The supply chain is critical to maintaining the expectations of discerning passengers
By
by Sam Ballard |
Like every other business sector, the travel industry has suffered at the hands of the global recession. The economic earthquake that shook the world towards the end of 2007 has forced a complete reevaluation of the way every company in every sector does business. Loose spending will only make tight margins even tighter. Cruise lines, though, have a particular problem: as a premium sector, they have to look to save money while meeting, even exceeding, the high standards their guests have come to expect.
Solving this equation has led many lines to re-engineer their supply chains and, especially, to move towards a more localised model of sourcing. This has been challenging, both from an operational perspective and also, in an industry dominated by US-based firms, because of the weak dollar. “We are truly a global supply chain. Where infrastructure was lacking, we have partnered with suppliers to develop that infrastructure,” says Henry Lopez, associate vice-president of hotel, food and beverage purchasing for Royal Caribbean (RCL). “And when there’s a new itinerary that we haven’t supplied to in the past – or the industry hasn’t supplied – we do the work ahead of schedule to implement that infrastructure.
“The role of local suppliers is extremely important to us,” he continues. “The most effective global procurement operation looks at the specification itself: the varieties that are available, the location of the country producing them – how does that fit into your application? We then make the best choice based on those criteria. The problem with today’s market is that the US dollar is on the weaker side. A perfect example of where this has affected business is in Australia. At one point, the Aussie dollar was worth about 70 US cents, now it’s slightly stronger than the US dollar. This has a big impact on how we deal with that regional market.”
The issue for a global operation like RCL is that procurement has to be driven by economics. It would make no financial sense to ship containers to a destination when materials of the same quality can be sourced locally, especially considering the scale of purchasing in question. However, what makes the operation so successful – and all the more impressive considering its size – is its flexibility. “It’s all about being market responsive,” explains Lopez. “There are opportunities all the time if you can move quickly enough to capture them. They aren’t always better value though. Our primary concern is guest experience, which means being able to get the materials on to the ship. Cost doesn’t even come into the equation unless the other two are working.”
When looking at the flexibility of RCL’s supply chain, it is interesting to note the practices of other cruise lines. Even though most operate on a smaller scale, the complexities and issues that affect the supply chain are no different. “If we cannot source quality produce locally then we have to use containers,” explains Steve Kirsch, director of culinary operations at Holland America. “For instance, we ship all of our US beef across the world by container, that’s a simple example. We will always feature US beef and the only way we can get it there, by the most economical means, is by container. It allows you to maintain the necessary quality level.”
Holland America’s commitment to American beef has completely changed the dynamic of its supply chain. For the company, with this product specifically, there is little impetus to source locally – in fact, doing so would compromise what has become a hallmark on its menus.
“Our philosophy is that we’re always going to serve American beef,” continues Kirsch. “We have a contract set up year round, and yes, we’ll always work with local suppliers, but on a product as specific as American beef, we already have the best way of controlling it – by shipping it ourselves.”
With both lines operating globally, it is interesting to note the different approaches that each takes. In a way they can be traced back to the fundamental principles that each line has in regard to its entire operation. For Holland America it is obviously not possible to source American beef anywhere but the US. For RCL, though, a product’s specificity doesn’t come into the arrangement – it has everything to do with flexibility and using the local supply.
This is an abridged version of an article that appeared in the Autumn/ Winter 2011 edition of International Cruise & Ferry Review. You can subscribe to the magazine in printed or digital formats.