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Significance Of Supply Chain Management In

Hospitality Industry

What is SUPPLY CHAIN Management?

All activities associated with the flow and transformation of goods


from the raw materials stage, through to end users, as well as the
associated information inflows. This includes material and information flows
both up and down supply chain. Therefore supply chain includes a whole
horde of systems such as systems management, operations and assembly,
purchasing, production schedule, order processing, inventory management,
transportation, warehousing, and customer service.
In today’s changing business environment, there is an increased
focus on delivering value to the customer at the cheapest possible costs.
Hence there has been increased interest in logistics and supply chain
management practices since performance is not only determined by
actions and decision, but also the improvements on return on investment
and greater profitability.

Hotel companies, both big and small, must focus on how to offer
products and services while keeping costs low. In an industry which is labor
intensive many hotels are forced to make bolder and more visible moves in
costs reduction to their operations. It comes as no surprise that much of
these costs cutting efforts have been focused on payroll and other
employee associated costs, like hiring freezes, cuts in employee perks,
reduction of bonuses, and reductions in salaries.

One area of the hotel industry that is usually left out in cost cutting
efforts is its logistics and supply chain operations. Even though logistics
and supply chain is considered an operations management strategy in the
hotel and other service industries, they can use these strategies to help
add value to their properties. The supply chain is an important element
within the hotel and catering industry.
A well-established logistics and supply chain management system
can help the hotel industry give individual hotel companies a sustainable
competitive advantage. The use of the right logistics and supply chain
strategies helps not to only improve the quality and service of the hotel
company, but drive down costs. For staff in this industry, it is crucial to build
steady relationships with suppliers and work with a good ordering system in
order to improve the service level towards customers.

The hotel industry can benefit from the comprehensive and integrated
practices of logistics and supply chain management, by delivering a
consistently reliable and high quality service at the best costs.

Challenges in the Supply Chain in the hotel industry

The purchase manager is always under constant pressure to meet


the user departments’ un- planned needs. As a result the purchase
manager always tries to have huge buffer stocks, lest he should fall short of
satisfying the hotel operating/user departments. But this does not mean
that quality management processes should be totally ignored.
Material Cost: 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.
Majority of the consumables of the hotel are of perishable nature due to
which one cannot make use of the economies of bulk purchase. This
increases the Number of transactions and thereby the transaction costs.
This results in increased 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 the above reasons.
Inventory Holding Costs: 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.

Emergency purchase: The purchases are made on the request to the user


departments on the spur of the moment, and are regularized later by
making the required paper work. Due to lack of planning, emergency
purchases are a matter of routine and not due to exception.

Factors affecting supply chain management in Hotel Industry

It is essential to understand that the premise under which the hospitality


industry operates is much different from other industries. The industries
capital costs are high, operating costs being comparatively lower. The hotel
industry has its unique characteristics, like customer centricity, different
types of management etc.

 Guest or Customers are the utmost important for the hotel industry;
customer satisfaction is of paramount importance to the hotel
industry. In the hospitality industry the customer related activities
such as food and beverage production and service, housekeeping,
Front office management are given utmost importance. The back
office operations such as the accounts, purchases, supplies chain
management, revenue recording etc. take a back seat.
 Different types of management systems, such as the ownership
hotels, franchisees, hotels which are run on operating contracts by
chains etc. The different managements systems have different
implications on the supply chain management.

 In the hotel industry all the efforts are customer oriented as a result
lot of cost reduction which can be attained through improved
upstream functions of supply chain management is lost. Current
trends in the industry show that computerized property management
systems are used but mainly for front office management and
reservation systems.

Benefits of Supply Chain Management

 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.
 Itleads 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

SCM – Strategic methods explained

Supplier Identification: Generally supplier base is huge in the hotel industry,


this has its positives, conscious steps should be taken to identify committed
suppliers who are willing to go by the objectives of the Organisation, and be
involved and appreciate and support the changes of the organizational
requirements.

Supplier evaluation and selection: Supplier evaluation is a critical process,


suppliers ability to supply the right goods at the right time with correct
specifications has to be reviewed. Contracts are awarded after careful
negotiations with the supplier.

Supplier management : After the suppliers fulfills its obligation by delivering


the required goods as per specifications it’s the responsibility of the
Purchase department to ensure suppliers bills are paid promptly , at times
good suppliers are lost due to the payment delays. Therefore its very
essential to maintain a strong relationship with the supplier hence supplier
management has to be strengthened.

Supplier development and improvement: It’s a very crucial step in the


supplier chain management. A careful consideration of this process would
contribute towards efficiency and cost saving.

Conclusion:

Professional supply chain management ensures every supplier is


committed for top quality product and service standards. An efficient supply
chain management helps in significant cost reduction 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

Reference: https://www.sbsandco.com/blog/significance-of-supply-chain-
management-in-hospitality-industry
ARTICLES IN RELATION TO SUPPLY CHAIN MANAGEMENT…
1. Hospitality Logistics: Supply Chains Made to Order

By Lisa Terry
Welcome to hospitality logistics, where five-star supply chain management
helps keep customers happy.

Missed delivery appointments, products held up in Customs, and short


shipments are disruptions supply chain managers often contend with.
But for Royal Caribbean Cruise Lines, any one of these snafus can mean
the ship has sailed—literally—without the food, beverages, and supplies
critical to its guests' experience for the next seven days.
Complicating daily management tasks for the 34-vessel cruise line
operator's 225-strong supply chain organization is the fact that essential
freight must be coordinated to arrive in a foreign port to meet a tight nine-
hour loading window.
If it doesn't, the company risks jeopardizing its most important mandate:
customer satisfaction.
"Ask warehouse employees what our mission is, and they will tell you it is
not moving freight, it is all about the guest experience," says Laura Luff,
director of logistics and material control for Royal Caribbean.
That sentiment permeates the hospitality industry, whose bread and butter
is delighting the customer.
That is why hospitality operators' capital investments tend to focus on
products, services, and systems that enhance the guest experience—and
not always on back-end infrastructure that gets those goods to the ships,
hotels, restaurants, and other destinations where they are consumed.
This is particularly true for small organizations: seven out of 10 of the
nation's 935,000 restaurants are single-unit operations.
And, of the 47,590 hotel properties in the United States, 58 percent offer
fewer than 75 rooms, according to the National Restaurant Association and
the American Hotel & Lodging Association.
GAINING VISIBILITY AND CONTROL
Technology has further differentiated small hospitality companies that
struggle to manage their supply chains with limited resources and budget
from large, multi-unit chains that can afford to invest in solutions to gain
visibility and control.
Many multi-unit chains have begun taking charge of the procurement
process, using technology to manage sourcing back to raw materials
suppliers and even buying futures on the commodity market.
Myriad business model variations exist among hotels, restaurants, resorts,
casinos, and cruise ships. As a result, sourcing operations can encompass
a few hundred or thousands of SKUs.
Purchasing in the hospitality industry is further complicated by the fact that
many businesses face fragmented management operations—which can
include franchisees and individual owner/operators—as well as managing
multiple brands under one corporate umbrella.
Common industry sourcing and procurement challenges include maverick
local buying, and a lack of centralized processes to ensure that purchases
and deliveries meet contracted pricing, brand, and quality standards.
Proprietary distributor ordering systems and non-standardized product
descriptions also lead to waste. It is not uncommon, for instance, for a
chain to learn it purchases the same size ketchup bottles under multiple
product descriptions.
"That lack of control, coupled with the volume of product that hospitality
companies manage, causes them to lose money that should go to the
bottom line," says Pat Welch, COO of Adaco Services, Williamsville, N.Y.,
a software provider to the hospitality industry. "Companies lose money
when they fail to take a proactive approach to procurement."
Subway Restaurants, along with its Independent Purchasing Cooperative—
a procurement group run by franchisees—was an early innovator in the
movement to gain control of the sourcing process, and the trend has
spread to other large enterprises.
Increasingly, hotels and restaurants employ spend management,
procurement, audit/compliance, and inventory systems to gain visibility into,
and control of, purchasing.
Hilton Hotels is among those hospitality companies that have transformed
their approach.
"Ten years ago, we were behind the curve compared to other hospitality
companies. Now, we are close to cutting-edge," says Don Miller, regional
director of supply management for Hilton.
The worldwide hotel chain manages procurement through its Beverly Hills,
Calif., office, and six regional affiliate locations. The procurement group
aggregates buying into national contracts for its various brands, and
enables local providers where it makes sense to do so.
Hilton cuts deals directly with suppliers, then negotiates markups with the
distributors that handle warehousing and delivery.
"It's important to control the whole supply chain," Miller says. Now, the
company is tackling the integration of international procurement, brought on
by its reacquisition of Hilton International in 2006.
SPEND AND SAVE
Effective spend management helps Hilton control and monitor what
individual sites buy and pay, then ensures compliance. Its hotel properties
access a Web-based e-procurement system to view product catalogs
specific to their brand and location. T
he third-generation system manages orders and electronic approvals, as
well as inventory. As supplies arrive at individual hotel locations, managers
receive data from the system—ensuring that, say, sirloin contracted at
$10.99 a pound isn't charged at $11.99.
Standardizing purchases also provides large chains such as Hilton more
consistent product quality and safety, notes Adaco's Welch. Some spend
management systems extend into the kitchen, ensuring that recipes parse
out ingredients at the expected rate, and helping chefs modify them to
ensure both flavor and economy.
The systems also place controls around previously inexact processes such
as calculating liquor consumption at banquet bars.
Hospitality companies are also starting to take control of transportation
spend.
"Most contracts treat transportation as a markup of the landed cost. But if
the company doesn't have access to landed cost data, how does it know it
is paying the right price?" asks Jeff Smith, vice president of marketing at
foodservice software developer Instill Corp., Redwood City, Calif.
Hospitality operators look to companies such as Instill to provide
transportation information as part of spend management, or work with
distributors to receive that information, he adds.
Others turn to third-party logistics providers to manage the movement of
raw ingredients and supplies.
Pizza chain Papa John's, for example, uses UPS Supply Chain Solutions to
coordinate its inbound distribution network, delivering cheese, dough,
pepperoni, and tomato sauce to its more than 3,000 stores in a timely and
streamlined fashion. Its partnership with UPS SCS helps Papa John's
optimize distribution and guarantee product freshness.
Hospitality companies often embrace third-party solutions and services
when growth spikes and business becomes too complex to control
internally. Outsourcing also can help hospitality businesses that must
comply with differing sets of brand sourcing requirements.
FINDING THE ROI
Enterprises employing spend management, procurement,
audit/compliance, and inventory systems typically save two percent to five
percent of their total spend, says Instill. While that sounds like a low
number, it can have a big impact.
"When companies spend millions of dollars, cutting costs by half a cent per
dollar adds up to a lot of money," says Rupert Spies, senior lecturer,
Cornell School of Hotel Administration, Ithaca, N.Y. "For companies
operating with thin margins, such savings are even more important."
Though hospitality companies are making gains by utilizing technology, the
industry still lacks standard application programming interfaces to reduce
the cost of integrating technology solutions, says Tina Stehle, vice
president and general manager of Agilysys Hospitality Solutions, a Boca
Raton, Fla.-based hospitality software provider.
New delivery models such as Software as a Service, however, help make
implementation more accessible to smaller entities.
"The hospitality industry is particularly risk averse, and Web-based
software solutions allow businesses to get their feet wet with technology,"
Smith says.
These solutions will greatly impact technology adoption in the hospitality
industry, he predicts.
The improved visibility and inventory control these tools deliver also feeds
better forecasts.
"If Red Lobster or Darden Restaurants does a poor job forecasting sales, it
will run out of food immediately because it buys specialized goods that
aren't always readily available," says Spies.
Small operators generally fail to conduct proper forecasting, he says, even
though today's point-of-sale systems can produce the required data.
PUSHING THE ENVELOPE
Cutting-edge hospitality chains are reaching beyond inventory control
systems to spend intelligence tools, which help gather, rationalize, and
analyze historic and real-time purchasing information.
Tapping the real-time inventory capabilities of these applications enables
operators to closely monitor and respond to demand swings, and helps
them rate distributors and manufacturers on service quality.
These tools ensure that supplies neither build up nor deplete, and next-
generation applications will automate the actions required to resolve such
issues.
Integrating inventory management and business intelligence applications
with Web services to deliver real-time data is another increasingly common
IT request from hospitality operators, Stehle adds.
Such real-time data is particularly helpful for ensuring food safety.
Restaurants and hospitality businesses are exploring new ways to ensure
traceability and safe handling of food from field to table.
"Restaurants today face an increased need to assure customers that they
know where food comes from," says Spies. Certification, controls, and spot
checks are also common now, he adds.
Because of these issues, many hospitality chains are shifting their focus
from partnering with lowest-cost suppliers to finding partners that offer the
best overall supply relationship.
For some large hospitality operators, gaining control means delving even
further back in the supply chain and getting involved directly with
commodities.
"If a company routinely buys huge quantities of cheese or beef products, for
instance, hedging can help stabilize prices," says Spies.
Some companies go further still: New York City caterer Great
Performances purchased a farm to guarantee a direct supply of seasonal
fruits and vegetables.
Such innovative practices are becoming more commonplace in the
industry, as chains move to adapt to a changing marketplace and keep up
with customer demand.
While the hospitality industry is still considered not quite bleeding-edge
when it comes to adopting the latest supply chain thinking and
technologies, large enterprises are starting to close the gap.
By adopting new tools and processes, the industry is solidifying its belief
that truly satisfying guests means taking a trip back to the basics—sourcing
quality food, beverages, supplies, and services.

ENSURING A MOVEABLE FEAST


For Royal Caribbean Cruise Lines, the typical challenges of hospitality
sourcing are complicated by the fact that its "properties" move from country
to country, and sometimes out of satellite communication range.
That means multiple sets of regulations and port practices, varying product
quality and pricing, and plenty of contingency planning to ensure supply
continuity.
"No matter what we do, we face risk," says Laura Luff, director of logistics
and material control for Royal Caribbean. "We will source local products if
necessary; we've even chased a vessel with a feeder ship to deliver critical
supplies."
To help avoid crises at sea, Royal Caribbean's supply chain staff provides
early input into proposed itineraries in order to schedule at least one
loading port into the plan.
The company locks in buying decisions 40 days in advance, cross-docking
some goods and storing others in the cruise line's 500-SKU Miami
warehouse.
Items such as linens, bedding, and souvenir goods are shipped from China
and routed directly to one of the ships' ports. Inventory must also
accommodate the seasonality of the cruise business.
The supply chain group has devised many of its own sourcing systems,
including one to deliver goods to ports.
Every item that moves on and off the ships must comply with stringent
Homeland Security procedures. If a repairman needs to come on board
with a tile cutter, for example, that equipment must be cleared through
customs.
Adopting supply chain software to manage these processes on land and on
board is challenging due to the ships' unique mobile and legal status.
Royal Caribbean is currently seeking a transportation management system,
for example, but any system it chooses will require significant
reconfiguration.

2.
Hospitality Supplier Reserves Room to Grow With WMS

By Mary Shacklett

A custom WMS earns an extended stay by replacing time-consuming


manual sortation.

As a result of continued expansion, American Hotel Register Company


realized it had outgrown its warehouse management system (WMS) and
wanted to further streamline daily order processing and picking operations.
Through automated, rules-based wave management and replenishment,
the company eliminated manual sortation and created multiple, tailored
options to proactively release orders by type.

American Hotel Register Company's 150-year-old history dates back to the


Lincoln presidency. In those days, the company was a hotel registry printer.
It later expanded its business from printing into the distribution of hospitality
industry supplies. Today, Vernon Hills, Ill.-based American Hotel Register
offers 50,000 items, 1,600 national brands, more than 2,500 best-value
registries, and an expanding portfolio of eco-friendly products.

The company's global supply chain includes ownership of the Amsterdam-


based Intros Hotel Supplies, which markets its products mainly in Europe,
the Middle East, and Africa, and its extensive network of distribution
centers throughout the United States, Canada, and the Caribbean.

"As late as 2005-2006, we were still operating a relatively small distribution


network," says Kevin Baker, American Hotel Register's director of
distribution. "We realized then that we had outgrown our ability to handle
the business growth that we were experiencing, so we made a decision to
look into new technology that could stay in step with this growth."
At that time, American Hotel Register was doing its warehouse picking
manually, using information on Excel spreadsheets. "We brought in a
simple WMS in 2006, and it fit perfectly with our organization at that time,
but our business growth soon outpaced it," says Baker. "We continued to
modify the system so we could keep it tuned to the business, but we got to
a point where it wasn't possible to enhance it anymore."
PICKING AT FLOOR LEVEL
Because it serves a hospitality industry that is acutely sensitive to its
customers and strives for the highest levels of customer satisfaction,
American Hotel Register was likewise keenly aware that its clients
expected no less from their trusted suppliers.
"We want to meet our customers' needs quickly, and we know that
optimizing warehouse performance is central to doing that," says Baker. "If
we could introduce more operational automation, such as automated order
dispatching, real-time reporting, and auto alerts on our order and inventory
replenishment processes, we could get work done faster and reduce the
amount of manual labor."
American Hotel Register had already performed time studies in its
warehouse operations. "We had quantified that we could pick product more
efficiently in the warehouse by having it closer to floor level, and that we
could fill orders faster," Baker says. "We wanted to force more of our order
picks lower to floor level, and we have been successful in doing that. Since
July 2015, we have moved from 80 to 85 percent of our picks close to the
floor to 95 to 99 percent of our picks close to the floor on certain days."
American Hotel Register also wanted to add Lucas Systems' voice picking
technology, which would enable employees to move hands-free throughout
the warehouse without having to hold an RFID phone in one hand, and
wanted to link this into a new WMS to help improve overall efficiency in the
warehouse.

FINDING THE BEST FIT


American Hotel Register began to look at new warehouse systems. Shortly
thereafter, distribution software provider IBS approached the company with
a new advanced warehouse system (AWS).
"We decided to kick the tires," says Baker. "We performed due diligence on
different systems, and after we decided to select the IBS Dynaman system,
we wanted to understand upfront where we would need to make
modifications. As part of this exercise, we mapped out business processes
and documented what changes we would need to make."
The company was initially most concerned about how existing business
processes would be affected by the out-of-the-box functions of the new
warehouse system. American Hotel Register worked with IBS Dynaman IT
and engineering experts in a six-month effort to carefully map out existing
business processes against the system and to see where business process
changes would need to be made.
"Change was one of the factors that we knew we would have to manage
carefully, because our employees were used to the ways that they had
been doing things, so they would be naturally resistant," says Baker. "What
we told employees is just because a business process might be different
doesn't mean that it's wrong. Later, when employees saw the benefits of
the new system, they understood why it was important to modify our
processes so we could keep pace with our growth."

SMOOTH IMPLEMENTATION
American Hotel Register was also concerned about integrating the new
system into its warehouse operations. The pre-planning and
process/system mapping that the company had performed with IBS
Dynaman helped considerably in this area, as the joint project team was
able to determine where specific changes needed to be made in either
software or business process.
"We knew going into the project that we were going to experience pain
points with a system change, and where those pain points were likely to
be," says Baker. "We did experience these pains over the first two or three
weeks of implementation, usually because of an errant setting or a piece of
code that needed to be changed, but the good part about the process was
that everyone was on-site to address issues as they arose. We had a
command center staffed with both our own and the vendors' leads on the
project. The system was cutover to production in July 2015 and by the first
or second week of August 2015, it was working well."
Just as critical was training employees on the system and getting them
comfortable.
"We started preparing employees for the new system early on," says
Baker. "We walked them through the system, and started training 30 days
before system cutover."
The management team was trained in the first week. In the three weeks
that followed, training was held for warehouse employees. All sessions
were conducted on the actual system, which had been set up in a test lab
environment. In addition to this system, employees also had to learn how to
use the new Lucas hands-free headsets that would replace their RFID
phones. These devices tell them which location to go to in the warehouse.
Employees then read off a code and confirm the location and that the pick
was done.
TRANSFORMING THE WAREHOUSE
"We learned that in preparing employees for a new system, management
was often the most challenging to work with," Baker says. "This group knew
the old system well. They had a fear of losing control and their value as
employees, because they had acquired expertise in the old system. But
once we helped them overcome these challenges, they proved to be
incredible partners in getting the new system implemented."
Baker says the team's other hesitation was system integration. "There were
many pieces of systems and business processes that were involved, and
you can conduct quality assurance checks on these items only to a certain
extent. We knew we would just have to flip the switch," Baker says.
What made the task easier was a failover plan that could recover the
company's old system within 15 minutes. "Fortunately, we didn't have to go
into failover," says Baker. "The new system came up easily, and the
process was seamless for our customers."
Now with a new system that can handle the needs of an expanding
business, Baker sees immediate benefits in the warehouse.
"Our old system was manually intensive," he says. "It could take two hours
to sort and process. Now we have system automation that can prioritize
and orchestrate many tasks. This frees managers so they can get out on
the floor more and collaborate with people from other company areas. In
the course of implementing this system, we were also able to reduce our
head count on the inbound materials side by one full-time employee, and
then reassign that person to the outbound side."
The IBS solution "delivered everything we had hoped for in a WMS and
more," says Baker. For other companies considering a similar system
implementation, he offers several recommendations.
"It's important to have patience, because a total system and workflow
transformation can't be done overnight," he says. "As you are making
changes, a sound change management practice should be in place that
takes into account not only system and process changes, but their impact
on people who are already accustomed to a set of work practices. Finally,
consider every possible way to improve your company's operations, and
don't always conclude that the system must be modified; a change on the
work process side might be warranted."

2. Cruise Control

By Sandra Beckwith

When it comes to cruise supplies, logistics personnel have to run a tight


ship—or risk missing the boat.
It was Artur Pankowski's worst nightmare. The director of global logistics for
Royal Caribbean Cruises Ltd., had a cruise ship docking in South Korea,
where it would pick up supplies. There had been a MERS virus outbreak in
that country, though, and Chinese authorities didn't want their cruising
citizens exposed to the virus. They asked the cruise line to dock elsewhere;
the company accommodated the request.
"Elsewhere" in this case ended up being a port in Japan—not exactly a few
miles up the coast from the original destination. "It was an extremely
difficult situation because my supply center in the region was in the port
that was removed from the itinerary," says Pankowski.
And it wasn't just a question of shifting the waiting supplies to another port.
Because the alternate port was in a different country, the Korean customs
documents for the goods to be loaded were irrelevant.
"I was faced with a situation where I had to move containers to a country
that doesn't recognize South Korea's customs certificates, and I had to do
this using local transportation that I haven't contracted with," he recalls.
Add to that the timeline—the cruise company had just half a day to deliver
the re-routed containers to the alternate port.
The cruise line was able to work out a solution, but as Pankowski points
out, "You can't predict what will happen."
In spite of rare situations like this, Miami-based Royal Caribbean boasts a
99.96-percent on-time supply delivery. "Of the 5,000 containers we ship
annually, we miss only about seven to 10 of them, and that's usually
because of weather or a strike," Pankowski says. Contingency planning
helps the company prepare for most potential problems.
That planning is essential because of the nature of cruise ship supplies:
There is a small window of time for loading provisions when a ship docks in
port—usually just a few hours. Goods that aren't at the ship in time to be
loaded in the proper sequence might need to be delivered at sea—and
often at the vendor's expense.

"This is a unique industry where a hotel moves from pier to pier at a certain
hour," Pankowski says. "The process is precise, organized, and well-
planned so we don't miss the departure."
"This isn't like delivering to Walmart," agrees Jonathan Bales, director of
global operations and product development at Miami-based Hellmann
Worldwide Logistics, a Royal Caribbean partner. "If we don't make a
delivery to Walmart by 5 p.m., Walmart will still be there the next day. But if
we don't get the containers to the cruise ship by 3 p.m., that ship is gone."
On-time supply deliveries are crucial to the success of the cruise industry
because the provisions are an essential part of the customer experience.
Whether it's food and beverage products, hospitality supplies such as
towels, or technical and marine products used to keep the ship working,
they all contribute to a satisfactory passenger experience.

The industry couldn't experience the growth it enjoys if passengers were


disappointed. Cruises in 2016 were expected to transport one million more
passengers—24.2 million in total—than the previous year, according to
trade organization Cruise Lines International Association. That adds up to
an industry that delivers what's expected, in more ways than one.
With Royal Caribbean's Oasis class ships housing as many as 6,000
guests and a crew of 2,000 or more, each is a self-sufficient floating town
while at sea. Those communities go through a lot of provisions, too. When
the Oasis of the Seas leaves the dock in Fort Lauderdale, Fla., every week,
it is re-stocked with a wide range of items that include:
 1,899 pounds of coffee
 7,397 pounds of cheese
 1,000 new light bulbs
 30 replacement TVs
 10,272 rolls of toilet paper

WHAT'S THE FORECAST?


The process starts with accurate forecasting.
Carnival Cruise Line's English division, Carnival UK, uses
LLamasoft's Optimiza demand and forecasting tool. The division has 11
ships under two brands, Cunard and P&O Cruises. The ships can
accommodate up to 3,500 passengers.
As with most cruise lines, the provisions needed for each Carnival UK ship
vary according to the brand's personality, the ship's itinerary and length of
time at sea, and passenger profiles, as some cruises are geared to
families, others to single travelers. Each ship has its own supply list,
replenishing plan, and schedule.
"It's a complex mix of challenges to produce a good forecast," says Richard
Forrest, vice president of planning at LLamasoft, a supply chain design
software company in Ann Arbor, Mich.
Supply planning is done centrally at Carnival UK's Southampton office.
Each evening, the ships feed the day's consumption data into the
software's planning module. That actual consumption, combined with other
data, is used to prepare supply forecasts that are reviewed and vetted
before they are sent to the provisions program. From there, the
replenishment system generates orders that will be delivered when the ship
docks at the next port.
"The process starts with getting that demand plan right," says Forrest.
"There's no use replenishing to an inaccurate demand plan." The forecast
also feeds into each ship's Marine Exchange Program, which is software
that many cruise lines use to manage on-board inventory.
Ships in Norwegian Cruise Line Holdings Ltd.'s three brands—Norwegian
Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises—order
supplies individually.
"Our system incorporates all the relevant statistics, including the number of
passengers and crew, and the cruise length," says Jose Vazquez, senior
director of global management and administration for Miami-based
Norwegian. "The algorithms incorporated into the system can predict, for
example, that a particular cruise will need 100 pounds of potatoes."
The system is highly regimented and monitored so that supplies get
ordered within the timeframes needed to ensure delivery to the right port for
loading. Vessels in Australia, for example, need to order further in advance
because of the extra time required to get supplies to those ports.
REPLENISHING AT TURN-AROUND PORTS
Ships are replenished at "turn-around" ports while they offload passengers
and luggage from one trip and load both again for the next voyage. Local
vendors supply produce and dairy products dockside while dry goods,
frozen proteins (meat and seafood), hotel supplies, and "marine" products
used to keep the ship functioning are delivered to and consolidated in
nearby distribution centers.

Supplies for Norwegian's 24 ships are consolidated and organized in three


locations. The main distribution hub is in Miami, while Barcelona's
warehouse supplies the Southern Mediterranean. The Hamburg distribution
center, located near shipbuilders, supplies materials needed for ship
maintenance and repair.
Hellmann supports Royal Caribbean's provisioning from a 200,000-square-
foot consolidation center near Fort Lauderdale's Port Everglades, one of
the top three cruise ports in the world. Hellmann accepts vendor deliveries,
consolidates them according to destination ship, and loads them onto
trailers for delivery to ships in port.
"We have a lot of loose cargo coming in— anything from a small box to a
big crate of repair parts," says Bales. "We don't have a set master list of
different parts that get delivered regularly, so we need to be able to process
anything that comes through the door." Supply chain transparency makes it
possible for Hellmann to see orders and set delivery schedules.
Every shipment that's delivered to the distribution center has to be
managed, consolidated, and shipped out on a tight schedule. Loose items
are packaged on pallets with products from the same category—dry goods,
hotel, or marine—because the three categories are stored in different
spaces on the vessel. In addition, trailer space is optimized according to
how goods will be off-loaded and to minimize the number of trailers used to
help the cruise lines save on transportation costs.
Most of this happens for several ships at once. "We could be loading 10
ships at the same time, but we can't mix the shipments to the vessels, can't
combine the product categories, and can't miss the date and arrival time,"
says Bales.
What's more, a percentage of those containers are traveling much farther
than Fort Lauderdale—they're going to the other side of the world, in fact.
Hellmann consolidates goods shipped to ports in countries as far away as
Australia.
"If people on a cruise in another part of the world want corn flakes, they
need to be able to get it—so we provide it," says Bales, adding that it's also
a quality control mechanism for the cruise lines. "Someone who took a
cruise in the Caribbean expects consistency from the cruise line when
taking another of its cruises in the Mediterranean," he adds.
TECHNOLOGY AND TEAMWORK
Cruise ship logistics is a sophisticated operation that relies on technology
and a dedicated team that understands the consequences of a mistake or
delay. Bales' team members can distinguish between a 20- and 25-pound
bag of rice at a glance, all while handling, sorting, and labeling as many as
300 loose parcels daily and unloading truckloads of other foods,
beverages, and commodities.
"You can have the best technology in the world, and we do, but if you don't
have a good team, it doesn't matter," Bales says.
Once trailers arrive at the dock, they line up in a staging sequence
determined by what needs to get loaded on the ship first. Norwegian starts
with the frozen items—"You don't want them sitting on the pier," Vazquez
says. Frozen is followed by produce, dry goods, and technical or marine
items. The four-hour process includes security inspections and drug-
sniffing dogs.
Royal Caribbean follows process models created according to the vessel
and its storage space. Offloading might be frozen first, followed by dry, or
the reverse, depending on how storage space is configured. Internal
logistics on a Royal Caribbean vessel sync with how galleys prepare food
and the way food is picked from storage.
The cruise line's process involves two types of forklifts—one to move
pallets off the truck and another with longer arms to transfer them onto the
platform extending from the vessel. Ship storage is on steel pallets for
sanitation reasons, so the process often involves "flipping" goods from
wooden to steel pallets.
Reverse logistics happens simultaneously—waste, for example, is removed
from the ship and properly disposed of elsewhere.
Regulations and customs requirements in various destinations further
complicate the process. "Cruise logistics is challenging to manage," says
Christian Kathke, director of development for cruise and hotel logistics at
Kuehne + Nagel, Inc., Royal Caribbean's Switzerland-based freight
forwarder. "We deal with regulation requirements for a supply chain
comprising 65,000 items coming from hundreds of countries and moving to
more than 100 destinations."
The company has a "do not ship list" that's updated daily by employees in
various countries. Regulations often require information on how foods are
cooked, frozen, or produced—including what farm any beef came from in
some instances. They also apply to pharmacological products used by on-
board spas.

MONKEYS AND GOLDFISH


Managing cruise logistics is intense—but lighter moments do occur. For
example, during a meeting with officials in one country to review food
certifications, Kathke was asked about the meat certification for Ben &
Jerry's Chunky Monkey ice cream. The official was confused because the
documentation didn't reference... wait for it... monkey meat.
"We had the same problem with goldfish crackers," Kathke says.
Then there are the problems created during those rare occasions when a
ship runs out of an essential item. If it's a food item, the galley staff often
improvises by altering the menu. When an unscheduled delivery is
required, though, the cruise lines pull out their contingency plans.
Royal Caribbean relies on its Fleet Services agents. Available all day,
every day, these agents tap into a network of local suppliers who can
provide emergency stock. "They can usually deliver sufficient quantities to
carry us until the container arrives at the port with our regular provisions,"
says Pankowski.
Emergencies aren't common, though, because of the processes facilitated
by technology and people.
"It all starts with planning. Then you do more planning, and then you plan
some more," says Vazquez. "After that, it's the execution. We're very proud
of our team and how we accomplish all of this."
Think of them the next time you take a cruise, but don't expect to take a
picture of dock workers loading provisions onto your ship.
Says Pankowski: "We try to make the logistics invisible."
4.

6 Supply Chain Risks Worth Taking

By Karen Kroll
From technology investments that stretch budgets to supply chain
partnerships that share proprietary information, these moves may give
small businesses pause. Here's why they should dive right in.
At Chocolate Pizza Company, a gourmet chocolate gift company, quality
Swiss-style chocolate is the "linchpin in our supply chain," says Ryan
Novak, owner of the Marcellus, New York-based company. "Any disruption
in this commodity could seriously jeopardize our small business."
When Novak purchased the business in 2010, he bought chocolate as
needed because finances were tight and sales modest. That meant he
typically paid premium prices for both chocolate and delivery.
Sales quintupled in three years. A sweet shift, but the practice of buying
chocolate just in time limited response times for large orders and cut into
margins.
Still, the economy remained sluggish and continued growth wasn't
guaranteed. Novak had to decide whether he and his team could grow
sales fast enough to cover the investment needed to procure larger
quantities of chocolate. Similarly, could he negotiate cost reductions
significant enough to allow Chocolate Pizza Company to become more
competitive and pitch to higher-volume customers?

Novak decided they could. "We went from buying about 20,000 pounds of
chocolate annually to more than 100,000 pounds," he says. The next step:
upgrading equipment so they could efficiently use the larger inventory. And
after that, "we had to go sell," Novak says.

Sell, they did. "In a short window, we went from small-town chocolate shop
to emerging brand with national sales," he says. As costs dropped,
Chocolate Pizza was able to capture business from major companies,
including CVS, BJ's Wholesale Club, and HMS Host. The decision to
procure a larger volume of chocolate set in motion additional investments
that accelerated production capacity and fueled greater growth. "But the
key was gambling on stabilizing our chocolate supply chain," Novak says.
When thoughtfully evaluated and executed, supply chain moves that
contain some risk can propel small shippers to greater growth and success.
Here are a few risks to consider taking.
1. GO GLOBAL
Of the nearly 295,000 companies that exported from the United States in
2015, 97.6% were small to mid-sized businesses (SMBs), according to the
Small Business Administration. These SMBs accounted for nearly one-third
of the $1.3 trillion in exports that year.
Exporting not only opens a small business to additional markets, but it can
boost their sustainability by diversifying revenue.
The thought of exporting may appear daunting, especially to an SMB that
lacks the resources to dedicate multiple employees to international
operations. Several steps can help.
One is setting aside time to assess the market: Where will your product fit?
Who are potential competitors?

Another step is estimating the impact on the supply chain and operations.
For instance, does it make sense to find suppliers within the market to
which you're exporting? What duties and taxes will apply?
Knowledgeable partners can provide shippers with assistance and advice
on exporting. This might be a third-party logistics (3PL) provider, a
university professor, and/or an agency such as the U.S. Commercial
Service, which is the trade promotion arm of the U.S. Department of
Commerce's International Trade Administration.
2. INVEST IN AGILITY
Investments that boost an SMB's agility and allow it to quickly respond to
customers can pay off. "Agility is where SMBs can differentiate," says Peter
Bolstorff, executive vice president of the Association for Supply Chain
Management, a trade group.
Consider Artaic, a Boston company that designs and fabricates custom
tilework, creating mosaics from glass, porcelain, and stone. The best tile
materials come from various locations worldwide; little is produced in the
United States. Artaic's supply chain extends to about one dozen suppliers
on three continents.
At the same time, shorter lead times help Artaic win business. However,
every project is custom, eliminating inherent predictability in the company's
tile consumption. "Since our supply chain is global, inbound shipments can
easily take three months including production times and sea freight
transport," says Ted Acworth, Ph.D., founder and CEO of Artaic. Given the
tiles' weight, air freight tends to be cost prohibitive.
To achieve four- to eight-week lead times, Artaic worked with the University
of Massachusetts, Amherst, for four years to develop a predictive
inventory-ordering scheme. To help cover the cost, Artaic applied for and
received a National Science Foundation Research grant, which helped
support a Ph.D. student and faculty advisor.
With its new system, Artaic can order tile regularly, and before it sells its
mosaics. Once a mosaic sells, Artaic likely will have all or most of the
needed tile feedstock in house. "We've vastly increased our tile availability
percentage, utilizing low cost and environmentally more favorable ocean
shipping instead of air shipping," Acworth says.

3. BUILD SUPPLY CHAIN TALENT


It's not just systems and technology that are critical to supply chain
effectiveness. People are, as well. Yet some smaller shippers hesitate to
invest in strong supply chain talent.
"They often look at supply chain as a cost center, not an area where they
can build a competitive advantage," says Eric Dunigan, president and co-
founder of Arrive Logistics.
Qualified supply chain professionals, however, are key to helping a small
organization leverage its supply chain to better compete.
4. CONSIDER VERTICAL INTEGRATION
Annie and Michael Murphy own Eco Relics, a Jacksonville, Florida-based
company that reduces landfill waste by reclaiming wood and salvaging
usable building materials and then selling them. Eco Relics also offers
antiques, hardware, and other items.
The Murphys recently invested several hundred thousand dollars in
equipment, including mammoth saws, a drying kiln, and a slab planer.
These tools will allow them to more efficiently produce wood slabs that they
get from local tree services, trees felled after a weather event, and other
sources. "There's an art to using reclaimed wood," Michael Murphy says,
noting that the sizes and shapes are unpredictable, unlike the wood sold in
big-box stores. And without the kiln, slabs can take the better part of a year
to dry and are more vulnerable to bugs.
The investments were substantial ones for the six-year-old business.
However, the equipment not only helps Eco Relics further its goal of
repurposing wood and other building materials, but the vertical integration
provides a supply chain competitive advantage.
"There are millions of antique and building supply stores," Michael Murphy
says. The market for recycled and upcycled wood and building and other
materials "is a niche market but a fairly big niche," he adds.
Moreover, few companies are vertically integrated and thus can meet
demand with the speed Eco Relics now can offer. Say a storm knocks
down a tree in a homeowner's yard, and they would like to use the wood to
make a bookshelf. "We can take it from log to finished furniture," Annie
Murphy says. "This makes us stand out."
"In today's market, it is essential for businesses to reframe customer
empowerment as an opportunity to offer additional value and create a more
intimate and trusted relationship," notes Darren Cockrel, president of UPS
Global Logistics and Distribution.
5. PARTNER WITH SUPPLY CHAIN EXPERTS
For an SMB, going it alone can feel safer than committing time and money
to partner with other firms. However, shippers that try to do everything
themselves often end up underinvesting in their supply chains, says Eric
Dunigan, president and co-founder of Arrive Logistics. The result? Their
supply chains often strain and then break as the business scales.
Strong partners, whether 3PLs, consultants, academics, or others, "can
give SMBs the reach and resources that they might not otherwise have,"
Dunigan says. SMBs are better able to leverage their own capabilities and
spend more time on their businesses.
6. DEVELOP STRONG RELATIONSHIPS WITH A FEW CUSTOMERS
The idea that an SMB should diversify its customer base, whether through
exporting or other tactics, certainly holds merit. If one client runs into
trouble, the business is less likely to lose a major portion of its revenue
base.
At the same time, successful SMBs often concentrate on a handful of
customers. This approach allows the business to focus its time and
attention on a few key relationships, rather than manage multiple smaller
ones.
As important, an SMB often can tap into the operational expertise of its key
customers, many of whom are likely to be larger and more established.
"Customers can advise on selecting suppliers, managing quality, moving
forward with innovation, and improving fulfillment and delivery," says
Mikaella Polyviou, assistant professor of supply chain management at
Arizona State University.
The SMB also needs to monitor the relationship and the customer's
financial performance, so it can stay abreast of any potentially troublesome
changes.

Playing It Safe

While making moves that contain some risk can pay off, preparation and
research are key. "Take time to ask questions, connect with trusted
industry peers, and conduct your own research to reduce potential
business risks," says Darren Cockrel, president of UPS Global Logistics
and Distribution.
As part of the analysis, weigh total lifecycle costs against the estimated
impact to revenue. Identify potential issues that could arise, and how the
decision is expected to help the business execute on its strategic business
goals. If the investment will require a heightened sales effort or a change to
operations, how can the organization achieve that?
SMBs can also mitigate risk by using tools that provide additional control.
For example, digital systems enable businesses and their customers to
track and manage shipments in real time, so they can respond quickly to
deviations from plan.
Finally, it's rarely necessary to tackle an entire project at once, says Peter
Bolstorff, executive vice president of the Association for Supply Chain
Management. It's often just as effective and more prudent for SMBs to
break a project into smaller components, complete one or two, assess,
tweak where necessary, and then move to the next phase.
"Think big, start small, and scale fast," he says.
5.
Global Supply Chains in a Post-Pandemic World
Companies need to make their networks more resilient. Here’s how.
by
 Willy C. Shih

Summary.

The U.S.-China trade war and the supply and demand shocks brought on
by the Covid-19 crisis are forcing manufacturers everywhere to reassess
their supply chains. For the foreseeable future, they will face pressure to
increase domestic production, grow employment in their home countries,
reduce their dependence on risky sources, and rethink strategies of lean
inventories and just-in-time replenishment, which can be crippling when
material shortages arise.
This article provides advice to make your supply chain more resilient
without sacrificing competitiveness. Start by mapping the full extent of your
supply network to identify both direct and indirect sources. Determine how
quickly those that are most vital for you could either recover from a
disruption or be replaced by an alternative. Address the vulnerabilities by
diversifying your suppliers or stockpiling essential materials. Explore
production-process improvements or new technologies—such as
automation, continuous-flow manufacturing, and 3D printing—that could
lower your costs or increase your flexibility when faced with a shock. And
revisit your product strategies: Offering consumers more choices isn’t
always better.

When the Covid-19 pandemic subsides, the world is going to look markedly


different. The supply shock that started in China in February and the demand
shock that followed as the global economy shut down exposed vulnerabilities
in the production strategies and supply chains of firms just about everywhere.
Temporary trade restrictions and shortages of pharmaceuticals, critical
medical supplies, and other products highlighted their weaknesses. Those
developments, combined with the U.S.-China trade war, have triggered a rise
in economic nationalism. As a consequence of all this, manufacturers
worldwide are going to be under greater political and competitive pressures
to increase their domestic production, grow employment in their home
countries, reduce or even eliminate their dependence on sources that are
perceived as risky, and rethink their use of lean manufacturing strategies that
involve minimizing the amount of inventory held in their global supply chains.

Yet many things are not going to change. Consumers will continue to want


low prices (especially in a recession), and firms won’t be able to charge
more just because they manufacture in higher-cost home markets.
Competition will ensure that. In addition, the pressure to operate efficiently
and use capital and manufacturing capacity frugally will remain unrelenting.

The challenge for companies will be to make their supply chains more
resilient without weakening their competitiveness. To meet that challenge,
managers should first understand their vulnerabilities and then consider a
number of steps—some of which they should have taken long before the
pandemic struck.
Uncover and Address the Hidden Risks

Modern products often incorporate critical components or sophisticated


materials that require specialized technological skills to make. It is very
difficult for a single firm to possess the breadth of capabilities necessary to
produce everything by itself. Consider the growing electronics content in
modern vehicles. Automakers aren’t equipped to create the touchscreen
displays in the entertainment and navigation systems or the countless
microprocessors that control the engine, steering, and functions such as
power windows and lighting. Another more arcane example is a group of
chemicals known as nucleoside phosphoramidites and the associated
reagents that are used for creating DNA and RNA sequences. These are
essential for all companies developing DNA- or mRNA-based Covid-19
vaccines and DNA-based drug therapies, but many of the key precursor
materials come from South Korea and China.

Manufacturers in most industries have turned to suppliers and subcontractors


who narrowly focus on just one area, and those specialists, in turn, usually
have to rely on many others. Such an arrangement offers benefits: You have
a lot of flexibility in what goes into your product, and you’re able to
incorporate the latest technology. But you are left vulnerable when you
depend on a single supplier somewhere deep in your network for a crucial
component or material. If that supplier produces the item in only one plant or
one country, your disruption risks are even higher.

When the Covid-19 pandemic subsides, the world is going to look markedly


different. The supply shock that started in China in February and the
demand shock that followed as the global economy shut down exposed
vulnerabilities in the production strategies and supply chains of firms just
about everywhere. Temporary trade restrictions and shortages of
pharmaceuticals, critical medical supplies, and other products highlighted
their weaknesses. Those developments, combined with the U.S.-China trade
war, have triggered a rise in economic nationalism. As a consequence of all
this, manufacturers worldwide are going to be under greater political and
competitive pressures to increase their domestic production, grow
employment in their home countries, reduce or even eliminate their
dependence on sources that are perceived as risky, and rethink their use of
lean manufacturing strategies that involve minimizing the amount of
inventory held in their global supply chains.

Yet many things are not going to change. Consumers will continue to want


low prices (especially in a recession), and firms won’t be able to charge
more just because they manufacture in higher-cost home markets.
Competition will ensure that. In addition, the pressure to operate efficiently
and use capital and manufacturing capacity frugally will remain unrelenting.

The challenge for companies will be to make their supply chains more
resilient without weakening their competitiveness. To meet that challenge,
managers should first understand their vulnerabilities and then consider a
number of steps—some of which they should have taken long before the
pandemic struck.

Uncover and Address the Hidden Risks

Modern products often incorporate critical components or sophisticated


materials that require specialized technological skills to make. It is very
difficult for a single firm to possess the breadth of capabilities necessary to
produce everything by itself. Consider the growing electronics content in
modern vehicles. Automakers aren’t equipped to create the touchscreen
displays in the entertainment and navigation systems or the countless
microprocessors that control the engine, steering, and functions such as
power windows and lighting. Another more arcane example is a group of
chemicals known as nucleoside phosphoramidites and the associated
reagents that are used for creating DNA and RNA sequences. These are
essential for all companies developing DNA- or mRNA-based Covid-19
vaccines and DNA-based drug therapies, but many of the key precursor
materials come from South Korea and China.

Christoph Morlinghaus

Manufacturers in most industries have turned to suppliers and


subcontractors who narrowly focus on just one area, and those specialists,
in turn, usually have to rely on many others. Such an arrangement offers
benefits: You have a lot of flexibility in what goes into your product, and
you’re able to incorporate the latest technology. But you are left vulnerable
when you depend on a single supplier somewhere deep in your network for
a crucial component or material. If that supplier produces the item in only
one plant or one country, your disruption risks are even higher.

Identify your vulnerabilities.

Understanding where the risks lie so that your company can protect itself
may require a lot of digging. It entails going far beyond the first and second
tiers and mapping your full supply chain, including distribution facilities and
transportation hubs. This is time-consuming and expensive, which explains
why most major firms have focused their attention only on strategic direct
suppliers that account for large amounts of their expenditures. But a surprise
disruption that brings your business to a halt can be much more costly than
a deep look into your supply chain is.

The goal of the mapping process should be to categorize suppliers as


low-, medium-, or high-risk. To do that, Tom Linton, who served as a supply
chain executive at several major companies, and MIT’s David Simchi-Levi
suggest applying metrics such as the impact on revenues if a certain source
is lost, the time it would take a particular supplier’s factory to recover from a
disruption, and the availability of alternate sources. (Disclosure: I am on the
boards of directors of Flex, a large manufacturing and supply-chain services
provider where Linton is a senior adviser, and Veo Robotics, a company that
has developed an advanced vision and 3D sensing system for industrial
robots.) It’s vital to ascertain how long your company could ride out a supply
shock without shutting down, and how quickly an incapacitated node could
recover or be replaced by alternate sites when an entire industry faces a
disruption- related shortage.

The answers to those questions depend, in part, on whether your


manufacturing capacity is flexible and can be reconfigured and redeployed
as needs evolve (as is the case for many manual or semi-automated
assembly operations) or whether it consists of highly specialized and
difficult-to-replicate operations. Examples of the latter include production of
the most advanced smartphone chips, which is concentrated in three
facilities in Taiwan owned by the Taiwan Semiconductor Manufacturing
Company; fabrication of exotic sensors and components, which happens
largely in highly specialized facilities in a handful of countries, including
Japan, Germany, and the United States; and refining of neodymium for the
magnets in AirPods and electric-vehicle motors, almost all of which is done
in China.
Once you’ve identified the risks in your supply chain, you can use that
information to address them by either diversifying your sources or stockpiling
key materials or items.

Diversify your supply base.

The obvious way to address heavy dependence on one medium- or


high-risk source (a single factory, supplier, or region) is to add more sources
in locations not vulnerable to the same risks. The U.S.-China trade war has
motivated some firms to shift to a “China plus one” strategy of spreading
production between China and a Southeast Asian country such as Vietnam,
Indonesia, or Thailand. But region wide problems like the 1997 Asian
financial crisis or the 2004 tsunami argue for broader geographic
diversification.

Managers should consider a regional strategy of producing a


substantial proportion of key goods within the region where they are
consumed.

North America might be served by shifting labor-intensive work from


China to Mexico and Central America. To supply Western Europe with items
used there, companies could increase their reliance on eastern EU
countries, Turkey, and Ukraine. Chinese firms that want to protect their
global market share are already looking to Egypt, Ethiopia, Kenya,
Myanmar, and Sri Lanka for low-tech, labor-intensive production.

Reducing dependency on China will be easier for some products than


others. Things like furniture, clothing, and household goods will be relatively
easy to obtain elsewhere because the inputs—lumber, fabrics, plastics, and
so forth—are basic materials. It will be harder to find alternative sources for
sophisticated machinery, electronics, and other goods that incorporate
components such as high-density interconnect circuit boards, electronic
displays, and precision castings.

Building a new supplier infrastructure in a different country or region will


take considerable time and money, as China’s experience illustrates. When
China first opened its special economic zones in the 1980s, it had almost no
indigenous suppliers and had to rely on far-flung global supply chains and on
logistics specialists who procured materials from around the world and kitted
them for assembly in Chinese factories. Even with the support of government
incentives, it took 20 years for the country to build a local base capable of
supplying the vast majority of electronic components, auto parts, chemicals,
and drug ingredients needed for domestic manufacturing.

Shifting production from China to Southeast Asian countries will


necessitate different logistics strategies as well. Unlike China, those
locations often do not have the efficient, high-capacity ports that can handle
the largest container ships or the direct marine liner services to major
markets. That will mean more transshipment through Singapore, Hong
Kong, or other hubs and longer transit times to reach markets.

In the long run, though, it would be a mistake to cut China completely


out of your supply picture. The country’s deep supplier networks, its flexible
and able workforce, and its large and efficient ports and transportation
infrastructure mean that it will remain a highly competitive source for years to
come. And because China has the second-largest economy in the world, it is
important that firms maintain a presence to sell in its markets and obtain
competitive intelligence.

Hold intermediate inventory or safety stock.

If alternate suppliers are not immediately available, a company should


determine how much extra stock to hold in the interim, in what form, and
where along the value chain. Of course, safety stock, like any inventory,
carries with it the risk of obsolescence and also ties up cash. It runs counter
to the popular practice of just-in-time replenishment and lean inventories.
But the savings from those practices have to be weighed against all the
costs of a disruption, including lost revenues, the higher prices that would
have to be paid for materials that are suddenly in short supply, and the time
and effort that would be required to secure them.

Take Advantage of Process Innovations

As firms relocate parts of their supply chain, some might ask their
suppliers to move with them, or they might bring some production back in-
house. Either course—transplanting a production line or setting up a new
one—is an opportunity to make major process improvements. This is
because as part of the change, you can unfreeze your organizational
routines and revisit design assumptions underpinning the original process.
(One challenge for companies with existing production lines is that when
those assets are fully depreciated, executives may be tempted to retain
them rather than invest in newer, more competitive plants and equipment:
Since the depreciation expense is no longer factored into the calculated cost
of production, the marginal cost of boosting production at a plant with idle
capacity is lower.)

Several years ago I spent a week at a new Chinese factory of a major


American industrial-equipment company. When creating it, the company had
started with the designs of its U.S. and Japanese factories and then
improved on them by introducing newer equipment and ways of working.
The result was a streamlined operation that was much more efficient than
those in the United States and Japan. When the company built its next new
factory—in the United States—it repeated the process, using the Chinese
factory as the starting point. Another example is the Flex factory complex in
Guadalajara, Mexico. When increases in productivity plateaued, the
company often moved smaller assembly lines to another building (or part of
the same building). During each move, workers redesigned steps to use less
space and less labor, boosting productivity.

New technologies already or soon will allow companies to lower their


costs or switch more flexibly among the products they manufacture,
rendering obsolete the installed bases of incumbent competitors or
suppliers. Many of these advances also present an opportunity to make
factories more environmentally sustainable. Examples include the following:

 Automation: As the cost of automation declines and people see that


robots can operate safely alongside humans, more kinds of work are
being automated. The pandemic has made automation even more
attractive, because social distancing in factories is now a necessity. As
a result of these developments, it’s becoming more practical to return
off-shored production to higher-cost countries. Robotic palletizers,
which can sharply reduce the need for labor in preparing products for
shipping, will pay for themselves quickly, as will automated optical
inspection systems for quality control.
 New processing technologies: The latest chemical manufacturing
equipment uses less energy and solvents, produces less waste, is less
capital-intensive, and is less expensive to operate. Similarly, a new
generation of compact bioreactors could allow makers of
biopharmaceuticals and vaccines to produce smaller batch sizes
economically.
 Continuous-flow manufacturing: This innovation could significantly
increase the resilience of the supply chain for small-molecule generic
drugs by making producers less dependent on imported active
pharmaceutical ingredients (APIs). The U.S. Defense Advanced
Research Projects Agency (DARPA) has funded one initiative in this
area: the development of flexible miniaturized manufacturing platforms
and methods for producing multiple APIs from shelf-stable precursors
as specific medical needs arise.
 Additive manufacturing: This production method, also known as 3D
printing, can dramatically reduce the number of steps required to make
complex metal shapes; it can also lessen dependence on distant
suppliers of the machinery and tools needed for, say, the injection
molding of plastics. Rapid advances in 3D printing are making it
possible to economically produce an ever-expanding array of items in
much higher quantities.

In many industries, technologies such as these promise to upend the


traditional strategy of seeking economies of scale by concentrating
production in a few large facilities. They will allow companies to replace
large plants that serve global markets with a network of smaller,
geographically distributed factories that is more resistant to disruption.

Revisit the Trade-Off Between Product Variety and Capacity Flexibility

During the pandemic, when demand surged in many product categories,


manufacturers struggled to shift from supplying one market segment to
supplying another, or from making one kind of product to making another. A
case in point is the U.S. groceries market, where companies had difficulty
adjusting to the plunge in demand from restaurants and cafeterias and the
rise in consumer demand. SKU proliferation—the addition of different forms
of the same product to serve different market segments—was partly
responsible. For example, one obstacle to meeting heightened demand for
toilet paper at supermarkets was that manufacturers had to change over
their production lines, because consumers prefer soft multi-ply rolls rather
than the thinner toilet paper that many hotels and offices purchased in much
larger rolls. Adding to the complexity, different retail chains wanted their own
packaging and assortments.
Researchers such as Barry Schwartz of Swarthmore College and Patrick
Spenner, a consultant who was formerly at CEB (now part of Gartner), have
long argued that more choice isn’t always better. Separating demand into
many different SKUs makes forecasting more difficult, and trying to fill needs
by substituting products during periods of shortage causes a real scramble.
The lesson: Companies should reconsider the pros and cons of producing
numerous product variations.

CONCLUSION

The economic turmoil caused by the pandemic has exposed many


vulnerabilities in supply chains and raised doubts about globalization.
Managers everywhere should use this crisis to take a fresh look at their
supply networks, take steps to understand their vulnerabilities, and then take
actions to improve robustness. They can’t and shouldn’t totally back away
from globalization; doing so will leave a void that others—companies
that don’t abandon globalization—will gladly and quickly fill. Instead, leaders
should find ways to make their businesses work better and give themselves
an advantage. It’s time to adopt a new vision suitable to the realities of the
new era—one that still leverages the capabilities that reside around the
world but also improves resilience and reduces the risks from future
disruptions that are certain to occur.

6.  Global Supply Chains in a Post-Pandemic World


Willy C. Shih is the Robert and Jane Cizik Professor of Management
Practice in Business Administration at Harvard Business School.
SUMMARY.

The U.S.-China trade war and the supply and demand shocks
brought on by the Covid-19 crisis are forcing manufacturers everywhere to
reassess their supply chains. For the foreseeable future, they will face
pressure to increase domestic production, grow employment in their home
countries, reduce their dependence on risky sources, and rethink strategies
of lean inventories and just-in-time replenishment, which can be crippling
when material shortages arise.

This article provides advice to make your supply chain more resilient
without sacrificing competitiveness. Start by mapping the full extent of your
supply network to identify both direct and indirect sources. Determine how
quickly those that are most vital for you could either recover from a
disruption or be replaced by an alternative. Address the vulnerabilities by
diversifying your suppliers or stockpiling essential materials. Explore
production-process improvements or new technologies—such as
automation, continuous-flow manufacturing, and 3D printing—that could
lower your costs or increase your flexibility when faced with a shock. And
revisit your product strategies: Offering consumers more choices isn’t
always better.

When the Covid-19 pandemic subsides, the world is going to look


markedly different. The supply shock that started in China in February and
the demand shock that followed as the global economy shut down exposed
vulnerabilities in the production strategies and supply chains of firms just
about everywhere. Temporary trade restrictions and shortages of
pharmaceuticals, critical medical supplies, and other products highlighted
their weaknesses. Those developments, combined with the U.S.-China trade
war, have triggered a rise in economic nationalism. As a consequence of all
this, manufacturers worldwide are going to be under greater political and
competitive pressures to increase their domestic production, grow
employment in their home countries, reduce or even eliminate their
dependence on sources that are perceived as risky, and rethink their use of
lean manufacturing strategies that involve minimizing the amount of inventory
held in their global supply chains.
Yet many things are not going to change. Consumers will continue to
want low prices (especially in a recession), and firms won’t be able to charge
more just because they manufacture in higher-cost home markets.
Competition will ensure that. In addition, the pressure to operate efficiently
and use capital and manufacturing capacity frugally will remain unrelenting.

The challenge for companies will be to make their supply chains more
resilient without weakening their competitiveness. To meet that challenge,
managers should first understand their vulnerabilities and then consider a
number of steps—some of which they should have taken long before the
pandemic struck.

Uncover and Address the Hidden Risks

Modern products often incorporate critical components or


sophisticated materials that require specialized technological skills to make.
It is very difficult for a single firm to possess the breadth of capabilities
necessary to produce everything by itself. Consider the growing electronics
content in modern vehicles. Automakers aren’t equipped to create the
touchscreen displays in the entertainment and navigation systems or the
countless microprocessors that control the engine, steering, and functions
such as power windows and lighting. Another more arcane example is a
group of chemicals known as nucleoside phosphoramidites and the
associated reagents that are used for creating DNA and RNA sequences.
These are essential for all companies developing DNA- or mRNA-based
Covid-19 vaccines and DNA-based drug therapies, but many of the key
precursor materials come from South Korea and China.

Manufacturers in most industries have turned to suppliers and


subcontractors who narrowly focus on just one area, and those specialists,
in turn, usually have to rely on many others. Such an arrangement offers
benefits: You have a lot of flexibility in what goes into your product, and
you’re able to incorporate the latest technology. But you are left vulnerable
when you depend on a single supplier somewhere deep in your network for
a crucial component or material. If that supplier produces the item in only
one plant or one country, your disruption risks are even higher.
Identify your vulnerabilities.

Understanding where the risks lie so that your company can protect
itself may require a lot of digging. It entails going far beyond the first and
second tiers and mapping your full supply chain, including distribution
facilities and transportation hubs. This is time-consuming and expensive,
which explains why most major firms have focused their attention only on
strategic direct suppliers that account for large amounts of their
expenditures. But a surprise disruption that brings your business to a halt
can be much more costly than a deep look into your supply chain is.

The goal of the mapping process should be to categorize suppliers as


low-, medium-, or high-risk. To do that, Tom Linton, who served as a supply
chain executive at several major companies, and MIT’s David Simchi-Levi
suggest applying metrics such as the impact on revenues if a certain source
is lost, the time it would take a particular supplier’s factory to recover from a
disruption, and the availability of alternate sources. (Disclosure: I am on the
boards of directors of Flex, a large manufacturing and supply-chain services
provider where Linton is a senior adviser, and Veo Robotics, a company that
has developed an advanced vision and 3D sensing system for industrial
robots.) It’s vital to ascertain how long your company could ride out a supply
shock without shutting down, and how quickly an incapacitated node could
recover or be replaced by alternate sites when an entire industry faces a
disruption-related shortage.

The answers to those questions depend, in part, on whether your


manufacturing capacity is flexible and can be reconfigured and redeployed
as needs evolve (as is the case for many manual or semiautomated
assembly operations) or whether it consists of highly specialized and
difficult-to-replicate operations. Examples of the latter include production of
the most advanced smartphone chips, which is concentrated in three
facilities in Taiwan owned by the Taiwan Semiconductor Manufacturing
Company; fabrication of exotic sensors and components, which happens
largely in highly specialized facilities in a handful of countries, including
Japan, Germany, and the United States; and refining of neodymium for the
magnets in AirPods and electric-vehicle motors, almost all of which is done
in China.
Once you’ve identified the risks in your supply chain, you can use that
information to address them by either diversifying your sources or stockpiling
key materials or items.

Diversify your supply base.

The obvious way to address heavy dependence on one medium- or


high-risk source (a single factory, supplier, or region) is to add more sources
in locations not vulnerable to the same risks. The U.S.-China trade war has
motivated some firms to shift to a “China plus one” strategy of spreading
production between China and a Southeast Asian country such as Vietnam,
Indonesia, or Thailand. But regionwide problems like the 1997 Asian
financial crisis or the 2004 tsunami argue for broader geographic
diversification.

Managers should consider a regional strategy of producing a


substantial proportion of key goods within the region where they are
consumed. North America might be served by shifting labor-intensive work
from China to Mexico and Central America. To supply Western Europe with
items used there, companies could increase their reliance on eastern EU
countries, Turkey, and Ukraine. Chinese firms that want to protect their
global market share are already looking to Egypt, Ethiopia, Kenya,
Myanmar, and Sri Lanka for low-tech, labor-intensive production.

Reducing dependency on China will be easier for some products than


others. Things like furniture, clothing, and household goods will be relatively
easy to obtain elsewhere because the inputs—lumber, fabrics, plastics, and
so forth—are basic materials. It will be harder to find alternative sources for
sophisticated machinery, electronics, and other goods that incorporate
components such as high-density interconnect circuit boards, electronic
displays, and precision castings.

Building a new supplier infrastructure in a different country or region


will take considerable time and money, as China’s experience illustrates.
When China first opened its special economic zones in the 1980s, it had
almost no indigenous suppliers and had to rely on far-flung global supply
chains and on logistics specialists who procured materials from around the
world and kitted them for assembly in Chinese factories. Even with the
support of government incentives, it took 20 years for the country to build a
local base capable of supplying the vast majority of electronic components,
auto parts, chemicals, and drug ingredients needed for domestic
manufacturing.

Shifting production from China to Southeast Asian countries will


necessitate different logistics strategies as well. Unlike China, those
locations often do not have the efficient, high-capacity ports that can handle
the largest container ships or the direct marine liner services to major
markets. That will mean more transshipment through Singapore, Hong
Kong, or other hubs and longer transit times to reach markets.

In the long run, though, it would be a mistake to cut China completely


out of your supply picture. The country’s deep supplier networks, its flexible
and able workforce, and its large and efficient ports and transportation
infrastructure mean that it will remain a highly competitive source for years to
come. And because China has the second-largest economy in the world, it is
important that firms maintain a presence to sell in its markets and obtain
competitive intelligence.

Hold intermediate inventory or safety stock.

If alternate suppliers are not immediately available, a company should


determine how much extra stock to hold in the interim, in what form, and
where along the value chain. Of course, safety stock, like any inventory,
carries with it the risk of obsolescence and also ties up cash. It runs counter
to the popular practice of just-in-time replenishment and lean inventories.
But the savings from those practices have to be weighed against all the
costs of a disruption, including lost revenues, the higher prices that would
have to be paid for materials that are suddenly in short supply, and the time
and effort that would be required to secure them.

Take Advantage of Process Innovations


As firms relocate parts of their supply chain, some might ask their
suppliers to move with them, or they might bring some production back in-
house. Either course—transplanting a production line or setting up a new one
—is an opportunity to make major process improvements. This is because as
part of the change, you can unfreeze your organizational routines and revisit
design assumptions underpinning the original process. (One challenge for
companies with existing production lines is that when those assets are fully
depreciated, executives may be tempted to retain them rather than invest in
newer, more competitive plants and equipment: Since the depreciation
expense is no longer factored into the calculated cost of production, the
marginal cost of boosting production at a plant with idle capacity is lower.)

Further Reading
“Bringing Manufacturing Back to the U.S. Is Easier Said Than Done” Willy C.
Shih HBR.org, April 15, 2020 “It’s Up to Manufacturers to Keep Their
Suppliers Afloat” Tom Linton and Bindiya Vakil HBR.org, April 14, ...

Several years ago I spent a week at a new Chinese factory of a major


American industrial-equipment company. When creating it, the company had
started with the designs of its U.S. and Japanese factories and then
improved on them by introducing newer equipment and ways of working.
The result was a streamlined operation that was much more efficient than
those in the United States and Japan. When the company built its next new
factory—in the United States—it repeated the process, using the Chinese
factory as the starting point. Another example is the Flex factory complex in
Guadalajara, Mexico. When increases in productivity plateaued, the
company often moved smaller assembly lines to another building (or part of
the same building). During each move, workers redesigned steps to use less
space and less labor, boosting productivity.

New technologies already or soon will allow companies to lower their


costs or switch more flexibly among the products they manufacture,
rendering obsolete the installed bases of incumbent competitors or
suppliers. Many of these advances also present an opportunity to make
factories more environmentally sustainable. Examples include the following:

 Automation: As the cost of automation declines and people see that


robots can operate safely alongside humans, more kinds of work are
being automated. The pandemic has made automation even more
attractive, because social distancing in factories is now a necessity. As
a result of these developments, it’s becoming more practical to return
off-shored production to higher-cost countries. Robotic palletizers,
which can sharply reduce the need for labor in preparing products for
shipping, will pay for themselves quickly, as will automated optical
inspection systems for quality control.
 New processing technologies: The latest chemical manufacturing
equipment uses less energy and solvents, produces less waste, is less
capital-intensive, and is less expensive to operate. Similarly, a new
generation of compact bioreactors could allow makers of
biopharmaceuticals and vaccines to produce smaller batch sizes
economically.
 Continuous-flow manufacturing: This innovation could significantly
increase the resilience of the supply chain for small-molecule generic
drugs by making producers less dependent on imported active
pharmaceutical ingredients (APIs). The U.S. Defense Advanced
Research Projects Agency (DARPA) has funded one initiative in this
area: the development of flexible miniaturized manufacturing platforms
and methods for producing multiple APIs from shelf-stable precursors
as specific medical needs arise.
 Additive manufacturing: This production method, also known as 3D
printing, can dramatically reduce the number of steps required to make
complex metal shapes; it can also lessen dependence on distant
suppliers of the machinery and tools needed for, say, the injection
molding of plastics. Rapid advances in 3D printing are making it
possible to economically produce an ever-expanding array of items in
much higher quantities.

In many industries, technologies such as these promise to upend the


traditional strategy of seeking economies of scale by concentrating
production in a few large facilities. They will allow companies to replace
large plants that serve global markets with a network of smaller,
geographically distributed factories that is more resistant to disruption.

Revisit the Trade-Off Between Product Variety and Capacity Flexibility

During the pandemic, when demand surged in many product categories,


manufacturers struggled to shift from supplying one market segment to
supplying another, or from making one kind of product to making another. A
case in point is the U.S. groceries market, where companies had difficulty
adjusting to the plunge in demand from restaurants and cafeterias and the
rise in consumer demand. SKU proliferation—the addition of different forms
of the same product to serve different market segments—was partly
responsible. For example, one obstacle to meeting heightened demand for
toilet paper at supermarkets was that manufacturers had to change over
their production lines, because consumers prefer soft multi-ply rolls rather
than the thinner toilet paper that many hotels and offices purchased in much
larger rolls. Adding to the complexity, different retail chains wanted their own
packaging and assortments.
Researchers such as Barry Schwartz of Swarthmore College and Patrick
Spenner, a consultant who was formerly at CEB (now part of Gartner), have
long argued that more choice isn’t always better. Separating demand into
many different SKUs makes forecasting more difficult, and trying to fill needs
by substituting products during periods of shortage causes a real scramble.
The lesson: Companies should reconsider the pros and cons of producing
numerous product variations.

CONCLUSION

The economic turmoil caused by the pandemic has exposed many


vulnerabilities in supply chains and raised doubts about globalization.
Managers everywhere should use this crisis to take a fresh look at their
supply networks, take steps to understand their vulnerabilities, and then take
actions to improve robustness. They can’t and shouldn’t totally back away
from globalization; doing so will leave a void that others—companies
that don’t abandon globalization—will gladly and quickly fill. Instead, leaders
should find ways to make their businesses work better and give themselves
an advantage. It’s time to adopt a new vision suitable to the realities of the
new era—one that still leverages the capabilities that reside around the
world but also improves resilience and reduces the risks from future
disruptions that are certain to occur.

7. Hilton Supply Management

Hilton Supply Management’s ability to find efficiencies allows it to be


a leading global supply chain solution provider. By Eric Slack

Few brands are as synonymous with hospitality as Hilton. Its legacy in the
industry extends back for nearly a century. Among the many important
pieces of its legacy is Hilton Supply Management (HSM), an organization
that leverages the purchasing power of the Hilton portfolio along with
external hospitality brands to serve as an end-to-end global supply chain
solutions provider.
    “As a global procurement organization, we are focused on developing
and executing on programs and policies that serve the interests of
properties and guests,” said Bill Kornegay, senior vice president of supply
management. “HSM is wholly owned by Hilton; we provide goods and
services for Hilton along with properties owned by independent owners,
real estate investment trusts (REITs) and management companies. We
want to be the premier provider of hospitality goods and services wherever
we operate.”
    Just as Hilton has served the world’s travelers and set a gold standard
for hotels around the globe, HSM has created a gold standard for providing
the global hospitality industry with unique purchasing solutions and an
operational mindset born from a rich heritage in hospitality. Service and
focused industry expertise are at the core of its business, which sets the
organization apart from purchasing generalists.
    The size of HSM’s customer base is staggering. Currently in the Hilton
portfolio are 4,800-plus properties across 13 brands in more than 100
countries. The brands include Hilton Hotels and Resorts, Waldorf Astoria,
Conrad, DoubleTree by Hilton, Embassy Suites, Hampton, Hilton Garden
Inn, Homewood Suites, Home2 Suites, Tru by Hilton, Canopy, Curio – A
Collection by Hilton and Hilton Grand Vacations. Additionally, Hilton has
more than 1,700 properties in the pipeline. Altogether, HSM supports
supply chain management for 6,000-plus properties across 65 brands (13
Hilton along with 52 non-Hilton brands).
    “Success is predicated on the model we use to aggregate spend,”
Kornegay says. “The more goods and service we procure, the better
leverage we have with manufacturers to procure items at a low cost that we
can pass on to our customers.”
    Today, HSM seeks to discover efficiencies in all aspects of the global
supply chain, from manufacturing through delivery, negotiating and
securing value-based pricing with suppliers and service providers that meet
or exceed operational standards. Its proven pricing programs, extensive
procurement technologies and deep expertise in hospitality allow HSM to
be a strategic partner now and in the future for its clients.
    At a high level, the key challenges for HSM are centered on customer
satisfaction while working to drive profitability and sustain costs. These are
the most pressing issues facing the organization’s supply chain, logistics
and strategic sourcing operations. The financial management aspect is
further challenged by market volatility and recovery cycles, which impact
manufacturing and distribution activities in particular.
    Business requirements are key to HSM’s sourcing activities, particularly
with the expanding footprint of new hotel construction, ensuring brand
standards compliance and meeting aggressive construction schedules.
This coupled with the sourcing activities for established properties drives
the need for spend analysis to fully document what products are purchased
along with the quantities of those products. These are essential for the
development and management of a successful strategy.
    “HSM customizes our service based on the customer needs,” Kornegay
says. “From reporting, analytics, ordering options and targeted goods and
services, we consistently grow our supply chain and enhance the customer
experience, allowing the properties to focus on their guests.”
    Building strong supplier and vendor ties is critical for HSM. It has
dedicated team members who manage each account relationship. “We
strive to stay relevant and work with our suppliers to ensure we are getting
the best products for the best price, and we allow them to participate in our
discussions around what products we offer,” Kornegay says.
    About 10 percent of the vendors that HSM works with are considered
strategic suppliers. These include companies such as LG and the Coca-
Cola Company. With that tier of supplier, HSM has multi-year deals in place
and works with the suppliers across the entire spectrum of its hospitality
portfolio.
    “The strategic suppliers represent nearly three quarters of our annual
spend,” Kornegay says. “We have commodity partners that are more
localized, short-term contracts. We have several partners in each category
that allow us to fulfill different needs.”

Strategic Approach
Indeed, HSM’s services and solutions are extensive. They span the
spectrum of strategic sourcing, operations support, project supply
management and business solutions.
     In the strategic sourcing realm, HSM has developed and negotiated
global and regional pricing agreements with hundreds of suppliers of
hospitality products and services. This helps to secure and offer their
properties value-based pricing, superior products and the highest-quality
service standards through strategic sourcing solutions with reputable and
responsible supplier partnerships. HSM leverages the volume of its entire
portfolio to secure best-in-class pricing on all products and services,
creating extraordinary value for the properties it serves.
     HSM’s food and beverage strategic sourcing team works closely with
national and regional food and beverage manufacturers to provide
customers with an extensive offering of consumable products, supplies and
equipment. HSM provides superior pricing with a variety of manufacturer
programs for the food and beverage products required to successfully run a
property.
    Consumable programs include meat, poultry, seafood, grocery and
dry goods, solid and frozen dairy, bakery, produce, and alcoholic and non-
alcoholic beverages. HSM also offers equipment and supplies including
china, glassware, flatware, kitchen equipment, banquet equipment, large
and small appliances, and other smallwares.
     Its food and beverage sourcing experts also provide an array of
value-added services, including a comprehensive food safety management
program backed by an industry leader in sanitation. This customizable
program gives HSM’s clients the tools to maintain the highest standards of
cleanliness for the safety and health of guests, including employee food
safety training and regular audits to help identify and rectify any potential
risks in safety practices.
    HSM’s project management service can also help with turnkey kitchen
projects. These services include design planning, identifying and specifying
equipment, procurement, logistics and installation. Leveraging its strategic
relationships with food and beverage equipment manufacturers and
installers allows HSM to provide competitive prices on the products needed
to complete kitchen construction, renovation or replenishment.
    Beyond food and beverage, HSM’s strategic sourcing capabilities extend
into guest rooms and public spaces, property operations, energy
management, and sustainability and responsible sourcing. If clients are
looking for items for guest rooms or furniture for their lobbies, HSM’s
programs can handle all requirements, including products for ongoing
operations and renovations.
    HSM supports operating supplies and equipment needs through
uniforms, linens and terry, and amenities and pet programs. Its furniture,
fixtures and equipment (FF&E) offerings include case goods, upholstery,
flooring, window treatments and indoor/outdoor furniture.
    Additionally, HSM’s property operations strategic sourcing team offers an
extensive range of negotiated products and services to keep all the
operating areas of a property running smoothly. Its supplier agreements
include maintenance repair and operations (MRO), service agreements and
print and promotional items. MRO equipment and supplies include tools
and hardware, electronics, RFID door locks, safes, plumbing and paint,
signage, vehicles and vehicle wraps.
    HSM also provides service agreements in areas such as pest
elimination, water treatment, TV content, gateway and security, elevator
maintenance, public space cleaning, temporary labor and third shift,
scenting and clean air, roofing, public space music and on-hold messaging,
and waste management. It can assist with print and promotional items such
as key cards, logo food and beverage disposables, logo apparel, in-room
collateral, on-property marketing materials, business cards, stationary and
more.
    In the energy management arena, HSM manages the purchasing of
electricity and natural gas in regulated and deregulated markets, in addition
to providing renewable energy and related utilities programs for its
properties. In support of Hilton’s commitment to corporate responsibility,
HSM offers programs for efficiently reducing the cost and carbon footprint
associated with the consumption of required utilities, and it can manage
supplier relations for purchasing energy-related hotel services and
products. Its energy procurement services include electricity, natural gas,
steam, alternative renewable energy, utility bill pay, and energy audits and
management services. Energy products include HVAC, PTAC, thermostats,
lighting controls, electrical supplies, electric vehicle charging and building
automation systems.
    Then there is sustainability and responsible sourcing. HSM is committed
to driving a global sustainable procurement strategy that takes into account
the environmental, social and economic impacts and benefits to its
properties. Through its strategic partnerships and sustainability initiatives,
HSM develops and implements programs that enable properties to divert
waste from landfills and reduce water and energy usage.
    HSM manages a complex supply chain and engages with business
partners who are committed to delivering products and services
responsibly. Its responsible sourcing policy outlines the fundamental
principles, environmental, social and economic, that are expected of all
suppliers, regardless of their region. HSM’s sustainability and recycling
programs include mattress and TV recycling, universal waste recycling,
synthetic turf landscaping and food digesters.
Supporting Operations
HSM’s operations support team has extensive experience in managing all
areas of hotel purchasing. This experienced leadership combined with a
regional presence in the field ensures that HSM can leverage opportunities
to supply solutions by providing unparalleled service and procurement
expertise to client operations.
    Customer service is a critical part of this effort. Because HSM comes
from the world of hospitality, it understands that unparalleled customer
service and support are critical to help customers deliver service
excellence. Its team of supply management professionals will ensure that
client needs will be handled with the utmost attention and care from start to
finish.
    HSM has a regional operations support model which aligns dedicated
individuals to the properties in their regions, providing consistent,
personalized service accentuated with market-specific knowledge. Located
in major markets worldwide, HSM’s professional and knowledgeable
operations support teams are the first line of service for questions,
consultations or issue resolution. Thanks to their practical hotel experience,
HSM’s field operations teams add value with meaningful insights and
advice to increase efficiencies.
    Beyond that are HSM’s regional commodity programs, which are groups
of specialized supplier programs that have been negotiated for commodity
suppliers in each metropolitan area. Using a best-in-class approach where
the market volume can sustain multiple suppliers, pricing is negotiated by
supplier category. This gives clients a degree of flexibility in purchasing the
freshest quality products with consistency in product and price from the
strongest suppliers in their market or region.
    HSM’s regional distribution programs are another important element, as
they leverage the purchase volume of properties within or across regions
and/or categories to reduce base product costs for participating properties.
By driving economies of scale, HSM is able to negotiate powerful savings
with distribution partners covering an expanded geographic scope.
    The organization’s distribution programs produce improved productivity
and cost reductions, while providing the flexibility to customize solutions for
individual markets and properties. If needed, HSM can further leverage the
effectiveness of its regional distribution program relationships with a
strategic category management program, working closely with the
distributors on tactical SKU rationalization and manufacturer consolidation
to achieve even greater category savings impact.
Project Oversight
Project supply management is one more area where HSM delivers
unparalleled service to hotel owners and developers. Its hospitality focused
teams will help clients to complete new hotel builds or existing hotel
renovations on time and within budget. HSM manage all aspects of the
purchasing process for every aspect of new builds or renovations.
    HSM’s project development team works with renowned designers and
owners to refine and execute their exclusive packages, providing estimates
for renovations or new build projects. This customized service provides
owners and developers the necessary tools and information needed to get
a project underway including budget scope of work, critical path timelines,
financing and leasing options.

    Its project supply management team can manage the entire FF&E
purchasing process for every area of a property including guest rooms and
corridors, lobbies, restaurants, lounges, meeting rooms, pool and patio
areas, laundries, administrative offices, business centers, fitness centers,
back-of-house, administrative areas and interior signage. HSM’s project
supply management and logistics team also helps to ensure that projects
are completed on budget, on time and to a client’s total satisfaction. The
team works closely with general managers, owners and developers
throughout the entire project process to help ensure success.

    HSM tracks projects using a proprietary project supply management


software program that tracks each project’s process including budgets,
pricing, expediting, delivery, reporting and analytics, from inception through
completion. The comprehensive project management services include
everything from competitive bid processes for project items, a dedicated
single source contact, regular project updates, model room build-out
experience and assistance with designer contacts to pre-screened contacts
for installation and warehousing management, pre-approval of any changes
prior to purchasing, product improvement plan (PIP) assistance, post-
project assistance, freight consolidation, claims assistance, expediting and
logistics management and freight management services.

    HSM also offers guest room design packages for the newest brand, Tru
by Hilton, and it is presently developing brand-specific and endorsed
packages for multiple other flags within the Hilton Worldwide portfolio.
HSM’s guest room packages allow the organization to deliver
customization, functionality and value for clients along with all-inclusive
décor schemes for the comfort of their guests. It works closely with
reputable manufacturers to ensure that the products and specifications are
custom-tailored to a brand’s specific standards, and its brand-approved
guest room packages have been extensively tested in real hotel
environments to ensure their functionality and durability.

    “We work very closely with our business partners in all of our brands,
and as they develop new concepts they work with us and our supply
partners to determine the products they need and build them into the
concept,” Kornegay says. “Within each category, we can look at what
format works best and how it differentiates the brands while working within
a framework that our suppliers can accommodate.”

Extensive Solutions
Another benefit of working with HSM is its eProcurement system, which
simplifies the purchasing process. HSM deploys business-to-business
applications across its portfolio of brands and ordering disciplines,
providing properties with significant increases in system functionality and
access to scalable solutions for each property’s requirements. HSM’s
eProcurement catalogs contain products representing its many negotiated
spend classifications. These include food and beverage, FF&E, services,
printing, uniforms, maintenance repair, operating supplies and equipment.
    System users at the executive and property levels can benefit from the
convenience of integrated declining checkbook features and electronic
approvals processes. HSM can customize the eProcurement system to
meet the unique needs of each property and provide various service and
support levels to ensure efficient adoption of the system. By delivering
technologically advanced support and resources, HSM helps clients have
easy access to current information about their purchasing operations.

    HSM is also launching a customer portal in 2017. As part of its ongoing


effort to deliver technologically advanced support and resources to
customers, creating the HSM Customer Portal will provide access to the
latest information about purchasing operations and the resources needed
to manage it. This technology will be exclusive to HSM customers and
offers features that will change the way clients operate. These features will
include self-service reporting, integrated dashboard analytics, searchable
product and program details, instant access to supplier contact information,
estimator tools, alerts and updates and a mobile-friendly design.

    “When we look at the trends impacting our business, it is all about big
data and the desire for more information while providing it in user friendly
formats for customers,” Kornegay says. “We must be able to provide them
with as much information as we can when they need it and how they need
it. That is why providing them with a portal through a customer facing
website is important, as it can help them to understand spend at company,
property and category levels. It will also help us to communicate regularly
with them about updates, upgrades and changes and allow them to see
their spend data and analyze that information.”
    In the coming years, HSM will continue to serve its clients, those within
Hilton and beyond. Hilton is in the midst of spinning off its real estate and
timeshare businesses into standalone companies, and the Hilton family will
become: Hilton, Park Hotels & Resorts and Hilton Grand Vacations.
   “Our business model will work the same way after the spinoff,”
Kornegay says.
“We will provide goods and services for their properties as a third-
party provider. There will be a need for us to make sure our contracts are
more robust and put them in place with the new entities, but what we do
and how we do it won’t change.”
    
Within the hospitality procurement sector, there has been
consolidation in many categories, and that consolidation is driving
competition. HSM will continue to provide the best-in-class service by
focusing its efforts within its development group, actively engaging external
parties so it can get its goods and services to market.

   “Historically, we’ve leverage the Hilton relationship to drive our


growth, but now we must compete more actively for the pool of business in
response to consolidation,” Kornegay says. “Our key investments will be in
our ability to communicate information to our business partners, customers
and suppliers. Big data and consolidation in the industry are the trends, and
there is more fierce competition that is driving our thinking going forward.
We must also always invest in our people to make sure we have the best
and brightest on our team, give them the training they need to succeed.” 

8. Supply Chain 4.0 Needs Order-to-Cash 4.0

December 02, 2020 | By Rob Harvey

Industry 4.0 has been given a renewed sense of urgency following the
pandemic. Industry 4.0 refers to the massive changes we see across every
industry as a result of new technologies, such as smart sensors, predictive
analytics, and artificial intelligence (AI). By extension, we see a
technological shake-up with supply chain 4.0 and cash management 4.0.

The pandemic has exposed the weaknesses of the traditional order-to-cash


process across the supply chain. Credit management teams found
themselves working from home, often for the first time, without the right
hardware, software, or communication channels to do the job.
Under such circumstances, customer relations and collection become a
nightmare. With offices shut during a pandemic, who can you phone about
an overdue invoice? Where do you send reminder letters? You quickly lose
visibility of who is willing and able to pay.

A COORDINATED EFFORT
Supply chain 4.0 has to go hand in hand with order-to-cash 4.0. For
example, the digital supply chain is more efficient because it uses
predictive analytics to anticipate customer demand.

A similar approach can be applied to digitized cash management. By using


AI, finance managers can reduce collection time (also called DSO).
The latest AI technology can prioritize overdue accounts and recommend
the most appropriate dunning strategies. What's more, this powerful
technology can be accessed remotely, even by staff working from home.
SHOW ME THE MONEY
Just as supply chain 4.0 creates greater visibility across the whole chain,
order-to-cash 4.0 provides greater visibility around cash, with benchmark
insights into credit terms and customer payment behavior. For example, AI
technology can reveal how quickly one customer pays you compared to
others.
These insights help to better manage credit terms and payment delays
across the chain—creating a better payment chain, synchronized with the
digital supply chain. Going one step further, the future could see use cases
where digital supply chain management and digital financial management
systems are integrated to model correlation between payment behavior and
demand for goods.

A similar approach can be applied to digitized cash management. By using


AI, finance managers can reduce collection time (also called DSO).
The latest AI technology can prioritize overdue accounts and recommend
the most appropriate dunning strategies. What's more, this powerful
technology can be accessed remotely, even by staff working from home.
SHOW ME THE MONEY
Just as supply chain 4.0 creates greater visibility across the whole chain,
order-to-cash 4.0 provides greater visibility around cash, with benchmark
insights into credit terms and customer payment behavior. For example, AI
technology can reveal how quickly one customer pays you compared to
others.
These insights help to better manage credit terms and payment delays
across the chain—creating a better payment chain, synchronized with the
digital supply chain. Going one step further, the future could see use cases
where digital supply chain management and digital financial management
systems are integrated to model correlation between payment behavior and
demand for goods.

A similar approach can be applied to digitized cash management. By using


AI, finance managers can reduce collection time (also called DSO).
The latest AI technology can prioritize overdue accounts and recommend
the most appropriate dunning strategies. What's more, this powerful
technology can be accessed remotely, even by staff working from home.
SHOW ME THE MONEY
Just as supply chain 4.0 creates greater visibility across the whole chain,
order-to-cash 4.0 provides greater visibility around cash, with benchmark
insights into credit terms and customer payment behavior. For example, AI
technology can reveal how quickly one customer pays you compared to
others.
These insights help to better manage credit terms and payment delays
across the chain—creating a better payment chain, synchronized with the
digital supply chain. Going one step further, the future could see use cases
where digital supply chain management and digital financial management
systems are integrated to model correlation between payment behavior and
demand for goods.
9. Blockchain Brings Value to Touchless Supply Chains

1
December 02, 2020 | By Andrew Bruce

With supply chains forced to operate on thinner margins, digital


transformation is leapfrogging business priorities. The time to act is now.
But onboarding proven technology to confront COVID-19-related
challenges can feel as daunting as the pandemic itself.

Let's look at digitizing existing logistics processes with blockchain from


three angles: care, custody, and control. In all three categories, companies
can replace and/or augment manual processes with an immutable system
of record shared between supply chain counterparties.
1. Care. Commercial shippers are often plagued with supply chain security
risks as they prepare to transport goods, with contingency plans constantly
reworked and business owners lacking visibility within their own supply
chains.
This lack of clear care in moving goods from point A to point B—and along
the journey in between—is due to disjointed and inoperable information.
Paper trails are messy, convoluted, and can hinder traceability and trust.

Blockchain solves this pain point by placing real-world events in an


immutable, distributed ledger that can be easily shared through privatized,
permissioned access. Automation streamlines time-consuming processes
and ensures that execution aligns with contractual terms. Remote workers
can redirect efforts to bolstering business operations while smart contracts
execute routine processes and flag exceptions—transactions outside of
agreed tolerances—for human review.
2. Custody. Maintaining a chain-of-custody—a chronological paper trail of
transactions that reveals who has what, when, and where—is invaluable to
logistics. Yet companies remain tethered to existing legacy systems that
digitize haphazard paper trails and lack operability and information sharing.
Blockchain serves as a secure record of truth with every movement or
transaction of a commodity tracked. With data stored for auditability or to
enable automated smart contract transactions between stakeholders,
supply chain custody can be revised to near real-time execution.
Contract automation provides a record of transactional history that can help
businesses track and optimize their digital supply chains.
3. Control. In 2017, nearly 4 million Americans worked in warehouses as
supervisors, material handlers, and/or packers, according to the U.S.
Bureau of Labor Statistics. With social distancing protocols now a
significant challenge, many companies are at a loss as to how to proceed
to meet current market demands.

Identifying business processes, such as invoicing, that lend themselves to


automation is critical. As a secure digital twin that captures data to
corroborate real-world physical events, blockchain powers smart contracts,
taking multistep, multiparty business processes down to one or two tasks.
Smart contracts allow companies to seamlessly manage by exception
when the technology flags an instance outside of agreed-upon tolerances
instead of working hands-on every single step of the way.
MAKE OR BREAK
Automating transactions with blockchain allows companies to digitize value
while bringing transparency, visibility, and speed to commercial
relationships. Right now, touchless supply chain is one of the many
competitive differentiators that can make or break a business.
10. Supply Chain Execs Shift Focus From Sustenance to
Survival
5
July 13, 2016 | By John Bermudez

While we usually reserve 1990's nostalgia for fashion, film, and music, a glimpse back at the
technology landscape is just as jarring. Many remember a time before the internet was a
necessity, but what about the pre-SCM age?

For today's large manufacturers, distributors, and retailers, supply chain management
(SCM) has become such an indispensable area of business management that it's difficult to
imagine a time before it. Yet decades before mobility and the Internet of Things, there were
no "supply chain directors"—only warehouse, transportation, and manufacturing managers,
each group siloed from the others in intent and operation.

Even if a forward-thinking executive realized the need for a holistic strategy, few systems
could support that goal. The visibility we now take for granted was once crudely cobbled
together from faxes, spreadsheets, and phone calls.

The move away from "point-to-point" thinking happened around 1996, when companies
began building teams that pooled collective knowledge and expertise around everything
affecting the supply chain. These newly aligned groups drove major improvements in
planning and connectivity, particularly among suppliers, customers, and nascent ERP
systems.

Twenty years later, supply chain managers and executives have clearly defined
responsibilities that span the flow of goods, the various systems that support it, and the
human capital that keeps it all running—far beyond the brick-and-mortar mindset of the
1990s.

OMNI-CHANNEL A NECESSITY
In 2016, the SCM community stands at the precipice of another important shift. The digital
transformation of the supply chain that industry analysts were buzzing about is here, with
omni-channel capabilities emerging as a necessity for all competitive supply chains.

More customers than ever order from smartphones and expect a choice of delivery options,
while enjoying the best prices and unprecedented speed and customization. If a competitor
has a more convenient avenue for a customer, you'll suffer in the marketplace. Who would
have thought that mobile apps such as Uber and Lyft would be able to so rapidly disrupt a
service delivery system that was so taken for granted?

This incredibly competitive landscape is the reason supply chain executives must shift focus
from thought leadership and being a best-in-class company to survival. In 2016, retailers are
thriving or dying by their supply chain strategies.

Walmart remains the world's largest retailer due to its supercenters, hundreds of thousands
of SKUs, and valuable information it makes available to suppliers, including Sony, Unilever,
and Procter & Gamble. This flow of information allows every company in the network to
adapt quickly to the market.

Connectivity to your entire network is no longer an option; it's a necessity. If they haven't
already, supply chain executives need to immediately deploy more flexible and agile supply
chain management solutions that encompass ERP.

One way to achieve this flexibility is to utilize a cloud-based supply chain network. This
approach enables trading partners to collaborate around "one version of the truth" in real
time. It also allows you to not only rapidly expand or contract services according to your
market, it also lets your team focus on new business instead of maintenance.

Let's be honest: How much time do you have before all the top suppliers and customers are
connected in a way you should be?

5 Hacks for Recruiting in Supply Chain


11.
Management
21
March 29, 2017 | By Helen Sabell

Supply chain and logistics requires innovative, logical thinkers to be recruited in order to
compete with rapid technology advancements and global expansion.

Finding the right candidate for your business is a challenge that requires broad advertising,
rigorous interviews, and ultimately some give and take from both sides. Not only does the
individual need to be aligned with company expectations, but your workplace must also
appeal to the potential applicant.
To keep one step ahead of your competitors, keep in mind these five hacks for outstanding
recruiting.

DETERMINE WHAT THE IDEAL CANDIDATE LOOKS LIKE


Before you can attract the right candidate you will need to clearly define what you’re looking
for. What does your ideal professional look like? Do they have more than 20+ years
experience in supply chain? Or perhaps they’re a recent graduate of a logistics program with
limited industry exposure but a fresh perspective? The secret to attracting unique talent is to
understand exactly what that means to you.

When drafting your job listing it’s a good idea to break down the role into skills and
attributes needed in order to succeed. Being able to translate these qualities into what is
necessary, preferable, or a deal breaker will keep all applications as relevant as possible.

PUSH A WORK-LIFE BALANCE


It’s no secret that a great workplace culture will attract great employees. The promotion of
work-life balance is no longer an added bonus, but a serious expectation within many
modern workplaces. A healthy worker is a happy worker and crucial for a seamless supply
chain.

Highlighting work-life balance during the recruiting process will increase morale and could
be the difference between an application to your company or a competitor down the road. It
is also a great way to significantly reduce turnover rates and recruiting costs in the long
term. Flexibility is a huge plus that should be highlighted in your listing.

USE SOCIAL MEDIA


Social media recruiting is often overlooked by hiring managers. But when more than 2
billion people around the world have social media accounts, it would be a big mistake to
ignore this opportunity. Social media is a sure-fire way to cultivate a relationship with
potential candidates.

LinkedIn is a great resource, as a professional networking site that allows you to extend your
reach to a motivated, like-minded community of supply chain and logistics professionals.
Facebook and Twitter are other great platforms to take advantage of, with millions of
diverse users available at the touch of a button. The most well-rounded approach would be
to use all three to carefully target your applicants.

LET YOUR EMPLOYEES HELP


The pressure of sourcing, recruiting, and retaining talent in the workplace can take its toll
on even the best manager. The good news is that there are potentially hundreds of other
employees out there to lend a helping hand. Getting other workers involved can spread the
word faster and to industry-specific applicants that are likely to fit in with your workforce.

Employees can inform friends and family of the job opportunity, as well as post links from
their private media accounts to let others know of the listing. Even if the right candidate
isn’t among their friends or followers, chances are more than one will share the listing,
pushing the message further beyond the original network of connections.

RECRUIT INTERNALLY
Recruiting from within the business is a great way to give existing employees the
opportunity to apply for the job. It promotes succession planning and good career
development within your business—both of which will appeal to the passionate, driven
worker.

Promotions to higher-level positions and management roles will help to upskill individuals
and reward the positive performance of employees. It is important that this process is
undertaken in a way that is fair and consistent for everyone.

Ultimately, great recruiting requires good research and understanding. Often the right
candidate will not be actively seeking a position or may be employed currently. An
exemplary job listing will be widespread, highly specific, establish the great reputation of the
business, and pose a unique opportunity for any supply chain professional willing to take
the plunge.

Reference:
Online.

1. https://store.hbr.org/product/mcdonald-s-and-the-hotel-
industry/902A21?fromSkuRelated=216012-PDF-
ENG&ab=store_idp_relatedpanel_-
_mcdonald_s_and_the_hotel_industry_902a21

2. https://www.researchgate.net/publication/346161070_The_Hospitality
_Industry_in_the_Face_of_the_COVID-
19_Pandemic_Current_Topics_and_Research_Methods

3. http://www.scw-mag.com/sections/food-beverage-hospitality/793-
hilton-supply-management