Chapter 3:

The Supply Chain Management Process

Supply chain management is a process used by companies to ensure that

their supply chain is efficient and cost-effective. A supply chain is the collection of
steps that a company takes to transform raw materials into a final product.

How does supply chain management work?

Supply chain management operates by managing procurement, suppliers,
manufacturing facilities, dealers, distributors and consumers as they step forward
through the production, sales and purchasing processes. The supply chain needs
active management because many variables beyond the reach of the firm, such as
gas prices and environmental situations, influence it. When a company is acutely
aware of those factors, it can manage through them more effectively. With effective
SCM, inventory, production, distribution, sales and vendor inventory are all tightly
controlled.
SCM means managing costs at every step and delivering goods to consumers
as quickly as possible. It assumes that every product that is for sale exists because
of the various participants in the supply chain. A supply chain manager is a trained
professional responsible for five essential components of the chain:
 The carefully researched and developed strategy of the supply chain.
 The source of the materials used to make the goods to sell.
 The efficient production of the manufacturing process in getting the goods
ready for the market.
 The delivery mechanisms and logistics that move the products to the
consumers and distributors.
 The system for managing the return of defective or unwanted products.
The manager works to prevent shortages and reduce costs through these five
elements, which has a direct impact on profits.

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THE COMPONENTS OF SUPPLY CHAIN MANAGEMENT

I. Plan
The initial stage of the supply chain process is the planning stage. We need to
develop a plan or strategy in order to address how the products and services will
satisfy the demands and necessities of the customers. In this stage, the planning
should mainly focus on designing a strategy that yields maximum profit.
For managing all the resources required for designing products and providing
services, a strategy has to be designed by the companies. Supply chain
management mainly focuses on planning and developing a set of metrics.

II. Develop (Source)

After planning, the next step involves developing or sourcing. In this stage, we
mainly concentrate on building a strong relationship with suppliers of the raw
materials required for production. This involves not only identifying dependable
suppliers but also determining different planning methods for shipping, delivery, and
payment of the product.

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 Companies need to select suppliers to deliver the items and services they require
to develop their product. So, in this stage, the supply chain managers need to
construct a set of pricing, delivery and payment processes with suppliers and also
create the metrics for controlling and improving the relationships.
Finally, the supply chain managers can combine all these processes for handling
their goods and services inventory. This handling comprises receiving and examining
shipments, transferring them to the manufacturing facilities and authorizing supplier
payments.

Supplier Development
Supplier Identification: Generally, supplier base is huge in the hotel
industry, this has its positives, conscious steps should be taken to identify committed
suppliers who are willing to go by the objectives of the organization, and be involved
and appreciate and support the changes of the organizational requirements.
Supplier evaluation and selection: Supplier evaluation is a critical process
supplier's ability to supply the right goods at the right time with correct specifications
has to be reviewed. Contracts are awarded after careful negotiations with the
supplier.
Supplier management: After the suppliers fulfills its obligation by delivering
the required goods as per specifications it's the responsibility of the Purchase
department to ensure suppliers bills are paid promptly, at times good suppliers are
lost due to the payment delays. Therefore, it’s very essential to maintain a strong
relationship with the supplier hence supplier management has to be strengthened.
Supplier development and improvement: It's a very crucial step in the
supplier chain management. A careful consideration of this process would contribute
towards efficiency and cost saving.

III. MAKE
The third step in the supply chain management process is the manufacturing or
making of products that were demanded by the customer. In this stage, the products
are designed, produced, tested, packaged, and synchronized for delivery.
Here, the task of the supply chain manager is to schedule all the activities
required for manufacturing, testing, packaging and preparation for delivery. This

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stage is considered as the most metric-intensive unit of the supply chain, where firms
can gauge the quality levels, production output and worker productivity.
The Product Development within Hospitality Environments
Product development can be recognized as the examination of product and
services to recognize the probability of improvement, earnings as well as the client
satisfaction. This technique is important in changes of existing products to handle
discovered opportunities and the modern marketing trends. It could provide the much
better quality for the product and the client satisfaction. Product development
process should be consisting of knowledge on the merchandise weaknesses and
advantages, modern marketing tendency which is facilitated by the advanced
technology.
According to the Kotler's primary of product development, three phases of
product such as center product, augmented product and tangible product. Basic level
of every selling product is known as the central product. For a good example, Hilton
hotel holiday resort may provide well-appointed rooms, excellent dinner and the
other services for their customers.
Augmented product can include the excess services and value-added
services which might give their customers. For an example, fitness center facilities,
spa facilities and the other packages relevant to the different sports activities.
Tangible products can be recognized as the products that can be in physical form
feel by the client. For a good example, restaurant of Intercontinental Sea Bq provides
sea foods for the customers.

Product development process five major steps can be diagnosed.

 Generation of Idea
 Screening process
 Evaluation of Idea / Development of Concept
 Product development / Business Analysis
 Commercialization process
Idea technology process may be considered a result of market research. It
might be the confirmation of a requirement of a product or service predicated on
existing consumer need. Inside the screening process, ideas may be gathered from
media, customers and employees. By using those ideas, the expected competition

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for the merchandise may justify based on the market trends. Income, cost as well as
the expected earnings may recognized in the idea evaluation step. Market research
may be important with regards to this step. In this step, the expected first customers
may illustrate theoretically. In the merchandise development step, physical
production and making process can do and the selling price could also determine.
Not merely will that, evaluation of the merchandise also be done. As the last step,
the production marketing campaign process may be achieved in the
commercialization process.

IV. Deliver
The fourth stage is the delivery stage. Here the products are delivered to the
customer at the destined location by the supplier. This stage is basically the logistics
phase, where customer orders are accepted and delivery of the goods is planned.
The delivery stage is often referred as logistics, where firms collaborate for the
receipt of orders from customers, establish a network of warehouses, pick carriers to
deliver products to customers and set up an invoicing system to receive payments.

V. Return
The last and final stage of supply chain management is referred as the return. In
the stage, defective or damaged goods are returned to the supplier by the customer.
Here, the companies need to deal with customer queries and respond to their
complaints etc. This stage often tends to be a problematic section of the supply
chain for many companies The planners of supply chain need to discover a
responsive and flexible network for accepting damaged, defective and extra products
back from their customers and facilitating the return process for customers who have
issues with delivered products.

Returns Management
Returns management can be defined as the management that invites the
merger of challenges and opportunities for inbound logistics. A cost-effective reverse
logistics program links the available supply of returns with the product information
and demand for repairable items or re-captured materials. We have three pillars that
support returns management processes. These are as follows:

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  Speed - It is a must to have quick and easy returns management and
automate decisions regarding whether to produce return material
authorizations (RMAs) and if so, how to process them. Basically, the tools of
speed return processing include automated workflows, labels & attachments
and user profiles.
 Visibility - For improving the visibility and predictability, information needs to
be captured initially in the process, ideally prior to delivering the return to the
receiving dock. Most effective and easily implementable approaches for
obtaining visibility are web-based portals, carrier integration and bar-coded
identifiers.
 Control - In case of returns management, synchronizing material movements
is a common issue that needs to be handled. The producers need to be very
cautious and pay close attention to receipts and reconciliation and update the
stakeholders of impending quality issues. In this case, reconciliation activates
visibility and control all over the enterprise. The key control points in this
process are regulatory compliance, reconciliation and final disposition and
quality assurance.

Post - Sales Service

Now that the ordered shipment is over, what is the next step? The post sales
service in supply chain tends to be an increasingly essential factor as businesses
offer solution instead of products.
The post sales services comprise selling spare parts, installing upgrades,
performing inspection, maintenance and repairs, offering training & education and
consulting.
Presently, with the growing demands of the clients, a high volume of after
sales service proves to be a profitable business. Here, the services are basically
heterogeneous and the value-added services are different from those provided prior
to sales service.

Consumables in Hospitality
Regardless of how large or small your hotel is, just imagine how bad it would
be if you could not supply your guests with breakfast because you had run out of

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supplies. What happens if you use all of your beers and have none to replace them?
When evening meals are due, how embarrassing it would be to say you can only
offer half the menu because you do not have the products to complete all the meals
shown.
The same applies to restaurants. Not being able to fulfill their menu looks
really bad and will stop customers returning. A bar that runs out of wine or beer will
suffer by customers going elsewhere, and once they have done that, it is hard to get
them to return to your establishment.
Successful businesses are built on loyal customers bases, but this will not
happen with yours if you keep letting customers down. Food and drink are an
important part of any hotel stay, and eating out is often part of consumers' vacations.
It is vital that you can fulfil your obligations with food and drink, and effective chain
supply management is the way to do it. Without it, there would be no foods in
restaurants and no beer or wine in bars, and that will basically kill the hospitality that
your venture should be providing. Your establishment also needs to have enough
clean bed linen to be able to change it when required, and an ample supply of things
such as table napkins, cutlery and crockery. This might all seem very obvious, but
you would be surprised by how many hotels fall down in these areas.

Implement Supply Chain Management in Hotel Industry

Different concepts have been developed to understand how the successful
implementation of logistics and supply chain management can be achieved. For the
hotel industry logistics and supply chain activities are grouped into tactical, strategic
and operational levels to help create a more systematic approach by focusing on
how implementation will happen from a higher level, then linking that to long-term
goals and finally how these results translate in the short-term.

1. Tactical Level
Executive support-The tactical level of implementation of logistics and
supply chain management focuses on steps that are taken at a higher level
for successful implementation. It is important that, during the tactical stage of
implementation there is 100% executive support and buy-in from senior
managers and having the right people in place who understand the value
logistics and supply chain implementation will bring to their properties.
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 Managers need to take a lead in communication and making sure all
employees understand why the initiatives are essential to the company's
business strategy.
Visibility and Control-It is important to have visibility and control to
implement logistics and supply chain practices to help make better decisions.
The hotel environment has seen an increase in the need for visibility and
control to help understand the decisions made by vendors and suppliers to
help managers make well-informed logistics and supply chain decisions. This
helps hotel managers make important decisions on parts of costs in areas of
transportation and shipping.
Benchmarking-This goal of benchmarking during logistics and supply chain
implementation is to enhance design and operational effectiveness. It is
important for hotel managers to measure set targets against results in the
different areas of operation like order filling, transportation, and vendor
compliance. Hotels can use information from benchmarking to improve
processes and make better decisions.
Creative solutions and risk taking-The goal of developing creative solutions
and willingness to take risk during logistics and supply chain implementation
is important since a lot of focus has been placed on reducing costs and
increasing margins wherever possible. This helps focus on negotiating better
costs and focus is placed on the customer's demands.

2. Strategic Level
Change management-The strategic level of implementation of logistics and
supply chain management is linked to the long-term benefits over a period of
time. Change management plays a big part in logistics and supply chain
implementation in different areas, from making changes to the whole process
or fixing issues with vendors. With the fast pace of the hotel industry during
implementation, it is important for managers to think and act in real time to
help enable innovation and change, as people will always challenge the
process.
Think Lean and Green-Even though lean started in the automotive industry,
it can be used in any business process like in the hotel industry. Hotel
managers need to use lean strategies when logistics and supply chain is
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 implemented immediately instead of later. Since lean is focused on the end
user, the main focus during implementation is to maintain profitability, save
money, and add value that fulfills customer needs. During the lean
implementation phase, it is important for managers to identify the service
value stream focusing on design layout, development, procurement, and
distribution process strategies.
Top talent and Accountability-When implementing logistics and supply
chain management in any company, it is important to be able to sustain the
implementation, which involves building a solid foundation that includes top
managers to drive the process with deep expertise in logistics and supply
chain functions and business skills.
Right information technology-Today as information technology has become
an important and integral part of every business process, when implementing
logistics and supply chain management in the hotel industry, it is important to
have the capabilities of ensuring that most company decisions are done at the
speed of light With the right information technology, the hotel can
communicate information on supply chain and demand changes easily in
areas of inventory, distribution, transportation, and logistics management,
since the accurate information is produced due to the analytical and visibility
capabilities to make efficient business decisions quickly.

3. Operational level
Costs-The operational level of logistics and supply chain management
implementation focuses on decisions that are related to how to make the
tactic approach happen in the short term. Today hotel costs associated with
logistics and supply chain strategies have placed the emphasis on increasing
efficiency and reducing total costs to stay competitive (IBM, 2009). During
implementation, costs need to focus on purchase and inventory costs. It is
important to monitor purchase costs with products that have a short life cycle
and have to be replenished frequently, since hotels usually buy too many
stock-keeping units (SKU) for the same use.
Simplifying complexities-It is important in logistics and supply chain
implementation for hotel managers to manage strategies to eliminate
complexities that do not add any value to the organization. It is important that
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logistics and supply chain functions are broken down into different areas
based on which areas matter the most in the supply chain. This segmentation
helps hotel managers easily identify the relationship between costs and price
with suppliers and helps in negotiating better prices.
Right metrics-Applying key performance indicators (KPI's) to logistics and
supply chain operations during implementation is vital to help monitor how
well suppliers and vendors are meeting set targets, which helps improve top
and bottom-line performance. Starbucks created a weekly scorecard to
monitor third party carrier performance in areas of costs, service, and
productivity agreed upon with their partners. Applying KPI's to operations will
help create transparency, improve costs, and help serve customers better, as
well as lay the foundation for future logistics and supply chain initiatives.
Risk management-Considering risk management is critical during logistics
and supply chain implementation for hotel managers in order to evaluate risk
associated with implementation in their strategy. Managers should have a
good understanding of the benefits involved with sharing risk information
across the network.

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