Questions: 1.1 Using relevant examples from the article, examine how SCM and Information Systems can be utilised to create greater SC efficiency for hotels. (15) 1.2 Using relevant examples from the article elaborate on each of the different types of information systems that impact the SCM process. (25)

Role of information systems in supply chain management and its application

at five-star hotels in Istanbul

1. Introduction

Today, businesses are trying to develop cooperation with the value chain members (suppliers,

manufacturers, distributors) to achieve their objectives. These efforts, also known as supply chain

management (SCM), direct business processes among enterprises to ensure regular coordination

and control, reducing costs and accelerating the process to increase profit. In the new concept of

business, results such as profitability, productivity and efficiency are dependent on good

management of the internal processes of the business. Close cooperation with vendors, suppliers,

manufacturers, customers, who are part of the supply chain is necessary. The application of

information systems (IS) in business administration provides savings on input costs such as time,

labour, and energy, and thus enables realisation of profitability and customer satisfaction collectively.

Hotels can create safer and more cost-efficient supply chains thanks to efficient usage of ISs in the

supply of both fixtures and daily consumables. Especially, it becomes more important to make use of

modern information technology in SCM in regard to controlling costs of short-life foods.

2. Conceptual background

2.1 Supply chain and management

Definition of SCM by the global supply chain forum:

Supply Chain Management is the integration of key business process from end-user through original

suppliers that provides product, services, and information that add value for customers and other

stakeholders (Croxton et al., 2001). SCM in hotels means information, material and money flow

coordination and integration of the network of suppliers, customers, distributors and manufacturers

(Lee, 2000). SCM refers more to doing business electronically. SCM mainly consists of five areas.

These are: strategic planning, marketing and sales, logistics, information technology and finance

(Genc, 2009). Here, the processing load of supply focuses on the logistics process. Logistics can be

understood as the positioning of the resources in the supply chain within a time frame.

A supply chain cannot be properly addressed by examining separately such factors as purchasing,

inventory management, functions like logistics line or distribution channels. This kind of perception

slows down the development of SCM (Lummus and Vokurka, 1999). The supply chain should not be

considered as a single process, it should be regarded as a matrix of components that can be

controlled by management. The purpose of each entity in the supply chain is to forward the new

information to the chain members and thus provide the perfect balance of supply and demand

(Karasu, 2006). Certainly, every business aims first to increase its profits. But the philosophy of

supply chain objectives is to increase the value of all the chain members so that ultimately the

customer will have benefit (Frazelle, 2002).

2.2 ISs and supply chain relationship

A good decision is based on timely, accurate, relevant and full information. This simple formula,

unfortunately, is not very easy to apply. To obtain the desired quality and quantity of information is

one of the most complex problems facing the decision-maker. Beyond a good software and system

set up, SCM needs personnel with the ability to communicate and establish good relations with

suppliers. To be successful in different areas of knowledge it is necessary to utilize SCM (Ozturen,

2008). Information is the connection between all of the activities and operations in a supply chain

(Hugos, 2006). Without information integration, few gains can be made in overall supply chain

integration (Lee, 2000). Information technology developments that enable sharing of information on

demand throughout the entire chain inventory can reduce costs by between 2.2 and 12.1 percent

(Cachon and Fisher, 2000).

In the hospitality sector, the elements of management ISs can be grouped as form, human,

information technology and application procedures. When we think of ISs, information technology

usually comes to mind. However, the use of ISs is for people who are the decision-makers. The

human element is far more important for businesses such as hospitality, which gives priority to the

quality of service. The human element is the most important factor to ensure the continuity and

success of an IS. Besides accommodation management expertise, the human element must be able

to work as a group and be willing to share information. Policies regulating the operation of supply

chain processes, standards, resolutions, contracts, performance measures, organisational chart, job

descriptions, business contacts and information flow charts and similar documents with an

explanation of the data collection and reporting tools and forms of information, are the tools to be

considered within the scope of the procedures. Thanks to such procedures the formation of a

standard and reliable business model has been provided with different kinds of people. Thus,

efficient and effective work environment and controlled processes are simulated.

2.3 Supply chain information technology

The basis of the SCM approach lies in information and communication technologies. Information and

communication technology is a good solution to problems arising from the complexity of buyersupplier and supplier-supplier systems and SCM (Gunasekaran and Ngai, 2004). Information

technology is a globally competitive tool for data collection, data processing through a process of

conversion of knowledge, information storage and transmission to users, when required. Information

technology includes computer based IS hardware, software, communications and all the interface

elements. For healthy management of this process, information technology should be compatible

among members of the supply chain; procedures should be determined with each other.

In the supply chain processes, information technologies such as radio frequency identification

(RFID), electronic data interchange (EDI), barcode are being used. RFID is the common name for

technologies used to identify objects with radio waves. A large part of supply chain applications can

be traced with RFID technology. The use of barcode and data matrix systems provides convenience

in warehouse management systems. The results of a survey show that in supply chain and logistics

processes, the use of RFID technology is still low despite the widespread use of EDI and enterprise

resource planning (ERP) systems (Olorunniwo and Li, 2010).

EDI is transfer of business data from a standard computer to the other partners computer

application. Most importantly, EDI imposes a one-to-many architecture for communications between

supply chain members (Kahl and Berquist, 2000). For EDI it is necessary to have EDI standards, the

conversion software and the ability to communicate (Genc, 2009). EDI permits the electronic

exchange of inventory information, purchase orders, invoices, and funds transfers to settle accounts

(Tesone, 2006). Most importantly, EDI imposes a one-to-many architecture for communications

between supply chain members (Kahl and Berquist, 2000).

The development of management ISs has created the opportunity for global networking via internet,

intranets, and extranets. There are numerous opportunities to expand open systems aspect of

hotels. The only limitation for current and future hospitality managers is their imaginations (Tesone,

2006). Hospitality organizations that use IT capabilities enhance their competitive edge. Customized

solutions, business collaboration, and flexible organization structures all provide what the customer

is looking for when doing business with a firm (Tesone, 2006). One thing to always remember is that

in order for an information technology system to generate a positive return on investment (ROI), it

must either reduce costs or increase revenue in some quantifiable way. While a hospitality

professional may not remember everything about detailed ROI calculations or IS minutiae, he or she

can always fall back on this most basic premise (Nyheim et al., 2005). Even though the

characteristics of ISs and information technology used by businesses are different, nowadays, the

internet makes it largely possible to share information among companies. Naturally, supply chain

applications become web-based applications.

2.4 Enterprise information architecture

Functional areas known as intensive knowledge production and knowledge-based decision-making

are the middle management level of these sections. At the upper management level information

within the business is used at the least amount and at the broadest terms of use, and senior

management focuses on the interaction between business and the outside world. Functional ISs

based on the basic business functions can be examined in the form of service production, marketing,

human resources, finance and accounting. These are ERP, SCM, customer relationship

management (CRM) and knowledge management systems (KMS). Each of these is configured with

the logic of ISs operated by associating with each other.

An Enterprise system, also known as ERP system is a software system, which is an integration of

activities such as finance, accounting, human resources, customer demand, supply, production,

marketing, sales, distribution and allows the flow of information. ERP systems support in general

recurring and continuity of the business processes such as SCM, order management and payment

transactions. ERP systems give companies the flexibility to respond rapidly to a customer request

while producing and stocking inventory only with what is needed to fulfil existing orders. Their ability

to increase accurate and on-time shipments, minimise costs, and increase customer satisfaction

adds to the firms profitability (Laudon and Laudon, 2009). SCM systems, as described previously,

help businesses manage relationships with their suppliers. CRM systems, help firms manage their

relationships with customers. CRM systems provide information to coordinate all of the business

processes that deal with customers in sales, marketing, and service to optimize revenue, customer

satisfaction, and customer retention (Laudon and Laudon, 2009). KMS enable organisations to better

manage processes for capturing and applying knowledge and expertise. These systems collect all

relevant knowledge and experience in the firm, and make it available wherever and whenever it is

needed to improve business processes and management decisions (Laudon and Laudon, 2009).

The members of the supply chain (supplier, manufacturer, distributor, customer) and those operating

in the sub-units (department, section, individuals) must be in contact with each other. This

information allows members of the supply chain network to act as a single enterprise. This increases

the importance of building a full-time IS.

Information on the supply network is common knowledge to all members of the supply chain and can

be accessed at any time. Information sharing on the basis of SCM, supply chain and the chain of

communication between departments within an enterprise with members of their own

communications network is extremely important in terms of supply chain efficiency.

2.5 The role of financial information in SCM of hotels

Accounting IS is a subsystem concerned with business assets and resources caused by activities

and detecting changes that can be measured with money, monitoring, valuing and transmitting

results. On many issues such as production and operating costs, pricing, profit planning, customer

value, pricing, purchasing, leasing, financial performance and valuation, recovery of investment,

support for decision-making is provided with information supplied from the accounting IS. An

important part of this information is a base of supply chain planning.

Information from front-end transaction processing is sent to the back office for distribution to the

shareholders. At the same time, resources are procured by back-end functions for distribution to the

frontline staff members. The majority of back-office functions fall under the jurisdiction of the

accounting and finance department. Today all accounting functions are automated through

accounting ISs, which consist of computer networks used to report business transactions and

economic events that occur within a hotel (Tesone, 2006). For example, supply chain transactions

occur as part of the procurement processes that are used to acquire material resources for use in

the hotels. The performance evaluation of SCM holds together the members of a supply chain, by

identifying problems, directing strategic solutions and allowing monitoring of the implementations of

the strategies (decisions). Supply chain structure competencies are evaluated with indicators by

processes, technology and business structure. Evaluation based on the direct cost and profit

performance goals (cost reduction, increasing sales, increasing profits, reducing investment in

inventory, accelerate ROI) is used to determine the status of realisation of the information produced

by the accounting IS.

Adapted from: Ergn Kaya Murat Azaltun, (2012),"Role of information systems in supply chain

management and its application on five-star hotels in Istanbul", Journal of Hospitality and Tourism

Technology, Vol. 3 Iss 2 pp. 138 146