Role of IT in Supply Chain Management - Assignment Example

Role of IT in Supply Chain Management INTRODUCTION Supply chain management (SCM) is the 21st century global operations strategy for achieving organizational competitiveness. Companies are attempting to find ways to improve their flexibility and responsiveness and in turn competitiveness by changing their operations strategy, methods and technologies that include the implementation of SCM paradigm and information technology (IT) (A. Gunasekaran, E.W.T. Ngai 2003). The industries in the 21st century are trying to improve their infrastructure in order to compete in the global market. The industries are adopting agile methods for the sake of fulfilment of market requirements. For achieving market goals industries are moving towards outsourcing virtual enterprises and resulting in the decentralization of their activities for getting maximum market benefits. So their is the need of a bridge, which may serve as an integrator between suppliers and partnering firms, in the domains of virtual enterprise and supply chain. The bridge which can full the gap, between suppliers and partnering firms, is the domain of Information Technology. The integration of suppliers and partnering firms through Information Technology evolved the new approach known as Supply Chain Management. The key definition of SCM is that it serves as an integrator of business processes between end users and the suppliers who serve their customers in the form of providing products, services and information (Lamber et al. 1998). SCM plays a vital role in enhancing the overall organizational performance. Supply Chain Management Systems are present everywhere and they are adopted by many industry champions or network leaders. In the beginning the interorganizational systems used by the industries were only able to support the automation of manual processes such as for managing orders and accounts. Then with the passage of time the addition of different powerful features, like information sharing, communication and collaboration, in the existing systems have made them more robust and beneficial for network leaders (Icasati - Johanson and Fleck 2003). There are round about 30,000 interorganizational systems which are being developed and these systems are supporting the business to business transactions (Harris 2001). The supplier firms come in the domain of supplier networks and these supplier firms have relations with network leaders. The network leaders are the core bodies which organize the supplier for the sake of their utmost industrial benefits. The network leaders play a vital role in introducing the information systems related to supply chain management to their respective suppliers. Benefits associated with the information systems and ecommerce are distributed roughly and are more favourable for network leaders (Riggins and Mukhopadhyay 1994). Further the benefits from information technology and ecommerce for the network leaders are associated with the confirm participation of suppliers and there are rare chances for the suppliers to get benefits from network leaders rather these network leaders are enjoying at the expense of suppliers (Carter 1990; Clemons and Row 1993). Hospitality Industry In this research the major area which is being focused is hospitality industry and the role of IT in supply chain management of hospitality industry. Information technology is playing a vital role to revolutionize the hospitality industry. In the hospitality industry the benefits of information technology are equivocal. The implementation of information technology in the hospitality zone is far behind than other network leaders in the world (Siguaw et al. 2000, p. 22). In United States very few hotels who are presenting hospitality services had integrated IT with SCM (Arthur Anderson, 2000). But it is a general trend that adoption of information and communication technology is widespread in hospitality or lodging industry. Some researchers are of the view that adoption of information technology is widespread in service and hospitality industry (Chao and Olsen, 1998, p. 376). The information technology applications in hospitality are focusing innovation when we have to compare it with other industries (Watkins, 2001). One of an innovative tool used in hospitality industry is the e-procurement tool. The tool helps in providing services and purchasing goods online. The electronic business converts the whole procurement process online and enables the employees of distributed firms to coordinate online and e-business helps in streamlining the procurement cycle (Hearn and Gibbons, 2001, p. 3, 5). The prominent area, through which the customers have to differentiate the hotel products, is the customer services in the hospitality industry which is given wide consideration throughout the world. When different managerial issues are taken into account like services provided by the hotel and the integration of e-commerce or information technology with its existing system then different empirical studies are performed which are focusing a specific area. The different empirical studies cover the specific regions like Australia (Presbury et al., 2005), Canary Lands (Espino-Rodrigues and Gill Padilla, 2005), The United States (Piccoli et al., 2003), and many more which are analysing the hotel industry of a specific area. Literature Review Before indulging into SCM it is essential to discuss a little bit the role of ITor electronic commerce. There are two objectives which are very clear i.e. clear customers’ needs and resource allocation and a company or a hotel in our case can achieve the goals with a combination of both the objectives. The firm or hotel can differentiate itself from other market rivals if it succeeds in differentiating its services from other companies or hotels. The success is only possible that to get a maximum benefit from IT or electronic commerce technologies. The above success scenario or approach which is described is only possible when we will try to implement the latest technologies in the domain of SCM and if we will integrate it with front end applications like CRM or customer relationship management and at back office side there is the need of a powerful e-procurement system (Turban et al. 2002, p. 656). A perfect scenario of IT or e-commerce model will have to show the both ends in a tight relationship i.e. the combination of front end and back end systems. IT plays a vital role in increasing or generating the revenue while reducing the costs of the company operations. Most of the studies which are performed on hospitality industry are focusing the audiences which are customers in the case of hospitality industry (Heung, 2003). E-Commerce/IT as an Integral Part of SCM From supply chain management definitions which are stated above it is evident that there must be a strong integration among all the links for making profits for the company through delivery of customer values according to their needs. An important factor which is strongly integrated with SCM is the supply or procurement management (Presutti, 2003). Procurement management is directly related to the activities involved in purchasing the goods and services which play a vital role in the overall success of the organization. There are seven stages which are involved in the purchase of a product or service that include information gathering, supplier contact, background review, negotiation, fulfilment, consumption, maintenance and disposal and renewal (Archer and Yuan, 2000). Traditionally the procurement management is related to the supply of essential commodities which are required for business operations and the factor of money saving is also kept in the mind during procurement process. In a research it is argued that round about 80% of an organization’s purchased items, which include maintenance, repair and operations, contribute 20% in the actual total purchase value (Turban et al., 2002, p. 232). Due to the inclusion of non-value added activities in the procurement process forces the experts not to pay full attention for a sufficient time on the procurement of those materials which yield a high value. It is argued by the researchers that involvement of information technology or electronic commerce enhances the overall efficiency of the supply chain management system because with the use of innovative technologies one can easily get the information about product availability, current status of inventory, the shipment status of the product and other requirements of the product (Radstaak and Ketelaar, 1998). During the purchase process the fast information sharing or information communication are very essential for the key success of an organization (Gebauer et al. 1998) so the integration of information technology and automation is required throughout the whole procurement process. Through electronic procurement an organization can establish very fast relations with its suppliers. The integration of electronic commerce or information technology is considered as an important factor in making a collaboration bridge between different trading partners and the technology integration would pave a way for the successful implementation of the procurement management strategy. In the hospitality or lodging industries still the companies are lacking the integration of innovative technologies with their SCM systems. The attachment of e-commerce or IT with SCM is based on the principle of low cost and not on the principle of low price. The E-Procurement Process in Hospitality Industry Purchase Process In an organization it is the responsibility of purchasing department to search the specific products which fulfil the requirements of the department and their customers and then for buying these products the vendors are invited to bid for the said products or negotiate their prices with the purchase department. The prices, which are confirmed after consensus or on agreed upon conditions, are stored in the electronic databases by the buyers. Before shipment the buyers have to compare the alternatives for the said suppliers who are supplying the products and these alternatives can be accessed using electronic catalogue on internet or using internal database management system. The purchasing decisions, taken by the purchase department, are considered according to the strict internal management standards of the workflow. These standards are predefined by the purchase departments of the concerned organizations. The selection of right supplier is a crucial factor which is considered in terms of quality, delivery of product in a specified time and the cost of the purchased products. The information available on these sources is updated according to the procedures as and when required. Using the electronic procurement system a user can also buy the products and services online and it also helps the suppliers to receive and transfer funds without any problem using credit cards. Inventory Management Process When the companies have to do their business using electronic commerce and they have to control all the business activities through information technology then it would help in the improvement of inventory management. When inventory would be managed in a well planned way then it would automatically reduce the administrative expenses in performing the overall operations of the hospitality industry. In electronic procurement the major component which is considered as a part and parcel of the hospitality industry is the Vendor Managed Inventory. The business at hospitality industry is a seasonal business so the fixed setting of the inventories is not a solution which is being adopted in manufacturing industries. Because in the case of hotels the Vendor Managed Inventories are based on some of the items and they are needed through out the year without any fluctuation e.g. the need of chemicals or cleaning solutions. The materials, which are based on the requirements of the guest, are managed at property level and it is also dependent on the seasonal demands. So we can say that the vendor managed inventories are not suitable in the hospitality industry due the seasonal nature of the hospitality business. There are two types of purchasing or sourcing strategies which are taken into account one is the spot/competitive sourcing which is based on urgent needs and the other one is the systematic or strategic sourcing which is based on a long term relationship between suppliers and the buyers. The second strategy of long term relationship is considered more beneficial than the firs one. When spot strategy is adopted by the industry then there come the problems of dynamic behaviour and uncertainty in the prices of the products or services. The market makers are in the need to match their supply and demands in their exchanges. But in the case of systematic sourcing strategy the prices of the products are predictable because in this very approach the prices are negotiated by adopting a framework of terms and conditions between the business partners or buyers and the suppliers. So using the systematic sourcing, in collaboration with e-commerce or information technology, a collaborative sort of commerce is established among the partners of the supply chain. And it would result in shorter time span for product or service delivery, not frequent delays and less work interruptions, fewer inventories and very low costs of the administrative operations. Benefits of IT/E-Commerce in Hospitality Industry We will see the benefits of IT/E-Commerce in Hospitality industry in the form of its adoption and replacement of the existing traditional or manual systems prevailing in the industry. The supply chain management covers the storage and movement of the materials, the inventories and final products. It helps in managing the flows of information and services to synchronize and in collaboration of both the buyers and suppliers and this thing helps in understanding the needs of the customers and in lowering down the total costs. The companies who have adopted the SCM, with an integration of e-commerce or IT and analytical tools, have got uncountable benefits from such an automated approach. Some of the benefits are as under. There would be an increased control of the suppliers and quality standards due to a strong relationship which is built due to e-procurement system but it is not so in the case of tradition manual approach. The e-procurement system also provides an environment in which a better understanding, coordination and collaboration exist among all the supply chain members and business partners. The traditional manual approach does provide such an environment. There would be matured processes after such an approach and there would be a better communication and cooperation link among all the stakeholders. In case of traditional manual approach it takes a long time to streamline the business processes due to the lack of good communication and cooperation system. The company would enjoy the faster customer response and an improvement in the ratio of delivery while it is not so fast in the case of traditional SCM approach. The system would help in good planning and scheduling the business activities. In case of traditional SCM approach it demands too much consideration to plan the supply activities and then to implement them within the specified time frame. When using e-procurement the productivity rate would increase automatically and there would be better response against demand fluctuations while it is no so in the case of traditional SCM model. There would be lower levels of inventory in this approach and the adoption of this approach would yield overall lower costs while the overall costs in the case of traditional SCM approach are too high. CASE STUDY (Hilton Hotels Corporation) Hilton Hotel Corporation is a respectable world leader in hospitality industry. The corporation consists of 2800 hotels in the 80 countries. Round about 150,000 team members are managing the 485,000 rooms. There are more than 2300 hotels which are owned, managed or franchised in USA some of the well known hotel brands are Hilton®, Conrad®, Doubletree®, and some others. The primary or first objective of Supply Management Division, of Hilton Hotels Corporation, is to provide access to comprehensive and value-added supply chain management solutions to all the hotels. In our case study we will discuss the technical aspects and ICT infrastructure so the first aspect which comes in the mind is the operating system. The operating system which is commonly adopted in the Hilton Hotel is the Windows Operating System. The reason for the adoption of Microsoft Windows Operating system, on personal computers and on the network, is that the platform provided by it is well familiar and easy to operate. In Hilton hotels the officials are showing serious concerns to purchase the products using electronic procurement or through internet which would serve better and would ultimately result in the overall satisfaction of their key stakeholders. The managers in the hotel have asserted this thing that the purchase of the products must be performed on the basis of their descriptions instead of just visualizing the hospitality products. So the information technology or ecommerce would help the key management to purchase the items according to their features and quality which is being described online. But some managers also presented in the form that it is more convenient and effective to have a telephonic discussion with the vendor rather than just making transactions through internet or electronic procurement system. The end-users in Hilton Hotel asserted this thing that with the adoption of e-procurement system or information technology provides a good control, security and privacy. In Hilton these technologies are being used by the employees without too much training or skill set on a said tool. Using SCM with an integration of Information Technology in Hilton the hotel management can view the supply contracts with great care and they can also easily check that in which way they are going to spend. Through ecommerce the management can easily view the available products that the suppliers are offering and they are also able to monitor the quality of supplier hospitality products and they can also assess the quality of services which the suppliers are providing. With the application of an e-commerce approach in an industry the experts can add or generate revenue through the products which are bought from suppliers and it would save lot of time which is spent on administrative activities and it would ultimate results in cost reduction. The economy of the world is very fast and the competition is also increasing in world’s economy with great pace. Due to the sustained competition it is not good approach to raise the prices for the sake of profitability. Due to this reason the management champions at Hilton want to lead the market with the introduction of innovative products, quality up to the standards, and quick response time and this whole process must focus very low costs i.e. the ultimate delivery of all these three factors at the same time. The adoption of e-procurement at Hilton helped in the replacement of traditional SCM system. Due to IT or e-procurement the collaboration level among all stakeholders also increased within and outside the Hilton firm. The integration of SCM and IT also resulted in low labour costs during the whole process of the purchase. Due to e-procurement the cost reduction is also a result of less paper work and reduction in the overall redundancy of the purchase data. So electronic commerce or information technology at Hilton also helped in fewer mistakes and matured the purchase process. The challenges which are faced by Hilton Hotel Corporation forced the corporation to adopt the e-procurement solutions for simplification of supply management issues around the world. The Hilton Hotel Corporation is facing the challenge of diverse hospitality properties in more than 80 countries so there is the need of a robust sort of supply chain management system because there would surely be the different needs and issue of supply management. There was the need of the integration of a sophisticated but easy to use e-procurement solution with the existing software application. The hotel management also told that the need for adoption of IT or IS provided us the ability that we can easily simplify our procurement processes. And this goal was achieved through a one-touch software based system. The software based system would help in optimizing the supply chain management system of Hilton Corporation across all the hotel properties. The Hilton Corporation also wants that the electronic procurement system must be easily accessible across all the stations. The management at Hilton quickly assessed the importance of the automation of their supply chain management system. So as a solution the Birch Street Systems’ Software was considered more suitable. The system helps in electronic hosting and maintenance for Hilton Hotel Corporation’s Supply Chain Management electronic procurement portal. The system also provides the solutions for number of other e-procurement issues. The system provides the following noteworthy benefits to the organization. The software helps in streamlining the procurement processes and the software also plays a vital role in streamlining the back office automation processes. The Birch Street Systems’ Software provides the ability to host and maintain the e-procurement portal in a secure and real time environment. The software is more flexible in its usage and it provides the on-demand purchasing capabilities which provide 24 hour help in searching the suppliers, budgets and order processing information just in one click. The software is providing a flexible integration of localized brand business requirements for the supply chain management system at Hilton. The software tool helps in optimizing the customer services for the sake of easy access to the concerned data. According to the management at Hilton the software is a scalable solution which suits well for scope of Hilton properties. The software is a cost effective, secure, and robust solution for the supply chain management system. Using the software the suppliers can easily maintain and update their product catalogues and it would help in saving of time and other resources. The software also provides better reporting and analysis capabilities. The management at Hilton told that with the advent of information technology we are able to replace private networks and this helped in reducing the cost and in simplifications of the communication system. Same views were also observed by property decision makers at Hilton that the adoption of e-procurement provides an opportunity to reduce the infrastructure and transaction costs. The e-procurement also provides greater efficiency and audit control which ultimately also results in cost reduction. They were of the view that it would increase the revenue and also increase the value of the hospitality products step by step or on incremental basis. According to management at Hilton the adoption of e-procurement also helps in reducing the inventories and time because the e-procurement provides the facility to switch to vendor managed inventories for specific or selected items. The management was feeling quite comfortable in purchasing items for different operations through electronic purchase. Some employees also showed the concern about the purchase of food items and liquor through e-procurement. But it was not possible due to the problems in approval processes. In the case of vendor managed inventory system the duplication is possible but it is not so in the case of Birch Street Systems’ Software and it helped in eliminating the paper based system. So at Hilton using e-procurement the redundancy eliminated which was the result of incompatibility between the online and paper-based systems. The management also expected that using this software we will be able to capture and aggregate more efficiently and accurately that how much we spending on purchasing different hospitality products. Further they are of the view that with electronic marketing or with the use of e-procurement system they can control the purchase from non-contract vendors and this very practice in management is called as maverick buying. This would help in controlling the spending power by reducing emergency purchasing, purchasing without planning and buying the hospitality products at high prices in the local market. The software also provides the facility to find out new supplier and vendors or the business partners who can supply their products and services at fast pace and with cheap prices. The management was of the view that in future the traditional SCM system would cease to exist and will be replaced with e-procurement. Different properties of Hilton are focusing on coordinating the exchange of information using the software and improving the relationships with suppliers and vendors more efficiently. Further ROI (Return on Investment) is the strategic goal of the e-procurement at Hilton. The short term goal at Hilton was to obtain the software system but the software system is associated with ultimate long term goals. The long run benefits which are associated with the e-procurement are good relationships with suppliers and vendors. The system would also provide the ability to participate in preferred vendor fees and rebate programs and it is all due to the purchase history with the vendors and due to other affiliations. The experts at Hilton also told the challenges faced at the time of implementation of the processes of e-procurement. It is observed that for effective SCM the integration of IT/IS in the domain of SCM is very necessary in all the departments of the firm for example the integration of order taking with product inventory levels is very essential. For implementation of e-procurement it is very essential that the software must perform the purchases processes successfully and must provide the support or integration with the existing e-procurement systems. If the new e-procurement system is not going to integrate with the existing infrastructure then it would shatter the reliability of the information which is being shared at different properties. This one is a major challenge which was described at Hilton. The adoption of information technology or ecommerce at Hilton was declared an important element in managing the supply chains, making strong cooperation outside the organization. It also paves the way for suppliers and customers to meet the business requirements or criteria of the said firm which they have fixed as their minimum standard. If the organizations have not defined their standards or quality codes then it would be difficult for the firm to gain maximum benefits after implementing the e-procurement solutions. The supply chain management system is used to plan and manage the supply chain activities. The SCM is a sort of holistic approach to manage the supply chain activities. The implementation of software system at Hilton supports e-commerce initiatives, supply chain management, and mature the internal organization’s structure and procedures. The hotel management also asserted that with the adoption of IT/IS a less educated employee can also handle the purchase process well. Further they also said that e-procurement helped our department to audit and discover all the shortcomings in the management process. There were some remarks which were against the adoption of IT/IS and its integration with SCM. It is also stated by the employees that the adoption and implementation of IT/IS in hospitality industry may be triggered by threats to the survival of the firm. Some are of the view that e-Procurement is a sort of opportunity for hackers to corrupt the confidential data of the company operations and this would result in the form of severe loss to the company. The company has deeper concern with the privacy of its proprietary and encrypted data when the procurement is performed electronically or through internet. The issues of security and legality are considered as the major hurdles in the implementation of e-procurement systems but still the industry experts at Hilton show their immense support for the adoption of e-procurement systems and outweighed the security and legal hurdles over the benefits which are provided by e-procurement systems. The high performance business at Hilton views the domain of IT/E-commerce as an integral part of their purchase department. IT has added value in the business at Hilton in the form of providing information about new products and services. At Hilton Information Technology is provides professional excellence and advantage in the market. The information technology at Hilton supports all the operations regarding procurement procedures across all the properties or offices. It provides support at Hilton by providing technical assistance, the instructions for the payments of purchased products according to the predefined policy of the firm. Further the e-procurement system provides an opportunity to analyse the user or market trends and requirements. The very nature of hospitality industry is not integrated rather it is a fragmented one so this nature has to induce inefficiency in the purchase procedures at any department. So the management at Hilton decided to adopt Birch Street Systems’ Software as an e-procurement solution. They were of the view that the hospitality industry is comprised of complex purchase procedures for the purchase of a bulk of consumable items on daily basis and this complexity can only be resolved after adopting an innovative approach. The management told that the conversion from offline SCM to an online SCM system can be adopted after incurring huge budgets but the adoption of e-procurement in supply chains yields reward in the form of reduced costs in overall administrative and purchase issues as it is iterated above again and again. The rate of involvement of users at both ends (business partners) in making business transactions successfully is also improved. The electronic business facilities provided a better environment for creating a relation between the end user and the employee and it resulted in the reduction of human intervention during the procurement process. The adoption of IT/IS in supply chains at Hilton has played a vital role in Total Quality Management (TQM) which is associated with the satisfaction of the customers. The continuous improvements in the SCM procedures are very essential for the overall development and prosperity of a firm. The prosperity of the firm is directly associated with the fulfilment of the expectations of customers. The satisfied customers can only help in generating revenues otherwise it would turn in severe losses at industry side. Conclusion In the research it is evident that the hospitality industry is improving all the processes at organization level. In hospitality industry in the past the management was focusing on increasing production and generating revenues due to these two factors they were able to attract their franchisees that they have to show interest in their brands. But now they can reduce the total costs and can enhance their brands with the adoption of innovative technologies in their supply chains. The integration of marketing and procurement operations with IT showed that the persons who are involved in supply chains assure that the integration of innovative technologies is warmly welcome. For electronic procurement there is need of training of the staff persons and the notable thing is that they must have to observe the importance of the benefits of electronic procurement systems. The electronic procurement is a continuously changing area and these systems are very flexible and can be modified and upgraded according to the needs of the organization. The electronic procurement technologies are serving as an important management tool for increasing the overall performance of the supply chains. The e-procurement in hospitality industry is in an infancy state and a rapid increase is expected in the functionality of e-commerce that would assist in making strong relationships between suppliers and buyers using electronic environment. From of the benefits of e-procurement it is obvious that it would increase the rate of adoption of innovative technologies, if the doubts related to e-procurement, are reduced to a level of utmost satisfaction of industry experts. The said research would help the industry experts in all the areas of purchasing in purchase departments to better plan for the future adoption of IT/IS or e-commerce technologies. When the firms have to switch from traditional offline logistic approach to innovative online solutions then it would help the firm in significant savings, improvement in the production and increase in the operational efficiencies. Using e-procurement system there would be better communication between hotels and suppliers and the experts can see the favourable prices of the support services related to their firms. The automation tools would provide the summary statistics and overall performance of the suppliers for future decisions. It is important to highlight the importance and strategic nature of the procurement process and its integration with the supply chains to senior management at the hospitality firm. The e-procurement is an important research field for future research. When e-procurement is integrated with supply chains then there was the need of important decisions for its adoption at corporate level. In future the research can be performed in this area in number of ways. The longitudinal case studies are better to explore the implementation and integration of IT with supply chains at various properties of the industry. Further a supplier side case study would help to learn about their experiences after the implementation and adoption of e-procurement. We can do a structured survey on the basis of key findings after conducting different case studies in different domains and can gather data about the opinions of decision makers on adoption of e-procurement and its implementation at corporate level. There is need of close interactions among all stakeholders for properly understanding the requirements for implementation of innovative technologies and to develop systems that add value to the bottom line and thus provide incentives to all the stakeholders. The current systems are providing the processes which are not mature but on the other hand the implementation of electronic procurement in hotel industry depends on the issues like that is the technology manageable or not and whether the firm has realized the benefits of integration of IT/IS with it supply chains after deploying the innovative technology. Further this academic research would help in future that with the advent of e-procurement what sort of industry objectives can be streamlined. References Aberdeen Group. 2000, Hospitality e-procurement: a competitive analysis. Research Report, Aberdeen Group, Inc., Boston, MA. 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