BUSINESS INTELLIGENCE – PLATFORM FOR MANAGEMENT STRATEGY IN CRUISE SUPPLY CHAIN

Ante Luetić M.Sc.Econ.

E-mail:

Tel. 021-536-293

Neven Šerić, Ph.d.

University of Split,

Faculty of Economics Split, Croatia

Key words: business intelligence, supply chain management, cruising company

ABSTRACT

Dynamics and unpredictability of business changes, pressure on demands for lower prices and increased service levels, as well as global relationships, determine modern cruise sector business. Market competition present in this area assumes features of exceptional complexity irrespective of whether the causes have been the results of safety, political, natural, social or economic factors. The complexity of these relations is additionally intensified by the fact that a highly competitive sector is in question. Supply business has become more important day by day and this has resulted in a conceptual shift from an internal activity as a business support towards a strategic process that results in the addition of a new value. To that extent the cruise supply chain should be considered as a certain form of a superorganisational set consisting of a cruise company with its business partners, participants in the supply chain. In addition to available resources and economic potential, timely and accurate information and the resulting insight become a dominant resource for the management decision making on all cruise company business levels – this is actually enabled by the application of business intelligence. Contrary to the traditional approach to value chain model that treats information as a stimulating element, business intelligence proceeds from the presumption that the information is a resource that creates new, additional value. Considering that business efficiency of a modern enterprise depends on its interaction with suppliers and customers, competitiveness and efficiency should be considered in a broad view. Management in cruise supply chain becomes more and more the management of information, especially when it is viewed thru the prism of full orientation towards the meeting of customer’s needs. The application of the businessintelligence concept in the management in the supply chain enables the cruise company to efficiently measure, supervise, forecast and control all the processes that make its chain. Considering that the aim is to make better business decisions more quickly, it is necessary to shorten total decision-making time, but also increase, within that time, the time necessary for consideration and selection of decisions with the decrease of time necessary for the collection and analysis of information – all these business intelligence actually enables.This paper is aimed at presenting a model for more efficient decision making in the cruising company supply chains on the basis of business intelligence concept.

  1. INTRODUCTORY NOTES

Today cruising companies find themselves at the specific crossroads that will determine their business and future. All the elements that affect their sustainability, whether being defined by safety, political, natural, social or economic influences, share one characteristic – a large amount of data and information. Recent assessments (Merv, 2010) indicate that large data warehouses are tripled every two years. According to the research made by Gartner (Mearian, 2010) 47% persons questioned consider the data growth one of three biggest challenges the management face. These few examples indicate that the business has reached the point where the information becomes statistically the most important focus of business making (The Economist, 2010). Its usage offers to cruising companies better possibilities in managing supply chains requesting, at the same time, deep and thorough changes in business principles and functioning considering the importance of information, its quantity, flow and its interconnection and dependence.

Exponential increase of data that a cruising company collects and stores can be studied from two points of view: how to solve the problems of large database management, and how to start managing this resource, namely how to quickly and efficiently convert data into information, intelligence and finally into – profit. It is of importance that the need for relevant information can be evaluated in quantitative and qualitative terms as the time requested to make decisions is constantly reduced.

In order to successfully optimize the process of analyzing useful data in managing cruising company supply chains, convert them into information, reduce the time necessary for their processing and their distribution to end users, it is necessary to have available an adequate management model for this segment at the company level.

2. BUSINESS INTELLIGENCE

The term business intelligence has been in use for some ten years and there is still no consensus on its generic definition and interpretation. Different authors approach to BI from various perspectives interpreting it as a process, a concept, a strategy, architecture, a value added product, a mode of business devising, manager’s philosophy, a discipline or a system. Moss and Atre (2003) point out that the intelligence of business making is specific for each company as well as for the policy and business rules based on which those companies are managed. Businessintelligence appeared when modern management were not able to make decisions based on intuition any more, but the whole decision making process should be based on facts (Javorović and Bilandžić, 2007). Dedijer (1999) offered a simplified explanation by which BI represents that entire one should know in order to take efficient actions. Liautaud and Hammond (2006) consider that data initiate business deals, business deals are speeded up by information, while an Olympic record is achieved by intelligence.The main point is that business intelligence is a concept that enables legal and ethical collection, processing and use of data, their conversion into information and knowledge, which should be used as a platform for efficient measurement, supervision, prediction and managing of business processes, i.e. as a support for business decision making. In this respect it is characterized by three perspectives (Vitt et al., 2002):

-Conversion of data into information,

-Faster business decision making, and

-Use of a rational approach to management.

From the informatics point of view businessintelligence means a complex informatics system that collects data by automated procedures from versatile internal and external sources, processes, transforms and consolidates them enabling the management to approach to qualitative information in an intuitive and easy way.

2.1Reasons for Business Intelligence Application in Cruising Sector

Considering decision making process in cruising company supply chain context it can be concluded that an adequate, i.e. optimal business decision is the one that provides the realization of a defined strategy and associated business goals. However, it should be also noted that a timely made decision is in question. The speed in taking actions can often be of a crucial importance since as less time is elapsed from the moment when a problem, threat, risk was perceived or indicated to the moment of reaction, it is more probable that the decision made will be relevant and timely in relation to the terms set for response (Šerić and Luetić, 2008).

Cruising companies should avoid the situation in which they are rich in data but poor in information. In practice the problem is even more emphasized when the company cannot rely on information it has at its disposal, that is when it has available several versions of “truth”. This situation is figuratively explained by former CEO of Hewlett Packard Lewis Platt when he says: “If only HP knew what HP knows, we would probably be three times more productive” (Benbya and Van Alstyne, 2011). In order that data could make a good basis for decision-making, decisions should meet certain terms: easy usage, adaptability, efficiency, computer platform independability and cost-effectiveness (Panian and Klepac, 2003).

Global economy assumes the model of informatics economy and knowledge economy. Contrary to material assets, services and associated intangible assets now constitute the major part of GDP in most developed economies, while services are more and more based on knowledge and not on material assets (Fleischer and Bensoussan, 2003). In this context the following globalization effects should be considered:

-Speed – each aspect of business and organization acts and is adapted in a real time as an answer to market conditions that undergo constant changes, while lifetime of most products decreases, as well as the time for their development;

-Interconnection – everything is linked to each other (products, people, companies, countries) since time, geographical, political or social barriers disappear, that is, they do not represent unbridgeable obstacles any more;

-Added value – in any product or service the share and importance of so-called intangible added value (image, emotion, information, safety) increases (Srića and Spremić, 2000);

-Risk – understanding, prediction and crisis management become critical factors in sustainability.

The application of businessintelligence in cruising sector allows all necessary information to all business levels within their scope of responsibility in decision making process so that the management level can deal with causes and not consequences. Research results (Liautaud and Hammond, 2006) show that business entities use only 10 % of data collected while the application of the businessintelligence concept enables the utilization of the remaining 90 %.

The usage of data and their conversion into information, and in the end into knowledge, represent the platform for proactive activities that enable the improvement of efficiency of business decisions made. More information will certainly initiate better decisions, and in turn they will achieve better results (Stiglitz, 2004).

  1. CRUISING SECTOR

The building of cruisers is a specific niche in shipbuilding industry characterized by building of ships with high added value. This segment is characterized by high degree of competitive concentration. The first five companies share 55 % capacities, and the first 10 respectable 74 %. When compared to other maritime affairs, cruising is characterized by largest ownership concentration, which leads to conclusion that the size should render commercial advantages in comparison to other maritime segments (Stopford, 2009). Three leading groups of companies: Carnival Group, the Royal Caribbean and Norwegian Cruise / Star Cruise share total of 77 % of all capacities, while Carnival alone has 46%.

Cruising industry has become one of the fastest growing segments of transport service. Since mid 80’s of the last century cruising fleet has been growing by average rate ranging between 8 and 9 % (Di Vaio et al., 2010):

-2000 – 9.7 million passengers,

-2005 – 14.4 million passengers,

-2015 – 25 million passengers predicted.

The main market for cruising voyages is North American continent with about 9.4 million passengers in 2005, i.e. 65 % of total demand in the cruising market, while second by size was European market with 22% share of total world demand (Horak et al., 2007). The European market growth is seen in the fact that this market increased its share in the year 2010 to approximately one third of total world market (BRS, 2011).

It is characteristic that in the last decades there have occurred horizontal and vertical integrations thru acquisitions and mergers in order to increase efficiency and revenues, and gain advantages over competition. When companies own or control business at the same level of the supply chain then horizontal integrations are in question. Contrary to horizontal integration, vertical integration occurs when a company owns or controls a few levels of the supply chain. When an offer includes also airline companies, as mentioned above, then fly/cruise offer is in question. If the companies invest, that is, carry out integration with certain land destinations then they offer all-inclusive packages to their clients. Considering occurrence of new destinations and markets, offers are characterized by an emphasized dynamics. Since the cruising industry started to develop, the investments into new ships have been increasing and they have become bigger, more luxurious, better equipped, offering higher level of services and broad range of offer in order to meet the needs and expectations of clients. Investments into those ships mean also the increase of business risk since larger capital amounts assume/require increased capacity rate.

The above shows that there is no market competition between single cruising companies but between supply chains of those companies. The major factor of success is the client’s satisfaction. Competitiveness is recognized in vertical (in quality terms) as well as in horizontal differentiation (in terms of offer variety). In this context four competitiveness dimensions should be considered: ship, duration of cruising, cruising itinerary and process of booking (Vaggelas and Lagoudis, 2010 vs. Papatheodorou, 2006).

Dynamics and unpredictability of business changes as well as global relationships determine today, more than ever before, cruising company businesses considering the effects of crediting crisis. This crisis is the sixth global crisis in the last half century and its effects have impact on this sector, too (Stopford, 2011). Real indicators (BRS, 2010 and 2011) of the influence of this crisis are seen in the number of new cruiser contracts in the last few years:

-2006 – 13 ships with 27,400 berths contracted,

-2007 – 16 ships with 35,800 berths contracted,

-2008 – 3 ships contracted,

-2009 – only 1 ship contracted,

-2010 – 7 ships contracted.

Cruising companies were forced to reduce prices of their offers in order to halt decline in the sale of their package travels, while only in 2010 there begins slow resumption of levels reached prior to crisis. Medium-term forecast suggests that full recovery will also depend on potential new markets primarily South American, Australian and New Zeland markets (Stopford, 2011).

3.1 Challenges of Modern Cruise Supply Chain

Many members of cruise supply chain (tour operators, travel agencies, cruising companies, airline companies, hotels, terminals, etc.) are highly specialized and some of them are also the members of a number of different supply chains at different partnership levels. To make certain supply chain competent each its element should be distinguished by flexibility, readiness to cooperate, exchange information, readiness to co-ordination, and constant improvements. The chain will be successful in the end if all its elements contribute to a new – added value for clients.

Clients of today have become more demanding, well informed, they want higher service level, broad range of tourist programs which require cruise supply chain management to find answers to some questions:

-Who are our clients?

-How to recognize needs and expectations of clients?

-How to find out and keep the most profitable clients?

-How to offer higher added value to clients?

-Which destinations are most profitable?

In order to find answers to the questions asked you need data and their processing into useful information, which will offer necessary knowledge to the management. By processing data collected awareness on the client’s profile will be gained, but also on changes and hidden trends in those profiles, their behavior, preferences, requests, expectations and finally perception of the value of services rendered. In view of above mentioned higher level of information available to guests, increase in lastminute reservation share is present.

Specific features of cruise supply chain can be considered based on three levels (Veronneau and Roy, 2008):

-strategic – cruising planning (itinerary) considerably affects the supply chain design, demand forecast and product-mix;

-tactical – this level is covered by master embarkation plan constituting main tool which will provide adequate embarkation and goods and passengers flows;

-operative – continuous control and replenishment of stocks against the embarkation schedule and samples of previousconsumption.

The above elements point to the necessity for information management in order to deal with specific features based on Just in Time principle.

  1. STRATEGY OF SUPPLY CHAIN MANAGEMENT

Characteristics of modern business where 60 to 70 % company costs are controlled by expanded supply chain (Ditman et al., 2010) have resulted in a new approach to supply chain management development, which represents a dominant business concept which performance is based on co-operation and co-ordination. Considering supply chain management as a managing philosophy Mentzer et al. (2001) indicate the following points:

-systematic approach in order to consider supply chain as a whole and consequently manage its complete course,

-strategic orientation towards cooperative efforts in achieving the synchronization of internal and external operations and towards strategic opportunities, and

-orientation towards a buyer in order to create a unique and individualized value for the buyer that would result in his satisfaction.

Bowersox (2007) points out six imperatives that frame the model of modern supply chain: customer centricity, operative excellence, integrative management, real-time responsiveness, network leveraging and collaboration. Four main principles (Jacoby, 2009) for the improvement of supply chain management include: productivity, reliability, flexibility and innovativeness based on which four basic strategies are developed: rationalization, synchronization, adaptation and innovation (innovativeness). Elementary techniques applied to implement these strategies include:

-designing of supply chain network to enable faster and more efficient responses at lower costs,

-capacity planning to have enough capacity in time,

-risk management to balance risk and success in order to achieve top performances, and

-monitoring and measurement to monitor the implementation of given strategy.

Porter (1998) defined three general strategies: focusing, differentiation and low cost. Research on correlation between business strategies and supply chain strategies conducted by Boston Strategies International (Jacoby, 2009) showed that 54 % enterprises carry out “low-cost” strategy, 28 % are focused on a certain market, while 18 % carry out product differentiation as shown in Table 1.

Table1. Correlation between business strategies and supply chain strategies

Business strategy / rationalisation / Synchronisation / customization / innovation
Differentation / negative / Negative / positive / positive
Focus / specialisation / negative / Negative / positive / negative
Low cost / positive / Positive / negative / negative

Source: Jacoby, D.: Guide to Supply Chain Management, The Economist Newspaper Ltd., London, 2009., p. 54.

  1. MODEL PROPOSAL FOR BUSINESS INTELLIGENCE CONCEPT APPLICATION AS A PLATFORM FOR CRUISE SUPPLY CHAIN

Data and information management becomes a challenging platform to supply chain management as based on its analysis the management should come closer to their clients and early detection of threats or possibilities and opportunities before they come in sight of other participants in market competition. Consequently, it may be well concluded that the cruise supply chain management becomes information management where businessintelligence should play a pivotal role. Based on this a conceptual model shown in Fig. 1 could be proposed.