Hospitality Operations

Management
FORECASTING AND OUTSOURCING
Themes
 Reminder of variability and uncertainty.
 Forecasting as planning ahead. Variety of operational
forecasts.
 Qualitative and quantitative forecasting methods.
 Reasons for making or buying.
 Closeness of supplier relationship
 Outsourcing in hospitality.
Forecasting
Questions
 When will guests arrive for service?
 What and how much food do we need to order?
 How many staff do we schedule for each shift next week in the restaurant?
 How many rooms can we expect to sell next week and how much will we
sell them for?
 When will we need to recruit / lay off staff?
 What demand, sales and profit do we expect to achieve over the next year?
 When can I set aside rooms for refurbishment?
Forecasting Options

1. Don’t bother
2. Guess
3. Astrology etc.
4. Research & analysis
 Similar words?
 Forecast:
 The collection and analysis of data to predict a likely future.
 Plan:
 Following the activity of forecasting, set out a course of action to follow
to achieve targets set (which may be different to the forecast).
 Budget:
 A financial plan for an activity or time period.
Forecast what?
 Demand:
 Products and services by time, volume and value: Identify peaks and
troughs, trends by market segment, events.
 Resources:
 Acquisition, allocation, disposal: Predict need, ensure just enough
available at the right time .
 Finance:
 Revenue & expenses (P&L and Cash flow): Shaping our marketing and
control to meet targets.
 Efficient Resource Allocation

Resources deliver the product to the customer.

The amount and capabilities of available resources set the
effective capacity:
Equipment: E.g. Glassware, linen, crockery.
Personnel: Numbers, skills, times.
Inventory: Ensure sufficient but not excessive stocks of non-
perishables. Reduce wastage of perishables.
 Forecast when?
 Short (Operational, days - weeks)
 Consumables, rotas, price / offers, equipment hire.
 Prediction with high certainty.
 Medium (Operational / tactical, weeks to year)
 Recruitment (lay off), minor refurbishment & equipment replacement,
annual budgeting, seasonal variations .
 Long (Strategic)
 Capacity changes, trends, capital expenditure, environmental influences.
 Prediction with much less certainty.
Short term forecasting?

 How do you forecast for the next few weeks?

 How do you ‘firm up’ your forecasts?
 What operational activities do you undertake in response to the
forecasts?
Uncertainty
 Forecasts use historic data as a starting point.
 Future not happened so uncertain.
 Most events have a level of uncertainty.
 No guarantee past patterns will continue.
 The further ahead we look the less certain are our predictions in
business.
 Forecasts nearly always inaccurate.
 Throughapplying different / multiple methods & through learning /
model modification, short to medium term accuracy improves.
Uncertainty
 Customer variability is a source of uncertainty.
 How do we presently design services or deploy resources to
deal with uncertainty in the timing and volume of demand?
 Service method?
 Stock?
 Personnel?
 Demand management?
Which forecasting tool?
Its not easy, the appropriate forecasting method:
Depends on time horizon.
Depends on availability of data.
Depends on number & nature of variable factors, e.g.
weather, local events, etc.
Forecast Types

 Qualitative (Judgemental)
 Experience, Delphi, Conjoint analysis
 Quantitative (Statistical)
 Extrapolation, Data mining, Neural nets, Rule
based forecasting
 Forecasts usually use a mixture:
 Quantitative forecast adjusted by qualitative inputs
Forecasting Methods

Qualitative Quantitative

Field sales
Force Time Series Causal
Jury of
executives
Moving Trend
Focus Groups Averages Analysis

Delphi Method
Scenario Planning
 Delphi method
 Perhaps the best-known approach to generating forecasts using
experts is the Delphi meth- od. This is a more formal method
which attempts to reduce the influences from procedures of face-
to-face meetings. It employs a questionnaire, emailed or posted
to the experts. The replies are analysed, summarized and
returned, anonymously, to all the experts.
 The experts are then asked to reconsider their original response
in the light of the replies and arguments put forward by the other
experts. This process is repeated several more times to conclude
either with a consensus or at least a narrower range of decisions.
Cont'd

 One refinement of this approach is to allocate weights to the

individuals and their suggestions based on, for example, their
experience, their past success in forecasting, other people’s
views of their abilities. The obvious problems associated with
this method include constructing an appropriate question- naire,
selecting an appropriate panel of experts and trying to deal with
their inherent biases. 
http://gbr.pepperdine.edu/022/intelligence.html
http://forecastingprinciples.com/
Forecasts of:
 Demand: Volume and value.
 Variable costs: Depend on sales volume by market segment.
 Fixed costs: Fixed so easy to predict.
 Budgeted expenses: What you have left over to spend after meeting
profit targets.
 Note P&L forecast shows sales and expenses at the time they are incurred which
is different to the time payment is made or received.
 Cashflow: By month (usually), it predicts receipt and payment of
money, i.e. the bank account.
Demand / Sales
 IS the starting point for forecasting
 FinancialPlanning
 Resource Planning
 Forecasts for periods of one year or less give more accurate
results.
 Predict volume and value by market segment (price) / product, date and
time
 Variable, semi-variable & budgeted expenses follow from
forecast demand.
Demand then Sales
 Demand forecast:
 Forecastsdemand without a capacity constraint, i.e. assuming no limit
on the number of rooms that the hotel has.
 Sales Forecast:
 Allocate forecast demand to actual capacity meeting all demand from
the highest value customers first.
 Convert volume by market (price) into sales value.
 Monitor actual sales as the arrival date approaches and adjust
allocations as necessary to maximise profit.
Outsourcing
Questions Include …

 Whatshould we produce ourselves and what should we

subcontract?
 Which competences should we retain or develop and what
should we ‘buy in’?
 How much of the supply chain should we own?
Benefits of outsourcing?
Cost saving
Cash flow planning
Access to new ideas
Access to expertise
Shift accountability (managing risk)
Reduction in the number of employees
Benefits of outsourcing?
Flexibilityin the terms of service delivery
Improved service and quality
Extra management time
Focus on core services
Less need for capital investment
Change cost space into revenue space.
Focussing on the core business
 An increased focus on a firm’s core competencies is an important
benefit associated with outsourcing.

 “The outsourcing of non-core activities allows the hotel to

increase managerial attention and resource allocation to those
tasks that it does best and to rely on management teams in other
firms to oversee tasks at which the outsourcing firm is at a relative
disadvantage.”

 (Bolat & Yilmaz 2009)

 Core Activities

 (D.Lamminmaki 2011)
 Four Characteristics that are associated with a core activity:
1. The activity is performed in house
2. The activity is critical to business performance
3. The activity creates current or potential competitive advantage
4. The activity will drive further growth innovation and
rejuvenation.
 Cont’d

 Non-core activities can be viewed as peripheral to factors

driving a company’s competitive advantage and therefore
prime targets for outsourcing
 (Quinn & Hilmer 1994)
 “Managers should consciously develop their core competences
to strategically block competitors and avoid outsourcing these
or giving suppliers access to the knowledge bases or skills
critical to the core competencies”
 What processes do we outsource?
Inyour experience what processes (activities) are
outsourced (sub-contracted) in hospitality? E.g.
Equipment servicing:
Production:
Facilities services:
Back office / support processes:
More examples?
PROCUREMENT
Supplier or Customer?

 No business performs every process itself:

 Rely on suppliers & their expertise.
 Our products and services are supplied to customers and may form
part of their value chain.
 Often work with other organisations to develop our businesses.
 Every
business sits somewhere on the supply chain between
raw materials and product distribution.
No business is an island

 Trend to concentrate on core competencies, specialising in being

good at one thing.
 Increasing use of partnerships and outsourcing.
 Product& service creation / delivery relies on a network of firms
working together.
 Interdependence rather than independence.
 Types of supply arrangement

Long-term

– Few suppliers
Vertical
virtual operation
integration

Close
‘Partnership’
Type of inter-firm contact

Market arrangement
supply
Transactional – relationships
Many suppliers

Traditional market
supply (based on
Virtual spot contractual
trading arrangements)

Resource scope
Do nothing Do everything
The character of internal operations activity
Slack & Lewis (2011)
 Partnership Supply

 Slack & Lewis (p117) define partnerships / strategic alliances

as:
 “Relatively enduring inter-firm cooperative arrangements,
involving flows and linkages that use resources and/or
governance structures from autonomous organisations, for the
joint accomplishment of individual goals linked to the
corporate mission of each sponsoring firm.”
Degrees of relationship
Generally, Type Sub-type Example
increasing
Transactional Purchasing Food and beverages
investment /
inter- Contract Service Laundry
dependence (impersonal) Servicing Equipment / building
Rental Equipment / building
Lease Equipment / building
Partnership Alliance Complimentary services
(relationships) Consortium Marketing and purchasing
Management contract Hotel or restaurant
Franchise Hotel or food brand
Joint venture Shared capital investment
 Degrees of partner relationship

 Relationships can develop in three directions:

1. With other hotels to develop a strategy or competitive tactic to
reduce costs or increase power
2. Subcontract (outsource) certain activities
3. Transactional relationships that develop over time with focal
companies

Rodriguez-Diaz & Espino-Rodriguez (2006)

 Many Suppliers Strategy Few Suppliers Strategy

 Many sources per item  1 or few sources per item

 Adversarial relationship  Partnership
 Short-term  Long-term, stable
 Little openness  On-site audits & visits
 Negotiated  Exclusive contracts
 High prices  Low prices (large orders)
 Infrequent, large lots  Frequent, small lots
 Delivery to receiving dock  Delivery to point of use

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e
 Articles
 Espino-Rodríguez1, T. & Padrón-Robaina, V., (2006) A review of
outsourcing from the resource-based view of the firm International Journal
of Management Reviews Vol. 8 No. 1 pp. 49–70

 Espino-Rodriguez, T. & Ramirez –Fierro J.,(2017) Factors determining

hotel activity outsourcing. An approach based on competitive advantage.
International Journal of Contemporary Hospitality Management Vol29.
No.8 2017

 Todeva, E. & Knoke, D. (2005) Strategic Alliances and Models of

Collaboration Management Decision Vol. 3 No. 1 pp.123 – 148