Cruise lines have kept on course through the downturn, but the industry’s suppliers have had a tougher time. Crystal Cruises’ Bob Koven and Royal Caribbean’s Henry Lopez tell Ian Duncan how they are working closer with their supply partners.
Last year was difficult for the shoreside hospitality sector, with occupancy and rates down significantly. Starwood, one of the world’s largest hotel groups, saw its revenue per available room fall by over a fifth. Industry wide, the figure stood at 12%.
Suppliers, for whom hotels are their main source of revenue, suffered greatly as a result, creating problems down the line for what has remained a relatively stable cruise industry. Although there are differences in emphasis between the cruise lines, their strategies are similar. The key trend has been a closer working relationship with suppliers, guiding them through this difficult period while keeping a watchful eye for signs they might falter.
Bob Koven, vice-president of procurement at Crystal Cruises, acknowledges it has been a difficult time for some key partners. "Everybody’s uncertain about their solvency," he says. "We’re seeing a lot of bankruptcies; this didn’t happen in the past when business was slow. Royal Doulton and Wedgwood went out of business, which created problems for us. We use their bone china on our ships, so after they folded we were putting out fires."
The situation became so critical that Koven and his team were forced to scour the internet for replacement items until a decision could be taken on a new supplier.
Henry Lopez, AVP, hotel, food and beverage at Royal Caribbean Lines (RCL), has also been forced into adopting new measures. "The economic impact over the last year has strengthened our relationship with our suppliers," he says. "They’ve been under pressure from other customers, but we’ve partnered more closely with them to give guidance on what we expect."
At a time when stability is at a premium, operators have been able to negotiate deals and secure good prices in exchange for prompt payment. Koven and Lopez acknowledge that there has also been a general deflation of prices for goods, especially luxury items such as champagne and caviar.
While this helps keep costs under control, there is also an emphasis on procedure to avoid mistakes. When problems are encountered, Koven aims to tackle them in plenty of time. "We like to have some of our suppliers cross-check our purchase order with their invoices so they can identify any shortages," he says, "and give us a list of items they’re not going to be able to deliver, or substitutions they are going to be able to offer, at least three days before delivery. Rather than them making unilateral decisions, we can correct the problem before the delivery is made to the ship."
Koven makes it clear that the downturn has had a major impact on his work as the head of procurement. "My role has changed in the sense that I’m focusing a lot of attention on avoiding mistakes, on cost-saving initiatives, budget planning and tracking, and measuring our results without compromising product delivery."
Lopez has seen his focus shift as well. Even during the downturn it was important for the industry to move forward and he has been working on delivering a more diverse experience to guests, creating a need to find new suppliers. "Certainly it increases the complexity," he admits, "but the way we’ve designed our procurement process has been with that in mind. The hospitality area is not a static environment, you have to build your systems and processes and the way you source products in a very dynamic fashion."
This tension between crisis management and trying to keep up with longer-term trends highlights a central dilemma for procurement teams in the industry. In particular, there has been no reigning in of the push to develop new itineraries.
When entering any new market, preparation and information gathering is critically important in order to ensure smooth operation and control of costs. When RCI made its first deployment to Dubai in January, Lopez made a sourcing visit and met several suppliers to understand their capabilities. "We looked at what other companies are doing in that area and then developed our supply strategy for that season," he says.
The ongoing threat of piracy in the Indian Ocean has caused problems for Crystal Cruises. The extended range of pirates based around the Horn of Africa means that the Seychelles, marked as a major supply stop on the line’s world cruise, is now a potential target. Koven has been tasked with finding workable alternatives, including Mombasa in Kenya and Mumbai on India’s west coast.
The ever-widening scope of itineraries has had a significant impact on procurement and supply chain management. For operators such as RCI, which has traditionally concentrated on the North American market, sailing worldwide is a relatively new experience.
"We’re exploring whether we can use existing carriers to get goods in," he says. "When you start talking about chartering a plane it gets very expensive."
The itinerary process informs supply decisions so the company has broadened its operation to cope with these new demands.
"We have regional experts that focus on Australia and Asia, as well as a procurement office in Europe that takes the lead on sourcing our brands," Lopez explains. "We’ve definitely changed how we’re organised and improved our expertise in those markets."
Crystal has greater experience operating on a global scale but still faces difficulties sourcing niche luxury items and complying with strict regulatory frameworks.
"We want to import ice cream from the US because it complements the American palette, but we need a certificate of origin before we can ship it to Europe," Koven explains. "It can’t be shipped in a frozen container unless it comes from an EU-authorised plant and it’s very difficult to find a port where we can get the product to our ships so guests can get the type of ice cream they like."
Given the growing length of cruise operators’ supply chains, the creation of a consortium to aid in the management of procurement could help reduce complexity. Lopez recognises it is worth considering. "We have to look at all opportunities," he acknowledges. "That’s something worth investigating." For Crystal, there may be more disadvantages than benefits to such a deal.
This is mainly because of the more specialised character of its business. "I don’t see that happening right now because our specifications are so broad," Koven says. Despite lingering hangovers from the downturn, Koven and Lopez are confident about the coming year, seeing opportunities to increase guest numbers. The strategies put in place to cope with the deepest months of the slump should serve the industry well.
There is still a need to be cautious because as long as credit remains tight and the rest of the hospitality sector remains weak, suppliers will be vulnerable. Meeting expectations will continue to be a delicate balance.