SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY 2
TOPIC I: INTRODUCTION TO SUPPLY
CHAIN MANAGEMENT
LEARNING OBJECTIVES:
1. Define what supply chain management is
2. Explain how supply chain management works
3. Identify the 7 functionality of supply chain management.
4. Explain the key issues in supply chain management
5. Discuss supply chain sustainability
6. Understand the ten principles of supply chain sustainability of the UN
Global Compact
WHAT IS SUPPLY CHAIN MANAGEMENT?
Supply chain management is the management of the flow of goods and
services and includes all processes that transform raw materials into final
products. It involves the active streamlining of a business's supply-side activities
to maximize customer value and gain a competitive advantage in the
marketplace.
SCM represents an effort by suppliers to develop and implement supply chains
that are as efficient and economical as possible. Supply chains cover everything
from production to product development to the information systems needed to
direct these undertakings.
HOW SUPPLY CHAIN MANAGEMENT WORKS
Typically, SCM attempts to centrally control or link the production, shipment,
and distribution of a product. By managing the supply chain, companies are able
to cut excess costs and deliver products to the consumer faster. This is done by
keeping tighter control of internal inventories, internal production, distribution,
sales, and the inventories of company vendors.
SCM is based on the idea that nearly every product that comes to market results
from the efforts of various organizations that make up a supply chain. Although
supply chains have existed for ages, most companies have only recently paid
attention to them as a value-add to their operations.
In SCM, the supply chain manager coordinates the logistics of all aspects of the
supply chain which consists of five parts:
The plan or strategy
The source (of raw materials or services)
Manufacturing (focused on productivity and efficiency)
Delivery and logistics
The return system (for defective or unwanted products)
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The supply chain manager tries to minimize shortages and keep costs down. The
job is not only about logistics and purchasing inventory. According to [Link],
supply chain managers, “make recommendations to improve productivity,
quality, and efficiency of operations.”
Improvements in productivity and efficiency go straight to the bottom line of a
company and have a real and lasting impact. Good supply chain management
keeps companies out of the headlines and away from expensive recalls and
lawsuits.
Supply Chains
A supply chain is the connected network of individuals, organizations, resources,
activities, and technologies involved in the manufacture and sale of a product or
service. A supply chain starts with the delivery of raw materials from a supplier to
a manufacturer and ends with the delivery of the finished product or service to
the end consumer.
SCM oversees each touch point of a company's product or service, from initial
creation to the final sale. With so many places along the supply chain that can
add value through efficiencies or lose value through increased expenses, proper
SCM can increase revenues, decrease costs, and impact a company's bottom line.
7 AREAS OF SUPPLY CHAIN
While supply chain is a very broad career field, it has 7 primary functional
areas: Purchasing, Manufacturing, Inventory Management, Demand
Planning, Warehousing, Transportation, and Customer Service. These areas
may appear to be independent functions, but in an efficient supply chain, they
must interact to a great degree and are very dependent upon one another.
Purchasing: The activity of acquiring goods or services to accomplish the goals
of an organization.
The major objectives of purchasing are to (1) maintain the quality and value of a
company's products, (2) minimize cash tied up in inventory, (3) maintain the flow
of inputs to ensure the flow of outputs, and (4) strengthen the organization's
competitive position. Purchasing may also involve (a) development and review of
the product specifications, (b) receipt and processing of requisitions, (c)
advertising for bids, (d) bid evaluation, (e) award of supply contracts, (f)
inspection of good received, and (g) their appropriate storage and
release.* Business [Link]
The purchasing function is core to any company, as it provides the materials and
resources needed to create a product. As the economy becomes more global, the
opportunities become even more exciting. The roles that exist within this
function are numerous, and here are just a few: coordinator or analyst,
materials manager, corporate purchasing manager. These roles can exist at a
field location such as a plant or at a corporate location. Depending on the
SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY 4
company, individuals could be involved in purchasing anything from office
supplies to parts for the construction of airplane engines.
Manufacturing: This is the production of merchandise for use or sale using
labour and machines, tools, chemical and biological processing, or formulation.
The term may refer to a range of human activity, from handicraft to high tech,
but is most commonly applied to industrial production, in which raw materials
are transformed into finished goods on a large scale. Such finished goods may be
used for manufacturing other, more complex products, such as aircraft,
household appliances or automobiles, or sold to wholesalers, who in turn sell
them to retailers, who then sell them to end users and consumers. Wikipedia
The manufacturing function has received a lot of notice in the press as
companies move various production operations overseers. Despite this, there are
still many job opportunities available.
These include:
production planner
production manager
corporate manager of production planning
plant manager
line operator
machine operator
QA analyst
Engineer.
Manufacturing will always play a key role in the US economy as many products
will always be produced here. From food to cars, companies will continue to
manufacture in the US because of the skilled workforce and natural resources
available.
Inventory Management: Activities employed in maintaining the optimum
number or amount of each inventory item.
The objective of inventory management is to provide uninterrupted production,
sales, and/or customer-service levels at the minimum cost. Since for many
companies inventory is the largest item in the current assets category, inventory
problems can and do contribute to losses or even business failures. Business [Link]
The management of inventory is a key function of any manufacturing company,
whether domestic or foreign. Physical inventory is often one of the most
signification assets of a company, and without it, a company would have no
sales. It’s important to have the right product, at the right place at the right
price, and inventory allows this to occur. In today’s global economy the inventory
function has become more important and challenging as product can be
produced and available anywhere in the world.
Demand Planning: is the process of forecasting customer demand to drive
execution of such demand by corporate supply chain and business management.
Demand forecasting involves techniques including both informal methods, such
as educated guesses, and quantitative methods, such as the use of historical
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sales data and statistical techniques or current data from test markets. Demand
forecasting may be used in production planning, inventory management, and at
times in assessing future capacity requirements, or in making decisions on
whether to enter a new market
Demand forecasting is predicting future demand for the product. In other words
it refers to the prediction of probable demand for a product or a service on the
basis of the past events and prevailing trends in the present. Wikipedia
Demand planning today requires analytical skills and a love of computer
modelling. It helps if you have a crystal ball, but since few people do, the art and
science of forecasting what people will buy, or what components you will need, or
what trends will impact the sales of your product is left to those who can analyse
and interpret data effectively.
Warehousing: Performance of administrative and physical functions associated
with storage of goods and materials. These functions include receipt,
identification, inspection, verification, putting away, retrieval for issue,
etc. [Link].
While many people view the function of warehousing as the simple process of
storing products, it has evolved into a function that does more than that. In
today’s world of mass customization, the warehouse has evolved into a
distribution centre, and even a facility to customize the final product via
repacking, labelling or other physical conversion. The importance of these
facilities has grown as it’s the final “stop” before moving to the customer. Proper
handling, storage and management of the products within these facilities must
occur so that customer orders can be fulfilled with the right product at the right
time.
Transportation: is the movement of people, animals and goods from one
location to another. Modes of transport include air, rail, road, water, cable,
pipeline and space. The field can be divided into infrastructure, vehicles and
operations. Transport is important because it enables trade between persons,
which is essential for the development of civilizations. Wikipedia
The transportation function is critical to the supply chain because it is where the
rubber literally meets the road. A company can have the right product at the
right warehouse at the right time, but without transportation if won’t make it to
the customer at the right time. In today’s global economy, this function is even
more critical as it is no longer as easy as putting a product on a truck and having
it delivered. Now it might be shipped via container ship, airplane, train, truck or
even Uber car before arriving at the customer. Companies have to evaluate the
many different dimensions of each option such as cost, speed, reliability and
ability to service when deciding which to utilize.
Customer Service: The process of ensuring customer satisfaction with a product
or service. Often, customer service takes place while performing a transaction for
the customer, such as making a sale or returning an item. Customer service can
take the form of an in-person interaction, a phone call, self-service systems, or by
other means. [Link]
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While the customer service function appears to be at the end of the supply chain,
it is definitely not the end of the process. This function is critical in that its
works to meet the needs of the customer and ensure the customer receives what
they want, when they want it. This function is sometimes the only point of
contact a customer has with a customer so it’s imperative that they have the
skills and knowledge to understand a customer’s needs and to meet those needs
when possible.
Types of Roles in Supply Chain:
Demand Planning: demand planner, demand planning manager,
Purchasing: coordinator or analyst, materials manager, corporate purchasing
manager
Manufacturing: production planner, production manager, corporate manager of
production planning, plant manager, line operator, machine operator, QA
analyst, engineer
Inventory: inventory analyst, inventory manager, cycle counter, deployment
planner/manager, deployment planner
Warehousing: forklift driver, order picker, supervisor, operations manager,
inventory analyst/manager, customer service, dock scheduler, corporate
warehousing analyst/manager
Transportation: driver, dispatcher, engineer, asset manager, brokers, corporate
transportation analyst/manager
Customer service: customer service coordinator, VMI (vendor managed
inventory) analyst, manager, import/export analyst/manager
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Sourcing and Procurement Issues
Issues at the sourcing and procurement phase of supply chain management deal
with finding raw material suppliers for the product Managers must find raw
material suppliers that can deliver the exact amount of materials needed at the
best cost of a certain material is unavailable for whatever reason or it is too
expensive. The managers must find a suitable substitute or else call for a change
in the product design. The managers must also consider the health effects on
consumers due to certain raw materials, and the environmental effects of
obtaining them.
Production Issues
The cost of production of a product weighed against the potential profit the
product can earn is the primary concern at the production phase of the supply
chain Companies always want to produce a product at the lowest cost per unit
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possible and sell the product at the highest price the target customer is willing to
pay in order to achieve or even approach this goal, supply chain managers must
find reliable manufacturers that can meet company deadlines and product
quantities, and who offer the most cost-efficient method of production. If the
company manufactures the product itself, then the managers must still see to it
that the method of production is cost-efficient timely and produces the required
amount of products.
Delivery Issues
Delivery of the manufactured products is the next hurdle for supply chain
managers. They must choose the most cost-efficient method of transferring
products from the production facilities to the stores or directly to the customer.
Products can either be delivered by air, on land or by sea. Mast businesses must
use a combination of these methods and therefore, must coordinate them
effectively. When delivering products to stores, managers must be mindful of
inventory considerations and choose the delivery method that allows stores to
maintain sufficient inventory. When delivering to customers, managers must
verify that the correct quantity and type of product is delivered to the correct
customer at an agreed upon time.
Customer, Government and Market Change
The first three areas sourcing and procurement, production and delivery deal
with problems arising within the supply chain: however, supply chain managers
must also deal with external issues that may affect the supply chain. If
customers notice a defect in the product or complain about product design or
delivery, the managers must quickly respond by making changes in the supply
chain. If the federal government issues a law that directly applies to the product,
the managers must comply with the law by changing the supply chain. If the
price of a certain raw material rises on the stock market, then the managers
must again change the supply chain.
SUPPLY CHAIN AND ITS ENVIRONMENTAL IMPACT
Supply Chain Sustainability Defined
In today’s globalized economy, outsourcing business operations doesn’t mean
outsourcing responsibilities or risks—or that a company’s responsibility ends
once a product is sold. Leading companies understand that they have a role to
play throughout the lifecycle of their products and services. Supply chain
sustainability management is key to maintaining the integrity of a brand,
ensuring business continuity and managing operational costs. It is also an
important aspect of the implementation of the UN Global Compact principles.
Corporate sustainability is defined as a company’s delivery of long term value
creation in financial, social, environmental and ethical terms. This definition
encompasses the role of business in addressing environmental, social (human
rights and labour) and corporate governance issues, as covered by the UN Global
Compact’s Ten Principles. “Supply chain sustainability” is the management of
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environmental, social and economic impacts, and the encouragement of good
governance practices throughout the lifecycles of goods and services.
The objective of supply chain sustainability is to create, protect and grow long-
term environmental, social and economic value for all stakeholders involved in
bringing products and services to market. Through supply chain sustainability,
companies protect the long-term viability of their business and secure a social
license to operate
About Supply Chain Sustainability & the United Nations Global Compact
The UN Global Compact encourages participants to engage with suppliers about
respect for the Ten Principles and to advance sustainable development objectives
as part of their commitment to the UN Global Compact, and, thereby, to spread
good corporate sustainability practices throughout the global business
community. As the table below outlines, the Ten Principles are intricately tied to
sustainability in supply chains.
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The Ten Principles of the Global Compact and Supply Chain Sustainability
SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY 10
ENRICHMENT PHASE: (Answer this on LMS)
1. Define the term supply chain management in your own words, and list its
most important activities.
2. What are the benefits of SCM in your life as a student?
