Operations and Functional

Management
in Hospitality Organisations
Session 7–
Supply Chain Management
Ealing Hammersmith and
West London College
Masters of Business Administration
Hospitality Management
Lesson objectives
 After this session you should be able to


 Discuss the role of supply chain

management in the organisation
 Explain the objectives of supply chain
management
 Discuss the advantages of single vs multi
sourcing options
 Discuss the evolution of eprocurement
 Consider supply chain management in your
own organisation


Supply chain management
 Supply network – all the operations linked
together to provide goods and services

 Supply chain – a strand of linked
operations...several supply chains will
cross through an operation

 Supply chain pipeline – a linkage or
strand of operations that provides good
and services through to end customers
Supply Chain Objectives
Quality
 Quality – the quality of a product or service
when it reaches the customer


 Quality of performance of every operation in

the chain that supplied it

 Every stage must take responsibility for
its own its suppliers’ performance
Supply Chain Objectives
Quality
 If each of 7 stages in a supply chain has a
1% error rate or 93.2% of products or
services will be of good quality when they
reach the customer
Supply Chain Objectives
Speed
 Speed – how fast a customer can be
served...customers can be served quickly
because we have it in stock


 Speed – how fast goods and services move

through the chain...keeping inventory low
and using working capital effectively

 Balance – between speed as
responsiveness and speed as fast
throughput – how does the supply chain
want to compete
Supply Chain Objectives
Dependability
 Dependability – minimizing uncertainty

 On time, in full deliveries

 No over ordering
Supply Chain Objectives
Flexibility
 Flexibility - the ability of the supply chain
to deal with changes and
disturbances...supply chain agility

 Agility – changing with customer demands
or the supply capacities within the chain
Supply Chain Objectives
Cost


 Costs of each operation in the chain doing
business with each other

Supply Chain Objectives
Cost
 Costs of


 Finding appropriate suppliers

 Setting up contracts
 Transporting products
 Monitoring performance

Purchasing / Procurement
 Buys in goods and services from suppliers
The purchasing function

The Operation
Purchasing function
Suppliers

Request for quotations

or specification, price, delivery etc
Request for products and service
Select Suppliers

Prepare Orders
Produce products & services Receive products and services
Factors for rating suppliers
 Range of products or services  Potential for innovation
provided 
  Ease of doing business
 Quality of products & services 
  Willingness to share risk

 Responsiveness  Long-term commitment to
 supply
 Dependability 
  Ability to transfer knowledge as
well as supply goods and
 Delivery & volume flexibility services
 
 Total cost
 Technical capability

  Operations, financial,
 Ability to supply the required managerial capability
quantity
Short-term
 Long-term


 

 
Single Sourcing vs.
Multi Sourcing
 One supplier

 Several suppliers – maintaining continuous
bargaining power
Single Sourcing vs.
Multi Sourcing Advantages
 Potentially better quality  Competitive tendering
because of SQA 
 Stronger more durable
relationships  Can switch in case of
 Greater dependency – supply
more commitment and 
effort
 Better communication  Wide sources of
 New product knowledge and
development expertise to tap-
 Confidentiality 
 Scale economies



Single Sourcing
 Multi Sourcing

Single Sourcing vs.
Multi Sourcing Disadvantages
 More vulnerable to  Difficult to ensure
disruption if supply commitment by
fails supplier
 
 Individual supplier  Less easy to develop
more affected by effective SQA

volume fluctuations

 Harder to
communicate
 Supplier may apply 
pressure on prices  More difficult to obtain
scale economies
Single-sourcing
 Multi-sourcing

Information exchange
Helper (1991)
 Voice – partnership sourcing…long-term
forecasts, R&D…long term contracts


 Exit – traditional adversarial purchasing…

short term relationships based on price


 Unlikely – operating at arm’s length



 Stagnant – strong sense of commitment,

but relationship not yet at full potential
E procurement
 Use of the internet to organise purchasing

 May include identifying potential suppliers
and auctions as well as administrative
tasks i.e. Issuing orders
E procurement
Benefits
 Improves efficiency in purchasing processes

 Improves commercial relationships

 Reduces transaction costs of doing business for
suppliers

 Opens up marketplace to increased competition
– keeps prices competitive

 Improves a business’ capacity to manage supply
chain efficiently
Scope of e-procurement
 High spend

 Easily substitutable

 Many competing suppliers

 Relative inefficient internal processes


Electronic marketplaces
 Private

 Consortium

 Third party
Global sourcing
 Identifying evaluating configuring supply
across multiple geographies

 Lower trade barriers
 Cheaper more sophisticated transport
infrastructures
 Competition – where can we buy it or make
it cheapest?

Considering global sourcing
 Purchase price
 Transportation costs
 Inventory carrying costs – storage, handling,
insurance, depreciation, obsolescence
 Cross-border taxes and tariffs
 Supply performance
 Supply and operational risks – geopolitical
factors i.e. Changes in country leadership,
war, terrorism
Global sourcing and CSR
 Child / forced labour
 Working hours
 Wages and benefits
 Freedom of association
 Discrimination
 Health and safety

Physical distribution
management
 Logistics – organising the integrated
movement and storage of goods
Logistics and the internet
 Information more readily available along the
chain – where are my goods?

 Better coordination

 Back loading

 Order fulfilment
Materials management
 Integrating


 Purchasing
 Expediting
 Inventory management
 Stores management
 Production planning
 Physical distribution
 Merchandising
 B2B and B2C C2B and C2C

B2C
B2B
Retail
st common all but the last link in the supply chain
Catalogues

C2B C2C

Consumer bids for goods i.e.

Trading, swap, auctions

Priceline.com i.e. EBay

Traditional market supply relationships
 Maintain competition  Supply uncertainty
between suppliers  Choosing who to buy
 Supplier specialising in a from takes time and
small number of effort
products or services  Strategic risks to
but serving a large subcontracting
number of customers
activities
can gain economies of
scale
 Flexibility
 Operations focus on core
activities
Advantages Disadvantages

Partnership relationships
 Compromise between vertical integration
and pure market relationships

 Sharing success
 Long-term expectations
 Multiple points of contact
 Joint learning
 Few relationships
 Trust
 Information transparency
Customer relationship management
(CRM)
 Providing services and products that are
exactly what your customers want

 Retaining existing customers and
discovering new ones

 Offering better customer service

 Cross selling products more effectively



Supply chain behaviour
 Efficient – keeping inventories and working
capital low, and fast throughput

 Responsive – high service levels

 Bullwhip effect – small disturbance at one
end causes increasingly large disturbances
towards the end...each link tries to
manage their production and inventory
sensibly
Service Level Agreements
SLA’s
 Agreeing dimensions of performance i.e.
response time, availability, accuracy
 Agreeing how each dimension will be
measured
 Mutually agreed targets for each dimension
 Defining where responsibility lies for each
dimension
Frequent mistakes in SLA’s
 Too few or inappropriate dimensions of
performance
 No mutually agreed targets
 No procedures to deal with problems
 Mutual benefits not identified
 Lack of commitment from managers
Effects of e-business on
supply chain management
Market/sales Product/service Cash flow
Supply chain- information
Understanding flowPurchasing Supplier

related
Beneficial effect flow
activities customer
Better CRMneeds Inventory
Lower mgmt payments
Faster
Designing real purchasing
of e-business Monitoring Throughput&/ movement
Customer of
practices products
time demand& waiting times invoicing
admin costs cash
services
On-line Distribution
Better deals Customer
Automated cash
Demand receipts
customization Reduced movement
forecasting
Ability to bullwhip effect Integration of
coordinate Reduced financial
output with inventory movement with
demand More efficient sales and
distribution operations
activities
Trends in Supply Chain Management

 Compromise between minimizing suppliers and satisfying

stakeholders

 Outsourcing the procurement function

 Partnering with other similar or larger businesses

 Eprocurement

 Bartering

 Compromise between best price and local

 Greening the supply chain