Sourcing Strategy at Starwood
Length:
15:35
Subject:
Sourcing Strategy at Starwood
Textbook Reference:
Chapter 14: Supply Chain Integration, page 593
Summary
This video highlights Starwood’s supply chain management activities. Vice President Paul
Davis discusses current industry views of reverse auctions vs. traditional RFPs procurement
processes and the importance of building a strong cooperative relationship with suppliers. The
video then presents a recent situation where a brand-new vendor of bed linens and terrycloth
products offered Starwood a very competitive contract, yet Starwood had just finished signing a
contract with a different vendor. Students are challenged to determine how they would approach
this situation. The video includes a “pause” point so the instructor can discuss the situation with
the class, and then roll the tape again to hear what course of action Starwood actually pursued.
Essay or Discussion Questions Based on Video
1. Should Starwood maintain a cooperative orientation or a competitive orientation with its
suppliers for the kind of items described here?
• The last paragraph gives a clue as to Starwood’s orientation – “…the vendor winning
the auction or emerging from the RFP review activity as the best fit is engaged in
negotiations.” This leads us to believe that cost alone is not the main driver of vendor
2. What types of information should Starwood exchange with its bed linens and terrycloth
suppliers? What does Starwood risk by sharing too much information?
• Starwood must exchange information as to thread count and “fluffiness” for its linens
and terrycloth, sizes, colors, quantities, durability, delivery specifications (locations,
frequency), and price ranges. The company also must get information from the supplier
regarding financial viability, location of mills (domestic and international), current
quality levels, scope of operations (will Starwood be their main customer?), references,
3. How would you approach the sourcing of bed linens and terrycloth items? That is, would
you use a reverse auction or request for proposal? Under what circumstances would you
change suppliers?
• Terrycloth and bed linens are a major part of every guest’s stay, with high customer
visibility. In fact, these items actually touch the guest, so quality is paramount.
Scratchy towels or pilled bed linens simply are not acceptable when the guest is paying
$200 a night or more. A reverse auction does not make sense for these types of
products, even though they may seem like commodities. Both the Sheraton and Westin
brands have spent millions of dollars advertising the Sheraton Sweet Sleeper Bed and
the Westin Heavenly Bed, which place great customer attention on every element (bed
certainly be invoked here, if needed.
4. In addition to performing value analysis on the services its properties offer, Starwood
evaluates the performance of its suppliers against contract metrics. Using the bed linens
and terrycloth supplier as an example, describe some of the metrics Starwood should use.
• Since Starwood does not purchase terrycloth and bed linen items with the intention of
re-selling them (at least not in bulk; there may be occasional bathrobe purchases made
in its gift shops), inventory measures such as average aggregate inventory value and
weeks of supply have less relevance than other measures. Instead, process measures
related to the customer relationship, order fulfillment, and supplier relationship make
better sense to use. Keep in mind that Starwood negotiates the vendor contracts but
actual order placement is performed by its various hotels and brands. For customer
relationship, Starwood should measure (1) order accuracy, (2) time to complete order
placement, and (3) satisfaction with the order placement process (from the perspective
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 has long dried 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. The company spends