The role of supply chain management in tourism - Research Paper Example

TOURISM: CASE STUDY by 31 August Tourism: Case Study Introduction The past two decades were marked with profound structural shifts in the international tourism industry. Increased competition and changing consumer demands impose new requirements on businesses in the tourism industry. In this competitive atmosphere, tourism service providers cannot but look for new, more effective methods of winning a better place in the market. Apart from using information technologies and new transport opportunities, tourism industry players are gradually beginning to realize the benefits of effective supply chain management (SCM) and its implications for competitiveness in tourism. More often than not, supply chain management exemplifies a new perspective in managing tourism products and services. It is through SCM that organizations in the tourism industry finally move away from arms-length relationships toward improved collaboration and coordination of efforts with other providers (Zhang, Song & Huang 2009). This paper compares the impacts of supply chain management on three essential hospitality and tourism industries: hotels, restaurants, and theme parks. Supply chain management in tourism: A new perspective? According to Zhang, Song and Huang (2009), tourism supply chain management is “a set of approaches utilized to efficiently manage the operations of the tourism supply chain within a specific tourism destination, to meet tourist needs from the targeted source markets and accomplish the business objectives of different enterprises within the TSC” (p.345). In other words, supply chain management in tourism is essentially about coordinating the efforts of numerous providers within one and the same package of services, targeting one specific consumer market segment. A supply chain presupposes having a number of product and service providers enter in and sustain contractual relationships with one another (Harewood 2008). Consequentially, how each organization performs largely depends upon the quality and efficiency of performance among other organizations in the same supply chain. Over the last decade, supply chain management has already become a distinctive feature of business activity in tourism: this is mainly because tourism by itself operates through a complex combination of activities, interests, resources, and stakeholders all of which must be coordinated and functionally linked into a single supply chain (Baker & Collier 1999; Ertek & Griffin 2002). Certainly, the essence of SCM in tourism is distinctly different from that in manufacturing. While in manufacturing consumption usually follows production, in tourism production and consumption are almost always simultaneous (Harewood 2008). Moreover, bearing in mind that tourism is neither tangible nor physical, supply chain management in tourism is essentially about coordinating various services from different suppliers at every single point of the tourism supply chain (Harewood 2008). It goes without saying that the nature and complexity of supply chains vary across tourism industries. Hotels, restaurants, and theme parks rely on different standards and principles of SCM. Nonetheless, whatever the industry, SCM is always a value-added activity that makes tourism providers more competitive and strengthens their position in the market. Supply chain effects on hotels Hotels are probably the basic and most influential ingredients in contemporary tourism industry. Much has been written and said about hotel operations and their implications for the development of the entire tourism industry. In its current state, the hotel sector of the global tourism industry comprises the features of rapid development and consumer-focused approaches to business. In this context, supply chains have a potential to enhance the quality and efficiency of hotel services supply and ensure that even the most sophisticated demands of consumers are consistently met. Supply chains are integrally linked to the quality and nature of coordination within hotel networks (Cachon & Lariviere 2005). High levels of operational resource sharing and decentralized decision-making create a unique picture of supply chain management among hotels (Harewood 2008). Hotels work collaboratively with both airlines and tour providers, which help them to expand and retain their position in the market (Xu & Beamon 2006). This is particularly the case of package tours, whose quality largely depends upon the quality of coordination among airlines, tour agents, and hotel managers. In this complex supply chain interrelationship, hotels often play secondary roles, with most of work done by tour agents (Harewood 2008). Therefore, it is possible to assume that SCM in the hotel industry contributes to and maintains an inherently asymmetric relationship between hotels, tour agents, and airlines: more often than not, hotels have to comply with tour agents’ demands and work in ways that benefit them and their consumers. Unfortunately, supply chain management in the hotel industry is not without risks. More specifically, weather conditions and changes in exchange rates may either attract or distract tourists from a particular destination (Harewood 2008). Unreliable airline and tour agent partners further complicate the situation (Taylor 2002). This is why, on the one hand, hotels and hotel managers choose information technology to manage their risks and, on the other hand, cannot secure themselves from all possible risks of business and reputation failures. In this situation, bid price controls are becoming the key measures of managing supply chains in hotels. Bid price controls are gradually becoming an effective instrument of reducing risks and costs of partnerships within the tourism industry (McGill & Ryzin 1999). The need for effective supply chain management requires that hotels choose price controls mechanisms that ensure their economic efficiency in the long run. The use of bid price controls enhances the quality of supply chain coordination and allows for providing their services to those consumers who are willing to pay more (Harewood 2008). Thus, supply chain management changes the structure of costs and benefits characteristic of the hotel industry. Pricing instruments and structures change, too. Supply chain management allows all participants to maximize their profits (Harewood 2008). Bids pricing as an important ingredient of hotel supply chains guarantees that hotel products and services are sold in the markets where they create the greatest value (Harewood 2008). As part of supply chain management, bid prices convey information regarding demand and supply distribution, which facilitates data sharing among partners of one and the same supply chain (Harewood 2008). Supply chains, when managed properly, reduce uncertainty and enhances the quality of monitoring and controlling the quality of the final product (Jansen & Van Weert 1998; Narayan & Raman 2004; Tepelus 2005). It is through supply chains that hotels can guarantee fair distribution of costs and benefits and use information technologies to support the entire tourism industry. Apparently, with few exceptions, supply chain management adds value to hotel operations, improves their operations and functions, and, for these reasons, has the potential to improve customer satisfaction. Supply chains affecting restaurants: Benefits and unique challenges Like many other enterprises, restaurants use supply chain management to maximize their profitability and reduce their costs. Like always, customer is the main source of revenues in restaurant supply chains, but supply chain management is equally important for all managers and business owners (Chopra & Meindl 2003). SCM in restaurants causes profound impacts on both revenues and costs of any restaurant business (Bernstein & Paul 1994). However, as the entire tourism industry changes, so do restaurants; consequentially, their supply chain operations must be adopted to fit in the changeable conditions of industry development (Wu, Kloppenborg & Walsh 2006). More often than not, supply chains benefit restaurants and strengthen their competitive advantage. For example, HBH Ohio, a chain of restaurants widely scattered across national and international markets, uses a combination of centralized and decentralized decision-making to support its supply chains (Wu, Kloppenborg & Walsh 2006). As a result of new supply chain implementation, the company saved considerable costs on inventory aggregation and reduced the costs of procurement due to large purchase volumes (Wu, Kloppenborg & Walsh 2006). Broadline, local, and direct deliveries comprise and create a complex picture of supply chain management at HBH (Wu, Kloppenberg & Walsh 2006). Yet, supply chains also cause serious challenges. Depending on the nature and scope of restaurants chains, these challenges will vary. Ownership structures create considerable difficulties with implementing supply chain management principles (Steiner & Solem 1998). In their marketing strategies, restaurant chains often rely on localization principles, which essentially mean providing unique menus for different geographic locations. Seasonal changes and short shelf-life of most food products make it extremely problematic to create efficient supply chains (Wu, Kloppenberg & Walsh 2006). Finally, most supply chains among restaurants present a serious barrier to business expansion, as far as markets can be scattered, with extreme variations in demand (Wu, Kloppenberg & Walsh 2006). All these characteristics and challenges complicate restaurant supply chains. Nonetheless, even the biggest restaurant chains can benefit considerably from having strong and efficient supply chains. In many instances, hybrid distribution supply chains can help restaurants reduce their costs and improve their efficiency in the long run: restaurants should rely on more than one model of distribution, to promote savings, raise revenues, and reduce costs. This is how restaurants can increase the value added to their operations and ensure customer satisfaction. Supply chains and theme parks: A new approach to managing tourism industry Even theme parks implement and run supply chains to provide their customers with superior quality services. Again, according to Samuel and Hines (1999), the success of organizations in the tourism supply chains depends on how well they coordinate their efforts and collaborate to achieve their own and common business goals. Tourists’ experiences and perceptions of the tourism product depend on the overall quality of all tourism products in the supply chain (Garcia-Falcon 2003). In case of theme parks, the effects of supply chains are much more complex than on restaurants and hotels. Theme parks are relatively new but rapidly changing elements of the tourism industry. On the one hand, the more enterprises are included in one and the same tourism supply chain the more these enterprises benefit from their membership in the TSC (Wang, Hsieh & Huan 2000). In this situation, corresponding supply chains and sectors have their surplus reduced (Wang, Hsieh & Huan 2000). On the other hand, cross-sector and inter-sector integration between theme parts, accommodation providers, and tour agents greatly affect the amount of profits they generate (Braun & Soskin 1999). Inter-sector integration between theme parks and accommodation providers is the source of additional profits for both (Braun & Soskin 1999). However, unlike restaurants and hotels, customers are not the only sources of theme parks’ revenues. Guests, brand image, and stakeholders greatly contribute to the quality of supply chain management in theme parks. Simultaneously, only supply chains that are numerous, driven by guest desires, magical and invisible, and display great operational performance can benefit theme parks. Thus, if managed appropriately and considerately, supply chains add value to business operations in the tourism industry and have the potential to increase customer satisfaction long-term. Conclusion Supply chain management exemplifies a new perspective in managing tourism products and services. It is through SCM that organizations in the tourism industry finally move away from arms-length relationships toward improved collaboration and coordination of efforts with other providers. Supply chains have a potential to enhance the quality and efficiency of hotel services supply and ensure that even the most sophisticated demands of consumers are consistently met. Supply chains benefit restaurants and strengthen their competitive advantage. Supply chains that are numerous, driven by guest desires, magical and invisible, and display great operational performance can benefit theme parks. Thus, if managed appropriately and considerately, supply chains add value to business operations in the tourism industry and have the potential to increase customer satisfaction long-term. References Baker, K & Collier, D 1999, ‘A comprehensive revenue analysis of hotel yield management heuristics’, Decision Sciences, vol.30, no.1, pp.239-263. Bernstein, C & Paul, R 1994, Winning the chain restaurant game: Eight key strategies, NY: John Wiley & Sons. Braun, BM & Soskin MD 1999, ‘Theme park competitive strategies’, Annuals of Tourism Research, vol.26, no.2, pp.439-443. Cachon, GP & Lariviere, MA 2005, ‘Supply chain coordination with revenue-sharing contracts: Strengths and limitations’, Management Science, vol.51, no.1, pp.30-44. Chopra, S & Meindl, P 2003, Supply chain management: Strategy, planning, and operation, Upper Saddle River: Prentice-Hall. Ertek, G & Griffin, PM 2002, ‘Supplier- and buyer-driven channels in a two-stage supply chain’, IIE Transactions, vol.34, pp.691-700. Garcia-Falcon, JM 2003, ‘Understanding European tour operators’ control on accommodation companies: An empirical evidence’, Tourism Management, vol.24, pp.135-147. Harewood, S 2008, ‘Coordinating the tourism supply chain using bid prices’, Journal of Revenue and Pricing Management, vol.7, no.3, pp.266-280. Jansen, DR & Van Weert, A 1998, ‘Multi-compartment distribution in the catering supply chain’, International Transaction in Operations Research, vol.5, no.6, pp.509-517. McGill, JI & Ryzin, GV 1999, ‘Revenue management: Research overview and prospects’, Transportation Science, vol.83, no.2, pp.233-256. Narayan, VG & Raman, A 2004, ‘Aligning incentives in supply chains’, Harvard Business Review, November, 94-102. Samuel, D & Hines, P 1999, ‘Designing a supply chain change process: A food distribution case’, International Journal of Retail & Distribution Management, vol.27, no.10, pp.409-419. Steiner, MP & Solem, O 1998, ‘Factors for success in small manufacturing firms’, Journal of Small Business Management, vol.26, no.1, pp.56-58. Taylor, T 2002, ‘Supply chain coordination under channel rebates with sales effort effects’, Management Science, vol.48, no.8, pp.992-1007. Tepelus, CM 2005, ‘Aiming for sustainability in the tour operating business’, Journal of Cleaner Production, vol.13, pp.99-107. Wang, KC, Hsieh, AT & Huan, TC 2000, ‘Critical service features in group packages tour: An exploratory research’, Tourism Management, vol.21, pp.177-189. Wu, L, Kloppenborg, TJ & Walsh, JP 2006, ‘Developing a supply chain strategy for a midsize restaurant chain’, Journal of Small Business Strategy, vol.17, no.1, pp.63-75. Xu, L & Beamon, B 2006, ‘Supply chain coordination and cooperation mechanisms: An attribute-based approach’, Journal of Supply Chain Management, vol.42, no.1, pp.4-12. Zhang, X., Song, H & Huang, GO 2009, ‘Tourism supply chain management: A new research agenda’, Tourism Management, vol.30, no.3, pp.345-358. Read More