Abstract
Tourism supply chain management has become an important research topic as individual firms no longer compete as isolated entities but rather as supply chains in the tourism industry. Despite the evidence that benefits can be gained to improve profitability, competitiveness, and customer satisfaction, the research on how to manage the tourism supply chain is very limited. This research contributes to the literature by applying the theory of constraints (TOC) with systems thinking to tourism supply chain management. It proposes that the key issue in tourism supply chain management is the coordination of business activities and the TOC with systems thinking can effectively support tourism supply chain coordination of the various links and processes. The article examines the TOC performance measures and the drum–buffer–rope model in the context of tourism management and applies the focusing process of the TOC as a continuous improvement approach for tourism supply chain management. The research findings suggest that, given modifications to the TOC terminology and the principles, the TOC principles can work as an excellent approach to facilitate the tourism supply chain management.
Keywords
Introduction
The business battleground has shifted from competition between firms to competition between supply chains in the tourism industry (Huang, 2018; Roy et al., 2016; Song, 2012; Zhang et al., 2009). Tourism managers have strived to achieve supply chain management (SCM) as they can no longer afford to manage their business in isolation. The objectives of the tourism supply chain management (TSCM) are to lower the costs required to provide customer services, improve customer value and satisfaction, and achieve differential advantages. The literature shows that firms can achieve supply chain goals by going beyond the boundaries of the firms and optimizing resource utilization across the tourism supply chain (TSC). Effective coordination of suppliers with tourism product development processes can increase the competitive advantages. TSCM, as an integrated philosophy, directs supply chain members to focus on synchronization of all channel activities in order to create customer values (Song, 2012; Xu & Gursoy, 2015; Zhang, Song, & Huang, 2009).
Despite the demonstrated applicability of SCM in tourism and the evidence that benefits can be gained to improve profitability, competitiveness, and customer value/satisfaction, the literature on how to manage TSC is very limited. There has been relatively little research describing and examining the theoretical framework for TSC coordination. The existing research frameworks for TSCM do not provide much guidance for tourism practitioners and researchers since it remains unclear how the TSC coordination scheme can help improve the performances of individual firms and the entire supply chain. Most research studies have concentrated on tourism distribution channels rather than the whole TSCM (Babu et al., 2018; Song, 2012; Zhang et al., 2009). Thus, more in-depth analysis with systems thinking provides a new opportunity to enhance the theoretical development of the fields of hospitality and tourism (Roberts & Shea, 2017).
This research seeks to contribute to this growing body of research by applying the theory of constraints (TOC) with systems thinking to TSCM. Popularized by the book The Goal by Goldratt and Cox (2016), the TOC is a management philosophy that focuses on the constraints that limit an organization to achieve its goals. The TOC has been typically employed to manage operations in the manufacturing industry. The applicability of the TOC for business excellence to other industries has also been widely studied (Naor et al., 2013; Siha, 1999; Watson et al., 2007). It is believed that SCM practices that are successful in other industries can be useful in the tourism industry as well (Cho et al., 2017; Song, 2012; Zhang et al., 2009). The key is to examine the nature and characteristics of the TSC and identify the critical issues. As the first attempt to apply the TOC with systems thinking to TSCM, this research examines the concepts and principals of the TOC in the context of TSCM. It applies the focusing steps of the TOC as a continuous improvement approach for TSC coordination. It proposes that the TOC with a system perspective can work as an excellent approach to facilitate the TSCM.
The article proceeds as follows. The next section examines TSCM with system thinking and stresses the importance of TSC coordination. This is followed by a section that introduces and explores the TOC from a system perspective. The penultimate section discusses the TOC performance measures and principles in the context of tourism and describes the TOC five focusing steps application in TSCM. The last section concludes the research and suggests future research directions.
Tourism Supply Chain Management
TSCM Definition
The significance of TSCM has been widely recognized, and many researchers have made contributions to the literature in the past two decades (e.g., Huang, 2018; Lee & Fernando, 2015; Piboonrungroj & Disney, 2015; Roy et al., 2016; Song, 2012; Yilmaz & Bititci, 2006; Zhang et al., 2009). A TSC is a network of suppliers of all the goods and services that deliver tourism products to consumers (Song, 2012; Tapper & Font, 2004). A complicated TSC includes many participants, such as transportation, accommodation, restaurants and bars, food supplies, and energy supplies that support tourism at specific tourism destinations (Font et al., 2008; Song, 2012).
The unique feature of TSCs is that consumers travel to destination areas to consume products or services. Yilmaz and Bititci (2006) stated that the tourism product has some unique characteristics to the tourism industry, such as perishable and intangible. Suppliers could be transportation providers, hotels, restaurants, or bars. Tour operators are wholesalers that provide various products, such as hotels, airlines, and meals, through contracting and packaging. Travel agents are similar to retailers who sell specific tourist products and services to their personal consumers. Demand uncertainties and intensive coordination are common challenges in the tourism industry (Cho et al., 2017). Zhang et al. (2009) found that unlike those in the manufacturing industry, TSC partners are heterogeneous with conflicting goals. The relationship with other partners, including transportation, accommodation, tour operators, and travel agencies, is essential in the TSCM. Song (2012) stressed that tourism as a service sector has some distinguishing characteristics, such as coordination-intensive, perishable, and complicated service and products.
Another important feature of TSCM is the high interdependency of partners and channel activities coordination. TSC coordination is a close alignment and collaboration of supply chain activities, such as accommodation, transportation, and excursion, to reduce the cost and enhance customer satisfaction. For instance, the hotels are highly dependent on the airlines and other transportations. The empirical studies show that TSC coordination is not an easy undertaking as supply chain partners have conflicting goals. Coordination between TSC partners, such as hotels, airlines, and travel agencies, provides a challenging research topic (Song, 2012; Zhang et al., 2009). Based on the call for the research, this research focuses on identifying and managing the constraints that prevent TSC from reaching overall profitability. It proposes that the TOC with systems thinking can support the efficient TSC coordination of the various links and activities.
TSCM With Systems Thinking
TSCM synchronizes all channel activities to achieve improved customer value and satisfaction. Thus, it is necessary to view the supply chain as a single entity, rather than as a set of fragmented parts, each performing its function. Systems thinking views the supply chain network as complex systems made up of interrelated supply chain members. The system theory asserts that the whole performance can be higher than the sum of those of its partners. In the context of TSC, each partner in the supply chain affects the performance of all the other supply chain members and overall supply chain performance. The coordination process ranges from sourcing to distribution across the supply chain, and the policy establishes the same goal for all service providers such as hotels and airlines, tour operators, and travel agencies. TSC coordination strategy takes different forms, ranging from business process integration to contractual arrangements among participating firms (Zhang et al., 2009).
Improving each firm performance in isolation actually can hurt the entire supply chain system as a whole, which is often phrased as the sum of local optima does not equate to the global optimum. The system perspective recognizes that if each firm in the TSC optimizes only its operations, the whole supply chain suffers in the long run. The lack of systems thinking has some undesirable consequences resulting in promoting local rather than global optimization. Senge (2014) claimed that firms do not practice systems thinking because they focus on “detailed complexity” rather than “dynamic complexity.” A manager who deals only with detailed complexity is not able to see how different types of interactions reach beyond the firm and how these interactions vary over time.
The TSC integrates decision making and communication among a set of interrelated activities, such as transportation, accommodation, excursions to maximize their utilities, or the overall profit of the supply chain. However, a lack of constraints along the TSC prevents the maximum benefits of collaborations. The constraint-based approach can help managers identify the constraints that prevent the supply chain partners from achieving overall profitability.
Therefore, it is essential to view the TSC coordination from a system perspective. A strategic orientation toward coordination is required to synchronize the tourism firms and align the operation process into a unified whole. TSCM requires transforming the relationships from arm’s length toward coordination across all firms throughout a TSC (Fan et al., 2017; Song, 2012). In this study, we claim that the TOC with systems thinking is a practical approach to achieve supply chain coordination as it avoids the pitfall of each local thinking by adopting a global perspective.
Theory of Constraints from a System Perspective
The TOC is mostly the result of the work of Eliyahu Goldratt (Dettmer, 1997; Goldratt & Cox, 2016), which emphasizes continuous improvement by managing constraints that prevent an organization from achieving a higher level of goals. The TOC essentially states that each organization has some constraints limiting it from achieving a higher level of performance. A lack of awareness of the existence of constraints, whether physical or managerial, prevents the realization of coordination. The organization needs to focus on the constraints that prevent the system from accomplishing its goals. The systems thinking believes that “the world is systemic, which means that phenomena are understood to be an emergent property of an interrelated whole” (Flood, 2010). Things emerge when two or more parts act together that are not seen in those parts alone. The individual parts in a system are best understood and managed in the context of their relationships. Systems thinking provides clarity to an organization and its supply chain partners on what their constraints are and where they should focus their efforts to gain a competitive edge. From a systematic perspective, the TOC is a management paradigm based on system thinking because it shows how an organization can overcome the local optimization mind-set. An organization seeks to maintain a balance between functionality and controllability, focusing on the effect of factors together rather than individually (Goldratt & Cox, 2016). Goldrattt originally attempted to apply the TOC principles in order to solve logistics problems with drum–buffer–rope (DBM) scheduling. The TOC principles have been further developed to seek solutions in many areas, such as marketing and sales, health care management, project management, service operations, and SCM (Mabin & Balderstone, 2003; Puche et al., 2016; Rahman, 2002; Siha, 1999). For the most recent review and bibliometric analysis of the TOC, see Ikeziri et al. (2019).
The basic principle of the TOC is usually developed through the chain analogy. The weakest link governs the strength of a chain. Improvements in the organization should focus on the weakest link. If the weakest link is strengthened, the whole chain performance will be improved. It is necessary to recognize capacity-constrained resources and determine how to deal with the constraints in order to synchronize the operations process (Goldratt & Cox, 2016). As operations performance relies on how a firm utilizes the resources, any ineffective usage of capacity-constrained resources would reduce the entire performance. The challenge is to develop an effective mechanism that can recognize and elevate the constraints and solve complex problems.
In the tourism industry, the TOC views the whole TSC as a system consisting of suppliers, tour operators, and travel agents, which are linked by the processes and activities they perform. If each partner in the supply chain tries to optimize its own operations in isolation, everyone suffers in the long run. The TOC solution is effective when used to address tourism activities and links across the supply chain system. Since optimizing the single firm activities independently does not optimize the whole TSC, it is critical to collaborate and communicate with the partners throughout the supply chain. Systemic thinking is consistent with its more significant importance to action research. The next section discusses the core ideas relevant to action research and the TOC implementation in TSCM.
Applying the Theory of Constraints to Tourism Supply Chain Management
TOC Terminology and Concepts
The TOC, as a management framework for decision making, is well documented for the manufacturing industry. The literature has shown that the TOC can improve cycle times, increase service levels, and decrease inventory levels (Ikeziri et al., 2019; Naor et al., 2013; Rahman, 2002). The TOC has also enjoyed much attention and success in many service industries (Puche et al., 2016; Siha, 1999), but its application to TSCM has been very sparse. How to apply the TOC to TSCM faces some challenges. In manufacturing, the TOC terminology and the implementation steps are well developed; in the TSCM application, we need to translate the TOC vocabulary to the tourism industry and determine how the TOC principles can be applied to the TSC. For instance, how to define throughput and what is the inventory? This section analyzes the TSC-specific characteristics and addresses some of the issues.
Performance Measures
To evaluate the SC partners’ contributions to the goal of the entire TSC, supply chain managers require metrics to evaluate performance. The monetary value is defined as the ratio of the total profit generated to the total cost incurred in delivering the tourism products and services (Zhang et al., 2009). Supply chain managers can improve the monetary value by increasing sales revenue and labor productivity or decreasing operational expenses and running costs. Since tourism products and services are intangible and perishable, and the fixed costs are relatively high, it is crucial to improve the monetary value through revenue generation and variable cost reduction. Global performance metrics show entire TSC profitability, such as tourist satisfaction, return on investment, and competitive factors. Individual performance metrics specify operational-level performance, such as inventory turnover, order fill rate, and tour scheduling. Collaborative performance metrics indicate how coordination can improve entire supply chain performance, such as reliability and flexibility.
In applying the TOC, Goldratt adopted three necessary measurements—throughput, inventory, and operating expense—to measure the TSC performance because they affect the operations processes and control throughout the supply chain. (Dettmer, 1997; Goldratt & Cox, 2016).
Throughput (T) is the process rate the firm generates revenue through sales (Goldratt & Cox, 2016). In TSCM, the throughput could be the revenue made from selling the service/products, such as accommodation, transportation, restaurants and bars, and resorts. The marketplace is the ultimate constraint on the throughput for the TSC.
Inventory (I) is the asset involved in the operation process, including the money invested in purchasing things needed by the firm (Goldratt & Cox, 2016). In the tourism industry, intangible tourism services cannot be stored for future use. Tangible inventory can be unused service facilities, such as hotel rooms, seats on a flight, and resorts.
Operating expense (OE) is the expense the firm incurs in the process of turning inventory and service into throughput (Goldratt & Cox, 2016). Tourism products and services usually have a high fixed cost and low variable cost, making it difficult to balance supply and demand in the short run.
Since the goal of a TSC is to make a profit, throughput draws the most attention, which can be enhanced by increasing sales and market shares. Costs (measured by operating expense) are considered a secondary measure subordinated to the objective of maximizing throughput. Inventory cost and distribution cost can be reduced by using optimization models and techniques. For instance, when the flight inventory on the ground at airports increases, the raw material should stop release to reduce congestion. Increasing the buffer of empty rooms and speeding up checkout can save time for supplies replenishment and room cleaning, ensuring that more rooms are available for occupancy (Siha, 1999).
TOC’s three measures provide indicators for increasing throughput and decreasing operating expense and inventory (Goldratt & Cox, 2016). The tourist managers need to consider the following questions: (1) Will the decision help sell more services and products profitably? (2) Will the decision help reduce inventory and investment in resources? (3) Will the decision help reduce payments or other expenses?
Drum–Buffer–Rope Model for TSCM
The TOC suggests that the managers schedule the procedures using the DBR model to keep the best performance (Goldratt & Cox, 2016). The DBR methodology has been widely used as a control technique for the manufacturing and service sectors (Ikeziri et al., 2019; Naor et al., 2013; Watson et al., 2007). As it is universal, we propose that it can be transferred to the tourism industry to exploit the supply chain constraints. We claim that the DBR can enhance TSC business process efficiencies, such as tour scheduling and route planning.
The drum sets the pace of a TSC governed by capacity constraints since a drum dictates the marching pace (Naor et al., 2013). The starting point for the DBR model is identifying the most heavily loaded resources (e.g., resorts or hotels) within the system, which is called the capacity constraint resource (CCR). The CCR determines the throughput and, eventually, the profit of the system. It is the only resource scheduled in the DBR model as it cannot be recovered from any unexpected disruption. The drum implies a detailed schedule to ensure the best utilization of the CCR (Goldratt & Cox, 2016). All other resources operate according to this drumbeat to ensure that the constraint is used productively.
The buffer is used to deal with uncertainty and variation throughout the supply chain (Puche et al., 2016; Rahman, 2002; Zhao & Hou, 2014). It prevents the failure of the supply chain caused by the starvation of the constraint capacity resource. The buffer can protect the resource interruptions and process variations coming through upstream processes. TSC buffers are more difficult to evaluate and measure than manufacturing supply chain buffers, as the constraints are hard to be identified. In the TSC, the buffer can be a time interval used to protect the throughput of the supply chain from the inevitable disruptions of the operations, such as unreliable transportations. It compensates for any process uncertainties to ensure that the schedules are more stable. The buffer eliminates the need for accurate data accommodation since it is difficult to obtain reliable data to ensure that the tourists arrive as scheduled.
The rope is primarily a communication tool designed to force all activities to follow the pace dictated by the drum (Goldratt & Cox, 2016). It ensures the required synchronization at all constraints without controlling each firm (Mabin & Balderstone, 2003). The manufacturing industry releases raw material to the capacity constraint buffer to assure the lowest level inventory and maximum performance. In the tourism industry, it generates the timely release of just the right flows of tourists into the TSC at the right time. If the drum, the buffer, and the rope are all accurately determined and well managed, the expected throughput of the TSC will be achieved, and the operating expense will be minimized (Rahman, 2002; Ikeziri et al., 2019).
With the analysis of the requirements for achieving a smooth and fast flow of tourists, the detailed techniques within the DBR can be used to determine schedule priorities and batch size. As the DBR can recognize the conflicts with the tourism infrastructure, such as hotels and resorts, tourism managers can develop systematic procedures for managing complex scheduling issues with their unpredictable disruptions.
Applying the TOC Focusing Steps to TSCM
At the core of the TOC implementation lies the five-step focusing process, which provides a systematic way to identify constraints and manage the entire system accordingly (Goldratt & Cox, 2016; Watson et al., 2007). The five focusing step process is widely used in the manufacturing industry (Ikeziri et al., 2019). Since the process is generic and can be applied to any system, including many service businesses, we propose that it can be exploited by the TSCM. This section investigates the systemic thinking consistency with its TOC implementation in the tourism industry. As the supply chain performance can be improved by managing its constraints, the identification of the TSC constraints is the first step toward continuous improvement.
Step 1. Identify the system’s constraint
The TOC requires a firm first to define the objectives and the policies that enable attaining the objectives (Goldratt & Cox, 2016). Considering the characteristics of the TSCM, each TSC has the weakest link, for instance, accommodations or transportations (Song, 2012), the constraint that ultimately limits the maximum performance of the entire supply chain. The constraints may be physical (e.g., transportations, resorts), or managerial (e.g., government regulations, hotel policy). A TSC cannot reach its maximum performance unless we know what limits the supply chain and we can design control mechanisms to exploit the constraints. Thus, it is essential to identify these constraints and prioritize them according to their contributions to the objective of the TSC.
Step 2. Exploit the identified constraints
The underlying idea of the TOC is that constraints limit the performance of any system (Goldratt & Cox, 2016; Watson et al., 2007). The managers can only attain continuous maximum performance by driving the system against its constraints. Exploiting the constraint is to utilize the constraint as effectively (profitably) as possible. It ensures that the best use of tourism resources and a defective component (e.g., poor transportations or delays) is not allowed. If the constraint is a physical constraint, it implies that the idled constraint (e.g., empty hotel rooms) leads to loss of profit. If the market demand is a constraint, implying that there are not enough tourists for tourism services, the managers need to focus on increases in market share or sales revenue.
Step 3. Subordinate and synchronize to the constraints
Noncapacity constraints that do not limit the maximum performance of the TSC must be coordinated to support the optimal effectiveness of the capacity constraint. Because the capacity constraints determine a supply chain’s throughput, synchronizing resources with the constraints can result in higher utilization of the tourism resources (Puche et al., 2016; Rahman, 2002). Decisions affecting constraints should prioritize those affecting nonconstraints, and nonconstraint resources need not be managed as frequently as the constraint resources (Goldratt & Cox, 2016). In many instances, subordination relates to the process of scheduling. For instance, the most attractive resorts or excursions should be given priority over shopping or dining. As discussed, the buffer can be applied to protect the resource from uncertainty or interruptions in the tourist flow through the upstream process.
Step 4. Elevate the system’s constraint
Elevating the constraint means identifying ways in which the performance of the supply chain system can be improved. If the existing constraint is still the most critical in the supply chain, the constraint relaxation can improve the overall performance. Further improvements in supply chain performance require elevating a constraint if it limits the objective (Srinivasan, 2011). For instance, if the market is the constraint, it can be elevated by launching an advertising campaign. The firm can also explore new markets for its products. Increasing the capacity of a hotel that constrains profit can result in improving entire TSC performance.
Step 5. Return to Step 1 if a constraint was broken in a previous step
The application of the TOC is endless. If an existing constraint is changed, a new system constraint may surface (Goldratt & Cox, 2016). The TSC performance is now determined by the next constraint that has become the weakest link (Srinivasan, 2011). For instance, if the demand increases due to a market campaign, the airline capacity may become a new constraint. To find the new weakest link, a manager needs to revisit all steps using the focusing steps (Naor et al., 2013). Step 5 is vital because it prevents inertia from derailing an ongoing process. As the TOC is a continuous process, and no policy can be the best for all time, the business policy needs to be refined in order to adapt to the new business environment.
Conclusions
The TSC coordination between supply chain partners has been a significant challenge for tourism management. Despite the various empirical research in the literature, there is a growing need for research into the theoretical development of TSC coordination. Strategic analysis from a system perspective is required to synchronize and coordinate strategic, tactical, and operational activities into a unified TSCM (Song, 2012; Zhang et al., 2009). This research contributes to the tourism literature by applying the concepts and general principles of the TOC to TSCM. It claims that the article will help both academicians and practitioners realize the value of the TOC applications in tourism. The concepts and general principles of the TOC can be applied to improve TSC performance. The research offers theoretical guidelines for TSC coordination of the various links and activities. The TOC performance measures can effectively indicate the TSC’s performance, and the DBM model can be used effectively to focus on the critical capacity constraints and manage complex schedule issues. It also provides practitioners with scientific-based tools and approaches to develop managerial strategies in TSCM. It helps the managers find practical, effective solutions to tourism problems. For instance, the five focusing steps of the TOC illustrate a continuous improvement process for TSCM. It helps managers decide “What to change?” “What to change to?” “How to cause the change (Goldratt & Cox, 2016)?
As a research note is a “research in progress,” a more in-depth research is required for theory development in hospitality and tourism management (Roberts & Shea, 2017). We propose key research questions on the TOC in the TSCM worthy of future theoretical and empirical exploration. The TOC is an overall management philosophy that emphasizes continuous improvement by managing the constraints that prevent a firm from achieving the goals. This research only stresses some major concepts and principles related to tourism management. The concepts and principles of the TOC should be adopted carefully as the vocabulary needs to be refined in the TSCM. It is hoped that this article will stimulate practitioners and academicians to realize benefits by applying TOC to TSC collaboration. Empirical analysis based on a survey instrument can be devised to validate the claims of the TOC applications in the TSCM. Quantitative analysis, simulation models, and case studies would also provide opportunities for further research. The existing non-TSC literature shows that the TOC can be implemented along with other strategies such as total quality management or lean operations (Srinivasan, 2011; Zhao & Hou, 2014). This topic would be very interesting as it has yet been studied in tourism management.
