DYCHSCM223:

Supply Chain Management in the Hospitality Industry

MS. MARIA CHARLMIE P. DE TORRES

Instructor, College of Hospitality
Management and Tourism

Declaration:
This learning module is an exclusive property of Dr. Yanga’s Colleges, Inc., as an essential part of the
REIMAGINED Learning Program for the Academic Year 2020-2021, and shall only be used by and for
DYCIans. No part of this learning module shall be reproduced, distributed, transmitted, and/or sold, without
the consent of DYCI.
 <<Week No. 3>>
<< LOGISTICS>>

This module is intended to have you learners of 2nd year to understand and distinguish
different types of Logistics and how it works in tourism and hospitality industry.

At the end of this module, you are expected to:

1. Illustrate the trend towards measurement of a wider array of activities and the
eight driving forces behind this trend;
2. Explain why many LSPs now routinely share key performance data with
customer;
3. Identify how many and which key performance indicators to track.

LOGISTICS

What is Logistics?

Logistics is the design and administration of systems to control movement and

geographical positioning of raw materials, work-in-process, and finished inventories at the
lowest total cost.
Logistics has risen to a key position in the global economy
• Postwar U.S. (1945-1995)
Global leader in distribution and logistics, as a direct result of World War II
• Rise of EEC and Asia (1980-2000)
Both regions became major exporters and distributors
• E-Commerce (1998-Present)
Global logistics capability almost everywhere

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 Logistics will continue its renaissance in the future
• Information technologies will automate many of the traditionally manual logistical
functions:
o Automated port and rail operations
o RFID tagging of materials (RADIO- FREQUENCY IDENTIFICATION)
o Advanced technologies for warehousing and inventory operations
• Removal of trade barriers will continue to expand global trade and logistics

Goal of logistics management

• To satisfy customer expectations for delivery of products (or services) while
minimizing the total cost
• Managers must support the requirements for procurement, manufacturing and
customer accommodation supply chain operations

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 LOGICAL VALUE PROPOSITION
• Logistical value proposition consists of a commitment to key customer expectations
and requirements at a minimum cost
• The two elements of this value proposition are Service and Cost Minimization
Firms must make appropriate tradeoffs between service and cost for each of
their key customers.
Service benefits are created by logistical performance in 3 areas
• Availability involves having inventory to consistently meet customer material or
product requirements
• Operational performance deals with the time required to deliver a customer’s order
- Key metrics for this area involve delivery speed and consistency
• Service reliability involves the quality attributes of logistics
- Key to quality is accurate measurement of availability and operational
performance over time.
Basic logistical service may not fit all customers
• Basic logistics service describes the level of service a firm provides all established
customers
- However, some customers require unique or special value-added services
• Managers must realize that customers are different and that services provided must
be matched to accommodate unique requirements and purchase potential.
Cost minimization using the total cost logistics model
• Traditional Cost Logistics Model
o Focused on achieving the lowest possible cost for each individual function of
logistics
▪ For example, Transport the material the cheapest way possible
o Expected lowest cost based on decisions that were cheapest for individual
functions
o Ignored the impact of cost decisions across logistics functions
• Total Cost Logistics Model
o Focused on achieving the lowest total cost across each function of logistics
o on in one function should consider impact to costs of all other logistics
functions
▪ For example, Transporting material the cheapest way is slower than
other choices. This requires an increase in storage cost to hold the
material longer
▪ Would it still be a lower cost to use the cheapest mode of transport?

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 Different perspectives on cost minimization
TRADITIONAL COST TOTAL COST LOGISTICS
LOGISTICS MODEL MODEL
Minimize order processing cost Minimize (order processing +
+ inventory + transportation +
Minimize inventory cost warehousing, materials handling
+ and packaging + facility) cost
Minimize transportation cost Lowest total logistics cost
+
Minimize warehousing, materials
handling and packaging cost
+
Minimize facility cost
______________________________
Lowest logistics cost

Example of evaluating alternatives to find lowest total cost

• Compare two alternative shipping carriers to move a shipment of electronic
chips
- Value of shipment = $25,000.00
- Faster shipping is generally more expensive than slower shipping
o Carrier 1 costs $250 to ship
o Carrier 2 costs $20 more but delivers 1 day faster
- Product in transit is a form of inventory
o Holding costs for shipment is 40% of value per year
- No other cost differences across remaining logistics functions
Example of evaluating alternatives to find lowest total cost

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Logistics includes these major functions of work
• Order Processing
• Inventory
• Transportation
• Warehousing, Materials Handling, and Packaging
• Integrated through a network of facilities
- E.g. warehouses and distribution centers

INTEGRATED LOGISTICS FRAMEWORK

• Goal is to achieve customer satisfaction at the lowest Total Cost
• Decisions in one functional area will impact cost of all others
• We integrate the logistical functions into a coherent framework starting with the
customer (Order processing) and ending with the customer (Transportation and
Delivery)
THE FIVE FUNCTIONS OF LOGISTICAL WORK ARE INTERRELATED

Order processing
• Order processing is the transmission of customer requirements to the supply chain
• Accurate information is needed to achieve superior logistical performance
• Responsive supply chains require accurate and timely information about customer
purchase behavior
• Fast information flow enables improved work balancing

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 Inventory
• Inventory requirements of a firm are directly linked to the facility network and the
desired level of customer service
• Inventory strategy seeks to achieve the desired customer service with the
minimum inventory commitment
• Inventory strategy is based on a combination of
- Core customer segmentation
- Product profitability
- Transportation integration
- Time-based performance
- Competitive performance
Transportation
• Transportation is the operational area that geographically moves and positions
inventory
• There are three basic ways to satisfy transportation requirements
- Operate a private fleet of equipment
- Contract with dedicated transport specialists
- Engage carriers that provide different transportation services as needed on a
per shipment basis
Warehousing, materials handling and packaging
• These work activities are integral parts of other logistical functions
– Inventory typically needs to be warehoused at selected times during the
logistics process
– Transportation vehicles require materials handling for efficient loading and
unloading
– Individual products are most efficiently handled when packaged together
into shipping cartons
• Effective integration of these functions facilitates the speed and overall ease of
product flow throughout the logistical system
Facilities network
• The number, size and geographical relationship of facilities used to perform
logistical operations directly impacts customer service capability and cost
• Types of facilities in the logistics network include
- Manufacturing plants, warehouses, cross-dock operations and retail stores

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The scope of integrated logistical operations

Inventory flow
• Managers must be concerned with
the movement and storage of
inventory in 3 major forms
– Materials
– Work-in-process
– Finished products
• Logistical operations should add
value by moving inventory when
and where needed
– Materials and components
gain value at each step of
their transformation into
finished inventory

The 3 areas of the value-added logistic process

• Customer accommodation is the movement of finished product to customers
• Manufacturing support concentrates on managing work-in-process inventory as it
flows between stages of manufacturing
• Procurement is concerned with purchasing and arranging inbound movement of
materials, parts, and/or finished inventory from suppliers into manufacturing or
assembly plants, warehouses or retail stores

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 Information flow
• Information flow identifies specific locations within a logistical system that have
requirements
– Information also integrates the three operating areas
• Information facilitates coordination of planning and control of day-to-day
operations
• Logistical information has two major components
– Planning / coordination information
– Operational information needed to complete work

Logistical integration requires achieving six objectives simultaneously

 Responsiveness
 Variance reduction
 Inventory reduction
 Shipment consolidation
 Quality
 Life cycle support

Logistical operating arrangements

• All logistical arrangements share two common characteristics
– They are designed to manage inventory
– The range of logistics alternatives is limited by available technology
• Three widely utilized structures are
– Echelon (traditional) is a linear flow from origin to destination through
buffers or warehouses/distribution centers
– Direct is designed to ship products directly to customer’s destination from
one or a limited number of centrally located inventories
– Combined is a combination of Echelon and Direct, depending on the
product, market, or customer

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 Echelon Structured Logistics

Combined Echelon and Direct Delivery

Flexible structures are programs to service customers using alternatives

• Flexible operations are preplanned contingency strategies to prevent logistical
failures
– For example, a warehouse is out of an item so a contingency policy assigns
the total order to another warehouse
• The structure appears the same as a combined arrangement, but with the ability to
change the logistical structure to suit the service need
– Different approaches for different situations
– Very common with “factory-less” companies like Nike and Best Buy
Flexible Echeloned and Direct Delivery

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 Supply chain synchronization

• Supply chain synchronization is

the operational integration of
multiple firms across a supply
chain
– Seeks to coordinate the
flow of materials, products
and information between
supply chain partners to
reduce duplication of effort
– Seeks to reengineer internal
operations of individual
firms to leverage overall
supply chain capability

Performance cycle uncertainty

• Major objective of logistics in all areas is to reduce performance cycle uncertainty
• Operational variance is randomly introduced during the cycle through
– The structure of the performance cycle itself
– Operating conditions
– The quality of logistical operations

Ways to improve performance cycle times

• EDI (Electronic Data Interchange) or Internet order management and tracking
• RFID or Bar code material tracking
• Automated inventory management
• Automated order selection and picking
• Communication with customers to determine their needs
• Communication with suppliers to determine their capabilities

Performance cycle synchronization seeks to achieve planned time performance

• Delayed or faster performance at any point along the supply chain results in
potential disruption of operations
• Once consistent operations are achieved, managers can focus on reducing the time
to complete the performance cycle to a minimum

<End of Module 3˃

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Example situations for flexible logistics structure
• The customer-specified delivery facility might be near a point of equal logistics
cost or equal delivery time from two different logistics facilities
• The size of a customer’s order creates improved logistical efficiency if serviced
through an alternative channel arrangement
• Decision to use a selective inventory stocking strategy
• Agreements between firms to move selected shipments outside the established
echeloned or direct arrangements

Examples of Total time to complete the customer delivery cycle is based on each
task within the cycle

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 Name: _____________________________________________ Rating: ________________
Year and Section:_____________ Professor / Instructor: __________________________
Due of Submission: _____________________________

<< Week No. 3 >>

<< LOGISTICS >>

Quiz: Matching Type

Instruction: Match Column A with Column B. (Write your answer on the space
provided before each number) (15 items)

COLUMN A COLUMN B
1. Facility network A. Logistical integration
2. Responsiveness B. Logistical work are interrelated
3. Warehousing Material Handling C. Logistical Operating
Packaging arrangement
4. Variance reduction
5. Shipment consolidation
COLUMN A COLUMN B
6. Integrated Logistics management A. Logistical integration
7. Quality B. Logistical work are interrelated
8. Order processing C. Logistical Operating
arrangement
9. Life cycle support
10. Echelon
COLUMN A COLUMN B
11. Transportation A. Logistical integration
12. Direct B. Logistical work are interrelated
13. Inventory C. Logistical Operating
arrangement
14. Inventory reduction
15. Combined

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Name: _____________________________________________ Rating: ________________
Year and Section:_____________ Professor / Instructor: __________________________
Due of Submission: _____________________________

<< Week No. 3 >>

<< LOGISTICS >>

ASSIGNMENT FOR MODULE 3:

1-10. Write down your insights and opinion on the Reflective Journal after reading the
contents of the Module (See Attached Reflective Journal Form).

Instructions:

Answer the following questions based on your understanding about the recent discussion. Explain
your answer in details (100 words per item. (A total of 800 words, equivalent to 10 points of your
daily activity)

1. What were the two or three main idea/concepts I found useful in today’s session, and why?

2. What beliefs of mine have changed about teaching and learning as a result of this session?

3. One thing I learned in this session that I may be able to use in the future is…

4. Issues that interested me a lot, and that I would like to study in more detail

5. I am still unsure about

6. What did we not cover that I expected we should?

7. What strategies have I used in the past were reinforced by this session; Have I been
discouraged from any others?

8. Miscellaneous interesting facts I learned in this session…

Adapted from: Learning Journals <http://www.audiencedialogue.net/journal.html>

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 A. Books:
Choudhary, Yaduraj. (2018). Hotel Lodging, Restaurant and Resort Management. Gali
Murari Lal, Ansari Road, New Delhi: Random Publications
Choudhary, Yaduraj. (2018). Tourism Marketing and Crisis Management. Gali Murari
Lal, Ansari Road, New Delhi: Random Publications
Mayo, Herbert B. (2016). Basic Finance: An introduction to Institutions, Management
and investments. Bonifacio, Global City, Taguig City: Cengage Learning Asia Pte Ltd
Rajput, Rama K. (2018). Tourism Management Problems and Prospects. Gali Murari
Lal, Ansari Road, New Delhi: Random Publications
Rama, Varinder S. (2018). Basic Room Division in Hotel. Gali Murari Lal, Ansari
Road, New Delhi: Random Publications, Manila: Mindshapers Co., Inc.

B. Articles:
Alilvand, M. R., Khazaei Pool, J., Khodadadi, M., & Sharifi, M. (2019). Information
technology competency and knowledge management in the hospitality industry service
supply chain. Tourism
Review, 74(4), 872–884. https://doi.org/10.1108/TR-04-2018-0054
Pérez-Salazar, M. del R., Aguilar-Lasserre, A. A., Cedillo-Campos, M. G., Juárez-
Martínez, U., & Posada-Gómez, R. (2019). Processes and measurement of knowledge
management in supply
chains: an integrative systematic literature review. International Journal of Production
Research, 57(7), 2136–2159. https://doi.org/10.1080/00207543.2018.1521530
Saberi, S., Kouhizadeh, M., Sarkis, J., & Shen, L. (2019). Blockchain technology and its
relationships to sustainable supply chain management. International Journal of
Production Research, 57(7),
2117–2135. https://doi.org/10.1080/00207543.2018.1533261
Sawik, T. (2019). Two-period vs. multi-period model for supply chain disruption
management. International Journal of Production Research, 57(14), 4502–4518.
https://doi.org/10.1080/00207543.2018.1504246
Upadhyay, A. (2016). Case Study: Sustainability in the Hotel Industry : The Role of
Operating Agreements in the Hotel Industry. [N.p.]: Kogan Page. Retrieved from
http://search.ebscohost.com/login.aspx?direct=true&db=e000xww&AN=1335068&site
=ehost-live

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 C. Web Page:
How to Implement Supply Chain Management in Hotel Industry retrieved from
https://www.linkedin.com/pulse/how-implement-supply-chain-management-hotel-
industry-otiato-mcilt
Logistics and Supply Chain Management in the Hotel Industry: Impact on Hotel
Performance Service Delivery retrieved from
https://core.ac.uk/download/pdf/62869528.pdf
Significance of Supply Chain Management in Hospitality Industry retrieved from
https://www.sbsandco.com/blog/significance-of-supply-chain-management-in-
hospitality-industry
Supply Chain Management in Hospitality Industry: Impact on Service Quality in
McDonalds Restaurants, Bangalore retrieved from
https://www.longdom.org/articles/supply-chain-managementin-hospitality-industry-
impact-on-service-quality-in-mcdonalds-restaurants-bangalore.pdf
Supply Chain Management Practices in the Hotel industry: An Examination of Hotel
Food Supply Chains in South West England retrieved from
https://ore.exeter.ac.uk/repository/bitstream/handle/10036/3160/AkkaranggoonS.pdf?se
quence=1&isAllowed=y
ROLE OF SUPPLY CHAIN MANAGEMENT IN 21st Century - StuDocu
Functional information system (slideshare.net)
Supply chain management (SCM) modules guide (techtarget.com)
(PDF) Supply Chain Revolution GeneralizedSupplyChainModel | Luke Santillan - Academia.edu
supply chain management in hospitality industry - Google Search
supply chain management in hospitality industry - Google Search
supply chain management in hospitality industry - Google Search

D. Media:
A Brief Introduction to Tourism Supply Chains retrieved from
https://www.youtube.com/watch?v=NUen_lEy4-c
Supply Chain Management for the Service Industry retrieved from
https://www.youtube.com/watch?v=GJFiZ3GJIgg
Supply Chain for Restaurant Industry retrieved from
https://www.youtube.com/watch?v=GeXO2DuvWWw
What is Supply Chain Management? Definition and Introduction retrieved from
https://www.youtube.com/watch?v=lZPO5RclZEo
What is Logistics Management? Definition and Supply Chain retrieved from
https://www.youtube.com/watch?v=4-QU7WiVxh8

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