Sustainable Inventory Management in Hotels

Sustainable Inventory Management in Hotels

Tipparat Laohavichien, Lawrence D. Fredendall
DOI: 10.4018/978-1-6684-4645-4.ch013
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The objectives of this chapter are to present inventory planning and control systems in the hotel industry and to examine how to use the existing inventory management practices in the hotel industry to promote sustainability based on the concept of a triple bottom line (i.e., economic, social, and environmental sustainability). Yield or revenue management is the method most hotels use to manage their perishable inventory (rooms). The basic principle of yield management is that hotels achieve maximum revenue by matching customer needs with the right room rate and the right time of sale. Yield management directly promotes economic and social sustainability but indirectly fosters environmental sustainability. In addition, techniques and models for managing nonperishable hotel inventory are discussed, including the EOQ model, JIT and Lean systems, and the ABC classification. Moreover, radio-frequency identification (RFID), the technology used to support the effectiveness of a sustainable inventory management system, is discussed, and finally, further research is provided.
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Business organizations across the world now face increasing pressure from the government, customers, and stakeholders to demonstrate corporate sustainability. Sustainability is based on the concept that the consequences of people's activity and organization's operations that meet the needs of this generation today should not negatively impact the next generation’s future needs (United Nations, 1987, p. 24). However, the term “sustainability” has been interpreted in many different ways. A survey of more than 1,500 executives and managers worldwide revealed a wide variety of sustainability definitions. Some focused only on environmental impact, while others integrated many aspects such as economic, societal, cultural, and personal implications (Bern et al., 2009). By integrating sustainability within their operations, corporations not only demonstrate their responsibility to the world and the next generations, but they can also improve financial performance (Klassen & McLaughlin, 1996), gain customer loyalty (Lee et al., 2017), establish corporate reputation (Kim et al., 2015), and increase competitiveness (Ruiz Molina et al., 2022).

Sustainability management includes formulating, implementing, and evaluating the decisions and actions related to sustainable practices for both the environment and socioeconomic system. These decisions and actions are made at the individual, organizational and societal levels (Starik & Kanashiro, 2013). Many businesses achieve a sustainability orientation by focusing on long-term goals related to the well-being of the environment, society, and economy. Using institution theory, sustainability is defined within an institution's environment, including a degree of environmental regulation, societal expectations on organization responsibility, and national business systems that vary across countries (Song, 2020).

John Elkington coined the term “Triple Bottom Line (TBL)” in 1994 (Elkington, 2004). TBL, also known as “People, Planet, Profit (PPP),” uses three indexes---social (people), environmental (planet), and economic (profit) to measure a firm's sustainability (Goel, 2010). Well-known organizations such as Shell, AT&T, Clorox, Toyota, Timberland, and Dow Chemical have used the term TBL in their annual report and other press releases (Norman & MacDonald, 2004; Dhiman, 2008). Therefore, the TBL concept is regarded in operations management as to how sustainability is implemented (Kleindorfer et al., 2005). Sustainable operations management incorporates social, environmental, and economic responsibilities into the company’s culture, strategy, and operations with the purpose of sustainable performance achievement.

In operations management, social sustainability means that an organization’s business practices should both be fair to stakeholders and engage in activities that give back to society. For example, ensuring employees and people in the surrounding community have a good quality of life, encouraging diversity in the workplace, engaging in corporate social responsibility (CSR) programs, and so forth. Environmental sustainability is related to the efficient use of energy recourses, reduction of waste and pollution, and minimizing consumption of harmful materials, and so forth. Economic sustainability refers to the business practices that concern long-term financial performance and cost-efficiency. Typically, costs in this context are operationalized as production and service costs, such as the costs of outsourced goods and services, recycling, inventory holding, etc.

Key Terms in this Chapter

JIT: Stand for Just-in-Time. It is a technique to manage inventory. It originated in Japan's Toyota company. The goal of JIT is to keep the inventory at the minimum level.

Economic Sustainability: Refers to the organization's aim to carry out its business in a way that can continue for an everlasting time and is also concerned with long-term financial performance.

Social Sustainability: Refers to the ability of the organization to perform its business for an endless time and contribute to the well-being of the community, society, and country where they locate.

Inventory: One type of the organization asset. It refers to the stock of any resource used in an organization for current or future operations and can be perishable or nonperishable.

EOQ (Economic Order Quantity) Model: The mathematics model designed to calculate the appropriate order size of nonperishable inventory items by incorporating demand, ordering, or set up cost, and holding or carrying cost. The objective of this model is to minimize the total cost (carry cost and ordering cost) incurred.

Sustainability: Refers to the intention of the organization to continue its operation for an undefined time. At the same time, the organization needs to perform in a way that does not negatively affect the next generation's well-being while still achieving the organization's current goals.

Yield Management: A method used to manage perishable inventory in a service organization to maximize the revenue by incorporating customer demand, firm capacity, and pricing policy.

Triple Bottom Line (TBL): The three organizational performances in response to sustainability. It consists of economic, social, and environmental performances.

Environmental Sustainability: Refers to the organization's purpose to continue its business for a never-ending time and is also concerned with its impact on environmental issues, such as pollution, emission into the air, water, and soil, waste, toxic materials, and energy and water consumptions, etc.

ABC Inventory System: A method to manage nonperishable inventory by classifying inventory items into three groups: Class A, B, and C based on annual consumption value. Class A represents the highest money usage, accounting for a small number of items in inventory. Class C, on the hand, describes the lowest money usage, which accounts for a large number of items in inventory, while class B is in the middle.

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