Abuyog Community College

Abuyog, Leyte

Name:___________________________________________ Section:
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2 Significance of the SCM in the

Hospitality Industry
INTRODUCTION
Any company needs to know when it is required to meet orders, it must have the stock it will require.
Nothing looks worse for a business than running out of something that a customer needs, whether
that resale items or goods that are part of delivering a service. SCM is more important than placing
orders with suppliers and there are some sectors where it is more important than others, with
hospitality being a common example.

INTENDED LEARNING OUTCOME

1. Understand the hotel supply chain;
2. Describe the significance in the SCM in the hospitality industry;
3. Explain the characteristics of a hotel supply chain;
4. Explain the factors affecting the SCM in hotel industry;
5. Understand the benefits of SCM ;

ACTIVITY
There is inflation going on in our economy. List down 5 reasons why are we experiencing inflation?
1.
2.
3.
4.
5.

ANALYSIS
Base on your given answers above, what do you think is effect of inflation to the hospitality industry?

ABSTRACTION

In today’s challenging business environment, there is an increased focus on delivering value to the
customer at the cheapest possible cost. Hence, there has been increased interest in logistics and
supply chain management practices. Since performance is not only determined by actions and
decisions, but also the improvements on return in investment and greater profitability. Hotel
companies, both big and small, must focus on how to offer products and services while keeping costs
low. In an industry which is labor intensive, many hotels are focus to make bolder and more
visible moves in cost reductions to their operations. It comes that no surprise that much of these
costs, like hiring freezes, cuts in employee perks, reduction of bonuses and reductions in salaries.

One area of the hotel industry that is usually left out in cost cutting efforts is its logistic and supply
chain operation. Even though logistic and supply chain is considered an operations management
strategy in the hotel and other service industries, they can use this strategy to help add value to
their properties. The supply chain is an important element within the hotel and catering industry.

Well established and logistic and SCM system can help the hotel industry give individual hotel
companies a sustainable competitive advantage. The use of the right logistics and supply chain help
not to only improve the quality and service of the hotel company, but drive down cost. For staff in
this industry, it is crucial to build relationships with suppliers and work with a good ordering system in
order to improve the service level towards customers. The hotel industry can benefit from the
comprehensive and integrated practices of logistics and supply chain management, by delivering a
consistency reliable and high quality service at the best cost.

Hotel supply chain framework. Source: Adapted from Xu & Gursoy (2015).

Six Characteristic of a Hotel Supply Chain

1. Perishability of products and services rendered
2. Presentation and interpretation of the product offered
3. Inherent complexity of products and services
4. Uncertainty of demand
5. Inseparability between service production and the end customer
6. Tradition sale of tourism service package

Factors Affecting the SCM in the Hospitality Industry

It is essential to understand that the premise under which the hospitality industry operates is much
different from other industries. The industries capital costs are high, operating costs being
comparatively lower. The hotel industry has its unique characteristics, like customer centricity,
different types of management etc.
 

 Guest or Customers are the utmost important for the hotel industry; customer satisfaction is of
paramount importance to the hotel industry. In the hospitality industry the customer related
activities such as food and beverage production and 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.

 Different types of management systems, such as the ownership hotels, franchisees, hotels
which are run on operating contracts by chains etc. The different managements systems have
different implications on the supply chain management.

 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 relationship between the supplier and hotel becomes stronger because of professional
management in the form of development of proper purchasing policies. This could also lead to
concentrating on a few trusted suppliers, rather than have a large and inefficient supplier base.
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

Why there is a need for Supply Management?

SCM can boost customer service, reduce operating costs, and improve a company’s financial position. Other
benefits include reduced inventory costs, better information sharing between partners, improved process
integration, and improved quality.
1. Need to further reduce operational cost

-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

- the cost associated with procurement, distribution and logistics, offering scope for substation
efficiency improvement and coordination beyond its production activities.
 3. Increasing transportation cost

- Transportations cost account to 5 to 30% of the operating expenses of the company. It needs
focus to reduce cost.

Objectives of SCM

1. Achieve strategic advantage

 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 wastes sources to avoid them in the whole supply chain.
 Ensure quality in the logistics of warehousing, transport and handling.
 Decrease purchasing cost
 Decrease production cost
 Decrease total supply chain cost

3. Enhances outsourcing capability

4. Achieve globalization
 Helps to operate across world market
 SCM helps meet global competition successfully

5. Better inventory management

 Eliminate the necessity to stock
 Ensure the availability of the goods in right quantity at the right price with right quality at
the right time.
 Prevent Bull Whip effect of inventories in the entire SC.

6. Effective use of supply and logistic resources

 Participation of suppliers in quality improvement , design improvement,and product
development through design collaboration

7. Reduce lead time by design collaboration

 Lead time for product improvement is less

8. Achieve on time delivery

 Ensure prompt product delivery 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 customer satisfaction

10. Boost customer service

 Right delivery time, right products and quantity
 Right after sale support

FIFO (“First-In, First-Out”) assumes that the oldest products in a company's inventory have been sold
first and goes by those production costs. The LIFO (“Last-In, First-Out”) method assumes that the
most recent products in a company's inventory have been sold first and uses those costs instead.

Resource Utilization
In a supply chain network, huge variety of resources is used. These different types of resources
available for different applications are mentioned below.
• Manufacturing resources − Include the machines, material handlers, tools, etc.
• Storage resources − Comprise warehouses, automated storage and retrieval systems.
• Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
• Human resources − Consist of labor, scientific and technical personnel.
• Financial resources − Include working capital, stocks, etc.

APPLICATION
Direction: Read and answer the following briefly and concisely. 5pts each

1. Why do you think the resources/supplier’s background and legitimacy is important to

check by us users before considering them as our business partners?
2. What is the importance of the rules FIFO and LILO in SCM?
3. Imagine there will be no lead time or cycle time in processing products, will you be able
to meet customer satisfaction? Why, or why not?
4. How can SCM helps a business survive during inflation?

5 points 4 points 3 ppoints 2 points 1 point

Good writing and Fair writing and Fairly organize Poorly organize Straight to the
communication communication ideas, straight to ideas, straight to point
skills,Very skill, fairly the point the point explanation.
compreshensive organized explanation,
ideas, clear ideas ,clear
explanations, explanation,
straight to the straight to the
point, point

Assessment
Answer the Quiz from this link:

[Link]

Agreement
“Before you become an owner, first, you should become the customer.”
Provide a photo of you showing off yourself being a happy and satisfied customer of a certain
products and services.
[Link] and create a wonderful caption for that photo, it can be quotes or description on why
the product/ service make you happy/satisfied.
2. Share what specific actions do you follow for you to still manage to avail the product/service
despite of inflation?
[Link] it in here.