Overview Of The Supply Chain Management Used In Hotels

One needs to understand that the premise under which the hospitality industry operates is much different from other industries. The industries capital costs are

In the present context supply chain management is the constant search for improving the way you get the materials that the hotels need to generate the product/ service. It touches upon planning for managing the resources which result in giving service to your customer. This is so because according to the basic requirements of SCM the hotel may spend up to 55% of their costs on material procurement. The main concentration of SCM would therefore be cost reduction, improved material delivery, shorter time cycle, quality improvement, and access to the product and process technology. A supplier can make or break a company, in terms of providing products and services that either exceed their customers’ expectations or fail miserably. 

One needs to understand that the premise under which the hospitality industry operates is much different from other industries. The industries capital costs are high and operating costs are comparatively lower.

Many a time it becomes difficult for extreme standardization. Customer satisfaction is of paramount importance to the hotel industry. This affects the supply chain management negatively.

There are certain problems which can be identified which are exclusive to the hotel industry.

Problems of hotel industry related to supply chain:

Material costs: The cost of raw materials purchase is quite huge in the hotel scenario. Majority of the consumables of the hotel are of perishable nature. 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. Because of the perishable nature, one cannot make use of the economies of bulk purchase. This increases the number of transactions and thereby the transaction costs.

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 located in the same city, the hotels do not take advantage of bulk purchasing due to reasons stated above. It may be found that hotels purchase too many units of different brands and pack sizes. This has a negative impact on consolidation, increased supplier base, and increase in cost. At times hotels belonging to the same group may be buying same products from same suppliers at different prices. This also greatly increases the cost of transportation and other direct costs Through supply chain management there could be considerable cost reduction.

Inventory holding costs: Forecasting of material required is quite unheard of. Even if done, the activity becomes a mere paper tiger, 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.

Strategic Methods In SCM

Supplier identification

Supply chain management involves taking steps to identify the right suppliers. This is a very crucial step. The hotels have a tendency of dealing with a huge supplier base, though this has its positives, conscious steps should be taken to identify committed suppliers who are willing to go by the objectives of the concern, and be involved and appreciate and support the changes of the organizational requirements.

Supplier evaluation and selection

After careful identification the suppliers are evaluated. Their ability to supply the right goods at the right time with right specifications has to be studied. This is another crucial activity which the purchase process should undertake. After negotiations and competitive biddings, contracts are awarded.

Supplier management

Once the correct suppliers are selected, there should be a process which will help in smooth management of the purchase process. Once the supplier delivers the goods as per specifications, it is the responsibility of the purchase process to see that his bills are settled, as per contract. This is where, many a time, a property may let down the suppliers, by not paying up promptly. Many a good supplier may be lost to the hotel, due to delay in payment. The fault may be due to bottlenecks in any of the processes. The purchase department may not process the documents promptly to the finance department. The finance department may not have got all the details it is looking for, or the signatories of the cheques may be busy. Once in a while this may be acceptable, but if continuous delay in payment happens, the supplier feels harassed. If the hotel is a big buyer, the supplier may be threatened also. This spoils the relationship of the hotel with the supplier. Therefore, this is a very crucial stage, where the supply chain management has to be strengthened.

Supplier development and improvement

The supplier chain management must include this very crucial process. If the supplier is made to know about importance which the hotel gives him, he will definitely be encouraged to give very good service, which contributes towards efficiency and cost saving.

Empowerment of the purchase manager

As mentioned earlier, the purchase manager in a hotel concern is given a lower position in the organizational hierarchy. This results in improper and inefficient supply chain management. The purchase process has a very wide span of control if the supply chain has to be professionally managed. It starts from identification, forecasting of the material and services needed by the hotel the evaluation and selection of suppliers, review of specifications, negotiations with suppliers, awarding of contracts, recommend for release of payments, continuous monitoring and measurement of supplier performance. The purchasing head should be considered equal to any departmental head and given that status, if SCM has to be smooth. In case of centrally managed purchase process as in chain hotels, a position of Vice President purchases is ideal.

The Advantages of Supply Chain Management

• Both 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 also 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 requirements.


Efficient Supply chain management helps in enormous reduction of costs by developing and implement contracts and agreements with suppliers of hospitality products and services, securing for the hotels competitive prices be if for food and beverage, rooms or property operations. Through professional Supply Chain Management every supplier is committed, nationally negotiated contract pricing, and top-quality product and service standards. Offering a wide selection of products and services, they provide the best products at best time at best rates, which is the ultimate objective in Supply Chain Management.


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