Module 1 Supply Chain Management in Hospitality Industry

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Module 1 Supply Chain Management in Hospitality Industry
Contemporary World (Western Philippines University)
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SUPPLY CHAIN MANAGEMENT IN HOSPITALITY

INDUSTRY
COLLEGE OF BUSINESS AND MANAGEMENT

Bachelor of Science in Hospitality Management
1
1 WPU-QSF-ACAD-82A Rev. 00 (09.15.20)1
WPU-QSF-ACAD-82A Rev. 00 (09.15.20)
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Module No. 1
SUPPLY CHAIN MANAGEMENT IN THE

HOSPITALITY INDUSTRY: INTRODUCTION
AND SIGNIFICANCE
1st Semester AY 2021-2022
ROY B. CABARLES
Instructor 1
ii

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Table of Contents Page
Title Page i
Table of Contents iii
Instructions to the User iv
Introduction v
Module 1 1
Overview 1
Learning Outcomes 1
Pre-test 2
Lesson 1 4
A. Learning Outcomes 4
B. Time Allotment 4
C. Discussion 4
D. Exercises/Activities 16
E. Evaluation/Post-test 20
Lesson 2 21
A. Learning Outcomes 21
B. Time Allotment 21
C. Discussion 21
D. Exercises/Activities 28
E. Evaluation/Post-test 30
References 31
iii

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INSTRUCTION TO THE USER
This module would provide you an educational experience while

independently accomplishing the task at your own pace or time. It aims as
well to ensure that learning is unhampered by health and other challenges. It
covers the topic about the supply chain management in the hospitality
industry: introduction and significance.
Reminders in using this module:
1. Keep this material neat and intact.

2. Answer the pretest first to measure what you know and what to be
learned about the topic discussed in this module.
3. Accomplish the activities and exercises as aids and reinforcement for
better understanding of the lessons.
4. Answer the post-test to evaluate your learning.
5. Do not take pictures in any parts of this module nor post it to social
media platforms.
6. Value this module for your own learning by heartily and honestly
answering and doing the exercises and activities. Time and effort were
spent in the preparation in order that learning will still continue amidst
this Covid-19 pandemic.
7. Observe health protocols: wear mask, sanitize and maintain physical
distancing.
Hi! I’m Blue Bee, your WPU Mascot.
Welcome to Western Philippines University!

Shape your dreams with quality learning experience.
STAY SAFE AND HEALTHY!
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INTRODUCTION
This module will serve as an alternative learning material. The instructor will facilitate
and explain the module to the students to achieve its expected learning outcomes and to
ensure that they will learn amidst of pandemic.
This material discusses the meaning and Understanding the Supply Chain. It aims to
teach the learner about what is supply chain, the objective of a supply chain, the
importance of supply chain and the factors affecting supply chain in the hospitality
industry. It is very important that the learner cooperates by using this module page by
page and completing all the given activities. At the end of the module, the learning
outcomes are evaluated based on the different tasks given to the learner.
Through the learner’s cooperation in this kind of flexible learning delivery,

understanding the Understanding the supply chain.is possible. It is expected that after
using this module the learner will become well-oriented on the coverage of this chapter.

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Module 1
SUPPLY CHAIN MANAGEMENT IN THE HOSPITALITY
INDUSTRY: INTRODUCTION AND SIGNIFICANCE
Overview
Module 1 is composed of 2 chapters that will discuss the introduction and

significance of supply chain management in the hospitality industry. Lesson 1 (chapter
1) presents the supply chain concept which will focus on activities such as plan, develop,
make, deliver, and return. Lesson 2 (chapter 2) describes the operations and supply
chain management basic concepts and will discuss the significance and functions of
operations and supply chain management in the hospitality industry.
Learning Outcomes
At the end of this chapter, you can:

1. make a diorama to illustrate the supply chain and its flow.
2. explain the importance of supply chain management in the hotel industry.
3. describe the six components of supply chain management.
4. describe the hotel supply chain.
5. discuss the characteristics of a hotel supply chain; and
6. enumerate the significance of supply chain management in the hospitality
industry.

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PRE-TEST
Instructions:
➢ This evaluation/post-test contains 10 questions
➢ Encircle the letter of your choice. Please read the statements carefully before you
answer.
1. Supply Chain Management can be defined as the management of flow products and
services.
a. True
b. False
c. Undecided
2. A supply chain is dynamic and involves the constant flow of information, product,
and funds among different stages.
a. True
b. False
c. Undecided
3. Sourcing is identifying vendors who will procure goods and services to meet
planned/actual demand in the most economical and efficient way.
a. True
b. False
c. Undecided
4. The goal of SCM software is to improve supply chain performance. Timely and
accurate supply chain information allows manufacturers to make and ship only as
much product as can be sold.
a. True
b. False
c. Undecided
5. A well-established logistics and supply chain management system can help the hotel
industry give individual hotel companies a sustainable competitive advantage.

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a. True
b. False
c. Undecided
6. The phenomenon of progressively larger inventories at different stages of supply
chain from customer to backwards is called Bull whip effect.
a. True
b. False
c. Undecided
7. Introduction of e-commerce and e-business gives an entirely new dimension to
buying and selling using internet which enhances operational efficiency and
customer satisfaction.
a. True
b. False
c. Undecided
8. Supply A hotel chain supply chain incorporates features of both manufacturing and
service supply chains.
a. True
b. False
c. Undecided
9. SCM gives competitive edge to the firm by ensuring smooth and systematic flow of
goods, information and funds.
a. True
b. False
c. Undecided
10. The supplier and the hotel benefit from a well-established system of supply chain
management.
a. True
b. False
c. Undecided

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LESSON 1
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
A. Learning Outcomes
At the end of the lesson, you can:
1. make a diorama to illustrate the supply chain and its flow.

2. explain the importance of supply chain management in the hotel industry; and
3. describe the six components of supply chain management.
B. Time Allotment
2.5 hours
C. Discussion
What Is a Supply Chain Management?
Supply Chain Management can be defined as the

management of flow products and services, which begins from
the origin of products and ends at the product’s consumption.
It also comprises movement and storage of raw materials that
are involved in work in progress, inventory and fully furnished
goods.
This includes materials and information flows both up
and down supply chain. A full variety of process such as system Source: https://www.pinterest.ph/pin
management, operations and assembly, procurement, Fig. 1 Supply chain FLow
production plan, order processing, inventory management, transport, warehousing, and
customer support are therefore included in the supply chain.
In today’s changing business environment, there is an increased focus on delivering value

to the customer at the cheapest possible costs. Hence there has been increased interest in
logistics and supply chain management practices since performance is not only determined by
actions and decision, but also the improvements on return on investment and greater
profitability.

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The main objective of supply chain management is to monitor and relate production,
distribution, and shipment for products and services. This can be done by companies with a very
good and tight hold over internal inventories, production, distribution, internal production and
sales.
Source: https://ncccsupermarket.com.ph/
Fig. 2 NCCC Supermarket
• Consider a customer walking into a NCCC Mall to purchase detergent. The

supply chain begins with the customer and his or her need for detergent. The
next stage of this supply chain is the NCCC Supermarket that the customer
visits. NCCC Supermarket stocks its shelves using inventory that may have
been supplied from a finished-goods warehouse or a distributor using trucks
supplied by a third party. The distributor, in turn, is stocked by the
manufacturer (say, Procter & Gamble [P&G] in this case).
NCCC NCCC
Mall Supermarket
Source: Sunil, Chopra, Meindl, Peter 6th Edition, Supply

Chain Management
Fig.3 stages of a detergent supply chain

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• The P&G manufacturing plant receives raw material from a variety of suppliers,
which may themselves have been supplied by lower-tier suppliers.
• For example, packaging material may come from Pactiv Corporation, whereas
Pactiv receives raw materials to manufacture the packaging from other suppliers.
• This supply chain is illustrated in Figure 3, with the arrows corresponding to the
direction of physical product flow.
• A supply chain is dynamic and involves the constant flow of information, product,
and funds among different stages.
Example 1
In our example, NCCC provides the product, as well as pricing

and availability information, to the customer. The customer transfers
funds to NCCC. NCCC conveys point-of-sales data and replenishment
orders to the warehouse or distributor, which transfers the
replenishment order via trucks back to the store. NCCC transfers funds
to the distributor after the replenishment.
Source:
The distributor also provides pricing information and sends https://www.davaoeagle.com
delivery schedules to Walmart. Walmart may send back packaging material to be

recycled. Similar information, material, and fund flows take place across the entire
supply chain.
Example 2
In another example, when a customer makes a purchase online from Lazada, the
supply chain includes, among others, the customer, Lazada’s website, the Lazada
warehouse, and all Lazada’s suppliers and their suppliers.

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The website provides the customer with information regarding pricing, product
variety, and product availability. After making a product choice, the customer enters the
order information and pays for the product. The customer may later return to the website
to check the status of the order.
Source: https://www.most2414.com
• These examples illustrate that the customer is an integral part of the supply chain.
In fact, the primary purpose of any supply chain is to satisfy customer needs and,
in the process, generate profit for itself.
The term supply chain conjures up images of

product or supply moving from suppliers to
manufacturers to distributors to retailers to
customers along a chain. This is certainly
part of the supply chain, but it is also
important to visualize information, funds,
and product flows along both directions of
this chain.
The term supply chain may also imply that

only one player is involved at each stage. In
Fig. 4 Supply chain process
reality, a manufacturer may receive material
Source: https://www.proteamtelecom.com/
from several suppliers and then supply several
distributors.

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IMPOR TANCE OF SUPPLY CHAIN MANAGEMENT
Supply chain management is important since it can help meet many company
goals. For example, it can increase product quality by regulating production processes,
minimizing the possibility of recalls and litigation while helping to create a strong
customer brand. At the same time, by avoiding expensive shortages or cycles of product
oversupply, restrictions over shipping procedures will enhance customer support.
Overall, supply chain management offers businesses with several ways to increase their
profit margins, which is particularly relevant for large and multinational businesses.
Over the last twenty years, the supply chains of manufacturers and retailers
have become ever more tightly linked. In many industries, retail sales trigger
replenishment orders to manufacturers. Manufacturers with a well-tuned, just-in-time
supply chain can automatically restock retail shelves as products are sold. As
collaboration has increased, additional data from supply chain partners ‘has allowed
companies to use advanced analytic tool to further improve results. Examples include:
• Identifying potential problems before they occur. When a customer

orders more product than the manufacturer can deliver, the traditional response
has been to short the order. This leaves the buyer feeling unimportant and
convinced the manufacturer’s service is poor. Manufacturers who anticipate the
shortage before the buyer is disappointed may be able to offer a substitute product
or other incentive to keep the buyer happy.
• Optimizing price dynamically. Seasonal products, particularly fashion

products, have a limited shelf life. Any that don’t sell by the end of the season are
scrapped or sold at deep discounts to empty the warehouse. Airlines, hotels, and
other companies with a limited, but perishable product, adjust prices dynamically
to meet demand, while this is more difficult with clothing and other products
where the supply can vary widely, similar forecasting techniques can improve
margins.
• Improving the allocation of available to promise inventory. Today's

tools dynamically allocate resources and schedule work based on the sales
forecast, actual orders, and promised delivery of raw materials. Manufacturers
can confirm a product delivery date when the order is placed, significantly
reducing incorrectly filled orders.

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SUPPLY CHAIN MANAGEMENT - ADVANTAGES
Supply chain management plays a very significant role in this era of globalization, where
firms compete to supply consumers with the highest quality products and meet all their
demands. Both industries are heavily reliant on efficient supply chain processes.
Let’s look at the major advantages of supply chain. The key benefits of supply chain
management are as follows:
• Assists companies in adapting to the challenges of globalization, economic

upheaval, expanding consumer expectations, and related differences.
• Assists companies in minimizing waste, driving out costs, and achieving

efficiencies throughout the supply chain process. ‘
• Assists in achieving shipping of right products to the right place at the right
time.
• Creates better delivery mechanisms for products and services in demand with
minimum delay.
• Develops better customer relationship and service.
• Enhances inventory management, supporting the successful execution of just-

intime stock models.
• Improvises productivity and business functions. e Minimizes direct and indirect

costs.
• Minimizes warehouse and transportation costs.
These were some of the major advantages of supply chain management. After
taking a quick glance at the concept and advantages on supply chain management, let us
look at the main goals of this management.

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THE OVERALL GOAL OF SUPPLY CHAIN MANAGEMENT
The goal of SCM software is to improve supply chain performance. Timely

and accurate supply chain information allows manufacturers to make and ship only as
much product as can be sold. Here are the three rain goals of supply chain management:
• Improving Efficiency
Efficiency refers to the minimization of waste. Waste can exist in terms of

wasted materials, wasted money, wasted man hours, wasted delivery time, ang much
more. Making sure that waste Is at a minimum {s a key component of supply chain
management.
How does supply chain management reduce waste? By managing production, inventory,
transportation and logistics, supply chain management aims to look for opportunities to
change procedures in order to cut down on waste. For example, by sharing inventory
data with your supplier, and keeping it updated in real time using ERP software, the
business can replenish inventory quickly to keep up with customer demand.
• Improving Quality
Reducing waste isn’t the only goal of supply chain management. Making sure
that the product and the customer experience are as positive and as effective as they can
be is another significant goal.
For example, if retailers can communicate feedback from the customer to

your company about your product's experience, you'll be able to know what things you
can change in order to improve it. Or, if there’s an issue with 8 suppliers for a specific
part that a customer has discovered, you can address that issue with customer feedback
and relay those changes back to that supplier or switch suppliers,
• Improving Stability
Supply chain management is also about improving and maintaining overall

stability of the supply chain. Companies can aim to forge and maintain strong
relationships with their suppliers and distributors to make sure that business continues
to run smoothly.
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SIX (6) COMPONENTS OF SUPPLY CHAIN MANAGEMENT
Effective supply chain system helps both manufacturers and retailers reduce
excess inventory. This decreases the cost of producing, shipping, insuring and storing
product that can be sold.
Source: https://www.mancosa.co.za
Fig. 5 Supply chain management Components
Planning—Enterprises need to plan and manage all resources required to meet

customer demand for their product or service. They also need to design their supply
chain and then determine which metrics to use in order to ensure the supply chain is
efficient, effective, delivers value to customers, and meets enterprise goals.
Planning is imperative to control inventory and manufacturing processes.

Companies always try to match supply with aggregate demand by developing a course of
action using analytics. To procure what is planned is Source’. To plan what is ample for
production is 'Make' and to attain significant service levels by delivering on time with
quoted lead time is ‘Deliver’.
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Source: https://www.fayettevillenc.gov
Sourcing—Companies must choose suppliers to provide the goods and services needed
to create their product. After suppliers are under contract, supply chain managers use a
variety of processes to monitor and manage supplier relationships. Key processes
include ordering, receiving, managing inventory, and authorizing supplier payments.
Sourcing is identifying vendors who will

procure goods and services to meet planned/actual
demand in the most economical and efficient way. There
are certain standards that suppliers need to fulfil, thus
assuring the firm to deliver quality goods to the client.
Sourcing can be of perishable as well as non-perishable
products. In the case of perishable products, it is
mandated to have a minimum supplier's lead time which Source: https://www.smartchinasourcing.com
will support a minimal inventory approach. On the other hand, in the case of non-
perishable products, the supplier's quoted lead time must be less than the number of
days by when inventory reaches zero, thus leading to no loss in revenue.
Making—Supply chain managers coordinate the activities required to accept raw

materials, manufacture the product, test for quality, package for shipping, and schedule
for delivery. Most enterprises measure quality, production output, and worker
productivity to ensure the enterprise creates products that meet quality standards.
As per the preference of the consumer, the firm will

perform all activities related to the transformation of raw
material to the final product. Activities such as
assembling, testing and packing happen at this element
of Supply Chain Management. Feedback from
consumers creates a Win-Win situation for both
(manufacturer and end-user) as for the firm it is
improving their production operations continuously.
Source: https://custommebel.com
Delivering – Another most important component of

supply chain management is contributing to
direct/indirect integration with the consumers. Often
called logistics, this involves coordinating customer
orders, scheduling delivery, dispatching loads, invoicing
customers, and receiving payments. It relies on a fleet of
vehicles to ship product to customers. Many organizations
outsource large parts of the delivery process to specialist
organizations, particularly if the product requires special Source: https://www.transportify.com.ph/
handling or is to be delivered to a consumer’s home.
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Returning - It is a post-delivery customer support process that is associated with all

kinds of returned products. It is also known as ‘Reverse Logistics’. It is one of the most
important components of supply chain management to minimize potential deterioration
of relationships with customers. The supplier needs a responsive and flexible network to
take back defective, excess, or unwanted products. If the produce is defective it needs to
be reworked or scrapped. If the product is simply unwanted or excess, it needs to be
returned to the warehouse for sale. On the flip side, this process provides the same course
of action for the firm towards its suppliers. The firm returns the low quality, defective,
expired or excessive raw materials to the suppliers/vendors.
Enabling —To operate efficiently, the supply chain requires several support processes
to monitor information throughout the supply chain and assure compliance with all
regulations. Enabling processes include finance, HR, IT, facilities, portfolio
management, product design, sales, and quality assurance.
SUPPLY CHAIN MANAGEMENT IN THE HOSPITALITY INDUSTRY
In the service industry, the hospitality industry is a wide group of industries

including accommodation, restaurants, event planning, theme parks, shipping, cruise
ship, and additional fields within the tourism industry. A hospitality unit such as a
restaurant, hotel, or even an amusement park consists of multiple groups such as facility
maintenance, direct operations (servers, housekeepers, porters, kitchen workers, etc.),
management, marketing, and human resources.
The supply chain is an important

element within the hotel and catering industry.
For staff in this industry, it is crucial to build
steady relationships with suppliers and work
with a good ordering system in order to improve
the service level towards customers. Cutting-
edge hospitality chains are reaching beyond
inventory control systems to spend intelligence
tools, which help gather, rationalize, and analyze
historic and real-time purchasing information.
The creation of a supply chain leads to a better
understanding of the whole chain and thus:
implementation of common standards becomes Source: https://www.hotelnewsme.com
easier. It is implied and obvious that in coming era of hyper-competition the basis of
competition in many industries will revolve around supply chain development.
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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 forced to make bolder and more visible moves in costs reduction to their operations.
It comes as no surprise that much of these costs cutting efforts have been focused on
payroll and other employee associated 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 logistics and supply chain operations. Even
though logistics and supply chain are considered an operations management strategy in
the hotel and other service industries, they can use these strategies to help add value to
their properties. The supply chain is an important element within the hotel and catering
industry.
A well-established logistics and supply chain management system can help

the hotel industry give individual hotel companies a sustainable competitive advantage.
The use of the right logistics and supply chain strategies helps not to only improve the
quality and service of the hotel company but drive down costs. For staff in this industry,
it is crucial to build steady 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 consistently reliable and high-quality service at the best
costs.
Challenges in the Supply Chain in the hotel industry
The purchase manager is always under

constant pressure to meet the user departments’ un-
planned needs. As a result, the purchase manager
always tries to have huge buffer stocks, lest he
should fall short of satisfying the hotel
operating/user departments. But this does not
mean that quality management processes should be
totally ignored.
Source: https://www.123rf.com
Material Cost: A hotel store deals with huge quantities of the items with very less price.
Bulk of the direct material cost is invested in such items. Majority of the consumables of
the hotel are of perishable nature due to which one cannot make use of the economies of
bulk purchase. This increases the Number of transactions and thereby the transaction
costs. This results in increased transaction costs.
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Material Ordering Costs: The individual departments normally use manual indents
and purchase requisitions independently. In many properties the hotels do not have
computerized indenting and purchase requisitions. The consolidation of such indents
and requisitions become quite time consuming.
The purchase Department is found to place individual orders for same products, due to
difficulty in consolidation Even for chain properties where different units are in the same
city, the hotels do not take advantage of bulk purchasing due to the above reasons.
Inventory Holding Costs: The purchase department, in the fear of not being able to
give the right items to the user departments on time, stock large quantities of materials.
This occupies a large space and there by leads to increase in costs
Emergency purchase: The purchases are made on the request to the user
departments on the spur of the moment and are regularized later by making the required
paperwork. Due to lack of planning, emergency purchases are a matter of routine and
not due to exception.
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D.ACTIVITIES/EXERCISES
Activity 1
Direction: Discuss/Explain the following questions IN YOUR OWN WORDS based on

your understanding about the topics discussed in this module. The rubric will be used to
check your work, and this will be recorded as part of your written works (5 points each
a total of 45 points).
1. What is supply chain management?
2. Why is supply chain management important to the hospital industry?
2. What is the role of supply chain management important to the hospital industry?
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4. In the hospitality industry settings, what could be the constraints or problems in

each component of supply chain management (plan, develop, make, deliver, return
and enabling)? Explain each briefly. (5 points each a total of 30 points)
Rubric for essays and discussions
Rating(s) Traits
5 Main ideas/information/content/all sentences are well constructed.

The student makes no errors in grammar, mechanics, and/or spelling.
4 Some interesting ideas/information/content are constructed but the

points are not sustained or not fully developed. Makes 1-4 errors in
grammar, mechanics, and/or spelling, but they do not affect with
understanding.
3 Some points/ sentences are well constructed but makes 5-9 errors in
grammar, mechanics, and/or spelling that affect with understanding
2 The topic and main ideas are somewhat clear. Sentences sound
awkward, are distractingly repetitive, or are difficult to understand.
The student makes 10 or more errors in grammar, mechanics, and/or
spelling that affect with understanding.
1 Ideas/information/content are irrelevant to the question.
0 Sign of plagiarism is observed.
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Activity 2
Direction: Identify a product that is important to you, or you may make your own
product, then identify the success factors or elements of the product. You may provide
pictures, or you may draw the product and provide the description. The rubric will be
used to check your work, and this will be recorded as part of your performance task (20
points).
Product Picture
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
Consider the purchase of your product at your store. Create a diagram and describe the
various stages in the supply chain and the different flows involved. The rubric will be
used to check your work, and this will be recorded as part of your performance task (30
points).
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E. POST-TEST
TRUE OR FALSE
Instructions: “Correct me if I’m wrong!” True or False. (Direction: Write “T” if

the statement is correct. If not, write “F” and the word/s that will make the statement
correct. 2 points each.
1. Supply Chain Management can be defined as the management of flow

supply and services, which begins from the origin of products and
ends at the product’s consumption.
2. The term "supply chain" brings up thoughts of goods or services

traveling through a chain from vendor to manufacturers to
distributors to retailers to customers.
3. SCM software is designed to boost supply chain efficiency.

Manufacturers can only make and send as much product as can be
sold if they have timely and accurate supply chain information.
4. Logistics and supply chain operations are one aspect of the hotel
sector that is sometimes overlooked in cost-cutting attempts.
5. Sourcing is imperative to control inventory and manufacturing

processes.
6. Returning is a post-delivery customer support process that is

associated with all kinds of returned products. It is also known as
‘Forward Logistics’
7. Majority of the consumables of the hotel are non-perishable nature

due to which one cannot make use of the economies of bulk purchase
8. Feedback from consumers creates a Win-Win situation for both

manufacturer and end-user.
9. The purpose of supply chain management isn't just to reduce waste.

Another important goal is to ensure that the product and the
customer experience are as positive and effective as possible.
10. it is crucial to build steady relationships with suppliers and work

with a good ordering system in order to improve the service level
towards customers
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LESSON 2
SIGNIFICANCE OF SUPPLY CHAIN MANAGEMENT IN THE
HOSPITALITY INDUSTRY
A. Learning Outcomes
At the end of the lesson, you can:
1. describe the hotel supply chain.

2. discuss the characteristics of a hotel supply chain; and
3. enumerate the significance of supply chain management in the hospitality industry.
B. Time Allotment
2.5 hours
C. Discussion
Any company needs to know that when and when it is required to meet
orders, it will have the stock it requires. Nothing looks worse for a business than running
out of something that a customer needs, whether that be resale items or goods that are
part of delivering a service. Supply chain management is much 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. Here we look at the value in the
hospitality industry of supply chain management.
In today's changing business environment, there is an increased focus on

delivering value to the customer at the cheapest possible costs. Hence there has been
increased interest in logistics and supply chain management practices since performance
is not only determined by actions and decision, but also the improvements on return on
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
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THE HOTEL CHAIN SUPPLY CHAIN
Fig. 1 Hotel Chain Supply Chain

Source: https://www.redalyc.org
A hotel chain supply chain incorporates features of both manufacturing and service
supply chains. For this reason, six characteristics of a hotel supply chain have been
identified.
• The first one is the perishability of products and services rendered and therefore
impossible to store.
• The second feature deals with the dependence of the presentation and
interpretation of the products offered to the clients so that there is a good
quality hotel and customer interaction in order to generate new demands, since
the hotel industry is a highly interactive industry.
• The third characteristic is the inherent complexity of products and services,

resulting in a higher number of suppliers.
• The fourth characteristic deals with the uncertainty of demand stemming mainly
from two reasons: high competition and external factors, such as seasonal
variations and economic performance.
• The fifth characteristic is the inseparability between service production and the
end customer.
• Finally, the sixth trait involves the tradition sale of tourism service packages,
making the relationship and cooperation among tourism organizations crucial.
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FACTORS AFFECTING SUPPLY CHAIN MANAGEMENT IN HOTEL

INDUSTRY
It is important to realize that the premise by which the hospitality industry

operates is somewhat different from other industries, The capital costs of industries are
high, with relatively lower operating costs. The hotel industry has distinctive features,
such as customer centricity, various styles 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 supplier and the hotel benefit from a well-established system 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 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 requirement
THE NEED FOR SUPPLY CHAIN MANAGEMENT

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1. Need to further reduce operational cost
• Over the last century, companies have done much to reduce their operations cost
within the organization through Business Process Reengineering (BPR),
Enterprise resource planning (ERP), Total Quality Management (TQM), Total
Productive Maintenance (TPM), lean manufacturing, Just-in-Time (JIT) etc.
• But 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
• Outsourcing activities of companies are on the increase. This also increases the
cost associated with procurement, distribution and logistics, offering scope for
substantial efficiency improvement and coordination beyond its production
activities.
3. Increasing transportation cost
• Transportation cost account to 5 to 30% of the operating expenses of the

company. It needs focus to reduce cost
IMPORTANCE/OBJECTIVES OF SCM
1. Achieve strategic advantage
SCM 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.
SCM support ERP which integrate other functional areas for performance
improvement. It supports TQM to meet the quality and delivery needs of the customer
as well as supplies for production. It supports Customer relationship management
(CRM) which meets customer expectation and bring customer satisfaction and delight.
SCM also supports e-commerce for buying and selling increasing strategic competence
further,
2. Achieve Cost control/reduction

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• Reduce all company costs by optimizing the cost of freight and logistics.
• Identify waste sources to avoid them in the whole supply chain.
• Ensure quality in the logistics of warehousing, transport and handling.
• Decreases Purchasing Cost - Retailers depend on supply chains to quickly

deliver expensive products to avoid holding costly inventories to stores any
longer than necessary.
• Decreases Production Cost - Manufacturers depend on supply chains to reliably

deliver materials to assembly plants to avoid material shortages that would shut
down production.
• Decreases Total Supply Chain Cost - Manufacturers and retailers depend on

supply chain managers to design networks that meet customer service goals at
the least total cost. Efficient supply chains enable a firm to be more competitive
in the marketplace.
3. Enhances outsourcing capability
• outsourcing generally reduces the cost of operation of a company.
• An efficient and cost effective SCM system will enable the firm to reap the
benefits of outsourcing.
4. Achieve Globalization
• helps to operate across world market.
• helps to make the product available in existing and new markets at competitive
price
• Property designed and executed SC make global outsourcing possible.
• SCM helps to meet global competition successfully.
5. Better Inventory management
• eliminate the necessity to stock the items in large quantities.
• Ensure availability of goods in right quantity at right price with right quality
at the right time.
• Systematic inventory management like JIT, ERP etc. can be implemented.
• Prevent Bull whip effect of inventories in the entire SC. The phenomenon of
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progressively larger inventories at different stages of supply chain from

customer to backwards is called Bull whip effect. Bull whip effect increases the
SC cost.
Source: https://www.renthop.com
Fig. 2 Bull whip effect on Inventory Levels
The Bullwhip Effect is another classic. Even a small shock to customer

demand can rapidly lead to over-production, as each player along the complex supply
chain attempts to adapt to the new demand. Even with all of today’s technology, supply
chain communication has natural lag between the various players, and everyone’s
individual incentives amplify the problem. Producers, distributors, and retailers face a
problem meeting demand and tend to over-order in order to prevent future stock-outs.
However, the latency between getting production or shipments from each upstream
provider means the new supply will come late. Therefore, each player compensates by
securing even more of a buffer to ensure they have enough supply. When the supply
finally comes, everyone will find they ordered too much!
6. Effective use of supply and logistic resources
• Few dedicated suppliers
• dedicated transportation and logistics.
• participation of suppliers in quality improvement, design improvement, value

engineering and new product development through Design Collaboration
• Competitive, participative and collaborative pricing with suppliers and

logistics providers by sharing benefits mutually.
7. Reduced lead time by design collaboration

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• lead time for product improvement is less
• new product development time is shorter.
8. Achieve on time delivery
• ensure prompt delivery of product and services to customers on time.
9, Facilitate e-commerce
• Introduction of e-commerce and e-business gives an entirely new dimension

to buying and selling using internet which enhances operational efficiency and
customer satisfaction.
10. Boost Customer Service
• Customers expect the correct product assortment and quantity to be

delivered.
• Customers expect products to be available at the right location.
• Right Delivery Time - Customers expect products to be delivered on time
• Right After Sale Support - Customers expect products to be serviced quickly.
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Activity 3
Direction: Compare and contrast the concept of the hotel supply chain versus other
business supply chains. Be specific regarding similarities and differences. The rubric will
be used to check your work, and this will be recorded as part of your written works (20
points).
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Activity 4
Direction: Enumerate six characteristics of the hotel supply chain and share a scenario
or example that best describes the following characteristics of the hotel supply chain.
Use another sheet for your scenario or example. The rubric will be used to check your
work, and this will be recorded as part of your performance task (10 points a total of
60 points).
Hotel Supply
Chain
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E. POST-TEST
Direction: Discuss/Explain the following questions IN YOUR OWN WORDS based on
your understanding about the topics discussed in this module. The rubric will be used to
check your work, and this will be recorded as part of your written works (5 points each
a total of 25 points).
1. What is the significant of supply chain management in the hospitality industry?
2. Explain the three factors affecting the supply chain management in the hotel (5 points
each, for a total of 15 points).
3. What are the benefits of supply chain management in the hospitality industry?
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References:
Sunil, Chopra, Mandl, Peter 6th Edition, Supply Chain Management (Strategy,
Planning and Operation). Understanding supply chain. Pp. 1- 17.
De Castro, Kyla S. (2021) Supply Chain Management in Hospitality Industry. Pp. 1- 20.
https://transportgeography.org/. Cycle View of Supply Chain Processes.
https://www.tutorialspoint.com/. Decision Phases in Supply Chain Management.
Disclaimer: This Module is prepared for instructional purposes only based on the
course syllabus. The teacher who prepared this module does not claim ownership on its
contents but patterned the ideas from different sources.
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Congratulations for completing this module!
Privacy Notice for Module
For this module, we collect your name, program, yea and section, contact number, email address,
Facebook and messenger account when you submit your printed module for purposes of coordination and
communication.
All personal information collected will be stored in a secure location and only authorized staff will have
access to them.
Student’s Information
Name:
Program:
Year and Section:
Contact No.:
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lOMoARcPSD|29957850
Vision 2020
WPU: the leading knowledge center for sustainable
development of West Philippines and beyond.
Mission
WPU commits to develop quality human resource and green
technologies for a dynamic economy and sustainable
Development through relevant
instruction, research and extension
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Module 1 Supply Chain Management in Hospitality Industry

Contemporary World (Western Philippines University)

Studocu is not sponsored or endorsed by any college or university

A Strong Partner for Sustainable Development

SUPPLY CHAIN MANAGEMENT IN HOSPITALITY

COLLEGE OF BUSINESS AND MANAGEMENT

SUPPLY CHAIN MANAGEMENT IN THE

1st Semester AY 2021-2022

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Table of Contents Page

Table of Contents iii

Instructions to the User iv

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INSTRUCTION TO THE USER

This module would provide you an educational experience while

1. Keep this material neat and intact.

Hi! I’m Blue Bee, your WPU Mascot.

Welcome to Western Philippines University!

STAY SAFE AND HEALTHY!

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Through the learner’s cooperation in this kind of flexible learning delivery,

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Module 1 is composed of 2 chapters that will discuss the introduction and

At the end of this chapter, you can:

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At the end of the lesson, you can:

1. make a diorama to illustrate the supply chain and its flow.

What Is a Supply Chain Management?

Supply Chain Management can be defined as the

In today’s changing business environment, there is an increased focus on delivering value

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• Consider a customer walking into a NCCC Mall to purchase detergent. The

Source: Sunil, Chopra, Meindl, Peter 6th Edition, Supply

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In our example, NCCC provides the product, as well as pricing

delivery schedules to Walmart. Walmart may send back packaging material to be

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The term supply chain conjures up images of

The term supply chain may also imply that

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IMPOR TANCE OF SUPPLY CHAIN MANAGEMENT

• Identifying potential problems before they occur. When a customer

• Optimizing price dynamically. Seasonal products, particularly fashion

• Improving the allocation of available to promise inventory. Today's

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SUPPLY CHAIN MANAGEMENT - ADVANTAGES

• Assists companies in adapting to the challenges of globalization, economic

• Assists companies in minimizing waste, driving out costs, and achieving

• Develops better customer relationship and service.

• Enhances inventory management, supporting the successful execution of just-

• Improvises productivity and business functions. e Minimizes direct and indirect

• Minimizes warehouse and transportation costs.

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THE OVERALL GOAL OF SUPPLY CHAIN MANAGEMENT

The goal of SCM software is to improve supply chain performance. Timely

Efficiency refers to the minimization of waste. Waste can exist in terms of

For example, if retailers can communicate feedback from the customer to

Supply chain management is also about improving and maintaining overall

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SIX (6) COMPONENTS OF SUPPLY CHAIN MANAGEMENT