Juggling Commodities: The Procurement Manager's Balancing Act
10 May 2011 Ron Brandeberry
With multiple suppliers providing up to 7,000 items each, procurement managers have to keep many balls in the air. Selwyn Parker talks to Seabourn's Ron Brandeberry about the balancing act of supply and demand.
Procurement teams are the unsung heroes of the cruise ship industry - the departments on whom the passenger experience crucially depends. But as food prices hit a record high in February - with the UN's index of food and agricultural prices soaring above 230 and rising - they face a year of abrupt price rises, mounting shortages and the risk of gaps in the supply chain.
Furthermore, ships' itineraries have expanded greatly in the past few years, compounding the challenges that procurement teams face; for example, Carnival's supply chain now covers more than 70 ports, twice as many as five years ago, while the global fleet of cruise ships visits 500 destinations.
With new and bigger ships being launched, the industry's requirement for everything from fresh fruit and beverages to glassware and fire-proof deck furniture is growing all the time.
In 2010, 14.3 million passengers went on a cruise holiday and bookings are even higher for 2011. This revolution couldn't have happened without a quantum leap in improvements in management systems over the past few years. The delivery of thousands of products to precise schedules and in exact quantities that meet agreed quality standards would otherwise be impossible. As supply chain executives point out, there's no margin for error in delivery, with a one-day window for most suppliers.
"The biggest improvement for us has been our internal system for inventory control and ordering," explains Ron Brandeberry, manager hotel procurement and logistics for Carnival-owned boutique line Seabourn. "New software systems and best-practice ideas from our larger corporate fleet have helped us improve efficiency."
Software notwithstanding, the major headache now for all procurement managers is erratic prices across a wide swathe of supplies.
"The biggest issue is shortages of commodities, as well as supply and demand," says Brandeberry. "They have a big impact on volume of purchases."
Adding to procurement's challenges is the double whammy of far-flung itineraries, which require managers to deal with many more suppliers and port authorities in different currencies, as well as competition with other industries, such as supermarkets, land-based hotels, airlines and rail, for a wide range of increasingly expensive commodities.
Some newer ports have yet to get up to speed with the industry's requirements. Supply chain specialists say they routinely face delays in shipments and containers because of problems with customs documentation. In emerging destinations such as Asia, operators are rapidly establishing relationships with a whole new set of suppliers and port authorities. In this scenario, Seabourn is no different.
"Where we send containers or where we're pulling stocks from our supply hubs, the markets are harmonised [in terms of pricing and availability]," says Brandeberry. "The big issues arise in the remote ports of supply."
It's not easy for remote suppliers either. Documentation, especially for dry or frozen foodstuffs, can be rigorous, subject to change and bureaucratic in newer destinations. Dock workers, vital in the delivery chain from port gate to ship, don't always fully understand a cruise ship's tight schedules. And, because operators prefer to deal with the fewest possible number of suppliers, the latter must warehouse increasingly big inventories. It's by no means unusual for a supplier to run a 7,000-item shopping list. Closer to home, though, things generally go smoothly in terms of continuity of supply.
"Because all or most of our ships operate in Europe from about April through to November, we depot a lot of our material in central Europe, and that has helped us by enabling more customised transport solutions," says Brandeberry. "We aren't trying to fill a container all the time."
Meanwhile, it's highly unlikely that commodity prices will flatten out for months, if at all, in 2011.
As Amrita Sen, commodities analyst at Barclays Capital, told a conference in London in February 2011, they will probably become increasingly volatile and vulnerable to shocks. That's not exactly the news that procurement managers want to hear.