1

ANALYSING THE SUPPLY CHAIN STRATEGY OF THE CRUISE INDUSTRY:

THE CASE OF A SMALL CRUISE COMPANY

Dr. Georgios K. Vaggelas1

University of the Aegean

Department of Shipping Trade and Transport

2A Korai Bldg, Chios 82100, Greece

Email address: g.vaggelas@stt.aegean.gr

Phone: +30-22710-35287

Fax: +30-22710-35299

Dr. Ioannis N. Lagoudis

XRTC Ltd. Business Consultants

10 Mousiou Str., 82100, Chios, Greece

Email address: ioannis.lagoudis@xrtc.gr

Phone: +30-22710-28347

Fax: +30-22710-28347

and

University of the Aegean

Department of Shipping Trade and Transport,

2A Korai Bldg, Chios 82100, Greece

Email address: ilagoudis@aegean.gr

Phone: +30-22710-35251

Fax: +30-22710-35299

Fax: +30-22710-35299

Abstract:

Research interest on supply chain management in the maritime industry has mainly concentrated on

containerized and bulk cargo since these present higher profit margins and allow the use of different types of

supply chain strategies. In the cruise industry, supply chain management applications are rather limited with

studies focusing mainly on economic and policy issues. The uniqueness of the cruise sector in combining and

offering different services ranging from the sea cruising itself to the provision of hotel and entertainment

services makes the study of the specific industry from a supply chain point of view rather challenging. The

purpose of this paper is to analyse in as much detail as possible the supply chain strategy cruise companies

adopt, ranging from suppliers to customer base, in order to get a first insight of the characteristics of the specific

sector.

The identification of the supply chain strategy is achieved with the assistance of a case study applied in a small

in size but new and innovative cruise company operating in the Mediterranean Basin. Research findings unveil

the strategy of a cruise company‟s supply chain and the interactions that take place among the different

participants. Also the application of different logistic strategies is evaluated. This evaluation could enable the

provision of better value added services to the end customer, the passenger, thus create a new field for

competition among cruise companies.

Keywords: Cruise, Supply Chain, Flexibility, Logistic strategies

1 Author for correspondence and presenting the paper

2

1. INTRODUCTION

Cruise is one of the most dynamic tourism and shipping sectors. The cruise market is

characterised by high concentration (Soriani et al, 2009) as there are few but strong market

players. This market concentration has intensified the competition among the players, which

seek ways of obtaining competitive advantage. During the last years competition among

cruise companies has concentrated mainly in vertical (in terms of quality) and horizontal

differentiation (in terms of variety and offerings) (Papatheodorou, 2006). In this context there

are four main dimensions for competition, i.e. the ship, the time of the cruise, the itinerary and

the booking process (Papatheodorou, 2006). Cruise companies until now have concentrated

on these four dimensions in order to obtain a competitive advantage and as a result they didn‟t

pay the proper attention to the cruise supply chain as a means of competition. An example of

competition based on the type of vessel are the new, bigger and more luxurious cruise ships

that cruise companies invest on, offering a wide variety of on-board services (such as cinema,

casino, theatre etc) in order to satisfy passengers of different tastes and economic

backgrounds. Moreover the season a cruise offered is another field of competition as many

cruise companies try to differentiate their product by offering cruises in different times of the

year (i.e cruises during Christmas, during special events such as the Olympic Games and etc).

The cruise season is one of the major factors affecting the cruise companies strategy on

cruiseships deployment. The itinerary is also a factor affecting competition between cruise

companies as it presents a high degree of differentiation ranging from the length of the cruise,

the number of ports of call that the cruise ship will visit, the excursions offered etc. Finally the

booking process also presents competition opportunities during the last years as the new

communication technologies have increased the links for booking a cruise (i.e. via websites

etc.)

Supply chain management is an important part of cruise operations despite the fact that

cruise companies are rarely involved in the pre-embarkation and the post disembarkation parts

of the supply chain (although some cruise companies participate in parts of the supply chain

i.e. through the arrangements of flights and/or hotels). The cruise supply chain must be

efficient in order to deliver the “cargo” on time. The difference with the other shipping sectors

(except coastal shipping) is that in the case of cruise, the cargo is the passenger, which is a

rather demanding clientele indeed. As a result the supply chain must added value to them,

thus the appropriate supply chain management could be a new level of competition among the

cruise companies as the four dimensions referred above are beginning to show signs of

satiety.

The paper aims at analysing the cruise supply chain flexibility. Based on the research outcome

we will draw up and describe potential supply chain strategies as a means for cruise

companies to achieve a competitive advantage. The paper uses primary data obtained through

in-depth semi-structured interview with an executive staff from a cruise company operating in

the East Mediterranean region.

The data obtained helps to identify the level of flexibility the cruise industry is achieving

via the understanding and documentation of key supply chain players and what type of

strategy a cruise company can develop for each one. This is achieved with the combined

assistance of three methodologies; Naim et al. (2006), Bask (2001) and Kraljic‟s (1983)

matrix.

The paper is structured as follows. After the introductory section, section two describes the

contemporary cruise industry as well as the supply chain management as a new field for

competition among cruise companies. Section three highlights the research question of the

paper based on the developments in the contemporary cruise industry. . Section four presents

the methodology followed in our research and the theoretical background of the supply chain

flexibility concept, while section five presents the results from the in-depth interviews with a

3

cruise company official, which unveils the potential cruise companies have to use supply

chain flexibility as a tool for obtaining competitive advantage. Finally section six concludes.

2. LITERATURE REVIEW

Cruise is a continuously developing industry with an average growth rate of 8%-9% for the

period 1990-2006 (Soriani et al., 2009). Even the current housing crisis (which turned to be a

global financial crisis) didn‟t manage to reverse the growth trend (though at a smaller pace

than in the past – see for example Lloyd‟s List, 2008 for the European market). It should be

also considered here that the cruise market is an oligopoly as it is dominated by three major

groups of companies (the Carnival Group, the Royal Caribbean International Group and the

Norwegian Cruise Lines/Star Cruises) controlling 73,09% of the total cruise ships capacity

(Cruise Market Watch, 2010) which has been the result of a wave of mergers and acquisitions

occurred in the late „90‟s and the begging of the 21st century as well as the outcome of the

withdrawal of many small companies (Coleman et al., 2003) and the aggressive horizontal

integration strategies of big companies (Lekakou et al, 2009).

Cruise is a special case in the shipping industry as the provision of transport services is

not the transportation itself but the provision of pleasure to the passengers onboard cruise

ships (Kendall, 1986). As Dowling (2006) noted, nowadays cruiseships are the destination

point for cruise passengers and the ports of call and their surrounding touristic areas is of

secondary importance. So the ultimate goal of every cruise company is the customers‟

satisfaction something that is challenging as each passenger has its own special characteristics

and needs. In general, cruise passengers satisfaction, like any other tourist‟s (see Bowen and

Clarke, 2002), is a mix of their expectations, the fulfilment or not of these expectations, the

performance, the emotions, attribution and a perception of equity. As Henthorne (2000) noted

if the passengers do not have a positive experience by a port, this plays a significant role in

the cruise company‟s decision to alter the itinerary. The combination of the oligopolistic

cruise market and the satisfaction of the cruise passenger as the way to increase market shares

has intensified the competition among cruise companies. Passenger satisfaction is the key to

success for the cruise sector. The effort to increase customer‟s satisfaction has focused mainly

into the four dimensions of competition as mentioned in the introduction with ship

characteristics (through investments in building luxurious cruise ships and increasing the

variety of onboard services) and itinerary selection (diversification of the cruise product based

on the destination) taking most of the attention. As Lekakou et al (2009) noted, today‟s cruise

companies provide (a) a great variety of cruise ships, (b) a variety of potential itineraries (c)

choices regarding cruise durations and (d) a plethora of activities onboard the vessel and in

the areas visited as well.

Till now the exploitation of the supply chain as a new competition field and as a means to

developing new competitive advantages has rarely be examined. The existing research efforts

regarding the cruise industry are concentrated on the market structure, the economic impact of

cruise operations for the port and/or the region (indicatively see: Wood, 2000; Port of

Portland-Maine, 2002; Guerrero, et al., 2008; Soriani et al., 2009).

3. THE NEED FOR SUPPLY CHAIN STRATEGY IN CRUISE INDUSTRY

Supply chain complexity has been extensively examined in the manufacturing sector (see for

example Huang et al, 2005). Regarding the tourism sector, Zhang et al (2009) placed supply

chain management as a new research field, but for the cruise sector supply chain has been

under-examined not only from the academia but also from the cruise companies.

Nowadays, the competition in the cruise sector is focused in some elements of the cruise

supply chain. Cruise ships, on-board provisions, websites, e-agents are some of the

competition fields among cruise companies. Marketing and cruise product position in the

4

market is also a factor affecting cruise company‟s competitiveness (Dowling, 2006). Despite

the benefits that a cruise company might gain by competing on the aforementioned elements,

a holistic approach of the supply chain as a mean to obtain a competitive advantage is still

lacking, although there are signs that such a supply chain is evident in the cruise industry. It

seems that the outcome of Cristopher (1992) that the real competition is not company against

company but rather supply chain against supply chain which also observed in the shipping

industry (see Suykens and Van De Voorde, 1998) that competition in shipping industry

changed from a competitive struggle between individual companies to competition based on

maritime logistics chains, will soon be the case also in the cruise industry.

The existence of a supply chain presuppose the development of synergies among the

“players” of the supply chain which can lead to a competitive advantage (De Martino and

Morrillo, 2008). Can these synergies be developed in the cruise industries? The evolutions

observed in the cruise industry as well as in other sectors of the cruise supply chains (for

example, ports) shows that a supply chain management based on the right supply chain

strategies can be applied.

Nowadays, cruise companies proceed to strategic agreements with other companies

formatting the cruise supply chain. Some of them (for example Costa Crociere) are investing

in cruise port terminals while others (for example MSC) are seeking for synergies in order to

offer on-the-spot services like transfers and cultural tours (Soriani et al, 2009). The

exploitation of cruise supply chains is even increasing in the cruise companies as some trends

from other shipping sectors and the port industry are evident also in the cruise industries. For

example the “terminalisation” of supply chains as analysed by Rodrigue and Notteboom

(2009), can be observed in cruise terminals, which operate not only as transhipment hubs for

passengers linking the cruise ship with the inland and air transport modes, but also they act as

places for the temporary stay of the passengers by providing a variety of added value services

(like duty free shops, entertainment, even accommodation facilities). This means that cruise

terminals are become parts of the passengers and cruise company‟s supply chain.

Vertical integration seeking by cruise companies proliferate the need for an efficient supply

chain strategy and management. Apart from managing their own cruise terminals in many

ports around three world, cruise companies are also investing in land facilities in order to

provide a complete cruise product to their customers. Royal Caribbean Cruises for example

has its own resort in Haiti (Labadee resort) trying to participate in as many parts of the supply

chain as possible. A simple figure of a cruise company‟s supply chain should include the

major players participating in it. Figure 1 shows such a cruise supply chain based on a

corresponding structure of Zhang et al (2009).

Figure 1. A cruise supply chain structure

5

Tier 2 Suppliers Tier 1 Suppliers

Source: Authors (based on Zhang et al, 2009)

The supply chain strategy that a cruise company should follow is mixture of several

factors. A company could develop a cooperative supply chain based on cooperation and

information sharing among the participants (like in the retail sector, see Li, 2007) aiming at

creating value for the passengers (value constellation concept, see De Martino and Morrillo,

2008). The problems towards this strategy is that a player in a cruise company‟s supply chain

might be also part in another company‟s supply chain which can cause effectiveness problems

throughout the supply chain (see Hakkansson and Persson, 2004) if we take into account the

fierce competition existing in the cruise industry. The concepts of redundancy and flexibility

in supply chains proposed by Sheffi and Rice (2005) are also difficult to be applied in a cruise

supply chain as cruise companies does not maintain a stock as they offer services and not

products. Regarding flexibility as a strategy to confront with unexpected disruptions (from

unlawful acts or diseases like SARS for example) in the supply chains its also difficult to

apply in cruise as cruise companies seeking to maintain long-term business relationships. A

risk management approach from all the companies in the cruise supply chain might also be a

solution to these kind of disruptions.

Cruise supply chain strategy depends heavily on the complexity of the chains as well as the

value of the “cargo” (i.e. the passengers). As shown on figure 1 a simplified cruise supply

chain involves many players with different strategies and interests. Towill (1999) developed

twelve rules of thumb that companies should follow in order to manage supply chain

complexity. These rules are presented in Table 1 where it may be seen that the benefits of

simplification and coordination in the material flow are significant in the path towards supply

chain integration.

Table 1. Twelve rules for simplifying material flow

RULE 1 Only make products which can quickly

despatch and invoice to customers RULE 7 Form natural clusters of products and

design processes appropriate to each value

Food Drink Manufacturers

Equipment manufacturers

Lubricant manufacturers

Ship supplies manufacturers

Energy suppliers

Port facilities

Accommodation prior and after the cruise

Transportation of passengers from their place or residence

Excursions

Shopping

Dinning

Port services providers

Cruise Company

Travel Agents

Cruise company’s website

Cruise passengers

Service and Product Flows Information Flows

6

stream

RULE 2 Only make in one period those components

you need for assembly in the next period RULE 8 Eliminate all process uncertainties

RULE 3 Minimise the material throughput time, i.e.

compress all lead times RULE 9 Understand, document, simplify and then

optimise (UDSO) the supply chain

RULE 4 Use the shortest planning period, i.e. the

smallest run quality which can be managed

efficiently

RULE 10 Streamline and make highly visible all

information flows

RULE 5 Only take deliveries from suppliers in small

batches as and when needed for processing or

assembly

RULE 11 Use only proven simple but robust

Decision Support Systems

RULE 6 Synchronise “Time Buckets” throughout the

chain RULE 12 The business process target is the seamless

supply chain i.e. all players “think and act

as one”

Source: Towill, (1999)

Similar is the work made by Naylor et al. (1999) focusing on two key concepts of the supply

chain management; agile and lean (Figure 2). According to them:

Agility means using market knowledge and a virtual corporation to exploit profitable

opportunities in a volatile market place.

Lean means developing a value stream to eliminate all waste, including time, and to

ensure a level schedule.

Figure 2. Intentions and outcomes of lean and agile paradigms

Lean Agile

Strategic Intent Eliminate waste Rapid response to diverse

requirements

Outcome Efficient use of all resources Mass customization and

selective resource efficiency Source: Mc Cullen and Towill, (2000)

Familiar is the work by Fisher (1997) who introduced two distinct supply chain types based

on market place characteristics. Based on product type these are classified as functional and

innovative and require quite different supply chain strategies. Each of these two supply chain

strategies is dependent on the nature of the demand of the product that they deliver. The

supply chain strategy applied for a product that has a fairly predictable demand will be

different from that of a product that has a demand characterized by uncertainty. Using

Fisher‟s examples, a plain sock, which has a relatively predictable demand pattern, long life

cycles and usually low profit margins, should be supported by a lean supply chain strategy. In

contrast, an agile supply chain strategy should be applied for a ski jacket, which is a fashion

good and has a relatively unpredictable demand, short life cycle and higher profit margin.

According to Fisher (1997) the supply chain supporting the functional product is defined as

physically efficient, whereas an innovative product is considered to support a market

responsive supply chain.

The paper aims at introducing the concept of supply chain complexity in the cruise

industry and examine its effect on the cruise supply chain strategies as well as on the level of

competition achieved among cruise companies. The variety of provided services makes the

coordination of the extensive network of suppliers a complicated task. The same also applies

for the passengers as their origin could be dispersed at a global scale. The supply chain seems

7

to hide “opportunities” for the cruise companies as they can provide value to their customers

in order to achieve maximum passenger‟s satisfaction thus obtain a competitive advantage. To

unveil the potential implications of supply chain exploitation we use three supply chain

methodologies. This is achieved via the understanding of the Logistics strategies used (Bask,

2001), the identification of supply chain flexibility (Naim et al., 2006) and the documentation

of the level of complexity needed to support the level of supply chain flexibility and Logistic

strategy applied (Kraljic 1983).

Flexibility is defined along many dimensions within the literature (Golden and Powell,

2000). In generic terms flexibility may be defined as the ability of a system or organisation

“to change or react with little penalty in time, effort, cost or performance” (Sánchez and

Pérez, 2005). De Toni and Tonchia (1998) describe flexibility as:

• internal to the organisation or external, as perceived by customers and which indicates a

competitive offering

• the ability to adapt (reactive) or change (proactive)

Flexibility of the supply chain as a strategic tool seems to fit in the characteristics of the cruise

sector, as according to theory (De Toni and Tonchia, 1998; Beach et al., 2000), flexibility is

needed when the sector under research is characterised by uncertainty (both internal and

external) and there is a variability of products and processes. These two prerequisites are more

than evident in the cruise industry. Uncertainty characterises the cruise industry (as well as

other shipping sectors) as the external environment is extremely volatile (for example the

cruise demand affected from the 9/11 attacks, the SARS and the H1N1 viruses etc). Moreover

cruise offers a variety of products able to satisfy the peculiar needs of every cruise passenger

(i.e. a variety of itineraries, on-board activities, excursions and so on).

4. METHODOLOGY

The paper combines three supply chain methodologies in order to understand and document

the supply chain strategies adopted by the Cruise Industry. As seen in figure 3 each

methodology is used to provide a specific insight in reference to supply chain philosophy

adopted by the cruise industry. The combination of the specific three methodologies has not

been random. Bask (2001) and Naim et al (2006) have been applied in the shipping industry

providing significant insight in the nature and level of flexibility of specific shipping sectors

Lagoudis et al. (2010). Kraljic‟s (1983) methodology is adopted in this work to take the

analysis of supply chain strategies in shipping a step further since the authors believe that the

identification of the complexity levels enabled by the specific tool provide a better and more

complete understanding of the strategies followed by shipping companies.

Figure 3: Methodology Structure

8

Source: Authors

As already mentioned the first method relates to the understanding of the logistics involved,

which is made with the use of Bask‟s (2001) method. The framework, as shown in Figure 4,

explores the correlation between the complexity of the logistics service provision and the type

of relationship required to support it.

Bask‟s model is applied here as utilised by Lagoudis et al. (2010) to relate the degree of

flexibility required for each of the types defined in Table 1 with the type of supply chain

being operated within.

Figure 4: Logistics types Complexity of

service

Simple Medium Complex

Customer

relationship

Loose Routine

Moderate Standard

Close Customised Source: Bask (2001)

Routine – there are limited flexibility requirements and this type of service merely

provides for the carriage of goods involving a single mode of transport. The carrier is in a

market environment. Procurement is based on volume provision and competition is on price,

although the carrier must ensure due date adherence. Therefore, the carrier must be able to

adapt to route changes or blockages. The provision of the transport may be at short notice or

be provided over a period of time. The carrier may offer vehicle types that may themselves be

flexible or the fleet as a whole may offer a range of different types. A routine logistics service

does not require any close relationship between provider and user. Hence users may select

from a very wide range of providers.

Standard – some degree of customisation may now be provided, such as the provision of

different specialist transportation based on vehicle type or based on a totally different mode of

transport. Therefore, the carrier now offers a greater degree of flexibility, both in terms of

delivery and mix. The latter is satisfied in the form of mode flexibility. A co-operative form

of collaboration is required in order to ensure adequate co-ordination of activities between

carrier and procurer. If the carrier itself is unable to offer the full range of transportation types

required, it may establish a form of collaboration with another carrier that does have those

types of vehicles or provide an alternative mode of transport. This also enables the possible

offering of capacity flexibility.

9

Customised – this is where a fully customised service is provided and the full range of

flexibility types is offered. As well as some of the routine and standard features mentioned

above various other services may be provided such as; warehouse provision and its

management, inventory control and ordering, product tracking, and value-adding activities.

The service provider aims to deliver greater logistics flexibility (Bask, 2001). Hence, in

addition to delivery and mix, volume and product external flexibility types are offered. A tight

collaborative arrangement is required wherein the carrier and procurer work closely at a

strategic, planning and execution level, sharing information at all levels.

The second relates to the understanding and documentation of the nature of the business

and is achieved via the internal and external flexibility types as defined by Naim et al. (2006)

and have been applied in the shipping industry by Lagoudis et al. (2010). The details of the

methodology presented in Table 2 are based on Oke (2005) with internal flexibility describing

the system behaviour and determining an organisation‟s competence (Prahalad and Hamel,

1990) and external flexibility describing an organisation‟s capabilities (Stalk et al., 1992) as

viewed by customers determining the actual or perceived performance of the organisation.

The external flexibility types given by Naim et al. (2006) are similar to those suggested by

Slack (1987) and Oke (2005). They have been adjusted to reflect the provision of a transport

service and an additional external flexibility type, access flexibility, has been added as given

by both Paixão and Marlow (2003) and Sánchez and Pérez (2005).

The nine internal flexibility type definitions are a combination of those developed by Naim

et al (2006) or their synthesis of other authors‟ work. The first three relate to the physical

movement of the goods and consider both the choice of transport mode and the capabilities of

the vehicle fleet. Fleet flexibility relates to the composition of the total fleet in order to

provide different services, while vehicle flexibility considers the capabilities of an individual

vehicle (Naim et al, 2006). Node, link and temporal flexibility are closely aligned with the

infrastructure provision that supports the physical movement and when combined together

may be termed network flexibility (Feitelson and Salomon, 2000). Assets that affect these

elements of transport flexibility include warehouses and transport infrastructure.

The final three internal flexibility types are directly translated from existing flexibility

literature. Groothedde et al. (2005) provide a good example of routing flexibility, where

products can either be moved by inland waterway or truck depending upon the time criticality

of the shipments and the total level of demand. Capacity flexibility is taken from Morlok and

Chang (2004) and is similar to expansion flexibility by Groothedde et al. (2005). Finally,

communication flexibility is defined by the marketing literature (Peppers and Rogers, 1997)

and is synonymous with spanning flexibility (Zhang et al, 2006), which describes the ability

of an organisation to provide information along the value chain to meet customer needs.

Using the concepts provided by Table 2 and Figure 2 we are able to explore the strategic use

of supply chain flexibility by cruise companies.

Table 2: Definitions of transport flexibility

10

Internal flexibility

types

Definition External

flexibility

types

Definition

Mode Ability to provide different modes of

transport

Fleet Ability to provide different vehicle

types to carry different goods

Product The range and ability to

accommodate the provision

of new transport services

Vehicle Ability to configure vehicles to carry

products of different types or to cater for

different loading facilities

Mix The range and ability to

change the transport

services currently being

provided

Node Ability to plan, approve and implement

new nodes in the network

Volume The range of and ability to

accommodate changes in

transport demand

Link Ability to establish new links between

nodes

Delivery The range of and ability to

change delivery dates

Temporal Ability to sequence infrastructure

investment and the degree to which the

use of such infrastructure requires

coordination between users

Access The ability to provide

extensive distribution

coverage

Capacity Ability of a transport system to

accommodate variations or changes in

traffic demand

Routing Ability to accommodate different routes

Communication Ability to manage a range of different

information types

Source: Naim et al., 2006

The third method refers to Kraljic‟s (1983) matrix, which assists in the documentation of the

level of complexity involved in cruise supply chains via the supplier selection processes and

their evaluation based on the associated risks. Prior to the analysis, a brief presentation of

Kraljic‟s methodology is given.

As seen in Figure 5, Kraljic (1983) defines four main categories via the relation of profit

impact with supply risk:

Leverage Items: refers to standardized items, which are provided by suppliers at low

cost and are of high quality. These processes are not so critical to the services‟ quality

since they are of standard format and quality. The high levels of standardization are

enabled by the limited need of specialized know-how enabling order optimization.

Strategic Items: these are usually items or processes, which offer significant degree of

diversification to the final service since they are customized based on the needs of the

customers. They are characterized by high service costs, there are few suppliers and

affect significantly the overall product quality. On-time delivery and high quality

service standards are imperative, thus long-term relations are essential.

Non-critical Items: these are items of mass production used for the daily operation of

the vessels. The high degree of standardization dictates for limited number of suppliers

who can supply standard quality and on-time delivery.

Bottleneck Items: in this category suppliers related to materials or components that are

of low cost but associated with high risk due to their importance in the service‟s

operation/performance. Such examples are pilot services, port services, the

malfunction of which can put the service into risk.

Figure 5: Kraljic’s Matrix

Pro

fit

Impac

t

Hig

h Leverage items

Exploit purchasing power

Strategic items

Form partnerships

11

Lo

w Non-critical items

Ensure efficient processing

Bottleneck items

Assure supply

Low High

Supply Risk Source: Kraljic (1983), Gelderman and van Weele (2003)

The method used for the purposes of this research is exploratory and involves mapping a

representative cruise company onto the models of Table 2 and Figures 3 and 4 using both

secondary and primary data via an in depth semi-structured interview. In this way we will be

able to determine to what extent there is a relationship between logistics strategy and supply

chain flexibility types, as well as their degree of flexibility and whether they are long- or

short-term characteristics. Based on the internal and external flexibility types provided in

Table 2 the categorisation of different types of co-operations among supply chain members is

further identified from Figures 3 and 4.

The cruise company used here is a small size one, part of a corporation with multiple

business units operating in the East Mediterranean region offering cruises ranging between

three and seven days. The company operates a single vessel at the moment with strategic

intentions of furthering its services with additional capacity. Its clientele is composed of

different age groups with different consumer characteristics and likings, which the company

aims at satisfying with a variety of onboard and land services.

5. RESULTS

The main strategy of the company is to offer a leisure service of high quality offering value to

its stakeholders. The company‟s clientele is composed of passengers of all ages who wish to

experience leisure activities at the East Mediterranean. The service the company offers is

customised since a significant level of flexibility is available as presented in figure 6. The

high level of flexibility is mainly attributed to the various leisure packages offered by the

company ranging from cabin options to excursion selection. The variety of on-board activities

aiming at the coverage of the different customer needs is an additional characteristic of the

high levels of customisation of the specific company and industry as a whole.

Figure 6: Logistic Strategies followed by Cruise Company Complexity of

service

Simple Medium Complex

Customer

relationship

Loose Routine

Moderate Standard

Close Customised

Cruise Company Source: Authors

Table 3: Level of flexibility for the Cruise Company

12

Internal

flexibility types External

flexibility

types

Mode NO – The company operates a

single type of mode (Cruise

Industry)

Product NO – The company is not

implementing a new building

program

Fleet NO– The company operates

single mode type (Cruise

Vessels)

Mix YES - The company operates

vessel types that can

accommodate significantly

diversified clientele

Vehicle YES – Vessels can be

customised on customer needs

Volume NO - The company operates

single vessel types (Cruise

Vessels)

Node MODERATE – The company

does offer a significant

integrated service

Delivery NO – The service is under

fixed schedule

Link MODERATE – It is adjusted to

market needs

Access MODERATE – The company

partly provides distribution

services

Temporal NO – The company does not

have a newbuilding program

Capacity YES – The company schedules

and reschedules the routes served

based on market demand

Routing YES – Provides geographical

disperse service

Communication YES – The company has the

technology and personnel to

manage any information type Source: Authors

All internal and external flexibility types are evident as given in Table 3. As illustrated

internal flexibility levels are present in the vehicle (vessels can be customised on customer

needs), node (the company offers a significant integrated service offering apart from on board

services, a range of activities ashore) link (different location areas can be served according to

market conditions), capacity (the company schedules and reschedules the routes served based

on demand), routing (the company provides geographical disperse service since it can deploy

its vessel in different regions) and communication types (the company has the technology and

personnel to manage any information type i.e. booking).

In reference to the external flexibility, this is observed only at the mix and access. These

results indicate that the company has a limited level of flexibility due to its focus on its core

business, which is the provision of cruise services. Its flexibility is constrained in the

provision of high quality leisure service via meeting customer needs related to the mere cruise

activity. There is limited concern in applying any strategies of intermodality via developing

links between nodes or even investing in different modes or nodes. The close cooperation

with travel agents and coach companies is towards the direction of providing more holistic

services.

In order to understand the way the high level of customised service is provided by the

cruise company the strategy taking place with customers and suppliers is provided with the

assistance of Kraljic‟s Matrix. As presented in Figure 7, processes needed to provide the

required level of service are linked to the needed items/service. These processes are

categorised after an in depth semi-structured interview with the company‟s executive staff. As

seen processes that are assessed of strategic importance and are of high-risk and high-profit

impact are those of coach services, tourist agencies, insurance and classification societies. The

13

high risk levels is partly attributed to the fact the company relies significantly on them since

there is a unique relationship with each of the four players involved in the chain. There

importance is so critical that long-term relationships are established in order to manage better

cooperation and coordination levels, which will guarantee the minimisation of mistakes and

the maximisation of customer retention via customer satisfaction leading to profit

optimisation. The failure of any of these players to provide its service on time could be

detrimental to the operations resulting in major service disruptions and customer

dissatisfaction. Thus the specific cruise company strategically prefers to create very close

links with the specific suppliers in order to minimise any levels of miscommunication.

Leverage items, which are linked to suppliers of low risk but high profit impact are those

related to the ship‟s operating capability (ship‟s electronic equipment ship repairs and

machinery equipment), hotel consumables, lubricants and internet and information

technologies. The selection of both in-house activities and supplier assistance is significant

since these processes guarantee the vessel‟s overall performance. The specific company

strategically goes for a variety of suppliers at this level in order to achieve optimum operating

costs.

Figure 7: Supply Chain Complexity in the Cruise Company

Pro

fit

Impac

t

Hig

h

Leverage items

Ship’s Electronic Equipment (3)

Machinery Equipment (6)

Hotel Consumables (4)

Ship repairs (6)

Lubricants (3)

Internet and Information

Technologies (1)

Strategic items

Coach Services (1)

Tourist Agencies (1)

Insurance Services (1)

Classification Societies (1)

Low

Non-critical items

Cabin Stores (4)

Food Beverage (6)

Fuel Supplies (3)

Tools (4)

Bottleneck items

Pilot Services (7)

Towage Services (7)

Port Services (7)

Financial Services (3)

Low High

Supply Risk Source: Authors

Going into the non-critical items cabin stores, food beverage, fuel supplies and available tools

needed for maintenance are encapsulated. These are linked to suppliers of both low risk and

low profit impact without being of less importance to the company‟s daily operations since

they are directly linked to customer satisfaction. Again cost effective supply chain strategies

are adopted here since suppliers selected based on the cost.

Finally, in the bottleneck items, pilot, towage, port and financial services are listed. These

factors are of low profit impact but can be of high risk when not provided to the highest level.

Characteristic examples exist in cases where the lack of proper port facilities or infrastructure

and even unprofessional pilot services have led to accidents leading to delays and poor

customer image and satisfaction. Financial services can also act as a bottleneck especially in

cases of poor economic activity where additional funding may be required. The lack of

understanding or inability to provide the necessary financial support can lead to significant

delays in new-building or expansion projects and even to the implementation of internal

restructuring programs. The strategic choice of using multiple suppliers at this level is not

necessarily solely based on cost but on the suppliers ability to provide a reliable service

customised to the needs of the company.

6. CONCLUSIONS

14

The present work aims at examining the cruise industry from a supply chain management

point of view where limited research is available in the present literature. The interest in the

specific sector of the shipping industry stems from the fact that the Cruise industry is a

continuously developing one with an average growth rate of 9% since the 1990s. An

additional factor that has led to the study of this sector is its oligopolistic character as it is

dominated by three major groups of companies controlling 73,09% of the total cruise ships

capacity.

The paper deviates from the so far economics approaches and introduces the concept of

supply chain complexity in the cruise industry and examines its effect on the level of

competition achieved among cruise companies as well as on their supply chain strategies. To

unveil the potential implications of supply chain complexity we use three supply chain

methodologies. These are Bask‟s (2001) theory of Logistics strategies, Naim‟s et al. (2006)

model on the identification of supply chain flexibility and Kraljic‟s (1983) matrix on the

documentation of the supply chain structure needed to support the level of supply chain

flexibility and Logistic strategy applied. The use of these models has been based on the fact

that they provide a framework of analysis, which has been tested in other transportation

sectors and different industrial sectors such as manufacturing.

For the purposes of this research a small in size cruise company operating in the

Mediterranean Basin is used. Primary data has been selected via semi-structured interview

with a senior executive staff providing significant information on the nature of the business

itself and the way business is done.

The results from the analysis of the data show that the Logistic strategy followed by the

company is rather customised due to the high level of flexibility, which is mainly attributed to

the various leisure packages offered by the company ranging from cabin options to excursion

selection.

In reference to the internal and external supply chain flexibility levels these are present in

the vehicle, node, link, capacity, routing and communication types, in the former case and in

mix and access in the latter. These results indicate that the company presents higher levels of

internal flexibility compared to the external ones which is attributed to the fact that the

company‟s focus is constrained in the provision of high quality leisure service via meeting

customer needs related to the mere cruise activity. Thus limited is the concern in applying any

intermodality strategies via developing links between nodes or even investing in different

modes or nodes.

Finally, Kraljic‟s matrix reveals a very interesting overview of the processes and

relationships with customers and supplies, which guarantees the desired level of supply chain

flexibility. As seen the most important factors are those of strategic importance having high-

risk and high-profit impact. Coach services, tourist agencies, insurance and classification

societies belong to this category. There importance is so critical that long-term relationships

are established in order to manage better cooperation and coordination levels, which will

guarantee the minimisation of misstates and the maximisation of customer retention via

customer satisfaction leading to profit optimisation.

On the other end we have the non-critical items where cabin stores, food beverage, fuel

supplies and available tools needed for maintenance are encapsulated. These are linked to

processes and suppliers of both low risk and low profit impact without being of less

importance to the company‟s daily operations since they are directly linked to customer

satisfaction.

The paper focused on a case study of a small cruise company. This type of cruise

companies have limited potentials in the application of vertical integration due to the

investments needed. So, as these companies facilitate niche markets the outcome of this

research is useful for the development of their supply chains and the corresponding strategies.

In the large cruise companies, things seems to be different as many of them have choose the

15

vertical integration as a way for having the full supervision of a large part (or even the whole)

of their supply chains.

Future research may focus on more in-depth evaluation of the processes documented in

this study and examine the value these add to the entire supply chain. Such an evaluation can

be achieved via Business Process Re-engineering, which may enable a more detailed mapping

of those processes and practices that add value to the chain and those that are considered as

waste. The methodology provided by Sheffi and Rice (2005) could be also used in order to

give a better insight in the factors that make the specific industry vulnerable and fragile.

REFERENCES

Bask, A.H. (2001) “Relationships among TPL providers and members of supply chains – a

strategic perspective”, Journal of Business and Industrial Marketing, Vol. 16, pp. 470-486.

Beach, R., Muhlemann, A.P., Price. D.H.R., Paterson, A. and Sharp, J.A. (2000) “A Review

of Manufacturing Flexibility”, European Journal of Operational Research, Vol. 122, pp.

41-57.

Bowen, D. and Clarke, J., (2002). “Reflections on tourist satisfaction research: Past, present

and future”. Journal of Vacation Marketing, 8 (4), 297 – 308.

Coleman, M.,T., Meyer, D.W. Scheffman, D., T. (2003). Economic analyses of mergers at the

FTC: The cruise ships mergers investigation. Review of Industrial Organization, Vol.23,

121-155.

Cristopher, M., (1992). “Logistics and supply chain management”. Pitman Publishing, Essex.

Cruise Market Watch, (2010). Passenger Capacity.

http://www.cruisemarketwatch.com/blog1/#share. Accessed the 15th

of February 2010, at

17:45.

De Martino, M. and Morrillo A., (2008). “Activities, resources and inter-organizational

relationships: Key factors in port competitiveness”. Maritime Policy and Management, 35

(6), 571-589.

De Toni, A. and Tonchia, S. (1998) “Manufacturing Flexibility: A Literature Review”

International Journal of Production Research, Vol. 36, pp. 1587-1617.

Dowling, R. K., (2006). “The cruising industry”. In: Dowling, R.K. (Ed.), Cruise ship

tourism, pp. 3-17. CAB international, Oxfordshire.

Feitelson, E and Salomon, I. (2000) “The implications of differential network flexibility for

spatial structures” Transportation Research Part A, Vol. 34, pp. 459-479.

Fisher, M., (1997), “What is the Right Supply Chain for your Product?”, Harvard Business

Review, Vol. 75, No. 2, pp. 105-116.

Gelderman, C.J. and Van Weele, A.J. (2003), “Handling measurement issues and strategic

directions in Kraljic‟s purchasing portfolio model”, Journal of Purchasing & Supply

Management, Vol. 9, No. 5/6, pp. 207-216.

Golden, W. and Powell, P. (2000) “Towards a definition of flexibility: in search of the Holy

Grail”, Omega, Vol. 28, pp. 373-384

Groothedde, B, Ruijghrok, C. and Tavasszy, L. (2005) “Towards collaborative, intermodal

hub network: a case study in the fast moving consumer goods market”, Transport

Research Part E, Vol. 41, pp 567-583.

Guerrero, J.I.F., Selva, L.M., and Medina, R.P. (2008). Economic impact of Western

Mediterranean leisure ports. International Journal of Transport Economics, Vol.35, No.2,

pp.251-272.

Hakansson, H. and Persson, G., (2004). “Supply chain management: The logic of supply

chain and networks”. The International Journal of Logistics Management, 15 (1), 11-26.

Henthorne, T.L. (2000). An analysis of expenditures by cruise ship passengers in Jamaica.

Journal of Travel Research, Vol.38, pp.246-250.

16

Huang, G. Q., Zhang, X. Y., & Liang, L. (2005). Towards integrated optimal configuration of

platform products, manufacturing processes, and supply chains. Journal of Operations

Management, 23, 267–290.

Kendall, L. (1986). The business of shipping. Cornell Maritime Press, Centreville MD.

Kraljic, P. (1983), “Purchasing must become supply management”, Harvard Business Review,

Vol. 61, No 5, pp. 109-117.

Lagoudis, I.N., Naim, M.M. and Potter, A.T. (2010) „Strategic flexibility choices in the ocean

transportation industry‟, Int. J. Shipping and Transport Logistics, Vol. 2, No. 2, pp.187–

205.

Lekakou, M., B., Pallis, A., A., Vaggelas, G., K., (2009). “Is this a home-port? An analysis of

cruise industry‟s selection criteria”. Proceedings of the International Association of

Maritime Economists Conference, 24-26 June 2009, Copenhagen, Denmark.

Li, L., (2007). “Supply chain management: Concepts, techniques and practices enhancing

value through collaboration”. World Scientific, Singapore.

Lloyd‟s List (2008). European cruise sector to ride out economic storm. Article by John

McLaughlin, 10 December.

McCullen, P., and Towill, D.R., (2000), “Manufacturing Agility and the Lean Supply Chain”,

proceedings of MIMS Conference, Aston.

Morlok, E.K. and Chang, D.J. (2004) “Measuring capacity flexibility of a transportation

system”. Transportation Research Part A, Vol. 38, pp. 405-420.

Naim, M.M., Potter, A.T., Mason, R.J. and Bateman, N. (2006) “The role of transport

flexibility in logistics provision”, International Journal of Logistics Management, Vol. 17,

pp. 297-311.

Naylor, J.B., Naim, M.M. and Berry, D. (1999), “Leagility: Interfacing the Lean and Agile

manufacturing paradigms in the total supply chain”, International Journal of Production

Economics, Vol. 62, No. 1-2, pp. 107-118.

Oke, A. (2005) “A framework for analysing manufacturing flexibility”, International Journal

of Operations and Production Management, Vol. 25, pp. 973-996.

Paixão, A.C. and Marlow, P.B. (2003) “Fourth generation ports – a question of agility?”

International Journal of Physical Distribution and Logistics Management, Vol. 33, pp.

355-376.

Papatheodorou, A., (2006). “The cruise industry – An industrial organization perspective”. In:

Dowling, R.K., (Ed.), Cruise ship tourism. pp. 34-43, CABI: Oxfordshire, UK.

Peppers, D. and Rogers, M. (1997) Enterprise one-to-one: tools for building unbreakable

customer relationships in the interactive age, Piatkus, London.

Port of Portland, Maine (2002). Economic Impact of the international passenger industry on

the Portland, Maine region, City of Portland, Department of ports and transportation.

Prahalad, C.K. and Hamel, G. (1990) “The core competence of the corporation” Harvard

Business Review, Vol. 68, pp 79-91.

Rodrigue, J-P. and Notteboom, T., (2009). “The terminalization of supply chains: Reassessing

the role of terminals in port/hinterland logistical relationships”. Maritime Policy and

Management, 36 (2), 165-183.

Sánchez, A.M. and Pérez, M.P. (2005) “Supply chain flexibility and firm performance: a

conceptual model and empirical study in the automotive industry” International Journal of

Operations and Production Management, Vol. 25, pp. 681-700.

Sheffi, Y. and Rice, J.B. Jr., (2005). “A su[[ly chain view of the resilient enterprise”.

MITSloan Management Review, Fall, 47 (1), 41-48.

Slack, N. (1987) “The Flexibility of Manufacturing Systems”, International Journal of

Operations and Production Management, Vol. 7, pp. 35-45.

Soriani, S., Bertazzon, S., Di Cesare, F. And Rech, G., (2009). “Cruising in the

Mediterranean: Structural aspects and evolutionary trends”. Maritime Policy and

Management, 36(3), 235-251.

17

Stalk, G., Evans, P. and Shulman, LE. (1992) “Competing on Capabilities: The New Rules of

Corporate Strategy” Harvard Business Review, Vol. 70, pp 57-69.

Suykens, F. and Van De Voorde, E., (1998). “A quarter of a century of port management in

Europe: Objectives and tools”. Maritime Policy and Management, 25 (3), 251-261.

Towill, D.R., (1999), “Simplicity Wins: Twelve Rules for Designing Effective Supply

Chains”, Control, Vol. 25, No. 2, pp. 9-13.

Wood, R.E. (2000). Caribbean cruise tourism. Globalisation at sea. Annals of Tourism

Research, Vol.27, No.2, pp.345-370.

Zhang, Q., Vonderembse, M.A. and Lim, J.S. (2006) “Spanning flexibility: supply chain

information dissemination drives strategy development and customer satisfaction” Supply

Chain Management, an International Journal, Vol. 11, pp. 390-399.

Zhang, X., Song, H., Huang, G.Q., (2009). “Tourism supply chain management: A new

research agenda”. Tourism Management, 30, 345-358.