Batangas State University The National Engineering University -

ARASOF Nasugbu Campus

Chapter 4:
Strategic Sourcing

Prepared by:
Mr. Alessandro A. Pasague, CHP, COMS
Chapter Objectives
By the end of this chapter, the students should be able to:
[Link] the importance of supplier selection and procurement in
hospitality supply chain management.
[Link] and apply key steps in the supplier selection process,
including goal setting, criteria development, evaluation,
negotiation, and performance assessment.
[Link] how effective supplier management contributes to cost
efficiency, service quality, and long-term business sustainability.

Chapter Outcome
Evaluate sourcing and procurement strategies, including supplier
selection, purchasing systems, and procurement structures.
Strategic Sourcing

Strategic sourcing is a structured and collaborative approach to

supply chain management that enables organizations to leverage their
collective purchasing power for maximum value in the marketplace.

It has evolved from the traditional purchasing function into a broader

supply chain management process, emphasizing teamwork across
functions and locations.

Success in strategic sourcing requires a clear methodology and the

active involvement of multiple operational areas—not just procurement
—in decision-making and evaluation.
Procurement In hotel operations, procurement plays a vital but often unseen role in
ensuring efficiency and profitability. Procurement costs significantly
impact business performance, as they cover the continuous supply of

Management
goods and services needed both for guest services and internal
operations. Success depends on obtaining high-quality resources at the
lowest possible cost.

Procurement directly affects the guest experience—from comfortable beds and reliable digital systems to quality food and beverages
—making it a cornerstone of hospitality excellence. While costs differ between newly opening hotels and ongoing operations, effective
procurement ensures the availability of the right products and services at the right time. Hotel procurement teams must therefore
balance cost, quality, and availability, often using specialized software, services, and suppliers to optimize the purchasing process.
 Centralized - Decentralized
Procurement
Modern international hotel chains often use a mix of centralized and decentralized procurement to balance efficiency and flexibility.

Centralized Procurement Decentralized Procurement

Is applied to products and services that Allows property-level teams to plan and
must follow strict standards and acquire supplies tailored to their specific
compliance rules, ensuring uniformity needs, operations, and conditions. This
across all properties in the chain. This flexibility is especially useful in adapting
promotes brand consistency by to local market demands and guest
standardizing materials, equipment, and expectations.
service offerings.

For example, beverage selections may follow a standardized framework but vary in scope depending on the hotel’s classification (such as star rating)
and guest profile. While higher-rated hotels may offer a wide variety of alcoholic and non-alcoholic drinks, others may provide more limited choices.
Centralized vs. Decentralized Procurement
 Common Issues About
Purchasing in Hospitality
Industry
1. Blind Spot

Technology-driven purchasing improves transparency and

decision-making.

Problem: Lack of visibility in procurement operations due

to untracked purchasing data.
Solution: Data-focused purchasing programs provided
robust reporting and dashboards, giving hotels
customized insights without draining resources.
Example: A hotel in Manila kept over-ordering cleaning
supplies because purchases were tracked manually. After
adopting a cloud-based procurement system,
management could monitor usage per department,
avoiding overspending.
2. Limited Resources, Limited
Rewards
Collective purchasing reduces workload and increases cost
savings.

Problem: Hotels often lacked personnel to negotiate with

vendors for the best prices.
Solution: By pooling purchasing volumes through
collectives, businesses secured better prices while
suppliers saved time and resources.
Example: A 3-star resort in Batangas joined a hotel
purchasing group. Instead of negotiating on their own,
they benefitted from group deals and saved 15% on linen
and toiletries.
3. No Volume Control

Volume-based collectives give smaller hotels competitive

pricing power.

Problem: Independent hotels struggled to get better

prices without growing their business, facing stagnant
growth and rising costs.
Solution: Purchasing programs allowed hotels to combine
volumes with others, protecting pricing even during
setbacks.
Example: A boutique hotel in Tagaytay couldn’t get
discounted prices on imported wine. After joining a
purchasing network, they combined orders with other
hotels and accessed wholesale rates.
4. Order Disasters

Accountability in supplier partnerships ensures more

reliable orders.

Problem: Frequent issues with MRO (maintenance, repair,

operations) orders, such as missing items and unwanted
substitutions.
Solution: Purchasing programs tied supplier compensation
to accurate fulfillment, reducing errors.
Example: A hotel in Cebu ordered 100 lightbulbs but
received only 70. Under a new purchasing agreement, the
supplier had to replace missing items at no extra cost,
reducing delays in operations.
5. Communication Mishaps

Intermediary programs strengthen supplier relationships

and improve service flow.

Problem: Many suppliers struggled with customer service

and communication, creating delays and mismatched
expectations.
Solution: Purchasing programs acted as intermediaries,
balancing orders and improving communication between
suppliers and hotels.
Example: A luxury hotel in Makati had frequent
miscommunications about food delivery schedules. A
third-party purchasing program created a clear schedule,
preventing missed breakfast service.
6. Fear of Collaboration

Collaboration among competitors can drive cost efficiency

without compromising confidentiality.

Problem: Hotels initially feared collaborating with

competitors, worried about risk and data exposure.
Solution: Early adopters who joined purchasing programs
realized major savings, supported by NDAs that protected
proprietary data.
Example: Two resorts in Palawan were hesitant to share
supplier details. After joining a collective under strict
confidentiality agreements, they cut costs on seafood
purchases by 20%.
7. Focusing on Weaknesses
Instead of Strengths
Outsourcing procurement lets hotels focus on core
strengths like guest service.

Problem: Hotels had to devote resources to procurement

even though it wasn’t their expertise.
Solution: Savings from purchasing programs allowed
hotels to reinvest in training and brand-building, focusing
on service excellence.
Example: A 5-star hotel in Boracay outsourced its
purchasing to a specialized firm. With savings from bulk
deals, the hotel invested in staff hospitality training,
boosting guest satisfaction scores.
ASSESSING EXISTING AND
NEW HOTEL SUPPLY
Guest expectations constantly evolve,
making hotel markets highly
competitive. Existing hotel inventories
reflect past expectations, while new
hotel developments demonstrate
current and future demands. Achieving
a balance between supply and demand
is critical but often challenging,
especially during economic
fluctuations.
Market Survey
The first step is to analyze what already exists. A market survey should include hotels within the competitive set, usually those
with 50–500 rooms, though smaller or larger properties may also be relevant depending on strategy. This helps investors
understand the competitive landscape before committing to development.
The market survey should include the finer details of each hotel, including:

Number of Rooms Management Company

Function Space Sq. Ft. Owner / Major Partners
Year Built Last Sale Date and Price
Year Last Renovated Financing Information - Lender,
Asset Quality Loan Amount, and Maturity
Brand Date
 When assessing hotel supply, it is important to also consider the local

Consider Local retail and restaurant landscape. For hotels with food and beverage
offerings, such as full-service properties or select-service brands like
Courtyard or Hilton Garden Inn, nearby dining and retail options can

Retail
significantly impact competitiveness. If guests are frequently drawn
outside the hotel for meals or shopping, it may affect how they perceive
the hotel’s value.
National retailers dedicate significant resources to analyzing demand
trends. While their focus is primarily on consumer demand, your market
survey should capture both demand and supply opportunities, providing
insights into how external retail dynamics influence the potential success
of a new hotel project.
Quality and Brands
When evaluating hotel quality and brands, it is essential to go beyond
online reviews. Platforms like TripAdvisor offer insight into guest
feedback, but they represent only a small, often subjective portion of
the market. A true assessment requires on-the-ground visits to
competitor hotels to observe construction quality, renovations,
design, and overall atmosphere.
Guest preferences evolve over time, making factors like property age,
layout, and culture critical. A newer hotel may look impressive, but one
with a strong guest-centered culture—even if dated—can outperform
it.
In terms of branding, guest profiles shape positioning. Even within the
same brand family, different sub-brands target different segments.
Competing brands often cater to similar demographics, where the
deciding factor becomes loyalty and consistency of experience. Since
hotel brands operate largely through franchising, their strategic goal is
to maximize revenue share by expanding brand presence in a market.
Guest experience and revenue growth matter, but brand proliferation
is a central priority.
Development 01 Early Plan - feasibility and announcement

Stage 02
Planning - preparation of materials for
government approval submission
Assessing new hotel supply is often challenging
because project announcements do not always
guarantee completion. The path from land Final Planning - government approvals received
03
acquisition to opening is complex and depends and preparing construction documents
heavily on the developer’s capabilities and past
performance.
Several critical factors shape the success of new Construction - active building and pre-opening
04
hotel developments, including the credibility of activities
the project sponsor, government support and
regulations, and the timing of the market.
Beyond these, additional elements—such as Opening - product launch and ramping up
05
financing, construction management, and operations
shifting demand—can further complicate the
process.
Your market survey should uncover where each proposed new hotel is in this process and how long they've been sitting at
that stage. A new hotel development takes 2-3 years to open from the initial announcement. Government approvals can
hold up a process, but once the developer breaks ground, you can expect to have a competitor open its doors within 16-
22 months.
Investment Trends
Investment trends move along two major currents: cyclical and
secular.
Cyclical trends follow the ups and downs of the business cycle,
influenced by consumer sentiment, monetary supply, and
macroeconomic conditions. Good cycles lead to growth, while
downturns slow activity. Investors often attempt to predict
these cycles for entry and exit timing, but such forecasts are
rarely accurate and can result in missed opportunities.
Secular trends, on the other hand, are long-term shifts shaped
by social, technological, governmental, and cultural factors.
These represent the deeper forces influencing location or
product type popularity. While cycles cause short-term
fluctuations, secular trends define the long-term direction of
markets.
A useful analogy is travel: secular trends are like a straight flight
path from point A to point B, while cycles are the winding surface
roads that slow the journey. The most successful investors focus
more on secular trends, understanding that cycles are temporary
detours, but long-term undercurrents ultimately shape the market.
SUPPLIER SELECTION
1. Identifying the Set of Business Goals and
Objectives
Before beginning the supplier management process, it is crucial to
clearly identify the business goals and objectives for which suppliers
are needed. This step ensures that each department’s requirements
from third parties are mapped without duplicating efforts or resources.
For small businesses, setting goals is especially vital, as it provides
direction for growth, supports policy implementation, and creates a
basis for measuring success.
For example, in starting a hotel business, the mission, vision, and
strategy must guide procurement. Strategy should emphasize
partnerships—with guests, employees, and suppliers—while ensuring
overall satisfaction of stakeholders.
 2. Identifying Relevant Criteria for Supplier Selection
Once goals and requirements are established, the next step is to define supplier selection criteria to maximize benefits. These
criteria help ensure that chosen suppliers align with organizational needs and add value to operations.
Common measures include:
Pricing – affordability and competitiveness
Quality – track record and reliability of past performance
Reputation & Industry Acceptance – credibility and trustworthiness
Legal Standing – compliance with laws and regulations
When requirements are complex or critical, companies often use formal processes such as RFQs (Request for Quotation), RFPs
(Request for Proposal), or RFIs (Request for Information) to ensure a structured and transparent evaluation.
3. Evaluating and Selecting Suppliers
After defining criteria, the next step is to evaluate all potential suppliers against these standards. While many
companies focus heavily on quoted prices, effective evaluation requires balancing cost with quality, reliability,
compliance, and overall value.
Key activities include:
Assessing quotations and proposals for cost savings opportunities.
Analyzing terms and conditions to ensure alignment with organizational requirements.
Conducting a strengths–weaknesses review, factoring in how external opportunities and threats may influence
supplier performance.
A structured supplier selection and evaluation process
may follow these steps:
1. Recognize the need for supplier selection
2. Identify key sourcing requirements
3. Determine sourcing strategy
4. Identify potential supply sources
5. Narrow down the supplier pool
6. Choose an evaluation and selection method
7. Select the supplier and reach agreement
4. Negotiating and Contracting with the
Selected Suppliers
Once the right vendors are chosen, the next step is to formalize the relationship through
negotiation and contracting. This ensures suppliers are properly onboarded and aligned
with organizational goals.
Best practices include:
Inclusive engagement: Involve not only finance or procurement teams but also the
operational staff who will interact with suppliers daily. Their insights help create
practical, effective agreements.
Win–win negotiations: Move away from the “winner–loser” mindset. Collaborate to
identify opportunities that benefit both parties, such as reducing costs, improving
efficiency, or expanding networks.
Building long-term relationships: Strong partnerships with suppliers can provide
advantages like flexibility, priority service, and support during challenging times.
5. Evaluating Supplier Performance
The supplier management process extends beyond selection and
contracting. To ensure long-term success, suppliers must be
periodically evaluated to confirm they are meeting organizational
goals and expectations.
Key aspects of supplier evaluation include:
Criteria-based assessment: Evaluate suppliers on delivery
reliability, pricing, production efficiency, service quality, and
technical capability.
Standard frameworks: Use consistent evaluation tools to establish
benchmarks, identify areas for improvement, and maintain fairness
across suppliers.
Performance outcomes: Reward high-performing suppliers, but
penalize or de-list those who fail to meet standards. This helps
build a strong, reliable vendor base.
Preferred vendor lists: Establish approved suppliers to streamline
future sourcing and ensure consistent quality.
KPIs and continuous improvement: Track performance with Key
Performance Indicators (KPIs) to provide measurable insights into
supplier effectiveness and opportunities for optimization.
Learning
Highlights
Strategic sourcing goes beyond price; it focuses on
long-term value and supplier partnerships.
Procurement directly impacts profitability and
guest satisfaction in hotels.
Centralized purchasing ensures consistency, while
decentralized allows flexibility.
Supplier selection involves clear criteria, holistic
evaluation, and collaborative negotiation.
Ongoing supplier evaluation with KPIs ensures
quality, efficiency, and continuous improvement.
Effective procurement creates sustainable value
and supports competitive advantage in hospitality.
End of Chapter 4
Thank You!