Supply Chain Management Review PDF

CHAPTER 5 ✓ Stock Turnover : Measures how frequently average inventory is sold over a specified period....

CHAPTER 5 ✓ Stock Turnover : Measures how frequently average inventory is sold over a specified period. ▪ Calculation : - Annual Rate of Stock Turnover (in units) = Number Inventory Management of units sold during the year / Average inventory on - involves handling various aspects such as advertising, sales hand (in units) statistics, guest preferences, online reviews, and maintenance. - Annual Rate of Stock Turnover (in pesos) = Cost of - ensures accurate order placement and management of product Goods Sold / Average inventory on hand (in pesos) assortments and supplies. ❖ Advantages of High Inventory Turnover: a. Inventory investments are productive. Uses inventory management systems to : b. Merchandise remains fresh. Generate reports and track costs c. Losses from changes in styles and packaging are Identify the most cost-effective suppliers and vendors minimized. Reconcile and adjust inventory based on physical counts d. Cost of maintaining inventory is reduced. Role of Inventory ✓ When to Reorder Inventory : The inventory level at which new sales orders should be placed. Relationship Management : Critical for handling client ▪ Factors Affecting Reorder Point : demands and maintaining relationships with manufacturers in supply chains. - Order Lead Time : Time from placing an order Collaborative Relationships : Inventory movement and until goods are ready for sale or use. storage are central to collaborative supply chain relationships. - Usage Rate : Average sales in units per day or the rate of product usage in production. o Key Functions : ▪ Demand and Supply Balance : Helps in balancing - Safety Stock : Extra inventory kept to guard against supply with fluctuating demand. stockouts due to unexpected demand, production ▪ Flow Management : Manages both forward and volume increases, or delivery delays. reverse flows in the supply chain, including upstream supplier exchanges and downstream ▪ Reorder Point Formula : - Reorder Point = (Order Lead customer demands. Time × Usage Rate) + Safety Stock ▪ Demand Fulfillment : Assists in maintaining an adequate supply of materials and goods to meet customer needs, even when demand is ✓ How much to Reorder unpredictable. ▪ Carrying Cost : - Refers to the cost of holding one unit of inventory in Aspect of Inventory Management stock. - Includes expenses such as rent, equipment, Objective of Inventory Management : Maintain sufficient materials, labor, insurance, security, interest, and finished goods inventory to meet market demands effectively other direct costs. in terms of timing and quantity. - Proportional to the number of units in stock: as inventory increases, carrying costs rise. Inventory Size Evaluation : Large inventories must be ▪ Ordering Cost : assessed to ensure they lead to increased sales and profits - Refers to the cost associated with placing orders for rather than unnecessary costs. inventory items. o Key Concerns in Inventory Decisions : - Includes expenses related to ordering items from 1. Timing of Orders : Determine the optimal moments to vendors and labor costs for order processing. reorder inventory. - Inversely related to inventory levels: higher 2. Order Quantity : Decide the appropriate amount of inventory reduces the frequency of orders, leading inventory to order. to lower ordering costs. of units in stock: as inventory increases, carrying costs rise. Entrepreneurial Decisions : Balance stock levels to avoid both stockouts (running out of stock) and overstock situations Relationship Between Costs : (excess inventory). ❖ Carrying Cost : Increases with higher inventory levels. ❖ Ordering Cost : Decreases with higher inventory Four Aspect of Inventory Management levels. Inventory Level to Minimize Costs : a. Stock turnover - The optimal inventory level minimizes total b. When to order ( Re-order point ) inventory costs, which include both carrying and c. How much to order ( Economic Order Quantity ordering costs. d. Warehousing Economic Order Quantity (EOQ) : - The inventory level at which total costs are minimized. - Represents the order volume that results in the lowest combined cost of ordering and carrying inventory.  ▪ EOQ Formula : - EOQ = √[(2 × D × O) / C] Mixed Integer Linear Programming Where : - a mathematical modeling approach used to get the best results of a system with some restrictions. This model is broadly used o D = Demand or requirement units for the period in many optimization areas such as production planning, o O = Ordering cost per order transportation, network design, etc. o C = Carrying cost per unit - a powerful system that analyzes and optimizes large and complicated problems. ✓ Transportation Transportation Decisions : Stochastic Modeling - Companies must choose transportation carriers carefully as these decisions impact product pricing and distribution - a mathematical approach representing data and predicting efficiency. results in process with some defined error rate by considering the unpredictability of these factors. ▪ Common Modes of Transportation : - we use a Stochastic modeling approach to strategize predicting outcome by finding the absolute value of unknown Waterways : parameters. - Low cost for shipping bulky, low-value, and non- perishable goods. - Slowest mode and heavily affected by weather Uncertainty Modeling conditions. - a system that takes uncertainties into account and evaluates Railroads : the level of uncertain characteristics and identifies key - Cost-effective for shipping large volumes of bulk parameters with probabilistic nature. products. - a standard approach maintains rational expectations and some - Ideal for heavy, low-value items over long distances. unpredictability can serve as the basis for inferences about - Suitable for items too heavy for trucks uncertainty over future outcomes. Truck / Motor Carriers : - Highly flexible with routing and scheduling. Bi-level Optimization - Efficient for high-value merchandise over short distances. - defined as a mathematical strategy where a decentralized or - Faster than rail for short distances and can deliver hierarchical decision needs to be addressed through heuristics directly to customers. methods with realistic optimize solutions. - only solution to solve bi-level problems is through heuristic Airways : methods for realistic sizes. However, attempts are made for - Fastest mode of transportation. improving with optimal methods to compute optimal solutions - Higher cost compared to rail or truck. for real problems. - Commonly used for perishables and high-value, low- bulk items CHAPTER 6 Distribution Channels - a network used in the hotel management that creates better Revenue Management visibility on the internet to enhance the sales of the hotels and allow the hoteliers to earn from direct sales. This facilitates - used to optimize a hotel or resort's financial results by getting a product or service from manufacturers to the maximizing revenue. consumer. - selling the right hotel room, to the right customer, at the right - provide informational resources of the hotel and make it time, for the right price, via the right channel, with the best easier for potential visitors to make reservations, confirm cost efficiency those reservations, and pay for those reservations. Importance of Revenue Management Other Inventory Management - has always been the least understood part of an independent Optimization Models - supply chain models that arrange property's operations practical and real issues into mathematical models. The main - hotel owners do accept that proper revenue management objective is to construct mathematical models to maximize or strategies can boost occupancy, but they don't consider it minimize all possible issues. something crucial to a hotel’s success Real-world logistics systems have all these characteristics and optimization is the only way to deal with them which guarantees accuracy. Revenue Management Strategies The strategy of revenue management has been successfully applied in many streams that we often tend to use but it is never noticed. 1. Understand Your Market - you have a clear understanding of your market, where demand comes from and the various different Hotel Pricing Strategies local factors that might affect seasonal demand. - you need to be aware of your audience and their - Pricing is a factor that gears up profits in supply chain needs, wants and expectations. through an appropriate match of supply and demand. - Revenue management can be defined as the application of 2. Segmentation and Price Optimization pricing to increase the profit produced from a limited supply - selling the right room to the right person at the right of supply chain assets. price. - generate customer loyalty from those who Here are a number of questions that should surround your appreciate the price consistency you offer. pricing strategies : 3. Work Closely with Other Departments What do your guests want ? - achieve close collaboration between the various Which strategies will complement the business mix ? different hotel departments. How will different strategies affect connected channels and - identify key departmental decision-makers and distribution partners ? bring them on board How does your strategy integrate with your channel ? Who are the experts that can help determine the right s 4. Forecasting Strategies strategy ? - which allows you to anticipate future demand and revenue, enabling necessary adjustments to be made. - Certain guests will prefer or be accustomed to particular - most forecasting strategies rely heavily on using pricing methods historical data to spot trends - First priority of pricing should be forecasting 5. Embrace Search Engine Optimization - through this, hotel owners can improve the visibility of their website on search engine results pages. Most Common & Effective Hotel Pricing 6. Choose the right Pricing Strategy 1. Dynamic Pricing - consider the best strategy for the particular hotel, - involves changing room rates daily or even within the day based on real-time market data based on what they have to offer, who they are trying to attract and what strategy their competitors - prices should fluctuate regularly if you want to maximize are employing revenue. 7. Incentive for Direct Booking 2. Open Pricing - direct bookings do not require the commission to be - defines the flexibility hotels around the globe have to set their paid to third parties, which means they are ideal for prices at different levels depending on the various target maximizing revenue markets and distribution channels they deal with 8. Focus on Mobile Optimization OTHER HOTEL PRICING STRATEGIES - any hotel or resort that is operating without having prioritized mobile optimization is already operating ✓ Value-Added Pricing : room rates higher than the local at a distinct disadvantage compared to their competition while also offering more extras in the basic competitors. package. ✓ Discount Pricing : used in slow seasons to boost occupancy 9. Work with a Freelance Revenue Manager by dropping base rates. - the help of a freelance revenue manager, who will ✓ Price per Segment : offering same product at different prices be able to bring knowledge, expertise and to different types of customers. experience into your organization. But a freelancer ✓ Length of Stay : when demand outweighs supply, it can help will only need to be paid for the work they actually to implement a rule where guests are ‘obligated’ to stay a do, meaning less of their time will be wasted. minimum number of days. ✓ Positional Pricing : basing your rates off brand strength and Revenue management plays a major role in supply chain and has reputation. a share of credit in the profitability of supply chain when one or ✓ Penetration Pricing : positioning yourself as the cheapest in more of the following conditions exist : the market. ✓ Skimming : positioning your hotel among the most 1. The product value differs in different market expensive. segments. 2. The product is highly perishable or products tend to be defective 3. Demand is seasonal and other peaks 4. The product is sold in bulk and the spot market CHAPTER 7  ▪ Competitive Advantage : In a highly competitive industry, superior customer Customer Relationship Management (CRM) is a crucial tool for service can differentiate a hotel from its competitors. leveraging sales potential and enhancing customer value. By Many guests are willing to pay more for better service. fostering long-term customer relationships and retaining high-value It also creates a unique brand identity that distinguishes customers, businesses can gain a significant competitive the hotel in a crowded market. advantage. ▪ Operational Efficiency : When customer service is integrated effectively into Benefits of using CRM in Hospitality Industry hotel operations, it leads to smoother processes and quicker problem resolution. Increased customer satisfaction and retention, increased repeat Efficient service delivery (from housekeeping to room business, service) ensures guests feel valued and their needs are Increased share of category spend, promptly met. Increased likelihood of referral business. ADVANTAGES Developing better relationships with your current customers may provide a significant advantage, leading to : 1. One-stop Database - A CRM Software contains all relevant data pertaining to its increased sales through better timing by anticipating needs customers which are constantly updated to accommodate any based on historic trends changes. This facilitates for quick identification of data identifying needs more effectively by understanding regarding the customer which aids in faster problem-solving. specific customer requirements cross-selling of other products by highlighting and 2. Enhances Sales Productivity suggesting alternatives or enhancements - Repetitive sales tasks like sending bulk e-mails and generating identifying which of your customers are profitable and which are not This can lead to better marketing of your reports can be automated, thanks to CRM. The CRM mobile products or services by focusing on: access allows sales teams in the hotel industry to have ready effective targeted marketing communications aimed access to their customers' preferences which helps them to specifically at customer needs create more lucrative offers for their clients. a more personal approach and the development of new or improved products and services in order to win more 3. Customer Retention business in the future - Supply Chain Management in the Hospitality Industry, While competition and product dissatisfaction account for only 9% and 14% of customer loss respectively, 69% of customers Customer Service in the Hotel Industry move away from one company to another due to the lack of personal bond with the company. As Rob Yanker of Mckinsey Customer service is a core component in the hotel industry & Company puts it, "Winning back a lost customer can cost because it directly influences guest satisfaction, retention, and up to 50-100 times as much as keeping a current one overall business success. satisfied." ▪ Guest Experience : 4. Winning Strategies Exceptional customer service enhances the guest - CRM employs strategies like cross-selling that involves experience, making their stay memorable. Satisfied offering customers services that augment their original guests are more likely to return and recommend the hotel purchase and develop their interest in other products of the to others. company. Offering upgrades or extra services, for example, Personal touches such as a warm greeting, swift check- sightseeing packages come under the category of upselling. in, and addressing guests by name create a positive emotional connection. CHAPTER 8 ▪ Reputation Management : In the hospitality industry, online reviews and word-of- mouth are powerful. Excellent customer service can lead to positive reviews and strong online ratings, which Supply Chain Management (SCM) attract new customers. Negative experiences, on the other hand, can lead to - is management of the flow of goods, data, and finances related damaging reviews and loss of potential business. to a product or service, from the procurement of raw materials to the delivery of the product at its final destination. ▪ Customer Retention : Retaining existing customers is often more cost-effective than acquiring new ones. By providing outstanding service, hotels can foster loyalty and encourage repeat visits. Loyalty programs and personalized services tailored to returning guests further solidify this relationship. Supply chain performance measures can broadly be classified into - It’s a must to maintain optimal levels of each type of two categories : inventory. Hence gauging the actual inventory levels will supply a better scenario of system efficiency. Qualitative measures In a supply chain system, inventories can be further divided into - are descriptive data. They provide insights that aren't four categories : necessarily numerical but are based on observations, feelings, o Raw Materials - unprocessed materials used to produce or interpretations. goods - For example, customer satisfaction and product quality. o Work-In process (unfinished and semi-finished sections) o Finished goods inventory - completed products ready for Quantitative measures sale o Spare parts - are the assessments used to measure the performance, and compare or track the performance or products. 4. Resource Utilization - For example, order-to-delivery lead time, supply chain response time, flexibility, resource utilization, delivery - In supply chain network, huge variety of resources is used. It’s performance. main motto is to utilize all the assets or resources efficiently in order to maximize customer service levels, reduce lead times TWO TYPES OF QUANTITATIVE MEASURES and optimize inventory levels. o Non – Financial Measures - This are the metrics that companies use to gauge their success and performance in specific areas, without considering These are the different types of resources available for different financial metrics. applications : o Financial Measures - The measures taken for gauging different fixed and operational costs related Manufacturing resources - include the machines, material to supply chain are considered the financial handlers, tools, etc. measures. Storage resources - comprise warehouses, automated storage and retrieval systems. Logistic resources - engage trucks, rail transport, air-cargo 4 Dimensions of the metrics carriers, etc. Human resources - consist of labor, scientific and technical personnel. 1. Cycle Time Financial resources - include working capital, stocks, etc. - It is often called lead time. It can be simply defined as the end-to-end day delay in a business process. - For supply chain, cycle time can be defined as the business The key objective to be achieved is to maximize the revenue by processes of interest, supply chain process and the order to maintaining low supply chain costs. deliver process. TWO TYPES OF LEAD TIME Cost of Raw Materials - affects how much of a product a o Supply Chain Lead Time - the time taken by the company can produce at any given time and what the cost of supply chain to transform the raw materials into their finished product will be. final products along with the time required to reach Revenue from goods sold - Sales revenue is the income the products to the customer destination address. received by a company from its sales of goods or the o Order- to -Delivery Lead Time - the time delay in provision of services. the middle of order by a customer and the delivery Activity-based costs like the material handling, of products to the customer. manufacturing, assembling rates etc. - The goal of activity- based costing is to understand a company's true costs and 2. Customer Service Level reduce inefficiencies by identifying the highest cost drivers: - The units of measuring the state of your customer's happiness the activities and processes that consume most of a company's levels, which in turn indicates if your customers will buy resources. more, respond well to, and advocate for your brand. Inventory holding cost - are the sum of all costs involved in o Order fill rate - is the portion of customer demands storing unsold inventory. Inventory holding costs are that can be easily satisfied from the stock available. calculated as part of the total inventory costs within a single o Stockout rate - It is the reverse of order fill rate and supply chain. marks the portion of orders lost because of stockout. Transportation costs - are all the expenses related to the o Backorder level - This is yet another measure, transportation of raw materials, finished products, and which is the gauge of total number of orders waiting employees. to be filled. Cost of expired perishable goods - one aspect of the shrinkage o Probability of On- time delivery - it is the portion of portion of carrying costs. Regardless of the reason, the vast customer orders that are completed on time majority of losses due to expiration are avoidable. Penalties for incorrectly filled or late orders delivered to 3. Inventory Levels customers. - When a customer exercises a clause to claim - Every inventory is held for different reason. As the inventory- back a percentage of the sales price due to late delivery, it is carrying costs increase the total costs significantly. It is typically recorded as a reduction in revenue. essential to carry sufficient inventory to meet the customer demands.  Credits for incorrectly filled or late deliveries from suppliers - This principle encourages the supplier to make delivery on the date contractually defined and represents a compensation for the buyer for damages suffered due to a delay in the execution of the contract. Cost of goods returned by customers - By implementing effective returns management strategies, businesses can reduce waste, achieve cost savings, and meet customers' expectations for customer service. Credits for goods returned to suppliers - is a crucial component of supply chain management. By putting into practice efficient returns management techniques, companies can cut expenses, minimize waste, and satisfy consumer demands for customer care credits for products that suppliers receive back.