCM system ensures you have the right products, in the right quantities, at the right time, and at the right price.  In the hospitality industry, supply chain management involves overseeing the flow of goods, services, and information from production to delivery to customers. It involves activities like sourcing raw materials, inventory management, transportation, storage, and distribution.  One of the most basic versions of a supply chain includes a company, its suppliers, and its customers. Source: https://kominosolutions.com/business/a-small- business-guide-to-buying-wholesale/ An example would be a raw material producer, manufacturer, distributor, retailer, and retail customer. From the raw materials to the customer, supply chain management involves many different stages. 1. Raw materials  This phase encompasses the manufacturing or procurement of fundamental components required for cooking purposes, including fruits, vegetables, meat, grains, and dairy items. 2. Suppliers  These are the companies that supply the restaurant with the ingredients and raw materials needed to prepare food. Suppliers of seafood, meat processors, wholesale distributors of non-perishable goods like spices and sauces, and farmers are a few examples of this. 3. Manufacturers  Restaurants generally deal with pre-made or pre- processed ingredients from external companies. Before an ingredient reaches a restaurant, it occasionally goes through manufacturing or processing. For example, a dairy farm may convert milk into cheese or yogurt, or a bakery may create bread and pastries. After processing, these products are added to the restaurant's supply chain. 4. Distributor or Wholesale Supplier  Usually, a distributor or wholesaler will deliver the finished products and raw materials to the restaurant whenever they are ready. This organization oversees the effective and timely logistics of moving the products from manufacturers and suppliers to the restaurant.  After processing, a distributor or wholesale supplier delivers the raw materials and processed foods to the restaurant. This organization oversees the purchasing and delivery operations, making sure the restaurant gets its supplies on schedule. 5. Retailer  At this point, the distributor delivers the goods and materials to the restaurant, which then starts preparing cuisine. This covers the preparation, assembling, and serving of food to patrons.  In this supply chain, the restaurant serves as the merchant, with chefs and kitchen workers using the supplies to create dishes that fit the menu. In addition, the restaurant oversees ingredient quality control, storage, and inventory management. 6. Customer  Lastly, the customers that eat at the restaurant are the final consumers of the goods produced there. They place menu orders, and the meals are made with ingredients that come from the supply chain. Ensuring customer satisfaction is a critical aspect of supply chain management.  Effective supply chain management is crucial in the restaurant business to guarantee the availability of high-quality ingredients, reduce waste, keep prices under control, and provide patrons with a consistent dining experience.  To accomplish these goals, cooperation and coordination between suppliers, distributors, manufacturers, and retailers are crucial at every stage of the supply chain.  To maintain competitive pricing, avoid waste, guarantee a smooth flow of premium materials, and provide customers with a consistent dining experience, effective supply chain management is essential in the restaurant industry. Let’s have another example of the Supply Chain in Different Industries.  From Producer to Agent/Broker to Wholesaler to Retailer to Consumers 1. Producers (manufacturers or service providers) are organizations that make products or services. This includes companies that are producers of raw materials and companies that are producers of finished goods. 2. Agent- This middleman, known as the agent, assists with the negotiation between the manufacturer and the seller. 3. A wholesaler is a company or individual that purchases great quantities of products from manufacturers, farmers, other producers, and vendors. Wholesalers store them in warehouses and sell them on to retailers (shops and stores) and businesses. 4. A retailer is a person or business that you purchase goods from. Retailers typically don't manufacture their own items. They purchase goods from a manufacturer or a wholesaler and sell these goods to consumers in small quantities. 5. Consumers can be either an individual or group of people who purchase or use goods and services solely for personal use, and not for manufacturing or resale. They are the end-users in the sales distribution chain. Restaurant Online Food Ordering. A process of buying and selling, transferring, or exchanging, products, services, and or information via electronic networks and computers. In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 1. Quality control 2. Cost Efficiency 3. Inventory Control 4. Supplier Relationship 5. Risk Management 6. Sustainability In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 1. Quality control  is a crucial aspect of supply chain management that ensures products and services meet or exceed established standards.  In the hospitality industry, Quality Control is vital for customer satisfaction, brand reputation, cost efficiency, and safety.  Faulty or low-quality products can lead to negative reviews and lost business.  Implementing Quality Control in a supply chain involves supplier qualification, product inspections, process audits, statistical process control, and continuous improvement. In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 2. Cost Efficiency  Effective supply chain management (SCM) is crucial for cost efficiency in the hospitality industry.  Strategies include streamlining processes like ordering, inventory management, and invoice processing, negotiating with suppliers for better pricing and terms, and leveraging group purchasing organizations for volume discounts.  Effective inventory management minimizes waste from spoilage, overstocking, and inefficient portion control. Standardization of recipes, equipment, and operating procedures reduces costs and improves consistency. In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 3. Inventory Control  Inventory control is a crucial aspect of supply chain management for hospitality businesses. It involves monitoring stock levels to ensure the right amount of product is in the right place at the right time. This leads to several benefits, including reduced costs, improved customer satisfaction, and enhanced profitability.  Technology can be used to streamline processes and improve decision- making. Regular inventory audits help identify discrepancies and ensure accurate records. In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 4. Supplier Relationship  Developing a solid rapport with suppliers is essential for the hospitality sector.  Collaboration and communication with suppliers are made easier by supply chain management, which results in more affordable prices, on-time deliveries, and access to cutting-edge goods and services.  Open communication helps address challenges, such as product quality concerns or delivery delays, and fosters joint innovation. In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 5. Risk Management  The hospitality sector can be severely impacted by supply chain disruptions caused by calamities like natural catastrophes, unstable political environments, or economic downturns.  SCM assists in recognizing possible risks and formulating plans of action to reduce them, including diversifying suppliers or establishing backup plans. In the hospitality industry, supply chain management plays a crucial role due to its complex network of suppliers, distributors, and service providers. Here's why it’s important: 6. Sustainability  The hospitality sector is prioritizing sustainability because of growing consumer awareness of social and environmental issues.  Sustainable Supply Chain Management is a strategy that hospitality businesses can use to prioritize suppliers who demonstrate sustainable practices.  This includes using recycled materials in packaging, using renewable energy sources, and adhering to ethical labor standards. Elements help to improve the general customer experience, which leads to increased customer satisfaction. 1. Sourcing 2. Inventory Management 3. Distribution  Sourcing It refers to selecting and acquiring the best suppliers for the wide range of products and services required by the hotel industry. This covers all of it, from refreshments and food to bed linens, furnishings, appliances, and guest amenities. 1. Cost Control- It is all about negotiating favorable pricing and terms with suppliers to manage expenses. 2. Quality Assurance- It is all about obtaining superior products and services that satisfy customer requirements and brand guidelines to ensure quality assurance. 3. Sustainability- It is all about partnering with suppliers who prioritize eco-friendly practices and ethical sourcing. 4. Innovation- Staying ahead of the curve by accessing new products and technologies that enhance the guest experience.  Inventory Management It refers to overseeing the ordering, storage, and control of all the necessary supplies a hospitality business requires. This includes managing stock levels, forecasting demand, and minimizing waste. 1. Cost Efficiency- Preventing overstocking and understocking, which can lead to wasted resources and lost sales opportunities. 2. Guest Satisfaction- To guarantee guest satisfaction, maintain a consistent supply of essential commodities to prevent stockouts and service interruptions. 3. Menu and Service Consistency- Maintain consistent quality and availability of food, beverages, and amenities. 4. Space Optimization- Make efficient use of your storage space to keep things tidy and to keep your surroundings secure.  Distribution It refers to the efficient and timely movement of goods and services from suppliers to the hospitality business and ultimately to the guest. 1. Timeliness- To prevent operational delays and preserve guest satisfaction, deliveries must arrive on schedule. 2. Product Integrity- From suppliers to the point of usage, make sure that items are handled and transported properly to retain quality. 3. Cost management- To reduce delivery costs, optimize logistics and transportation routes. Real World Examples of Supply Chain Management Practices in the Hospitality Industry  Marriott International  Marriott uses technology to streamline its supplier network.  Marriott uses data analytics to optimize its supply chain, focusing on demand forecasting, inventory optimization, procurement efficiency, cost management, and quality control.  Through analyzing historical sales data, seasonal trends, and local events, Marriott can predict future supply demand, minimize waste, ensure optimal stock levels, and automate procurement processes.  Marriott utilizes advanced technology in its supply chain management, including its Global Distribution System (GDS), for inventory management, procurement, and demand forecasting, ensuring timely delivery of goods and services by integrating with suppliers.  McDonald’s  McDonald's uses a centralized supply chain management system with regional distribution centers for global ingredient and supply sources, ensuring consistent quality standards, streamlining procurement, and negotiating bulk purchasing agreements for cost savings.  McDonald's uses just-in-time inventory control to reduce waste and boost productivity. They precisely estimate demand using advanced forecasting algorithms, and then modify inventory levels accordingly.  Hilton Worldwide  Hilton prioritizes sustainable sourcing practices in its supply chain, partnering with suppliers who demonstrate environmental stewardship and social responsibility.  They work with local farmers and artisans to source organic produce and artisanal products for their restaurants and amenities.  Hilton employs waste reduction strategies across the entire supply chain.  Hilton utilizes technology to streamline its supply chain processes, utilizing predictive modeling, data analytics, and cloud-based tools for real-time communication with distributors and suppliers. Challenges in Hospitality Supply Chain Management The hospitality industry faces a unique set of challenges when it comes to supply chain management (SCM). 1. Seasonality 2. Perishable Goods 3. Global Supply Chain 4. Fragmented Industry 5. Limited Bargaining Power 1. Seasonality  Restaurant seasonality is crucial for businesses to stay competitive and meet customer demands.  Seasonal menus, which are limited- time, in-season, and fresh offerings, create a sense of urgency and allow chefs to experiment with in-season flavors and cooking styles. Seasonal menus also allow for creative diversification in the kitchen.  To update a seasonal menu, business owners should have solid supplier relationship management to source in- season supplies. 2. Perishable Goods  The handling of perishable goods, particularly in food and beverages, is a significant challenge in the hospitality industry.  These items have finite shelf life, necessitating a proactive approach to inventory control. Inadequate management can lead to financial losses, reputational damage, and stockouts, compromising guest satisfaction and revenue opportunities.  To address these challenges, hospitality businesses employ strategies such as technology-enabled inventory systems, strategic sourcing and procurement practices, menu engineering, and dynamic pricing strategies. 3. Global Supply Chain  The hospitality industry's reliance on international suppliers can lead to potential disruptions due to geopolitical instability, transportation delays, or currency fluctuations.  The hospitality industry faces significant challenges in managing its global supply chain, which is reliant on international suppliers.  This complex network of suppliers offers access to a wide range of products and ingredients, but also exposes establishments to potential disruptions due to geopolitical instability, transportation delays, and currency fluctuations. 4. Fragmented Industry  The hospitality industry is a diverse and diverse group of independent businesses, each with unique operational practices and preferences. This fragmentation presents a significant challenge in standardizing supply chain practices across the industry.  Each establishment has its own set of suppliers, ordering processes, and inventory management systems, making it difficult to enforce uniformity.  The lack of standardization can lead to inefficiencies and missed opportunities for cost savings, as businesses may struggle to leverage economies of scale or negotiate favorable terms with suppliers. This can result in higher costs, increased inventory holding expenses, and reduced competitiveness in the marketplace. 5. Limited Bargaining Power  The hospitality supply chain faces challenges due to limited bargaining power, leading to higher prices, less favorable payment terms, and limited access to premium products.  To overcome this, businesses should adopt strategic procurement and supplier management approaches, foster partnerships, explore alternative sourcing channels, and use technology-driven solutions.  Collaborative approaches like industry associations, trade groups, and consortiums can also improve supply chain efficiency.  Cloud-based inventory management systems and data analytics tools can also enhance competitiveness in the marketplace. Opportunities in Hospitality Supply Chain Management The hospitality industry relies on an efficient supply chain for a positive guest experience, offering numerous opportunities for those interested in supply chain management (SCM) in this field. 1. Dynamic and Evolving Field 2. Focus on Cost and Customer Satisfaction 3. Specialization Opportunities 4. Technology Adoption 5. Growth Potential 1. Dynamic and Evolving Field  The hospitality sector is constantly evolving, and with SCM expertise, you can stay at the forefront, developing solutions to meet these changing needs. 2. Focus on Cost and Customer Satisfaction  The key to hospitality SCM is balancing cost-efficiency with high-quality products and services, ensuring guest satisfaction through effective management of procurement, inventory, and logistics. 3. Specialization Opportunities  The hospitality supply chain offers a wide variety of products, allowing experts to specialize in sourcing, procurement, or logistics for specific categories within the industry. 4. Technology Adoption  The hospitality industry is utilizing technology to improve inventory management, forecasting, and supply chain communication, thereby streamlining SCM processes. 5. Growth Potential  The hospitality industry is projected to expand, resulting in a growing demand for skilled SCM professionals, creating numerous career opportunities.  REFERENCES: Author Name of Book/Publisher Year of Publication Buenaventura et.al Supply Chain Management in 2024 Hospitality Industry- Mindshapers Michael Bhobet B. Baluyot Supply Chain Management in 2022 Hospitality Industry- Rex Bookstore Kyla S. De Castro Supply Chain Management in 2022 Hospitality Industry- Edric Publishing House Ernesto H. Mendoza and Supply chain and logistics 2020 Lorma S.P. Garcia management: enhancing competitive edge and customer satisfaction. Unlimited Books Buenaventura et.al Operations Management in Tourism and 2023 Hospitality Industry. Mindshapers.