In the final two installments in our seven-part series on collaborative commerce (c-commerce), we present a case study of how one major enterprise made the transition to c-commerce.
Five short years ago, Royal Caribbean Cruises Ltd. (RCCL) had five ships, and its smaller customer base allowed for inefficient processes, such as manually administered supply chains.
Today, however, with 22 ships and counting, the company has come to the harsh realization that its manual processes aren’t working. The Miami-based company began seeking a more efficient and cost-effective approach to supply chain management (SCM), and so began its foray into collaborative commerce.
Complex supply chains create unique challenges
RCCL has two distinct supply chains, each managed by a Provision Master. The first supply chain encompasses all food, beverage, and lodging inventories. The Provision Master for this supply chain is required to create a list of materials needed for the next cruise (and sometimes for a few upcoming cruises) and to disperse the inventory to various cost centers on the ship, based on the cost centers’ requisitions.
Creating this list of materials is no quick feat. The Provision Master must consider previous trip experiences, the season, and the current customer base—U.S.-based, European, or the number of child passengers, in some cases. When the list is finalized, it is transmitted to RCCL’s procurement department, which then does an extract in the system and sends purchase requisitions to vendors via electronic data interchange (EDI), fax, or e-mail.
The $2.9 billion, mobile enterprise’s second supply chain is managed by a separate Provision Master, who is responsible for procurement of “corporate spend” materials, such as office supplies, printed materials, printing services, computer supplies, hardware, and software; and marine consumables, such as spare parts, fuel, and lubricants—any and all services associated with ship maintenance.
Both RCCL supply chains are complex because, unlike any land-based operation, the enterprise literally moves. Each of its 22 ships turns around every weekend in different ports, each with a unique travel itinerary. Each vessel must receive all materials needed for a seven-day trip within an eight-hour window prior to departure.
When the company was smaller, with smaller ships and less diverse itineraries, it could manage supply chains on a much more manual basis. At that time, the company dealt with fewer vendors and suppliers, so managing those relationships was simpler. But as the number of vendors involved has increased, and as the cruise industry has become more competitive, efficient processes have become critical to the company’s financial success.
Inefficiencies can cost dearly
According to Michael Allsup, RCCL’s VP of supply chain management, the goal of the company’s SCM efforts “was to be able to supply the ships, on time, with the right quality and quantity of materials, goods, and services to meet the demands of the cruise.”
The big hurdle for RCCL was that its supply chains had holes—there were some purchasing activities that were undefined and unknown. Both chains needed to collaborate more closely with vendors in terms of demand signals and supply needs.
To illustrate, let’s use the first supply chain mentioned above (food, beverage, and lodging) as an example. Each ship contains up to six galleys that produce high-quality foods for different venues. The average Celebrity Cruises ship (a premier brand under the RCCL) stores approximately 21,600 pounds of various cuts of beef for an average seven-night cruise. If the Provision Master for this supply chain predicts this demand relying only on his or her memory of past cruises’ consumption levels, the vendors are then left to deal with a great deal of the uncertainty involved with the Provision Master’s prediction. Vendors typically hold inventory based on what RCCL assumes its draw will be, and when that draw turns out to be more or less than what RCCL has predicted, the company must pay the vendor to make up the difference.
“We ended up doing things that were extraordinary to meet certain demands, where we were probably adding more cost not only to ourselves but to our vendors as well,” explained Allsup. For example, RCCL got into the bad habit of airfreighting materials—such as chocolates—when an inventory was understocked or improperly planned. In this scenario, RCCL ended up paying more for the airfreight charges than it did for the materials themselves. This was also occurring with materials purchased via RCCL’s other supply chain (office supplies and materials and marine consumables).
How c-commerce became the focus
To improve processes within both supply chains, RCCL decided to institute a c-commerce approach.
“We want to work very closely with our suppliers so that we can effectively plan for the deliveries of truckload quantities of materials to key strategic locations. In this way, we can fulfill requirements to the fleet as needed,” explained Allsup.
To do this, RCCL also needed to have a clear view of the ships’ consumption patterns and to be able to share that information with vendors.
As mentioned, RCCL’s vendors currently manage much of the uncertainty when it comes to the amount of supplies needed. “The closer we get to managing that and collaborating with them, the better we can do in terms of reducing our overall cost in the supply chain,” said Allsup. “Additionally, we want to increase the velocity in which the supply chain can react, and simultaneously operate with lower inventories.”
The company saw that it needed to provide much more guidance and much more timely information about inventory positions, itinerary changes, or even menu changes that could drive or change consumption patterns. RCCL then needed to translate the needs of these operations programs into purchasing and supply chain requirements. RCCL’s procurement and logistics processes together spend in excess of $600 million of the company’s $2.9 billion in total revenue.
“For this reason,” said Allsup, “it was important for us to look at where and how we were spending that money.” It became evident there were many opportunities for improvement in inventory management and procurement. For example, the company’s warehouse applications were poorly integrated and the EDI infrastructure was insufficient for the company’s needs, so concentrating on getting those two areas up to speed would mean cost savings for RCCL.
“Collaborative commerce was a natural move for us,” said Allsup.
Stay tuned for the next installment in this two-part case study on RCCL’s sail into c-commerce to learn how the company addressed its supply chain management issues and to find out what systems and technologies it has put in place.
The c-commerce series
If you’d like to catch up on any previous installments in our series on c-commerce, click on the links below.
- Part 1: “Preparing the enterprise chain for c-commerce”
- Part 2: “ERP: A roadblock en route to collaboration”
- Part 3: “CRM integration strategy is critical to c-commerce success”
- Part 4: “E-procurement: The link to the c-commerce value chain”
- Part 5: “Pave the way for c-commerce by mastering SCM”