Shortly after Royal Caribbean Cruises announced in February that it was purchasing what will be the world's largest cruise ship for $1.2 billion, Jeff Danis, vice president of global supply chain management, and Brent Shinall, manager of technical purchasing, traveled to Europe. There they met with purchasing executives of Aker Yards, the Finnish builder of the new ship, and Meyer Werft, a German company that also builds ships for the cruise line. Purpose of the meeting: to leverage the purchasing power of the three companies. Aker Yards also built Royal Caribbean's newest ship, Freedom of the Seas, which debuted in June.

Danis and Shinall's meeting with purchasing execs of competing shipyards is one indication that supply chain management at Royal Caribbean is making headway toward transforming itself into a world-class operation. For not only are they pooling some of Royal Caribbean's purchasing with that of the two shipyards, they're also getting involved in the very early stages of the acquisition process, the time when new ships are being outfitted with deck chairs, carpeting, mattresses, plumbing fixtures and other items that make a cruise the vacation experience customers come to expect.

Getting involved early in the buying process means that Danis and his team can leverage agreements they've negotiated for items like deck chairs and carpeting, and for other high-maintenance items such as plumbing fixtures. They can also leverage agreements for spare parts and services.

While early involvement brings a host of benefits from reducing costs to improved efficiency, it also helps bring the team credibility within Royal Caribbean, which was sorely lacking when Danis took the helm of the supply chain operation three years ago. Then, supply chain's internal customers and suppliers had little confidence in the operation, which in many ways was mainly tactical. Brought on board to win that confidence back, Danis, who has 20 years of supply chain experience in the aerospace industry, got to work immediately, hiring skilled professionals, streamlining processes and implementing supplier relationship management. Now, he and his team have a five-year strategic plan in place that focuses on the operation's contributions to the company in the areas of customers, shareholders, employees and suppliers.

Jeff Wincel, president of LSC Consulting Group in Holland, Mich., has worked with Danis and his team and has had the opportunity to observe the supply chain's transformation first hand. 'I think they're doing a tremendous job at becoming not just best in class, but truly world class in their supply chain efforts,' he says. 'Whereas once they were perceived by others in the company as inhibitors to getting things done, now they are viewed as a leader that's helping Royal Caribbean move forward and manage some very significant growth.'

To experience the extent of supply chain's voyage at Royal Caribbean, a $4 billion company, it helps to understand some of the complexities of the cruise business. Danis calls it a conglomerate of businesses—hotels, restaurants, casinos, hospitals, power plants, construction projects and others. The goods and services needed to supply a cruise ship are diverse, to say the least. The company spends $1 billion annually on a variety of items—food, linens, draperies, carpeting, life rafts, chemicals. The list goes on. Its supply base numbers around 2,500 to 3,000.

But what really distinguishes the supply chain for a cruise line from other companies is what Danis calls the last mile. 'The industry redefines JIT,' he says. 'We have four to six hours to load this floating city with supplies for seven to 17 days with 5,000 people on board. When we miss a delivery it's a big deal. There are not many second chances, and those we have are very costly.'

And there are other challenges. Royal Caribbean has 29 ships that sail to 60 different ports located around the globe where the company loads deliveries. It operates 365 days a year. Each ship has its own budget and likes to differentiate itself while the supply chain operation works to standardize use of certain items to leverage spending. The company has two brands: In addition to Royal Caribbean, the company also owns the Celebrity brand. Each brand has its own operations department—and its own culture.

The top priority for Danis was winning back confidence of supply chain's internal customers—the cruise line's marine operations and hotel operations groups—by improving upon some purchasing fundamentals. Supply chain also serves customers more familiar to others in purchasing, such internal company operations as IT, marketing and HR.

Danis recalls that the supply chain organization had difficulty with some processes that should have been simple for it to manage—writing requisitions, issuing POs, receiving goods and paying bills. This shortcoming also impacted the group's ability to negotiate agreements and its relationships with suppliers.

Activities focused on winning credibility—improving customer satisfaction, simplifying internal processes and executing—make up three points in a six-point plan Danis put into place upon arriving at Royal Caribbean. The other points are people, technology and supplier relationship management.

To address the people point, and continue to build confidence in the supply chain management organization, Danis put his team through a training program the company offers its reservation agents. The purpose of the training, which offers instruction on such topics as telephone and e-mail etiquette, was to help the purchasing professionals better communicate with their internal customers. Today everyone in the organization is required to have 40 hours of training per year.

He also restructured the organization based upon commodity or category management. At Royal Caribbean, supply chain management is divided into three big groups. One serves the hotel side of the business and is now headed by A. Henry Lopez, director of hotel, food and beverage purchasing. Another, technical purchasing, serves marine operations and is led by Shinall. A third serves supply chain management's customers in IT, marketing and other internal company departments, and is managed by Michael T. McNamara, director of finance and administration, supply chain management. Logistics, which also is part of supply chain management, is headed by Laura Luff, director of logistics and material control.

Prior to the restructuring, the hotel side of the business was practicing some category management while technical purchasing was mainly tactical. On the hotel side, Danis clarified roles and gave tactical responsibilities to those in a position he calls fleet services agents.

On the technical side, internal customers often complained that the group had little category expertise. That's because it was set up so that individuals had responsibility for all the purchasing for one ship, some 500,000 SKUs (stock keeping units). Now, that side of the operation has category managers as well as purchasers who handle tactical responsibilities. Managers within technical purchasing are Carla Guilbaud, project sourcing manager, refurbishment and drydock; Sasha M. Caso, commodity manager for onboard services; and Kenneth Charles, manager, project purchasing, newbuild, revitalization and refurbishing.

Also on the technical side, Danis created the position of ship ambassador to be the liaison between supply chain management and each of the ships.

To fill all the new roles, Danis recruited skilled professionals with diverse backgrounds. Some have degrees in supply chain and/or experience working in the profession while others have worked in the food and hospitality industries. For example, Shinall worked in purchasing at American Airlines when AMR received Purchasing's Medal of Professional Excellence in 1998. For expertise at managing the fuel category, a $300 million spend for Royal Caribbean, Danis hired a buyer from United Airlines.

'The single most important thing we are doing is hiring quality people,' he says. Today, the supply chain management operation numbers 200 people, half of whom work in purchasing; the other half work on the logistics side. Most are based in Miami.

Danis and his team addressed the six points throughout his first year with Royal Caribbean. For the technology point, they redirected a planned five-year $20 million ERP project they considered too time-consuming and costly. Instead they focused their efforts on working with tools already in place for each side of the business. The hotel operation uses software called CrunchTime, while marine operations uses Amos, an application for planned maintenance, inventory management and purchasing, and Marine Transaction Service to process orders which may be placed through an online catalog. They also began to use Ariba Source for its spend analysis and RFx tools and introduced use of purchasing cards.

For supplier relationship management, again the hotel side of the supply chain had a program in place but was having some issues with the data it had been collecting. Technical purchasing had no program to speak of so Danis put Shinall to work on creating one using expertise he gleaned from his years working at American Airlines. Shinall now is working on segmenting suppliers and preparing a scorecard to track performance not just for technical purchasing but for the entire supply chain management operation.

Also the team held a conference for suppliers on one of its cruise ships in November. Part information sharing and part training workshop the event was themed 'value innovation.' The team invited 250 of its top suppliers that represent roughly 80% of the company's spend. CEOs of both the Royal Caribbean and Celebrity brands as well as operations leaders were on hand. In support of the event, the company CEO recorded a welcome video. (See the video at www.purchasing.com)

After a year, these efforts began to pay off. Danis says the organization started to gain back some of its credibility. Siegfried Konetzny, hotel director on the Enchantment of the Seas, says that delivery to the ship today 'is 100% better than it was three years ago. Jeff promised that he'd turn it around. It took some time, but he did it.'

Danis tells of how his organization gained that confidence back. 'First and foremost, reliability of our delivering to the ships has improved significantly,' he says. 'In terms of being able to source items and get the right suppliers in here at the right time, we've taken a lot of costs out of this without jeopardizing quality or service.' (See logistics story at www.purchasing.com)

For instance, upon learning that food and beverage service for the Celebrity brand was outsourced, he and the team determined that the company could reduce costs by $2 million by sourcing it themselves. After all, the supply chain management operation already was purchasing food and beverage for the Royal Caribbean brand. It took time, but the group convinced Celebrity leadership to move the buy back in-house. As a result, supply chain management was able to reduce costs on the buy by some $6 million.

Late in 2004, Danis gathered his team together and spent time putting together a five-year strategic plan with four points. For each point—shareholders, customers, employees and suppliers—he named one of his directors to take the lead on creating an action plan with a team made up of employees from within the supply chain group. Shinall, for instance, is working on supplier relationship management. Lopez has the employees part of the plan.

'It's a living document that we continually modify and revise,' says Danis. 'We can't know exactly how 2009 is going to look, but we can have a vision. Now, we're happy where we are, but we still have work to do.' One place they're happy to be is meeting with purchasing execs at competing shipyards to leverage their spending. An area they're working on: further enhancing the skill sets of the purchasing pros on staff, in negotiation, contract management and financial analytics.

Click here to view a video of Royal Caribbean CEO Richard D. Fain welcoming attendees of a supplier conference aboard one of the company's cruise ships.

 Click here to hear Jeff Danis talk about Royal Caribbean's five-year plan.