Staying Afloat: How Vendor Risk Management Helps Cruise Lines Stay Ahead of Supply Chain Challenges

Cruise ships depend on effective supply chain management to ensure their passengers have everything they need for a memorable vacation. From the delicious food and beverages, to housekeeping and sanitation, entertainment, onshore excursions, safety systems, and even the fuel to power the vessel, cruise ships rely on an army of vendors and suppliers to deliver the best experience for their passengers.

With so many suppliers involved, managing the cruise supply chain can be a complicated and challenging process. Vendor or supplier issues can lead to disruptions in the service or quality, damaging the cruise line’s reputation with customers. In worst-case scenarios, it can create severe consequences for the whole cruise line.

To prevent these disruptions and manage the risks that the suppliers bring aboard, vendor risk management (VRM) is a valuable tool for cruise lines. 

Vendor Risk Management vs Supply Chain Management

While vendor risk management is often considered to be a component of supply chain management, it focuses specifically on the risks posed by third-party vendors and suppliers. In contrast, supply chain management encompasses all aspects of the supply chain, including internal processes and external vendors.

Vendor risk management focuses on identifying, assessing, and mitigating risks associated with third-party vendors and suppliers. Organizations use VRM to ensure third-party vendors and suppliers meet quality, safety, and security standards. Vendor risk management also ensures vendors comply with applicable laws and regulations.

Supply chain management focuses on the entire supply chain, from sourcing raw materials to delivering the finished product. Supply chain management involves coordinating all activities in producing and distributing goods and services. This includes sourcing, procurement, logistics, inventory management, and transportation.

Vendor Risks in a Cruise Line’s Supply Chain

Cruise ship operations are extremely complex, and the industry's supply chain consists of numerous suppliers and vendors that provide a wide range of goods and services. Your suppliers – and even their suppliers – can introduce new risks that disrupt an entire cruise's schedule, availability, and services, which impacts your passengers.

Here are some of the most common vendor risks in the cruise supply chain:

1. Cybersecurity risks — Supply chains are becoming a favorite target for cybercriminals. Instead of attacking you, they're finding it easier to attack your suppliers. If your supplier experiences a cyberattack, it can lead to negative consequences for the entire cruise supply chain. These risks can disrupt operations, cause financial losses, damage your reputation, and impact passenger safety. An effective vendor risk management program can spot cybersecurity holes with your suppliers and mitigate them before it becomes an issue. 
2. Quality control risks —The cruise industry relies on suppliers to provide high-quality products and services, including food, beverages, and maintenance equipment. Failure to meet quality standards can lead to safety and health issues, reputation damage, and financial losses. With a vendor risk management program, you can perform proper due diligence to make sure suppliers are meeting your standards and following regulations. 
3. Environmental, social, and governance risks — The environmental, social, and governance (ESG) impact from cruise lines is increasingly under scrutiny. The cruise industry's supply chain involves a diverse range of suppliers and vendors, like producing and distributing products such as textiles and furnishings. In addition: 
   
   
   • Environmental regulations are becoming more stringent, and failure to comply can result in legal and financial penalties. 
   • The use of suppliers also exposes cruise lines to human rights abuses, including forced labor and child labor. If suppliers aren't in compliance, you're equally responsible in the eyes of regulators. 
   With vendor risk management, you can ensure the cruise suppliers are complying with regulations and integrating ESG into their processes and policies. 
4. Geopolitical Risks — COVID-19 highlighted the vulnerability of the cruise industry's supply chain to global events, including pandemics, political instability, and economic downturns. Cruise lines and their suppliers are spread across the globe. Labor shortages, political unrest, inflation, and economic instability affect both the cruise line and its suppliers. With vendor risk management, you can map out where your supply chain is located and continually monitor geopolitical risks. 

How Vendor Risk Management Reduces Risk in the Cruise Supply Chain

Vendor risk management and supply chain management can work together to enhance the overall efficiency, effectiveness, and security of the cruise industry's supply chain. The right VRM strategies can identify potential risks in the supply chain early and address them before they become major issues. 

Additionally, vendor risk management can help cruise lines better understand their suppliers and ensure they comply with cruise industry standards and regulations. Supply chain management can also be simplified by using VRM, decreasing costs and increasing efficiency. With VRM, you can catch issues in the supply chain before it becomes a disruption to your cruise ship operations. 

Here are 5 ways vendor risk management contributes to supply chain management:

1. Supplier selection and onboarding — Supply chain management involves selecting the right suppliers based on quality, price, and reliability. But onboarding suppliers also means that your cruise line is taking on new risks. VRM can help in the selection process by evaluating potential suppliers' risk profiles and identifying potential risks associated with a product or service.
2. Contract management — VRM manages supplier contracts by providing the framework to ensure contracts contain compliance, security, and risk management provisions. This can help cruise line's mitigate risks associated with suppliers and ensure that the supplier meets their standards. Resources like vendor risk management software can also house all supplier contracts, ensuring that there are no surprises with price hikes or unexpected contract renewals. 
3. Monitoring — VRM involves monitoring third-party vendors and suppliers' risk profiles and performance throughout the life of the relationship. Ongoing monitoring helps you figure out where to focus your efforts and ensures that you're getting the value from your supplier relationship. This monitoring can be integrated into the supply chain management process to ensure that the supplier meets the cruise line's expectations.
4. Risk mitigation — A VRM program mitigates risks associated with third-party vendors and suppliers. Formal vendor risk assessments can help cruise lines identify the types and amounts of risks present so they can take the necessary measures to eliminate or reduce them. 
5. Continuous improvement — VRM can be used in conjunction with supply chain management to continuously improve a cruise line's supply chain. By analyzing supplier risk and performance data, the cruise line can identify areas for improvement and implement changes to enhance the supply chain's efficiency, effectiveness, and security.

By integrating vendor risk management into the supply chain management process, cruise lines can better manage supplier risks, enhance supply chain visibility, and ensure that the third-party vendors and suppliers meet the cruise industry's standards and regulations.