An Analysis of of Strategic So Negotiation P1, AUTHORS Larry R. Smeltzer is professor of supply chain management at Arizona State UniI 6rsity in Tempe, Arizona. Jennifer A. Manship is a Ph.D. candidate at Arizona State University in Tempe, Arlj ona. Christian L. Rossetti is a Ph.D. candidate at Arizona State University in Tenpe, Ar7i Initially, strategic sourcing is defined as an inte seven-step process that includes the negotiatio Research questions are then proposed to deter the extent to which negotiation is part of the grated sourcing process. To answer the research tions, the strategic sourcing process and negoti plan are evaluated in 29 cas SUMMARY 14 of the 29 cases, strategic soi was completed and integrated the negotiation plan. This is just under half of cases, which led to the general conclusion that tiation is not well integrated with the other stra sourcing processes. Additional findings indicate appropriate negotiation style was used In only cent of the cases, with most mismatches occuri when an integrative style was used instead of more appropriate distributive style. Managerial research implications of the findings are presei and discussed. The Journal of Supply Chain Management A Global Review of Purchasing and Supply Copyfight @ November 2003, by the Institute for Supply Management, Inc.' 16 The Journal of Supply Chain IvIanagement I Fall 2003 the Integration urcing and inning 4- - INTRODUCTION To ensure the purchasing function is aligned with the organization's long-term goals, many organizations have transitioned from tactical buying to strategic sourcing. Tactical buying focuses on the basic transactions needed to acquire the organization's raw material and service requirements. Strategic sourcing is a systematic and com- prehensive process of acquiring inputs as well as managing supplier relations in a manner that achieves value in obtaining the organization's long-term objectives. The lit- erature indicates that negotiation should be an essential element in tactical buying as well as strategic sourcing; however, the extent to which negotiation planning and strategic sourcing practices are integrated is not known. LITERATURE REVIEW To understand the possible relationship between strategic sourcing and negotiation, the current definitions of strategic sourcing are first reviewed. This is followed by a discussion of the role of planning in negotiation. But first, the rudiments of business processes in relationship to strategic sourcing and negotiation are briefly reviewed to validate the fact that these are business processes. A business process is: The interaction of some combination of people, materials, equipment, method, measurement, and the environment to produce an outcome or an input to another process (Besterfield, Besterfield- Micha, Besterfield, and Besterfield-Sacre 2003). Clearly, strategic sourcing and negotiation both fit the concept of process, given this perspective. However, the purc ...

1. An Analysis of
of Strategic So
Negotiation P1,
AUTHORS
Larry R. Smeltzer
is professor of supply chain management at Arizona State UniI
6rsity
in Tempe, Arizona.
Jennifer A. Manship
is a Ph.D. candidate at Arizona State University in Tempe, Arlj
ona.
Christian L. Rossetti
is a Ph.D. candidate at Arizona State University in Tenpe, Ar7i
Initially, strategic sourcing is defined as an inte
seven-step process that includes the negotiatio
Research questions are then proposed to deter
the extent to which negotiation is part of the
grated sourcing process. To answer the research
tions, the strategic sourcing process and negoti
plan are evaluated in 29 cas
SUMMARY 14 of the 29 cases, strategic soi

2. was completed and integrated
the negotiation plan. This is just under half of
cases, which led to the general conclusion that
tiation is not well integrated with the other stra
sourcing processes. Additional findings indicate
appropriate negotiation style was used In only
cent of the cases, with most mismatches occuri
when an integrative style was used instead of
more appropriate distributive style. Managerial
research implications of the findings are presei
and discussed.
The Journal of Supply Chain
Management A Global
Review of Purchasing
and Supply Copyfight
@ November 2003, by
the Institute for Supply
Management, Inc.'
16 The Journal of Supply Chain IvIanagement I Fall 2003
the Integration
urcing and
inning
4- -
INTRODUCTION
To ensure the purchasing function is aligned with the
organization's long-term goals, many organizations have
transitioned from tactical buying to strategic sourcing.
Tactical buying focuses on the basic transactions needed
to acquire the organization's raw material and service

3. requirements. Strategic sourcing is a systematic and com-
prehensive process of acquiring inputs as well as managing
supplier relations in a manner that achieves value in
obtaining the organization's long-term objectives. The lit-
erature indicates that negotiation should be an essential
element in tactical buying as well as strategic sourcing;
however, the extent to which negotiation planning and
strategic sourcing practices are integrated is not known.
LITERATURE REVIEW
To understand the possible relationship between
strategic sourcing and negotiation, the current definitions
of strategic sourcing are first reviewed. This is followed by
a discussion of the role of planning in negotiation. But
first, the rudiments of business processes in relationship to
strategic sourcing and negotiation are briefly reviewed to
validate the fact that these are business processes.
A business process is:
The interaction of some combination of people,
materials, equipment, method, measurement, and
the environment to produce an outcome or an
input to another process (Besterfield, Besterfield-
Micha, Besterfield, and Besterfield-Sacre 2003).
Clearly, strategic sourcing and negotiation both fit the
concept of process, given this perspective. However, the
purchasing and negotiations literature does not generally
consider sourcing and negotiation as a set of integrated
processes. The strategic sourcing process and negotiation
planning are generally considered separate processes.
Strategic Sourcing Definitions and Models
Several strategic sourcing definitions have been offered

4. in the literature; interestingly, a commonality among deft-
nitions is an emphasis on the integration of business
processes. For example, Andersen and Katz (1998) defined
strategic sourcing as a set of interrelated business processes
9na.
irrated,
plan.
nine
nte-
ques-
tion
.In
trcing
into
the
rego-
tegic
d the
per-
g
e
d
ated
An Analysis of the Integration of Strategic Sourcing and
Negotiation Planning
focusing on items and methodology associated with maxi-

5. mizing the value of externally procured goods and ser-
vices. Carr and Smeltzer (1998) established the integrated
nature of strategic purchasing by developing an empirical
definition that emphasizes integration. Carn and Smeltzer
(1999) expanded upon Andersen and Katzs (1998) defini-
tion of interrelated sourcing processes by formally defining
strategic purchasing as an integrated process. Additionally,
Stimpson (1998) also emphasized the importance of inte-
grated processes in strategic sourcing.
Due to the complexity and number of interrelated tasks
that compose the integrated process of strategic sourcing,
multiple sourcing models have been proposed. Novack
and Simco (1991), two of the earliest authors to propose
a sourcing process, established a four-step model.
Subsequently, many firms, both consulting and industrial,
have developed sourcing models, each with a variety of
antecedent and consequential steps or stages. For instance,
Mercer Management Consulting has described a six-step
process that encompasses the creation of an annual plan to
managing supplier relationships (Andersen and Katz 1998).
A.T. Keamey has a well-known seven-step process, which
is initiated by profiling the sourcing group and continues
indefinitely through benchmarking and improvement.
A similar Deloitte Consulting model utilizes a seven-step
process that begins with assessing opportunities and pro-
gresses to institutionalizing the strategy. Examples from
industry include United Technologies Corporation (UTC)
with a model.containing nine steps, Capital One with
seven steps, and the B2eMarkets model with a seven-

6. step process.'
Though these models may contain differing numbers
of steps, they have several concepts in common. All of
the models place importance on negotiations within
the process and include a negotiation or negotiation-
planning step. It could be argued that the purpose of
each strategic sourcing process is to ensure the develop-
ment and implementation of a negotiated agreement
that satisfies the long-term goals of the firm. If the
process is viewed from this perspective, negotiation
planning is the culmination of all the preceding steps
in the strategic sourcing process.
A noteworthy point is that none of these models dis-
cuss the integration of negotiation as having a significant
contribution. It seems to be either assumed or neglected
that negotiation is integrated within the strategic sourcing
process.
The Role of Negotiation Planning
Several studies conducted in the late 1990s indicated
that negotiation is a critical aspect of purchasing and
supply chain management and forecast that negotiation
will remain a vital tool (Carter and Narasimhan 1997;
Crowder 1998; Trent and Monczka 1998; Carter, Carter,
Monczka, Slaight, and Swan 1998). The strategic sourcing
process, especially market and cost/price analysis, can be
viewed as the planning that leads to negotiation; as such,
the processes are integrated.

7. The importance of planning as a prerequisite for suc-
cessful negotiations cannot be overstated. To quote
Lewicki, Saunders, and Minton (2000), "The dominant
force for success in negotiation is the planning that takes
place prior to the negotiation ... the most important step
for success in negotiation is how one gets ready for the
game." Also, Baron (1998) reviewed the empirical evi-
dence and substantiated the importance of the negotia-
tion planning process on economic outcomes.
The most commonly cited steps in negotiation planning
generally include: defining issues, assembling issues,
defining the bargaining mix, defining interests, identifying
limits, setting targets, analyzing the power base of both
parties, and developing supporting arguments (Asherman
and Asherman 1990; Burnstein 1995; Lewicki and Hiam
1998). Strategic sourcing processes are directly related to
these negotiation planning processes. For instance, each of
the strategic sourcing models emphasizes the importance
of clearly defining the good or service to be negotiated.
This is usually stated in terms of commodity or service cat-
egory analysis. Setting goals consists of market analysis to
establish benchmark prices. Total cost analysis includes
determining the various points for negotiation, including
where the cost reduction emphasis should be placed.
Additionally, industry and market analyses are necessary
to determine each party's power base.
Strategic sourcing has become a more common practice
and it can be argued that negotiation effectiveness has
contributed to sourcing success. However, only limited
connection has been made in the literature between

8. sourcing and negotiation. More specifically, Doctorff
(1998) addressed negotiation reengineering and stated
that it is important to integrate internal and external
considerations. This may be broadly interpreted to imply
that factors such as market forces should be integrated
with the negotiation plan. Similarly, Ertel (1999) main-
tained that in order for negotiations to be considered a
corporate capability, the process must consider a wide
array of variables. Again, it can be inferred that when
dealing with suppliers, considering the different steps
involved in strategic sourcing is necessary.
A culmination of the prior literature suggests that
strategic souring and negotiation are important supply
management processes; however, the extent that the ini-
tial stages of strategic sourcing and negotiation are inte-
grated is not known. If supply management professionals
fail to use a strategic sourcing process, negotiation goals
and strategies may be formed from an intuitive, poorly
structured process that may lead to inappropriate negotia-
tion outcomes (de Dreu, Carnevale, Emans, and van de
Vliert 1994). The research reported here investigates the
The Journal of Supply Chain Management I Fall 2003 17
'Information about these models was obtained by direct
conversations
with the organizations. Additional information about the models
may
be obtained from the first author.
An Anatysis OT me inregrauon orT raiegic 3ourong ana

9. ivegoravon viannng
extent to which supply management professionals use
strategic sourcing as the planning process for negotiation.
RESEARCH QUESTIONS
The literature review indicates that strategic sourcing
and negotiation should be an integrated process but no
research has examined the extent to which they are actu-
ally integrated. As a result, it is not kiown if supply man-
agement professionals use the strategic sourcing process
to guide negotiation planning. To better understand the
relationship between strategic sourcing and negotiation
planning, the following primary research question and
secondary questions were addressed:
Primary Research Question: Is the strategic sourcing
process integrated with the negotiation plan for a
specific good or service?
To determine if the negotiation plan is systematically
integrated with the strategic sourcing process, the strategic
sourcing process must first be defined, investigated, and
evaluated. To investigate these issues, two secondary
research questions are presented. The first question asks
about the extent to which the strategic sourcing process is
followed. The researchers propose that the more compre-
hensively and systematically the strategic sourcing process
is followed, the more likely a thorough negotiation plan is
created.
Secondary Question One: To what extent is the
strategic sourcing process followed comprehensively
and systematically prior to the negotiation plan?

10. The second question focuses on the negotiation plan. It
is included to determine if the strategic sourcing process
leads to the correct negotiation style. If the sourcing plan
is comprehensive and thorough, it should direct the nego-
tiation approach. However, if the sourcing results are
ignored, an inappropriate negotiation style would be used.
Secondary Question Two: To what extent does
the negotiation plan include the negotiation style
directed by the sourcing process?
RESEARCH METHODOLOGY
To answer the research questions, the researchers
selected an exploratory case research method with
a quasi-scientific sampling process.
Case Method
As shown in the literature review, sparse prior research
exists relating strategic sourcing and negotiation plan-
ning. Furthermore, both strategic sourcing and negotia-
tion planning are processes that are difficult to clearly
observe and measure in organizations. At this stage of
development, theoretical constructs and operational
measures would be premature. Therefore, the decision
was made to pursue an exploratory; qualitative, case
research approach following the recommendation of
Denzin (1970).
Consistent with the recommendation of Yin (1981),
the researchers first developed a research protocol. This
protocol was based on the research questions and a review
of both the negotiation planning process and the strategic
sourcing process. The guidelines of Mdiles and Huberman

11. (1984) were followed in developing the interview pro-
tocol. Different types of data were considered using the
prescriptions of Felding and Felding (1986), Eisenhardt
(1989), and Ellram (1996).
Validity and reliability deserve special attention in quali-
tative research. To quote Van Maanen (1982), "The rela-
tive stance assumed by the ethnographer raises, of course,
a major intellectual issue." To overcome this issue, the
researchers resolved to not have any preconceived con-
clusions during the case studies. In addition, Felding and
Felding (1986) stated that both the reliability and validity
lie in the qualification of the researcher. The researchers
who collected and analyzed this data had developed
qualitative research skills through specialized training and
had extensive business experience.
The first step in the research protocol was to develop a
description of the product or service in terms of supply
risk and value to the organization. A framework pre-
sented by Monczka, Trent, and Handfield (2001) assisted
in developing this aspect of the investigation. Second, the
market for the good or service was described in terms of
Porter's Five Forces Analysis (Porter 1980). Steps one and
two allowed the researchers to identify and classify the
nature of the product and its market to detennine if the
negotiation style was appropriate.
In accordance with secondary question two, the research
protocol dictated analysis of the negotiation style. The
interview questions for this portion of the research fol-
lowed a framework developed by Lewicki et al. (2000) used
to differentiate between integrative and distributive types
of negotiation.
The next stage in the investigation monitored the extent

12. to which the strategic sourcing process was followed. The
process used for this study was drawn from the models
presented in the literature review. It consisted of the fol-
lowing seven steps:
1. Categorize the buy
2. Market analysis
3. Supply strategy development
4. Total cost or price analysis
5. Bid development
6. Supplier selection
7. Negotiate agreement
Analysis of an integrative, dynamic business process is
challenging. To ensure an accurate analysis, it was impor-
tant to use the guidelines of Miller (1991) to collect mul-
tiple types of information and use triangulation. Key
phrases and terms of the interviewees were used in com-
bination with direct observation and analysis of key doc-
uments. In a number of cases, it was possible to analyze
written negotiation plans or observe the actual negotia-
tion session. Either the case study was conducted by two
individuals or data was reviewed and discussed by a
18 The Journal of Supply Chain M1anagement I Fall 2003
An Analysis of the Integration of Strategic Sourcing and
Negotiation Planning

13. second party to ensure reliability and validity of the
analysis.
Qualitative research experts recommend that case
studies be continued until the researchers meet saturation
(Yin 1981). In this study, it was concluded that saturation
on the research questions had been reached; however, the
study also revealed other research issues that should be
addressed in future studies. These issues are presented in
the discussion section.
Sample
The organizations needed to meet several criteria to be
included in this study. First, the companies had to have a
department or function dedicated to strategic sourcing
with a documented strategic sourcing process. Second,
the organizations had to be willing to comprehensively
answer the research questions. Third, the organizations
had to allow their data to be reported in aggregate with
data from other companies. Finally, these organizations

14. had to be viewed by industry executives and academi-
cians as exemplars. The companies should be perceived as
outstanding and in the forefront of the areas of strategic
sourcing and negotiations. They were considered exem-
plars for one of the following reasons: a winner of
Purchasing magazine's annual medal award; a special
article written about the company's sourcing process
or results in a major trade magazine; results or description
of its process as the focus of a major presentation at a
sourcing conference; referred to by at least two executives
from other companies as a strategic sourcing exemplar.
The organizations were largely Fortune 500 companies
representing the aerospace, manufacturing, semicon-
Aductor, computer manufacturing, and other industries.
Since the unit of analysis is the strategic sourcing process
and negotiation plan for a specific good or service, mul-
tiple observations were allowed from the same organiza-
tion. However, the researchers ensured that when more

15. than one case was drawn from the same organization, the
sourcing teams were from different divisions within the
organization and the commodities were dissimilar.
Although the organizations had to meet these criteria,
the sample was also one of convenience. Venkatraman
and Ramanujam (1986) supported convenience samples
when they stated that the method in which the con-
structs are analyzed may be more important than the
sample, since all organizational research faces sample
restrictions. Dess and Robinson (1984) also defended
convenience sampling when they stated that ultimately
all business research relies on convenience samples to
one extent or another.
FINDINGS
To answer the primary research question, the two sec-
ondary questions had to first be investigated and answered.
The first secondary research question provides insights into
how well the strategic sourcing team conducted each step
in the strategic sourcing process. The other secondary

16. question is designed to investigate the influence of the
strategic sourcing process on the negotiation style. The fol-
lowing discussion covers both secondary questions, then
uses the findings to answer the primary research question.
Secondary Question One
Secondary question one begins with an evaluation of
the previously mentioned steps in the strategic sourcing
process. Each step was individually investigated to deter-
mine how comprehensively it was conducted. The evalu-
ation was conducted against various criteria described in
each of the steps in the process. It is important to note
that several tasks in the sourcing process are contingent
upon previous tasks. Therefore, if the negotiation team
incorrectly or incompletely finished the prior task, the
subsequent tasks were often judged to be incorrect or
incomplete due to the lack of necessary knowledge avail-
able in the preceding step. For purposes of this research,
the negotiation plan is considered the final step in the

17. strategic sourcing process.
The reader may find it useful to refer to Figure 1 during
the following discussion; the horizontal axis lists each
case and the vertical axis lists the seven steps in the
sourcing and negotiation process. Shaded blocks show
the processes that were either incomplete or performed
incorrectly.
Step One: Categorize the Buy. The first step in the pre-
viously outlined strategic sourcing process, "categorize the
buy," ensures that the sourcing process is aligned with the
companies' strategic goals so the supply strategy meets the
correct criteria. To evaluate how well each negotiation
team completed step one, the researchers asked questions
designed to elicit where the interviewees believed the
purchase should be placed in the Segmentation and
Relationship Quadrant (Steele and Court 1996). The
researchers asked further questions designed to gain
greater knowledge of the purchase and to test the thor-

18. oughness of the team's categorization. Using this informa-
tion, the researchers plotted the purchase (see Figure 2).
In the 29 cases, three companies overemphasized the
importance of the purchase to the organization; as shown
in Figure 1, this corresponds to cases 11, 16, and 17. This
led the sourcing teams to inflate the importance of the
relationship with the prospective supplier. Inflation of the
suppliers' importance by the purchaser can shift the
power in the negotiation from the buyer to the seller. The
three cases in which the researchers and the negotiation
team disagreed are shown in bold. The arrows in the
figure point to the Segmentation and Relationship
Quadrant that the researchers interpreted as the correct
categorization.
Step Two: Market Analysis. A market analysis is con-
ducted to determine the location of power within the
buyer-supplier negotiations. For this research, the mar-
kets were defined as either buyer-centric or seller-centric.

19. A buyer-centric market existed when there was an
The Journal of Supply Chain Management I Fall 2003 19
An Anaiysts or me integration OtUMratepc3ourcng and
Negotiahon Planning
Figure 1
STRATEGIC SOURCING STEPS COMPLETED IN EACH
NEGOTIATION
Negotiation Number
Strategic Sourcing
Process Steps 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1718
192021 22123 24125 26 27 28 29 Totals
Categorize the Buy 3
Market Analysis 7
Supply Strategy 7
Development
Total Cost/Price
Analysis 11
Bid Development 2
Supplier Selection 4
Development of

20. Negotiation Plan 15
Shaded areas indicate that the step was not thorough or
complete
Figure 2
SEGMENTATION ANALYSIS
Categorize the Buy
Value/Profit Potential High
abundance of sellers, excess capacity, or one buyer had a
large amount of spend relative to the average supplier's
revenues. A supplier-centric market existed when there
was an abundance of buyers, a shortage of capacity, a
small average buyer-spend relative to average suppliers'
revenues, or one supplier possessed specialized, propri-
etary technology.
The researchers asked how and to what degree negotia-
tion teams determined the number and nature of capable
suppliers in the market. The market analysis was consid-
ered complete when the interviewees expressed confi-
dence that either all or a sufficient number of suppliers
bad been identified. This included all relevant global
suppliers.
This investigation found seven instances where the pur-
chasing firm failed to consider another source other than
the current supplier. As shown in Figure 1, this corre-
sponds to cases 9, 11, 12, 16, 17, 21, and 22. Although not
shown in Figure 1 or included in the tally, the researchers
believed an additional four sourcing teams did not com-

21. prehensively evaluate all possible relationship power
imbalances.
Step Three: Supply Strategy. The third step of the
strategic sourcing process involves the development of
a supply strategy. To meet the criteria for completion of
this step, the sourcing team had to determine whether
the item should be single- or multi-sourced, if spend con-
solidation was a viable tactic, and how much importance
to place on the relationship. The sourcing relationship
was operationally defined on a continuum from arm's
length to alliances.
Of the 29 cases in this study, seven teams failed to
comprehensively complete this step in the strategic
sourcing process. As shown in Figure 1, this corresponds
to cases 9, 11, 12, 16, 17, 21, and 22. To determine
the completeness and thoroughness of this task, the
researchers asked questions designed to elicit how the
future of the supplier-buyer relationship impacted the
current purchase decision. The researchers plotted the
negotiation teams' perception of the relationship on the
20 The Journal of Supply Chain Management I Fall 2003
High
C
0)
Low
Strategic
N2N5N12N19N20 NI N8N9NION13

22. N23 N24 N25 N28 Ni 8 N21 N22 N27
N1l N16
Tactical Leverage
N6 N14 N26 N29 N3 N4 N7 N15
4 1- . . N17
Critical
An Analysis of the Integration of Strategic Sourcing and
Negotiation Planning
common risk/uniqueness versus value/profit potential
chart as shown in Figure 3. Again, discrepancies are in
bold and arrows represent the researchers' proposed
quadrant. The seven cases where errors occurred corre-
sponded exactly with errors in the previous step. In
all but one of the cases, the team erred on the side of
developing a strategic relationship rather than negoti-
ating a one-time buy or relieving a bottleneck purchase.
Step Four: Total Cost or Price Analysis. This step in
the strategic sourcing process consists of a cost or price

23. comparison of the supplier's goods or services based on
the supply strategy's requirements. The type of analysis
necessary for each purchase is based on the nature
of the buy. If the item is a commodity that has little
strategic value to the firm, a simple price comparison is
considered sufficient. But if the purchased item is a com-
plex, unique, or strategic item, then a total cost of owner-
ship should be undertaken. The general framework of
Ellram (1995) was used in those situations where price
analysis could not adequately represent the intricacies of
the purchases; as such, a total cost model was considered
the best method.
Of the 29 negotiations observed, 11 sourcing teams
failed to conduct comprehensive cost or price analyses. As
shown in Figure 1, this corresponds to cases 3, 9, 10, 11,
12, 16, 17, 21, 22, 26, and 29. A few of the teams devel-
oped complex and impressive total cost models, but these
cases were the exception. The majority of teams relied on
price to differentiate products where cost analysis would
have been more appropriate.
Step Five: Bid Development. After conducting a thor-

24. ough cost/price analysis, the sourcing team should
request bids from the firms that met the requirements
of the previous steps. All but two firms in this study com-
pleted a request for quotation (RFQ) or proposal (RFP) to
ascertain the seller's prices and terms. Even in cases where
the company was in a single-source situation, the devel-
opment of an RFQ or RFP and its response from the
potential seller was an integral part of the company's
strategic sourcing process.
Firms often used preexisting RFQs and RFPs without
modifications designed to fully describe the complexities
and uniqueness of the purchase. Although only two of
29 teams did not issue an RFQ or RFP, .12 teams issued
standard RFPs or RFQs with little or no modification.
Although not considered an error, the strategic sourcing
process could have benefited from an individualized RFP
or RFQ.
Step Six: Supplier Selection. Based on the responses
to the RFQs and RFPs, the sourcing team should conduct
additional cost/price analysis and/or supplier analysis to

25. narrow the supplier pool to a smaller, more select group
of competing suppliers. The result of the supplier selec-
tion process is a short list of highly viable suppliers. The
sourcing team should then develop individual negoti-
ating plans for each of the members of this "short list."
In this study, four of the 29 negotiation teams failed to
conduct comprehensive supplier selection based on any
established or communicated criteria. As shown in Figure
1, this corresponds to cases 3, 9, 21, and 22.
Step Seven: Development of a Negotiation Plan. The
negotiation plan was considered complete and compre-
hensive if it (1) established a price range as a result of
the market analysis that was derived from the bid devel-
opment and cost analysis stages of the strategic sourcing
process, and (2) contained a best alternative to a negoti-
ated agreement (BATNA). The BATNA should have been
developed based on the results of the supplier selection
stage. Of the 29 cases, 15 failed to meet both criteria 1
and 2. As shown in Figure 1, this corresponds to cases 3,
5, 9, 10, 12, 13, 15, 16, 17, 20, 21, 22, 24, 26, and 28.

26. Therefore, only 14 sourcing teams developed a compre-
hensive and complete negotiation plan.
Based on the seven-step strategic sourcing process,
analysis of the cases shows that only 14 of the 29 sourcing
teams comprehensively and systematically followed the
seven-step strategic sourcing process. Seven teams did not
complete at least one step in the process and eight teams
did not complete two or more steps. The results are sum-
marized in Figure 1.
Secondary Question Two
To answer secondary question two, the researchers
divided the sample into either integrative or distributive
negotiation styles based on the style descriptions provided
by Lewicki et al. (2000). Distributive negotiation is compa-
rable to an arm's-length or win-lose approach while inte-
grative negotiation is considered a collaborative or win-win
negotiation. The integrative style was used in 20 of the 29
cases. The distributive style was used in seven cases, while
Figure 3

27. RELATIONSHIP ANALYSIS
High
C)
Supply Strategy It-1
"I
Strategic ;,
Ni N2N3 N6•I•l10
N1 3 N138 N29 N27
N9 N11 N12 N16
N21 N22
Low Importance Leverage
29 N4 N7 N8 N14
.N15 N23 N25
<•/ •N17
Low Value/Profit Potential
OneTime
N5 N19 N20
N24 N28
The Journal of Supply Chain Management I Fall 2003

28. High
tin linauysis or une iniegranon 0T3Tra[eg1C.)ourang an
Mgollaton Flannlng
in two cases it was not possible to accurately determine the
negotiation style.
The appropriate negotiation style was determined from
the market analysis and supply strategy. Using the pur-
chasing representative's perception of the market, the
researchers compared the chosen negotiation style with
the market conditions and supply strategy. It was not
possible to determine the appropriate style based on
the supply strategy and market analysis in four of the
29 cases. The appropriate match existed in 16 of the 25
remaining cases. In eight of the inappropriate matches,
an integrative style was used when a distributive style
would have been appropriate. In one case, the firm's plan
was to form a strategic alliance but it planned on using a
strongly distributive negotiation style.
Primary Research Question
The findings for the primary research question emerge
from the secondary questions. The integrative nature
of the process was reviewed when addressing secondary
question one. The strategic sourcing process was inte-
grated with the negotiation plan in 14 of the 29 cases
or approximately half of the cases.
CONCLUSIONS
One primary and two secondary research questions were

29. addressed. The following conclusions are based on inter-
views and document reviews of 29 cases.
Primary Research Question One. Is the strategic
sourcing process integrated with the negotiation
plan for a specific good or service?
To answer this question, the first six steps in the strategic
sourcing process must be completed and then integrated
with the negotiation plan. In these 29 cases, 18 displayed
an integrated process in the first six steps. In 12 of the
18 cases, the negotiation plan was integrated with the first
six steps. Accordingly, in 66 percent of the cases in which
the first six steps were completed, the negotiation plan
was also integrated into the process. In 40 percent of all
the cases investigated, the entire process was integrated.
The answer to this research question may be stated
another way. The companies all espoused a strategic
sourcing process and were considered exemplars. How-
ever, only 40 percent of the cases demonstrated strategic
sourcing as truly exemplary. Furthermore, in general, the
negotiation plan was not well integrated with the other
strategic sourcing steps.
These percentages are supported by the general qualita-
tive responses and interpretations. For instance, when
asked about market analysis as a foundation for com-
modity pricing, a manager responded, "We generally have
a pretty good feel for what's happening, so no formal
analysis is required." Another response was "When you
have been doing this as long as I have, you don't need all
the groundwork that young people do." And still another
response was "We generally don't have the time for a
drawn-out procedure." The most telling comment was

30. "We use strategic sourcing to establish our negotiation
position in certain situations, but it generally isn't worth
it" (the time).
Secondary Question One: To what extent is the
strategic sourcing process comprehensively and sys-
tematically followed prior to the negotiation plan?
The answer to this question was addressed in the pre-
vious response to the primary research question. In over
60 percent of the cases, the process was systematic prior
to the negotiation planning process. The conclusion is
that the strategic sourcing process was not as compre-
hensively and systematically followed as it should be for
negotiation planning.
Secondary Question Two: To what extent does
the negotiation plan include the negotiation style
directed by the sourcing process?
The appropriate style was used in approximately 64 per-
cent of the cases, or 16 of the 25 cases in which the style
could be assessed. In one case, a distributive style was used
when an integrative style would have been appropriate.
But in all other cases, an integrative style was used when
a distributive style would have been appropriate. The inte-
grative style was displayed by such comments as "This
company always takes the win-win approach" and "As a
company we believe in collaboration; long-term relation-
ships can only be achieved through an approach that
stresses mutual benefit." The conclusion is that although
the correct negotiation style was used in the majority of
instances, the incorrect style was still applied in a substan-
tial number of cases. Themes demonstrated by the above
quotes indicate that in many cases supply management
professionals did not use the sourcing process to deter-

31. mine the correct negotiation style; instead, they relied on
corporate culture and expectations to maintain a close
relationship.
DISCUSSION
Much is said about the fact that strategic sourcing and
negotiation are important business processes. But sourcing
and negotiation planning were not seen as one integrated
process in the majority of these cases. As a result, this
study raises several important issues and questions about
the integration of strategic sourcing and negotiation. It
appears that even the exemplars, those companies
thought to be "the best of the best" at strategic sourcing
and negotiations, generally lack the understanding that
strategic sourcing is an integrative process.
An important finding is that only 14 negotiation plans
included a best alternative to a negotiated agreement
and two of these were based on incomplete strategic
sourcing processes. A priori establishment of an altema-
tive to a negotiated agreement with the other party is at
the core of negotiation power (Lewicki et al. 2000). This
indicates that the sourcing process and the negotiation
plan were not well integrated in a majority of instances.
22 The Journal of Supply Chain Management I Fall 2003
An Analysis of the Integration of Strategic Sourcing and
Negotiation Planning
Furthermore, developing the negotiation plan is gener-
ally considered the most crucial step in negotiation. In

32. the majority of the cases analyzed, the negotiation plan
was not well planned. It is possible that the teams did
not comprehend the importance of this step or did not
know how to effectively integrate the previous steps with
the negotiation plan to create an integrated process.
Poor planning and the lack of process integration are
often demonstrated by the selection of negotiation styles.
In a number of the cases studied, the market analysis indi-
cated that the sourcing team had a dominant market posi-
tion, suggesting a distributive negotiation; however, the
sourcing teams often chose to use an integrative approach
treating suppliers as market equals.
Why was the market analysis not integrated with the
negotiation-planning phase of the strategic sourcing? Key
words, phrases, and trends drawn from the interviewees
indicated that the sourcing team emphasized supplier col-
legiality even if it was contrary to strategic sourcing out-
comes. The following phrases reinforced this finding:

33. "This company always uses a win-win approach" and
"Relationships are more important than the immediate
outcome" or "This company continually stresses the team
approach with suppliers." These phrases indicated that the
organizations' supply management cultures pushed the
negotiation team toward a certain negotiating style regard-
less of the outcome of the strategic sourcing process. This
conclusion is similar to the argument presented by Laseter
(1998). He stated that a company maintains a proclivity
for a certain negotiation style and does not balance the
approach. The research reported here indicates that in
some cases the sourcing team ignored the results of its
own efforts and used an approach consistent with its orga-
nizational culture.
Another possible explanation for the overuse of strategic
alliances and integrative negotiations is that some firms
have a misunderstanding of strategic sourcing. These
firms believe that strategic sourcing is synonymous with

34. alliances and integrative negotiation. For instance, one
respondent said, "Isn't strategic sourcing just a way
to establish alliances?" Although this individual had
attended a company course on strategic sourcing, he
apparently did not understand or was not taught the
nature of the process.
Mental frames are an integral process in negotiation. A
mental frame means that an individual enters the negotia-
tion with a mental set for the appropriate process and
goals without considering relevant information (Bazernan
1998). One company's supply manager said, "A good
negotiator knows how to get a price reduction without a
lot of number crunching." Although this was one of the
most biased quotes, similar comments indicate that in
many cases the team's definition and implementation of
strategic sourcing is not reinforcing the value of the nego-
tiation plan as a part of an integrated sourcing process.
It appeared that many sourcing professionals' mental

35. frameworks contained strong links between strategic
alliance and strategic sourcing. Further, research indicated
this relationship existed regardless of the relative buyer-
supplier power or the item being purchased. In several
cases, it appeared that sourcing professionals did not see a
connection between strategic sourcing and negotiation
planning.
Tradition or organizational norms could be highly
related to the previous explanation. In several cases, the
interviewees responded that they had conducted supplier
negotiations for many years and that they conducted
these negotiations prior to the introduction of strategic
sourcing. In these cases, it appeared that strategic sourcing
existed in name only. It appears Cox (1996) was correct in
his comment that firms are becoming too quick to adopt
the latest innovation before investigating and under-
standing it completely and learning how to properly
implement it.

36. Additionally, in several cases the company rated the
purchase importance too high. In each case, no formal
system existed for determining the value of the buy.
Unfortunately, inflation of the value of the buy could
easily lead a buyer to pursue a strategic alliance based
on a heightened sense of the purchase's importance to
the company.
Managerial Implications
A number of potential managerial implications emerge
from this study that may require differing levels of
process reengineering. The most important implication is
that supply managers should emphasize process integra-
tion. A strategic sourcing process in name only will not
lead a sourcing team to the optimum negotiation plan for
a given buy. The team must understand the importance
of all the steps to fully integrate the results from sourcing
steps into the negotiation plan.
Another implication relates to the fact that in many sit-

37. uations the negotiators did not thoroughly investigate
their initial position or BATNA. The negotiation litera-
ture makes a strong argument about the importance of
the initial position and having an alternative in order to
strengthen the position. It is important that supply man-
agers be educated to understand the importance of links
between strategic sourcing and the development of this
initial position.
From the cases studied, three progressive practices were
identified to help overcome the strategic sourcing imple-
mentation shortcomings. The first practice is one that
two firms used to guarantee that team members followed
the required strategic sourcing protocol. The firms main-
tained a negotiating "shared service" team that was
required to report on each step of the process. The firm
would not conduct the negotiation if the team failed
to adequately follow the strategic sourcing process.
Furthermore, the shared service team could report to the

38. -team's upper management that it was removing itself from
The Journal of Supply Chain Management I Fall 2003 23
An Analysis of the Integration of Strategic Sourcing and
Negotiation Planning
the process, if the process was not being comprehensively
or systematically followed. This created a strong incen-
tive for the team to follow the process completely and
thoroughly.
A second progressive practice involved the use of
written job aids. These aids acted as gates at the end of
each step of the strategic sourcing process. The team's
director would then authorize the team to progress to
the next task in the sourcing process. This ensured that
the process was thoroughly and comprehensively com-
pleted. For instance, if appropriate, the negotiator would
show the director the three-year trend of the PPI for
that purchase and indicate how this affected the range
of prices used in the negotiation plan.
A third progressive practice is the use of Web-based
worksheets. These worksheets had to be completed and
approved by the director of supply management prior
to entering into negotiations for purchases greater than
$500,000. Each step of the worksheet involved an aspect
of the strategic sourcing process. When completed, the
worksheet represented the team's negotiation plan. Each
of these practices was considered valuable because it
helped to integrate processes and ingrained strategic
sourcing in the firm's corporate culture.

39. Future Research
This research is exploratory and raises valuable direction
for future research with an enhanced framework. This
framework could use the commodity strategy and negoti-
ation strategy as the independent variables. However, a
problem with studying any integrated business process is
that it is difficult to gain intimate firsthand knowledge of
the phenomenon. A possible methodological remedy to
better comprehend the strategic sourcing phenomenon
would involve researcher participant observation in a
small number of cases. Even though several negotiation
sessions were observed for tiis study, it would have been
ideal for a researcher to be involved in the entire strategic
sourcing process. Unfortunately, this would require an
extensive time commitment and probably preclude a
large sample size. In a participant-observer research set-
ting, it may also be possible to identify underlying
process constructs and related hypotheses. This study
may lay the groundwork for research that would be more
generalizable, including a cross-industry survey.
A large cross-industry survey would be helpful in
answering a number of questions that have been
derived from this preliminary work. However, in order
to conduct such a survey, several variables would have
to be adequately developed. The commodity strategy
and negotiation plan or strategy would first need to be
clearly identified and would serve as the independent
variable. Then the respondents could be asked how they
determined the strategies. For instance, to what extent
was a market analysis used to determine the strategy?
How did the sourcing professional analyze the supply
base and what type of supplier information determined

40. the ultimate commodity strategy and negotiation strategy?
The dependent variables would be the factors that created
the commodity or negotiation strategy and a regression
analysis would be used to test the relationship among
the variables.
Several other variables should be studied concurrently.
First, supply managers' understanding of strategic sourcing
should be determined. At this time, the entire area of
supply management uses a mixed set of process defini-
tions. A clarification of practitioners' definition of strategic
sourcing should be helpful. Second, the relationship
between organizational culture and the strategic sourcing
process deserves special attention. It would be valuable to
understand the different stages of sourcing implementa-
tion and how it is either impeded or enhanced by various
characteristics of organizational culture.
A third analysis should determine if or when strategic
sourcing is appropriate. For instance, when many quali-
fied suppliers are available, strategic sourcing may not be
necessary. But in the opposite situation when only a
single source is available, strategic sourcing may or may
not be appropriate. In what other situations would
strategic sourcing possibly not be the appropriate model?
Another important research question is how the use of
electronic sourcing platforms, such as reverse auctions,
affects the integration of the strategic sourcing steps and
the negotiation plan. Since many of these electronic tools
aid in identifying suppliers, creating RFQs and RFPs, and
finally setting prices, they should have a major effect on
the practice and implementation of strategic sourcing.
Any business process is a complex phenomenon that
is difficult to study. Surprisingly little is known about

41. strategic sourcing as an integrated business process. The
analysis reported here provides an initial insight into
the relationship between strategic sourcing and negotia-
tion. The results indicate that the majority of firms in
this study did not thoroughly integrate the processes.
This study also shows that from both research and prac-
titioner perspectives, the understanding of progressive
supply chain management practices may be lacking.
Both academia and management need to conduct fur-
ther research, as well as a more thorough implementa-
tion, of these practices.
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The Journal of Supply Chain Management I Fall 2003 25
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TITLE: An Analysis of the Integration of Strategic Sourcing
and
Negotiation Planning
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Journal of Foodservice Business Research, 15:143–155, 2012
Copyright © Taylor & Francis Group, LLC
ISSN: 1537-8020 print/1537-8039 online
DOI: 10.1080/15378020.2012.677387
Strategic Sourcing in the Hospitality
Supply Chain
NATASA CHRISTODOULIDOU
College of Business Administration and Public Policy,
California State University, Carson, CA, USA

49. G. KEONG LEONG
Lee Business School, University of Nevada,
Las Vegas, Las Vegas, NV, USA
CAROLA RAAB
William F. Harrah College of Hotel Administration,
University of Nevada, Las Vegas, Las Vegas, NV, USA
This paper investigates the extent to which strategic sourcing is
applied in the hospitality industry. This research showed that
the
hospitality industry applies only a limited part of the available
and
established strategic sourcing practices and sourcing strategies,
which can be adopted to provide a firm with a competitive
advan-
tage. Our analysis shows that the hospitality industry is
currently
facing many challenges especially in the purchasing area where
the decision making process is different than in other industries.
KEYWORDS strategic sourcing, supply chain management,
total
cost of ownership
INTRODUCTION
This paper examines strategic sourcing in the hospitality
industry, which
plays a major role in the hospitality industry. If more widely
adopted, strate-
gic sourcing could give the hospitality industry articulated
strategies for many
of its purchases for services and key commodities (Carter &
Narisinham,

50. Address correspondence to Natasa Christodoulidou, Assistant
Professor of Marketing,
College of Business Administration and Public Policy,
California State University, Dominguez
Hills, 1000 E. Victoria Street, Carson, CA 90747. E-mail:
[email protected]
143
144 N. Christodoulidou et al.
1996; Zsidisin, Ellram, & Ogden, 2003). Strategic sourcing is
based on overall
corporate strategy and support (Carr & Smeltzer, 1999; Carter &
Narisinham,
1996; Ellram, Zsidisin, Siferd, & Stanley, 2002; Zsidsin et al.,
2003). With
strategic sourcing, products and services that belong to more
than one busi-
ness units are executed jointly (Carter & Narisinham, 1996;
Zsidisin et al.,
2003). Vendor-Managed Inventory (VMI) is another important
component
of strategic sourcing (Gumus, Jewkes, & Bookbinder, 2007).
Those who
manage strategic sourcing must provide specific, measureable
goals (Ellram
et al., 2002; Zsidsin et al., 2003), which should be visible and
easily under-
stood (Carter & Narisinham, 1996; Zsidisin et al., 2003). The
goals of strategic
sourcing and its actual performance are reported to top
management (Carter
& Narisinham, 1996; Ellram et al., 2002; Zsidisin et al., 2003).

51. Furthermore,
strategic sourcing is accountable for continuous improvement
(Ellram et al.,
2002; Zsidisin et al., 2003). In addition, sourcing management
communicates
cost savings to top management in a manner that aligns the
savings with
key corporate goals and objectives (Ellram et al., 2002; Zsidisin
et al., 2003).
In addition, risk assessment is an important part of the strategic
sourcing
concept (Carter & Narisinham, 1996; Integrity Interactive,
2007). So are social
responsibility (Newman & McKeller, 1995), and supplier
reliability (Newman
and McKeller, 1995; Degraeve & Roodhooft, 1999).
This paper will focus on strategic sourcing using Total Cost of
Ownership (TCO), to inquire how strategic sourcing is applied
in the hos-
pitality industry; in order to do that, components of TCO such
as diversity,
VMI, and supplier selection and supplier relationship will be
investigated.
LITERATURE REVIEW
Company wide integration of supply chain initiatives is
important to an orga-
nization (Carr & Pearson, 1999; Ellram et al., 2002; Katz et al.,
2003). Other
areas within an organization view managing strategic sourcing
as an impor-
tant function (Carter & Narisinham, 1996; Ellram et al., 2002;
Zsidisin et al.,
2003). Sourcing goals are usually well understood and visible

52. throughout
the entire organization (Ellram et al., 2002; Zsidisin et al.,
2003). Education
regarding supply chain dynamics is also important to an
organization (Carter
& Narisinham, 1996; Nelson, Mayo, & Moody, 1998).
TCO, also plays a key role in strategic sourcing: Strategic
sourcing
performance objectives are based on TCO, and TCO is a well-
understood
and accepted measurement tool used by the organization and by
strategic
sourcing management (Ellram & Siferd, 1998; Ellram et al.,
2002; Ellram &
Siferd, 1993; Zsidisin et al., 2003). Often, key supplier
selection decisions
are based on TCO rather than on price (Ellram & Siferd, 1998;
Degraeve &
Roofhooft, 1999; Ellram et al., 2002; Ellram & Siferd, 1993;
Zsidisin et al.,
2003). The cost of diversity selection (i.e., the cost of diversity
integration) is
Strategic Sourcing in the Hospitality Supply Chain 145
included in TCO (Adobor & McMuller, 2007; Whifield &
Landeros, 2006; Shah
& Ram, 2006). Supplier ethics is an important issue when
determining TCO
(Bendixen, Abratt, & Jones, 2007; Carson, 2003; Carter, 2000,
2005; Cooper,
Frank, & Kemp, 2000; Fassin, 2005; Gonzalez-Padron, Hult, &
Calantone,

53. 2008; Gunlach & Murphy, 1993; Integrity Interactive, 2007;
Landeros & Frank,
1996).
In analyzing a supplier structure, one consideration is the
breakdown
of a supplier’s cost structure for key purchases (Kremic, Tukel,
& Rom,
2006; Zsidisin et al., 2003). Strategic sourcing management
works with sup-
pliers to encourage them to disclose their costs and cost
structures (Carter
& Narisinham, 1996; Ellram, 1996; Ellram et al., 2002; Zsidisin
et al., 2003).
Strategic sourcing management and suppliers then work
together to reduce
the costs of products and services (Bendixen et al., 2007;
Cousineau, Lauer,
& Peacock, 2004; Ellram et al., 2002; Zsidisin et al., 2003).
Business rela-
tionships between suppliers and strategic sourcing management
are also
important to the organization (Bendixen & Abratt, 2007;
Bendixen et al.,
2007; Carr & Pearson, 1999; Carter & Narisinham, 1996; Ellram
et al.,
2002; Gonzalez-Padron, et al., 2008; Gunlack & Murphy, 1993;
Newman
& McKeller, 1995; Peck, Payne, Christopher, & Clark, 2000;
Sarkis & Tulluri,
2002; Ryder & Fearne, 2003). Vendor certification can be used
as a guide for
developing relationships (Carter & Narisinham, 1996). Finally,
reducing the
supplier base is important in strategic sourcing and supplier
relationships

54. (Degraeve & Roodhooft, 1999).
VMI may be defined as a strategy between the vendor and the
customer
that aims to reduce the inventory at the customer’s site while at
the same
time minimizing the cost for the two companies involved in
making the
inventory available (Hines, Lamming, Jones, Cousins, & Rich,
2000). In VMI,
the responsibility for managing a customer’s inventory is
transferred from
the customer to the supplier (Elvander, Sarpola, & Mattsson,
2007). In addi-
tion, the vendor decides “the appropriate inventory levels of
each of the
products and the appropriate inventory policies to maintain
those levels”
(Sari, 2007, p. 530). The supplier takes responsibility for the
operational
management of the inventory within a mutually agreed
framework of per-
formance targets, which are constantly monitored and updated
to create an
environment of continuous improvement. Since the supplier
assumes the
role of replenishing the customer’s products, the result can be
lower costs
associated with monitoring and ordering inventory for the
customer (Sari,
2007). When VMI is used the supplier is routinely responsible
for managing
inventories for the customer (Cetinkaya & Lee, 2000; Danese,
2006; Dong,
Xu, & Dresner, 2007). With its focus on partnership and
information sharing,

55. VMI has emerged as a significant trend in partnership and
information shar-
ing in supply chain management (Mishra & Raghunathan, 2004).
Moreover,
its information-sharing component can result in tremendous
performance
improvements for the supply chain (Sari, 2007). For example,
when physical
146 N. Christodoulidou et al.
inventory is reduced so is the need for storage space. Likewise,
when the
usage site is the storage site the cost of moving material from
the warehouse
to the actual usage site is reduced (Yao, Evers, & Dresner,
2007). Cost sav-
ings also improve as ordering costs are reduced through VMI.
The overall
goal of VMI is to efficiently manage inventory in the supply
chain (Elvander
et al., 2007; Schorr, 1998).
Quality is also a crucial part of the strategic sourcing concept
(Carter &
Narisinham, 1996; Degraeve & Roodhooft, 1999; Kaynak, 1997;
Newman &
McKeller, 1995; Ting & Cho, 2008). In addition, on-time
delivery is another
issue when the firm participates in offshoring (Stringfellow,
Teagarden, &
Nie, 2007) or global sourcing (Zeng, 2003). In strategic
sourcing, offshoring
involves dealing with customs and duties and as such these

56. issues can have
an impact on costs and efficiencies.
THEORETICAL FRAMEWORKS
TCO is a purchasing tool and philosophy aimed at
understanding the rele-
vant cost of buying a particular good or service from a supplier
(Ellram &
Siferd, 1998). According to Ellram and Siferd (1998, p. 56)
TCO is a “complex
approach that requires the buying firm to determine which costs
it considers
most relevant or significant in the acquisition, possession, use
and subse-
quent disposition of a good or service.” Since transaction costs
can vary
significantly among suppliers they can be an important and even
deciding
factor. Transaction cost analysis theory refers to the transaction
of the trans-
fer of goods or services between technologically separate units
(Williamson,
1981) and the analysis of how efficient such intra agency
transactions are
(Walker and Weber, 1984; Williamson, 1981).
RESEARCH QUESTION
This research investigates the extent to which strategic sourcing
is applied
in the hospitality industry. The research question will be
examined based on
the TCO theory, inquiring about components of TCO such as
diversity, VMI,
and supplier selection and relationship. Perhaps some

57. organizations in the
hospitality industry may not be clear about the costs savings
and benefits
associated with successful strategic sourcing; hence it may be
interesting to
learn which factors may signal success and which ones may
pose challenges?
METHODOLOGY
This case study is exploratory in nature and based on interviews
conducted
with high-level executives in the hospitality industry, attempts
to identify the
Strategic Sourcing in the Hospitality Supply Chain 147
challenges that the industry faces when it considers strategic
sourcing. It also
hopes to identify the procedures that the hospitality industry
currently uses.
Interviews were utilized as the main method of data collection
in this study.
The units of analysis are a set of large hotel corporations.
The case study approach was picked as the best way to
understand how
strategic sourcing is currently managed in the hospitality
industry. According
to Yin (1994), the case study method is not only appropriate but
also pre-
ferred when investigating contemporary events such as those
involving the
hospitality industry because it uses interviews, which enables

58. the researcher
to study events in their natural setting. For this study, the goal
was not to
establish general trends but rather to seek a greater
understanding of the
way inventory is managed. One of the strengths of the case
study approach
is that it can deal with a full variety of evidence including
interviews.
Four large hotel corporations in the western region of the
United States
were selected to collect the data out of the eight large hotels
that are located
in this particular region. Two of the hotel corporations owned
only one
property, while the other hotel corporations each owned a
number of prop-
erties in the region. We protect the confidentiality of the
companies and
executives in the interview process by not identifying them
directly in the
study. Strict confidentiality was crucial to enable the company
executives
who participated in the interviews to speak openly about the
issues being
examined. Connolly (2005, p. 32) notes, “to encourage candor
and to pro-
tect each company’s and interviewee’s identity, a promise of
confidentiality
is often made.”
The interviews were semi-structured so the study could take on
an
exploratory nature. The interviewees had the opportunity to
express what

59. they thought are important components of strategic sourcing
that were not
addressed in the structured part of the interview. The semi-
structured nature
of the interviews also ensured that all topics of interest were
covered during
the interviews. The open-ended questions used in the interviews
provided a
frame of reference which encouraged discussion, eliminated the
steering of
responses, and allowed for depth to be established (Connolly,
2005). These
questions were presented in such a way that allowed individuals
to state
his/her true opinions and/or knowledge. The length of each
interview is
approximately 90 minutes. In response to and because of the
design of the
questionnaire, interviewees provided factual information as well
as profes-
sional opinions. The case study questions also asked that
respondents offer
insights with respect to various hypothetical events.
Respondents also were
invited to predict how those events would eventually unfold.
Respondents’
answers were then used as the basis for further questioning and
the basis
for further refining and/or constructing a survey instrument.
The executives interviewed were responsible for strategic
purchasing at
each of their companies, and their positions ranged from
managers to presi-
dents of the participating companies. All interviews were
transcribed shortly

60. after the interview. Furthermore, the researchers looked at
documentation
148 N. Christodoulidou et al.
TABLE 1 Interview Topics and Questions
Sourcing topic Research question
Sourcing strategy Tell us about your sourcing strategy.
Sourcing philosophy What is your sourcing philosophy?
Commodity sourcing (e.g., cleaning
supplies, towels)
How do you select suppliers for
commodities in your organization?
Customized sourcing (e.g., amenities,
stationery)
How do you select suppliers for goods
and services that require customization
in your organization?
Supplier selection How do you select your suppliers?
Supplier relationship How important are supplier relationships
in your organization?
VMI (Vendor Managed Inventory) / CMI
(Co-Managed Inventory)
Do you use VMI or CMI in your

61. organization?
Importance of goal setting How important is goal setting in your
organization?
relating to the strategic sourcing policies of the executives
respective orga-
nizations; this information was collected either directly from
company
documents or from the company website. Table 1 provides the
basic outline
of the issues the interview questions covered.
The data gathered through the methods previously described
were ana-
lyzed using content analysis techniques and provided the bases
for within
and between case comparisons (Holsti, 1969). Latent analysis
and manifest
analysis, two of Holsti’s five content analysis units, were used
to obtain both
reliable and valid support for our research conclusions. The
manifest anal-
ysis technique searches for a single key word or phrase to draw
inferences
about the raw data with respect to the research hypotheses. On
the other
hand, the latent analysis technique relies on the researchers’
interpretation
of interviewees’ raw data to first understand a central theme and
then to
draw inferences with respect to the research questions. The
application of
these two approaches enhanced the validity of the analysis and
the findings
of this study.

62. FINDINGS
Semi-structured, one-on-one interviews were conducted with
key execu-
tives from the leading hotels in order to obtain their current
opinions about
the part strategic sourcing presently plays in the hospitality
industry and
its long term potential. The interviews were conducted with two
investiga-
tors present. Each interview lasted about 90 minutes. The
interviewees were
selected because of their involvement in the
sourcing/purchasing area. All
were presidents, vice-presidents, or other high-level executives.
The results
are summarized in Table 2.
TA
B
LE
2
Su
m
m
ar
y
o
f

63. R
es
u
lts
To
p
ic
C
o
m
p
an
y
1
C
o
m
p
an
y
2
C
o
m
p
an

64. y
3
C
o
m
p
an
y
4
So
u
rc
in
g
st
ra
te
gy
(p
h
ilo
so
p
h
y)

65. •E
n
ab
le
ri
sk
as
se
ss
m
en
t
to
b
e
ca
rr
ie
d
o
u
t
•T
o
ke
ep

66. co
m
p
et
iti
ve
•E
st
ab
lis
h
su
p
p
lie
r
•r
el
at
io
n
sh
ip
s

67. st
ra
te
gi
es
•I
n
cr
ea
se
o
ve
rs
ea
s
so
u
rc
in
g
•D
et
er
m

68. in
e
w
h
at
co
n
st
itu
te
sa
vi
n
gs
•I
d
en
tif
y
p
ri
m
ar
y
co
st

69. d
ri
ve
rs
C
o
m
m
o
d
ity
so
u
rc
in
g
•I
m
p
le
m
en
t
d
em

70. an
d
fo
re
ca
st
in
g
•U
se
o
f
en
vi
ro
n
m
en
ta
lly
fr
ie
n
d
ly

71. p
ro
d
u
ct
s
•E
st
ab
lis
h
ec
o
n
o
m
ie
s
o
f
sc
al
e
fo
r

72. co
m
m
o
d
ity
p
u
rc
h
as
in
g
su
ch
as
to
w
el
s.
•I
n
cr
ea
se

73. o
ve
rs
ea
s
so
u
rc
in
g
•N
o
st
ra
te
gy
in
p
la
ce
C
u
st
o
m

74. iz
ed
so
u
rc
in
g
•C
o
st
sa
vi
n
gs
re
al
iz
ed
th
ro
u
gh
o
ff
sh

75. o
ri
n
g
o
f
am
en
iti
es
•D
ec
is
iv
e
fa
ct
o
rs
ar
e
tim
el
in
es

76. s,
q
u
al
ity
,
an
d
p
ri
ce
•C
o
st
sa
vi
n
gs
re
al
iz
ed
th
ro
u
gh

77. o
ff
sh
o
ri
n
g
o
f
am
en
iti
es
•N
o
st
ra
te
gy
in
p
la
ce
Su
p

78. p
lie
r
se
le
ct
io
n
•C
o
m
p
et
iti
ve
em
p
h
as
is
b
as
ed
o
n
cr

79. ite
ri
a
su
ch
as
:
d
iv
er
si
ty
p
o
lic
ie
s,
so
ci
al
re
sp
o
n
si
b

80. ili
ty
•L
ac
k
o
f
in
te
gr
at
ed
so
u
rc
in
g
p
ra
ct
ic
es
am
o
n

81. g
d
if
fe
re
n
t
d
ep
ar
tm
en
ts
w
ith
in
th
e
o
rg
an
iz
at
io
n

82. •D
iv
er
si
ty
/
•B
id
d
in
g
p
ra
ct
ic
es
:
40
%
o
f
p
u
rc
h

83. as
in
g
is
b
id
o
u
t
w
h
ile
60
%
o
f
p
u
rc
h
as
in
g
is
fo
o

84. d
b
ev
er
ag
e
p
ro
d
u
ct
s
fr
o
m
es
ta
b
lis
h
ed
su
p
p
lie

85. rs
an
d
h
en
ce
n
o
t
b
id
o
u
t
•E
ac
h
p
ro
p
er
ty
ch
o
o
se
s

86. th
ei
r
o
w
n
su
p
p
lie
rs
an
d
th
is
re
su
lts
in
in
ef
fi
ci
en
t

87. p
ro
ce
ss
es
Su
p
p
lie
r
re
la
tio
n
sh
ip
•A
m
o
re
ef
fi
ci
en
t

88. re
la
tio
n
sh
ip
ac
h
ie
ve
d
th
ro
u
gh
ve
n
d
o
r
ce
rt
ifi
ca
tio

89. n
•U
se
o
f
es
ta
b
lis
h
ed
su
p
p
lie
rs
fo
r
p
ro
d
u
ce
an
d
se
af

90. o
o
d
•C
ri
te
ri
a
fo
r
ex
cl
u
si
ve
an
n
u
al
ve
n
d
o
r
co
n

91. tr
ac
ts
in
cl
u
d
e
tr
u
st
w
o
rt
h
in
es
s
an
d
th
e
ab
ili
ty
to

92. ex
ch
an
ge
in
fo
rm
at
io
n
w
ith
tr
an
sp
ar
en
cy
o
f
p
ro
fi
t
m

93. ar
gi
n
s
•E
st
ab
lis
h
ed
re
la
tio
n
sh
ip
w
ith
a
si
n
gl
e
su
p

94. p
lie
r
fo
r
fo
o
d
&
b
ev
er
ag
e
(e
xc
lu
d
in
g
liq
u
o
r)
p

95. ro
d
u
ct
s
•E
ac
h
p
ro
p
er
ty
h
as
d
ev
el
o
p
ed
d
if
fe
re
n

96. t
re
la
tio
n
sh
ip
s
d
ep
en
d
in
g
o
n
th
e
su
p
p
lie
rs
ch
o
se

97. n
V
M
I/
C
M
I
u
se
d
/
In
ve
n
to
ry
co
n
tr
o
l
•U
til
iz
at

98. io
n
o
f
el
ec
tr
o
n
ic
re
ce
ip
t
sy
st
em
•D
if
fe
re
n
t
re
o
rd
er

99. in
ve
n
to
ry
p
o
in
ts
fo
r
m
id
w
ee
k
vs
.
w
ee
ke
n
d
•U
se

100. o
f
p
o
in
t
o
f
sa
le
sy
st
em
fo
r
re
p
le
n
is
h
m
en
t
p
u
rp

101. o
se
s
•G
o
o
d
re
la
tio
n
sh
ip
s
•S
u
p
p
lie
r
p
ro
vi
d
es
o
n

102. e
em
p
lo
ye
e
o
n
ca
si
n
o
in
ve
n
to
ry
si
te
•N
o
au
to
m

103. at
ic
re
p
le
n
is
h
m
en
t
sy
st
em
G
o
al
se
tt
in
g
•I
m
p
le

104. m
en
ta
tio
n
o
f
ri
sk
m
an
ag
em
en
t
an
d
so
ci
al
re
sp
o
n
si

105. b
ili
ty
•C
as
in
o
em
p
lo
ye
es
,
su
ch
as
fo
r
ex
am
p
le
h
o
u

106. se
ke
ep
in
g
n
ee
d
s
to
b
e
ed
u
ca
te
d
o
n
h
o
w
to
av
o

107. id
o
ve
r
u
sa
ge
o
f
p
ro
d
u
ct
s
•B
et
te
r
p
ri
ci
n
g
•M
o

108. re
su
p
p
lie
r
re
lia
b
ili
ty
•C
o
st
sa
vi
n
gs
149
150 N. Christodoulidou et al.
The topics investigated are analyzed next. The key findings of
each of
the topics are presented below.

109. Sourcing Strategy/Philosophy
All four corporations appeared to be struggling with what their
sourcing
strategy was or what their sourcing strategy should be. The two
casino cor-
porations, which owned only one property, focused more on
micro-issues
such as risk assessment and supplier relationships. The
corporations that
owned a group of casinos had adopted more of a global
approach and were
primarily focused on strategies that could drive costs down by
sourcing
overseas for primarily customized commodities such as
stationery, toiletries,
and other amenity items. Therefore, depending on the size of
the casino
property, different priorities existed.
Commodity and Customized Sourcing
Most of the executives interviewed mentioned themes such as
overseas
sourcing. One executive stressed the importance of timeliness,
quality, and
price. Even though purchasing overseas was attractive to the
sourcing exec-
utives because of the cost savings, concerns were raised about
products
arriving on time. Another concern was product availability; the
issue that
was raised was lack of alternatives should a product not arrive
on time.
Finally, the complication of dealing with customs and duties is
a factor in

110. dealing with overseas sourcing. One executive added that even
when prod-
ucts are sourced locally, there was some discussion about the
impact that
natural disasters such as Katrina might have, in other words, the
timely deliv-
ery of something like sugar to the hotel properties after such a
disaster had
occurred.
Supplier Selection
Two of the companies described the process of supplier
selection as inef-
ficient. One executive in a large hotel corporation consisting of
multiple
hotels in particular said that each property could choose its
supplier and
do so without specific or company guidelines. Finding diverse
responsible
suppliers were voiced as other issues of concern.
Supplier Relationship
Casinos consistently shared the opinion that Las Vegas is a
“small” town as
far as supplier selection and relationships are concerned.
Suppliers negotiate
differently in an oligopoly setting and thus free enterprise does
not really
exist. Since pricing is not a decisive factor in such an
environment, some
Strategic Sourcing in the Hospitality Supply Chain 151

111. sourcing executives use vendor certification as a guide when
choosing sup-
pliers. One executive shared that in the Las Vegas area, hotel
corporations
have few suppliers to choose from and sometimes only one
supplier for the
food and beverage division.
VMI or Co-Managed Inventory (CMI)
The larger groups of properties had stricter controls of
inventory in place.
The casino corporations that owned only one property used
reorder
inventory point system. All of the corporations welcomed the
idea of
implementing VMI, and some felt that they had used some form
of co-
managed inventory at the property level. One executive stated
that it already
had a dedicated person from the supplier’s end serving their
property.
Another executive in a different corporation did not have any
automatic
replenishment system in place.
Importance of Setting Goals
As expected because of differences in priority and stages of
growth, some
of the future goals listed by the various casinos were: social
responsibility,
education, reliability, and integration. Diversity integration was
also deemed
to be important for future goal setting. Continuous education

112. was also part
of the future goals. Furthermore, consistency and reliability in
sourcing prac-
tices were also mentioned. Finally, stronger integration and
communication
with other divisions/departments of the organization were seen
as crucial
goals to work towards to.
LIMITATIONS
The participants were selected from a convenience sample of
hospitality
industry contacts based upon their involvement with strategic
sourcing.
Limitations of this method included bias response bias (i.e., the
interviewee
tells the interviewer what he or she wants to hear) and social
desirability bias
(i.e., inflated positive responses). These limitations were
minimized to the
extent possible by using multiple interviews with executives in
top positions
in the sourcing divisions and referencing extant literature and
company doc-
uments and hence triangulating. In collecting the data, four
hotel properties
were used.
CONCLUSIONS
This exploratory study revealed that there are only a few
procedures in place
for strategic sourcing in the hospitality industry. These
practices include

113. 152 N. Christodoulidou et al.
commodity and customized sourcing, supplier selection,
supplier relation-
ships, implementation of VMI/CMI, and goal setting. However,
this research
also showed that the hospitality industry applies only a limited
part of
the available and established strategic sourcing practices. Even
though the
hospitality industry traditionally has had lower inventory levels
than other
industries (Schmidgal & Damitio, 2006), the lack of emphasis
on strategic
sourcing contributes to the many challenges this industry
confronts today.
These challenges include global competition, technology
evolution, pricing
and revenue models, high overhead costs, lack of cost control,
employee
recruitment and retention, and intensive labor costs. Our study
suggests that
an opportunity exists for the industry to combat some of these
challenges
(quality, delivery, and cost issues) in today’s tough business
and economic
environment by increasing the use of sophisticated sourcing
methods. For
instance, more corporations need to establish goal setting in
sourcing along
with using more frequently VMI or CMI. Consequently, this
research re-
emphasizes the importance of the role of purchasing in a
company’s success

114. as discussed by previous literature (Ellram et al., 2002). In
addition, these
authors also suggested that an investment in the educating of
supply man-
agement will provide a substantial return. This research
suggests that the
industry can adopt sourcing strategies that will provide a firm
with a com-
petitive advantage. For instance, based on the interview
findings, the hotel
corporations need to establish a sourcing strategy that is
currently lacking
in order to achieve their long-term goals. The hospitality
corporations also
need to implement a process for supplier selection and
purchasing proce-
dures (Sanchez-Rodriguez, Hemsworth, Martinez-Lorente, &
Clavel, 2006) in
order to make the sourcing process more effective. The research
results also
revealed that company wide integration of efficient processes is
also a prior-
ity for many of the organizations that were investigated.
Therefore, based on
the findings and discussion, strategic purchasing in the
hospitality industry
is vital to operations.
More research is needed to determine which aspects of strategic
sourcing are most useful for the hospitality industry and how
they can be
implemented most effectively. Future research could investigate
the impact
of strategic sourcing and sustainability practices on the
hospitality industry.

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