Carnival Corporation will spend about $9 billion on operating expenses per year, including more than $1 billion on food products (the company does not break out its beverage spend). Julia Brown, chief procurement officer, told Cruise Industry News in an exclusive interview that about 35 to 40 percent of the supplies are sourced globally, 35 percent regionally and the balance locally.
“We have looked at each of the product categories, using food and beverage as an example, and sub segments such as produce and protein, and determined what is global, regional and local,” Brown said. The global items are handled from corporate headquarters in Miami, while executives at the various brand groups handle regional procurement, and the brands handle local products on their own.
“Particular product decisions are made at the cruise line level,” Brown said, “that has to be the owner of the P&L statement, the person who is accountable.
“When we do our job right, we know upfront what the brands want, and we make sourcing recommendations based on the needs they have outlined to us.
“We can buy on behalf of the enterprise without everybody getting the same things. The misconception is that by leveraging scale everybody gets the same product. We are not saying that at all. We are saying that we can get what you want to meet the needs of your guests and the market segment your line supports. And by laying out the overall requirements to suppliers we can probably have less suppliers and more strategic relationships.”
Today, Carnival Corporation has more than 33,000 suppliers globally, but spend less than $100,000 on 28,000 of these, according to Brown. “The tail base of the supplier base is incredibly long,” she said.
“We are focusing on total value,” Brown continued. “Quality and service are obviously key metrics. The other aspect of value includes innovation, helping us maintain a competitive advantage. That is something we are definitely looking at.”
As for cost, she said: “I distinguish between cost and price. Suppliers’ pricing has several components including some level of margin, but when we do a bottoms up modeling, we get a sense of what the product actually costs, and then there is the price affected by demand, specifications and so on. We want to understand the difference between cost and price, which will allow us to negotiate on the basis of data rather than just wanting a lower price.”
Brown has advice to existing suppliers: “Always think about how you can simplify our world. I look at quality and service as a given, but if you notice we are buying multiple products that are similar across brands, and we are managing them differently, tell us. We are open to listening to ideas for how we can drive value.”
And to new suppliers: “As you approach us, take time to understand our business. I have suppliers that call me not realizing we have 10 brands. They also need to understand that everything that goes aboard our ships, including the guests, have to be loaded and unloaded in an eight-hour period. The logistical challenge is significant.”
Her success metrics are to exceed guest expectations and doing so in a way that is not noticeable to the guests unless it is a positive enhancement.
“Obviously spending less, buying better and getting better quality and service are also a success metrics for me, as are being able to streamline the complexity of what we manage and create more strategic partnerships that will give us competitive advantages over time.”
Excerpt from Cruise Industry News Quarterly Magazine: Summer 2017
