After eight months of searching for a buyer, Marriott International Incorporated acquired Starwood Hotels and Resorts Worldwide Inc. (SPG) for a staggering $12.2 billion, creating what is now the largest hotel company with more than one million rooms globally. This merger is facing a number of technological and operational challenges, yet frequent travelers throughout the world have only one thing on their mind, “What will happen to all my points?!?”
That answer remains to be seen, however, a merging of programs is likely. There are precedents for merging rewards programs such as American Airlines and US Airways as well as IHG’S and Kimpton’s mergers. The merging programs in question will inevitably need to meet at some point in the middle with a combination of inflating Marriott’s points and deflating SPG’s point values . The new “Sperriott” brand will need to blend across all business functions to ensure cost savings, increased revenue, decreased cannibalization, and an overall great customer experience. One of the easiest ways to capitalize on cost savings and return these benefits to the consumer is through strategic supply chain management (SCM).
Sourcing, a component of SCM, is an area to quickly reap low hanging fruit in any merger. Consolidating the sourcing function will allow “Sperriott” to allocate more funds to develop their new rewards program. Marriott and SPG both have similar needs for their hotel furniture, fixture, equipment, operating supplies, equipment, food, and beverage . These common needs provide ample opportunity to use a blend of existing suppliers to reduce duplicate suppliers and augment volumes. Potential cost savings include improved corporate pricing, enhanced volume based SLAs, and higher quality sourced goods.
The second area in which “Sperriott” can generate cost savings lies within a newly optimized distribution network. The acquisition quintessentially provides the newly formed company with two distribution networks to serve the same channels. Given both companies are global entities and often compete in the same locations, a combined and optimized distribution network would provide the strongest benefit. A combined distribution network would allow for inventory reduction and transportation benefits such as the ability to send a single shipment to a location that services multiple hotels within the same city. With added volume, the shipment would likely be shipped by the truck load (TL) rather than at less than truckload shipments (LTL). TL shipments result in lower cost per item shipped and increased space utilization. The cost savings can be reallocated to further develop other essential business functions and in this case, a merged points program.
Supply chain improvements are great but ultimately what will happen to your points?
Travelers will have to wait and see on that front. Regardless of the decision, sourcing and distribution network design are areas all companies can identify as potential cost savings. The savings provide companies with opportunities to create efficiencies, streamline processes, and provide more services for their customers, such as bolstering loyalty programs. Bolstered loyalty programs equate to happier customers, increased customer loyalty, and greater brand recognition. The coalescence of Marriott and Starwood provides a rich analogy for how supply chain savings can be used to drive customer facing initiatives.
If you have any questions about how your company can benefit from supply chain management, please email Bobby Parratore (email@example.com) or Andrew Koultourides (firstname.lastname@example.org).