Learning Outcomes

In this unit, you should be able to:

 define supply chain management;

and its benefits to the hospitality
industry; and

 Identify the elements of supply

chain management

Unit 1: Introduction to
Supply Chain Management
Defining Supply Chain Management

An efficient supply chain management system is a necessity in order to run a successful business.
This results into competitive advantage by providing precise information to suppliers who in turn are able
to maintain a continuous flow of products to customers.

According to The Council of Supply Chain Management Professionals (CSCMP), planning and management
of all activities involved in sourcing and procurement, conversion, and all logistics management activities.
Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers.
Benefits Supply Chain in the Hospitality Industry

 The supplier and the hotel benefit from a well-established system of the supply chain
management. Furthermore, supplier and hotel becomes stronger because of professional
management in the form of development of proper purchasing policies.
 Significant reduction of cost and continuous evaluation and improvement in the purchasing
process.
 Improved management information future requirements

Elements of Supply Chain

1. Integration

 Integration starts at your strategic planning phase and is critical throughout your
communications and information sharing and data analysis and storage.

 Firms in the supply chain must integrate their

process activities internally and then with their
trading partners.
 Management should identify the basic supply
chin strategies associated with each other of its
trading partner’s goods, and services. If an end
product is competing based on quality, then
supply chain members should also be using
strategies consistent with delivering high-
quality products at competitive price and
service levels.
 Product strategies should then translate into
internal functional policies regarding the types of parts purchased and suppliers used, the
manufacturing processes employed.
 Once the primary strategy has been identified for a supply chain’s end product, managers
need to identify the important processes linking each of the supply chain trading partners and
 establish process objectives to assure that resources and efforts are effectively deployed
within each firm to support the end-product strategy.
 The term process integration means sharing information and coordinating resources to jointly
manage a process or processes.

 Customer Relationship Management

Creates a structure for developing and maintaining relationships with customers.
Individual customers or groups are identified, based on their value over time, and
their loyalty can be enhanced by providing tailored products and services.
 Supplier Relationship Management
Defines how a company interacts with its suppliers. As in the case of customer
relationship management, a company will form close relationships with some of its
suppliers, while others are less closely cultivated. Good supplier relationship
management involves devising the right PSAs and managing them well, so that the
company and its suppliers continue to benefit from the most favorable trading
arrangements.
 Customer Service Management
Operates at the customer interface. It provides
the key point of contact for administering the
PSA and can give the customer information on
orders, shipping dates and product availability.
SYSPRO ERP manufacturing and logistics
modules supply the data required by customer
service management.
 Demand Management
Allows a company to be proactive in matching supply to demand. The process
includes forecasting and synchronization of supply and demand, in order to increase
flexibility and reduce demand variability. The process should employ customer
intelligence, historical sales information and planned marketing efforts to forecast
and influence demand.
 The Order Fulfilment
Process involves more than just filling orders. It includes all activities necessary to
define customer requirement and to design a process that allows a company to meet
customer requests, while minimizing the total delivered cost. This is not just the
logistics function, but instead needs to be implemented cross-functionally and with
the coordination of key suppliers and customers. The objective is to develop a
seamless process from the supplier to the organization and to its various customer
segments.
 Manufacturing Flow Management
Includes all the activities necessary to move goods through production and to obtain,
implement and manage manufacturing flexibility in the supply chain. Manufacturing
flexibility reflects the ability to make a wide variety of products at an appropriate rate
and at lowest possible cost. To achieve the desired level of manufacturing flexibility,
planning and execution must extend beyond the production site to encompass the
entire supply chain.
 Product Development and Commercialization
Provides the structure for developing
and bringing products to market in
unison with customers and suppliers.
The product development and
commercialization process team must
coordinate with customer relationship
management to identify customer
articulated and unarticulated needs;
select materials and suppliers in
conjunction with the supplier
relationship management process; and
develop production technology in manufacturing flow to manufacture and integrate
into the best supply chain flow for a given product/market combination.
 Returns Management
Is the SCM process by which activities associated with product returns, reverse
logistics, gatekeeping, and avoidance are managed within the firm and across key
 members of the supply chain. The correct implementation of this process enables
management not only to manage the reverse product flow efficiently, but to identify
opportunities to reduce unwanted returns and to control reusable assets such as
containers. Effective returns management is an important link between marketing
and logistics, offering an opportunity for competitive advantage.

2. Operations

 Once materials, components and other purchased items are delivered to the buying
organization, a number of internal operations elements become important in assembling or
processing the item into finished products, ensuring that the right amount of product is
produced and that finished goods and services meet specific, quality, cost and customer
service requirements.

 Operations planning is usually hierarchical and can be divided into three broad categories:
 Long range – usually cover a year or more, tend to be more general, and specify
resources and outputs in terms of aggregate hours and units.
Long-range plans are established first and are then used to guide the medium-range
plan, which are subsequently used to guide the short-range plans.
Usually involve major, strategic decisions in capacity, such as the construction of new
facilities, and purchase of capital; equipment.
 Intermediate or medium-range – normally span six to eighteen months
 Involve minor changes in capacity such as changes in employment levels
 Short range – usually cover a few days to a few weeks depending on the type and size
of the firm.
The most detailed and specify the exact end items and quantities to make on a
weekly, daily, or hourly basis.

3. Purchasing

 The right supply chain does a great deal in terms of sourcing products in your supply chain
and ensuring you are taking advantage of the most competitive pricing and most reliable
products.

4. Distribution

 The transport, delivery, and return of goods is a component of your supply chain that can
always be simplified, optimized, and corrected for better client service and reduced operating
costs.

You did an awesome job!

You can now move on to the
next topic of this module…
 Learning Outcomes
In this unit, you should be able to:
 Understand the foundations of
supply chain management; and

Unit 2: Foundations of
Supply Management
Foundations of Supply Chain Management

For many companies, it has become clear that a supply chain that flows information and
material best can be a significant differentiator and regardless of the industry and customer base,
more effective supply chain management will be a prerequisite to the future success. And so,
there are four major elements of supply chain management: integration, operations,
purchasing and distribution. Each relies on the others to provide a seamless path from plan to
completion as affordably as possible.

Supply Management Goals

 Ensure timely availability of resources

 Identify, assess and mitigate supply chain risk
 Reduce total cost
 Enhance quality
 Access technology and innovation
 Foster sustainability

1. Operation Elements
Materials, components and other purchased items are delivered to the buying organization, a
number of internal operations elements become important in assembling or processing the item
into finished products, ensuring that the right amount of product is produced and that finished
goods and services meet specific, quality, cost and customer service requirements.
Operations managers are continuously involved in resource and operations planning to balance
capacity and output.
 Operations planning is usually hierarchical and can be divided into three broad categories:

 Long range – usually cover a year or more, tend to be more general, and specify resources
and outputs in terms of aggregate hours and units.
Long-range plans are established first and are then used to guide the medium-range plan,
which are subsequently used to guide the short-range plans.
Usually involve major, strategic decisions in capacity, such as the construction of new
facilities, and purchase of capital; equipment

 Intermediate or medium-range – normally span six to eighteen months

Involve minor changes in capacity such as changes in employment levels

 Short range – usually cover a few days to a few weeks depending on the type and size of
the firm.

2. Logistics Elements

 When goods are produced, they can be delivered to customers through a number of different
modes of transportation.
 Logistics decisions typically involve trade-offs between cost and delivery timing or customer
service.
 Logistics play a critical role in fulfilling the customer service benefits of availability, lead-time
performance and service reliability
Five basic transportation mode:
 Rail
 Truck
 Water
 Air
 Pipeline
 To decide which mode to use, you need to consider their service characteristics and the cost of
each mode. Five dimensions of service characteristics are:

 Speed – the elapsed time required to move from one point of origin to destination
 Availability – The ability to service any possible location
 Dependability – the variance in the expected delivery times
 Capability – The ability to handle any type of product and /or size of load
 Frequency – the number of scheduled movements that can be arranged by a shipper

3. Integration Elements

 Processes in a supply chain are said to be integrated when members of supply chain work together
to make purchasing, inventory, production, quality, logistics, and other decisions that impact the
overall profits of the supply chain.
 Firms in the supply chain must integrate their process activities internally and then with their
trading partners.
 Management should identify the basic supply chin strategies associated with each other of its
trading partner’s goods, and services. If an end product is competing based on quality, therefore
supply chain members should also be using strategies consistent with delivering high-quality
products at competitive price and service levels. Product strategies should then translate into
internal functional policies regarding the types of parts purchased and suppliers used, the
manufacturing processes employed.
 Once the primary strategy has been identified for a supply chain’s end product, managers need
to identify the important processes linking each of the supply chain trading partners and establish
process objectives to assure that resources and efforts are effectively deployed within each firm
to support the end-product strategy.
 The term process integration means sharing information and coordinating resources to jointly
manage a process or processes.

Congratulations! I hope that you

were able to understand supply
chain management better, after
reading this topic.
 LEARNING OUTCOMES
 Explain the Bullwhip Effect and how it
Impacts the supply chain; and
 Enumerate the opportunities and
challenges of global sourcing

Unit 3: Bullwhip Effect and

Challenges of Global
Sourcing in Supply Chain
Management
 Welcome
to Unit 3..

Bullwhip Effect

The bullwhip effect is a concept for explaining inventory fluctuations or inefficient asset allocation as a
result of demand changes as you move further up the supply chain, thus in the supply chain world, the
end customers have the whip handle and they create a little movement in the demand which travels up
the supply chain in increasing fashion.

 Occurs when small disturbance in the flow of orders generated by a customer produces
successively larges disturbances at each upstream stage in supply chain
 Also, the continuing cycle of erratic demand causing forecasts to include safety stock which in
turn magnify supplier forecasts and cause production planning is known as the bullwhip effect

Causes of Bullwhip Effect

 Order Batching

Order batching occurs when each member takes order quantities it receives from its downstream
customer and rounds up or down to suit production constraints such as equipment setup times or
truckload quantities. The more members who conduct such rounding of order quantities, the more
distortion occurs of the original quantities that were demanded.
 Price Fluctuations

Very often, special discounts and other cost

changes can disturb regular buying patterns.
What buyers want is to take advantage on
discounts offered during a short time period,
resulting into irregular production and distorted
demand information.

 Demand Information

It is essential to understand that relying on past demand information to estimate current demand
information of a product does not take into account any fluctuations that may occur in demand over a
period of time.

 Lack of Communication

Due to lack of communication between each link in the supply chain, it gets difficult for processes to run
efficiently. For example: managers can identify a product demand quite differently within different links
of the supply chain and therefore order different quantities.

 Free Return Policies

Sometimes, customers may purposely overstate demands due to shortages and then cancel when the
supply becomes adequate again, without return forfeit retailers will continue to exaggerate their needs
and cancel orders; resulting in excess material.

The impact of the bullwhip effect on inventory, shipping time and overall cost

The negative impact of the bullwhip effect can prove costly to any company. So, as to maintain a
manageable and useful inventory, businesses usually work very hard. However, the variables that cause
the bullwhip effect can lead companies to have either an excess or lack of inventory which can both be
unfavorable for different reasons. Overstated orders based on misguided forecasts lead to incorrect
inventory levels.
 Additionally, a surplus of inventory could prove costly to the company and if consumer demand does not
increase, it could result in wasted resources. Moreover, insufficient inventory can lead to poor customer
relations due to unfulfilled orders and unavailable products. Such mistakes can seriously affect the
goodwill and profitability of an organization.

Ways to Minimize the Bullwhip Effect

 Improved communication & better forecasts

A good strategy which can be used to minimize the

bullwhip effect is through better information, in
terms of improved communication along the
supply chain or better forecasts. Since managers
believe that end-user demand is more predictable
than the demand experienced by factories, they
usually attempt to ignore signals being sent through the supply chain and instead focus on the end-user
demand. This method ignores daily fluctuations in favor of running level.

 Eliminate delays

Another way to reduce the bullwhip effect is by eliminating the delays along the supply chain. Basically,
by cutting order-to-delivery time by half in both real supply chains and simulations of supply chains, supply
chain fluctuations can be cut by 80%.

 Reduce size of orders & good customer service

Another method to prevent the bullwhip effect consists of reducing the sizes of orders and constantly
offering good product prices as a way to prevent surges resulting from promotional discounts. Besides,
improving customer service and eliminating causes for customer order cancellations to ensure smooth
ordering patterns.
Global Sourcing

Global sourcing provides opportunities to improve quality, cost and delivery performance and also poses
unique challenges for purchasing personnel.

Also, Additional skills and knowledge is required to deal with international suppliers, logistics,
communication, political, cultural and other issues not usually encountered domestic sourcing.

Reasons for Global Sourcing

1. Expand supply bases to include foreign suppliers for

a. Lower price
b. Better quality
c. Faster delivery to foreign units
d. Better services
e. Better process or product technologies

Challenges for Global Sourcing

1. Long lead times

2. Higher transportation cost
3. Higher inventory cost because of higher safety stock and in-transit
4. Lack of flexibility to make changes in quantity or specification
5. Cost of travel and communication
6. Complexity, delays and cost from customs clearance, duties and border
security
7. Potential quality problems