From the case study, the North American cruise market presents strong growth opportunities. As a result, Carnival is expected to experience strong competition from other players within the market. With the expected introduction of discounts by its competitors, Carnival may experience a decline in its business. The company, therefore, needs to improve its cost efficiency in order to compete favorably in the market. In response, the organization has opted to reduce its food costs by 20% per passenger. This essay seeks to explore how this may be carried out, among other questions.
The food costs between Carnival and its competitor are virtually the same. The competitor is expected to offer discounts to customers in the near future. However, it has not been explained on how such costs will be covered by the company. In that respect, it would be beneficial for Carnival to continue its food costs-cutting program. The area presents a liability for the company in the massive wastage of food through spoilage and other factors. Improvement of the company’s food cost efficiency is, therefore, important. Due to the potential benefits that may be accrued through this efficiency, it provides a good measure for the company’s performance (Brynzer & Fager et al., 2013). An improvement in this area will result in greater revenues and profits for the organization as a whole. A 20% reduction in the targets is viable for the company. There are many areas that may be potentially improved, if the right steps are taken. The company may alter its supply strategies as well as food consumption patterns to great effect.
The current food procurement process may be altered to suit the company’s goals of a 20% drop in its food cost per passenger. Firstly, the company may adopt a stock of more dry goods for breakfast meals during the cruises. Similarly, it should switch supply of breakfast supplies to 23 days rather than the usual 14 days. This will be cheaper as suppliers will have longer times to process the orders before debarkation. Secondly, dinner supplies consist of a lot of meats. This presents a problem for the company in the form of rapid spoilage. The meat supplier has presented additional ports of call that may be used for loading meats from local depots. Examples are Halifax, which may be used for East Coast cruises, and Puerto Rico, which may be used for Caribbean Cruises during the winter season. The company should switch from 14 days of dinner supplies to 5 days of supply. During the cruises, the mentioned ports of call may be added to the loading itinerary. This will assist in reducing the current rates of spoilage, therefore, improving the company’s food costs per passenger.
Carnival should also commence usage of the Eatwell Food and Beverage System (EWFBS). Automation has always been a key factor in improving organizations (Chan & Lee, 2005). The system will allow the company to anticipate consumption of its supplies. As a result, it will be able to order specific items before cruises. This will reduce food costs through a reduction in wastage that arises from over preparation of meals. In the selection of suppliers, the key areas should be quality of materials, their prices and ease of preparation. Due to these needs, the company may reduce its priority on big-name brands. Subsequently, it should choose smaller suppliers, who can meet the same requirements without compromise. Currently, the procurement process is carried out informally. The organization needs to create clear policies that create orders well before the expected time of supply (Cost, 2002). Through anticipation of client tastes and requirements through the Eatwell systems, orders can be forwarded well in advance. This will grant the suppliers longer timeframes to provide the material goods, hence cheaper costs of supply.
Variability of tastes, allergies and customer habits presents a challenge to Carnival’s food cost reduction program. In response, there are various measures that Giordano may institute. Firstly, Eatwell presents a potential solution through its Meal Control System. It will allow him to anticipate demand for additional volumes of food. In essence, it will allow him to prepare adequate volumes thus reducing the wastage experienced previously. Secondly, the Food and Beverage System will allow the director to view the most popular meal selections. This will help in accurately choosing the quantities of meals that will be prepared. Thirdly, he should learn to use the company’s customer preferences database. This will help in anticipating meal selections from the customers, therefore, preparing the right quantities and reducing wastage. The company will, therefore, expend the food efficiently and reduce its costs in that area.
Giordano needs to present his results to the management. He may use different metrics as evidence of his work. The Inventory Control System (EWICS) presents a suite of tools that he may use. Firstly, he may use inventory turnovers. This ratio assists in determining how long it takes for the cruise ship to consume units of the food commodities. Through this metric, the consumption rates may be determined. In response, procurement may be carried out efficiently, hence reduced expenses through food. Secondly, Giordano may use the cash conversion cycle (CCC) as a metric. It assists in highlighting how long it takes for the company to convert its inputs into revenues (New, 1996). This will assist in demonstrating a reduction in costs. Through the various proposed changes in the supply chain, the CCC will demonstrate the anticipated cash flow improvements to the management, therefore, the 20% reduction in material costs.
Chef Rousseau has a critical role to play, if the management’s targets are to be achieved. He is in charge of meal-production, hence his central role in the supply chain. The most important thing that the chef can do is to improve his anticipation of client needs. With clear expectations, the chef will be able to coordinate preparation of the preferred meals. This will result in a reduction of food wastage through expiry and over preparation. He may achieve this through the usage of Eatwell’s systems. Firstly, the Meal Control System will allow him to observe current customer meal choices on the fly. As a result, he can initially prepare his anticipated number of meals. In the case of additional demand, he can easily prepare extra servings. This will assist in a reduction of food wastage through over preparation. Secondly, he may use the food and beverage system to anticipate demand for meals. In effect, it will allow him to prepare the right quantities of food material orders alongside Giordano. With these quantities, efficient amounts may be ordered from the suppliers, therefore, reducing wastage experienced through spoilage on the ship.
Giordano can make several supplier recommendations in order to achieve his set targets. Firstly, he should propose an alteration to the supply of dinner rations. Instead of the traditional 14 days of supply, he can switch to 5 days of supply. This will assist the company in ensuring the quality of meats as they will not experience spoilage. Additional ports of call can be used depending on the season to ensure that the ship’s stock levels are consistent. During the summer, Halifax may be used in the East Coast cruises while Puerto Rico can be used for the Caribbean during the winter. These ports are able to provide quality supplies from the same distributors, while maintaining the FDA approval standards that are required. This will allow the company to reduce dinner costs by around 4% per passenger. Secondly, the DOS of dry breakfast materials may be increased from 14 to 23 DOS. This will allow the company to lower breakfast costs by around 16% per passenger. Thirdly, Carnival can switch to suppliers of products with lower brand names. This will allow the company to procure its supplies at lower pricing, hence achieving its cost-reduction goals. However, the organization has to ensure its required standards are met by vetting the prospective suppliers. Currently, suppliers are provided with around 6 hours to deliver the required materials at the ports of call. If granted longer turnaround times, they can demand cheaper prices for processing the orders. Carnival should, therefore, look into this as part of its cost-reduction strategies (Chan & Lee, 2005).
There exists a slight variation between the food costs in Royal Caribbean and Caribbean. This may be attributed to various reasons. Firstly, the company may have an efficient supply chain system. Its suppliers may be providing the raw materials at cheaper prices. Secondly, the company’s suppliers may be tightly integrated to the company’s consumption patterns. As a result, the company wastes very little food through the inventory turns. Secondly, the company may have adopted a system for efficiently determining consumer patterns. As a result, it has been able to streamline its supply chain and reduce losses through food spoilage. Thirdly, the company may have streamlined its days of supply and supply points (ports of call) to consumer needs, hence reducing food losses. Fourthly, the company probably has an efficient supply policy. Its food managers and chefs have a system for anticipating demand and therefore ordering proper quantities from suppliers well in advance. Longer turnaround times, in turn, allow the suppliers to offer lower quotes for the materials.
Brynzer, H., Fager, P., Finnsgaard, C., Johansson, M. I., Algestam, S. & Wanstrom, C. (2013). Sustainability and cost efficiency in supply chains.
Chan, C. & Lee, H. W. J. (2005). Successful strategies in supply chain management. Hershey, PA: Idea Group Pub.
Cost, L. (2002). Cost efficiency in supply chains. Cost Management In Supply Chains, p. 233.
New, S. J. (1996). A framework for analysing supply chain improvement. International Journal Of Operations \& Production Management, 16 (4), pp. 19–34.
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