Supply Chain Management
Read the below document and answer the following questions:
Keep the answer separate.
- Should Starwood maintain a cooperative orientation or a competitive
orientation with its suppliers for the kind of items described here?
- Should we consider both strategies? Why or why not?
- Do we have enough information to make a determination?
- Would Starwood be destroying the cooperative orientation they have
established by breaking a contract with linens and terrycloth items to
source with a new supplier at lower cost?
- How should switching costs affect the decision?
Sourcing Strategy at Starwood
Bath towels. Televisions. Fresh Produce. Uniforms. On the
surface, these items may not appear to have any relationship to each other.
Sure, they exist in most households, even though they were probably bought
independently of one another. Yet to the supply chain manager employed in the
hospitality industry, they not only have a relationship, but their purchase can
be critical to gaining a competitive advantage.
Just ask Paul Davis, vice president
of strategic sourcing for Starwood’s North American operations. With hundreds
of hotels and resorts in the US, Canada, and the Caribbean, Davis’s goal is to
create the hospitality industry’s best supply chain organization. The items
procured within his organization not only include replenishable goods such as
fresh produce and food items, but also extend to the sourcing of national
contracts for nonperishable goods such as bath towels, electronics, staff
apparel, energy, and contract services.
It is easy
to confuse supply chain processes with the routine procurement of goods and
services. Starwood’s supply chain certainly does include contracting, but it is
much more: It consists of the customer relationship, order fulfillment, and
supplier relationship process. Strong linkages exist among the company’s
upstream suppliers of services, materials, and information, and the customers
of Starwood’s hotels and resorts. If the upstream relationships are not
carefully managed, downstream delivery of consistency, quality, and value to
Starwood’s guests may suffer. As a result, significant effort is placed on the
nested processes within the supplier relationship process such as design
collaboration, sourcing, negotiation, contracting, and information exchange.
of events will trigger the involvement of Paul Davis’s supply chain team:
Existing contracts expire.
Individual hotel brands seek new products.
Hotel property design teams generate ideas.
New categories of products emerge and need
A particular hotel needs help with a local
When a product or service needs to
be sourced, the specifications are driven by internal customers such as
restaurant chefs, housekeeping, and maintenance. If the product or service does
not already exist, domestic and international suppliers that might be able to
create the item are researched, as are regional and local vendors. Sometimes,
sourcing an existing item simply means renewing an agreement with a current
supplier. Still other situations demand creating a new category that has not
been sourced before or using a third party to help locate sources.
Due diligence is always performed
by sending potential suppliers a “request for information” in either paper or
electronic form. The responses returned by suppliers are entered into a
database and help Starwood to prequalify the suppliers. A good match is sought,
requiring the suppliers to meet minimum requirements for financial viability,
quality, scope of operations, references, and legal risk avoidance. With a
suitable potential supplier candidate pool, Starwood then takes one of two
paths. The first one is to conduct a reverse auction where preselected vendors
bid against each other. This method is used with shorter-term contracts on
commodity items that have low external customer visibility. Kitchen uniforms,
hotel door room keys, and paint are sourced this way. The second option is to
send out a request for proposal (RFP), which requires the vendor to put its
best terms forward at the outset for consideration.
After review by the supply chain
team, the vendor winning the auction or emerging from the RFP review activity
as the best fit its engaged in negotiations. Throughout the supplier relationship building
process, Starwood gets to know vendors, but it becomes much more personal at
this point as both parties move toward concluding their contract negotiations.
Starwood maintains a cooperative
orientation toward its supplier relationships, building a partnership to
maximize value for each party to ensure that each side is comfortable with the
price, quality, and delivery requirements it has agreed upon in the contract
negotiation process. When contract negotiations are complete, the different
brands are notified and the buying and information exchange processes begin.
At this point, you might think the
job of the supply chain team is done. Yet managing the existing supplier
relationship after the contract ink dries is perhaps the most challenging task
of all. The contract involving sourcing of bed linens and terrycloth items is a
perfect example. Not long after the contract was finalized, an alternate
supplier approached Starwood with an offer to supply comparable quality goods
at a much lower cost. Supply chain managers had a choice to make: continue to
work with the existing supplier or buy out the current supplier’s contract and
begin sourcing with the new one.