P6 9 can starbucks manage the uncertainties in its value chain if so how if not why not

Role of Supply Chain Function in Starbucks Coffee

Contents

1. A Brief Introduction on The Starbucks Global Supply Chain
2. The Role of Supply Chain Function in Starbucks
3. Porters Five Forces Analysis of Supply Chain Management in Starbucks Coffee
4. Starbucks Strategic Objectives
5. Strategic Alignment of The Supply Chain
6. 10 Point Supply Chain Plan
7. Supply Chain Management Strategies
8. The Effectiveness of Strategies Used By Starbucks to Maintain Supplier Relationships
9. The Information Technology Used By Starbucks to Create Strategies in Developing Relationships With Suppliers
10. Recommendations
11. Harvard Referencing

1. A Brief Introduction to the Starbucks Global Supply Chain

Starbucks Coffee is a leading American multinational coffee retailer that has 30 626 stores, in 76 countries around the globe, and employing just over 300 000 employees. (Smith, 2020) A concept that was born out of a passion for coffee by three friends in Pike Place Seattle Washington in 1971, and named after a character from the Moby Dick story, has grown to an annual turnover of around 25 billion US Dollars. The Mission statement: "To inspire and nurture the human spirit — one person, one cup and one neighbourhood at a time." And the Vision statement: "To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow." The Mission and Vision statement show Starbucks objective of prioritising the customer while remaining a premium product. From this objective Starbucks has designed its supply chain model around the concept of “from bean to cup”. From this concept, the "Bean” is the premium product and “Cup” is the customer experience.

In 2008 Starbucks operating expenses were rising exponentially as a direct result of its supply chain management system. (Cooke, 2010) Deliveries to stores were not regular and this was affecting customer experiences due to availability. Starbucks knew that it had to transform its supply chain management if the company was to continue to be financially viable. The retailer identified three important objectives that the transformation had to achieve. Firstly it had to restructure its supply chain organisation. Secondly, it had to reduce the operating costs of servicing its stores while improving the efficiency of the process. And lastly, it had to create a platform for future supply chain capability. (Cooke, 2010) The supply chain reference model (SCOR) created by the Supply Chain Council provided the solution that Starbucks Coffee was looking for. The SCOR model integrates business processes along the entire supply chain. The focus areas that Starbucks Coffee applied to its Supply Chain Strategy were Plan, Source, Make and Deliver. (SME, 2004)

Figure 1

Figure 1 illustrates the connectivity of the groups in a flow diagram.

Once the groups were clearly defined the coffee retailer then developed various cost paradigms for each process within the groups to identify cost drivers. From this analysis, Starbucks identified the need for additional roasting plants and they subsequently opened two more plants. This allowed the company to go from a 7 working day week to a 5 working day week. The next process in the transformation was to create a global map of the retailer's transportation expenses including costs by region and costs per store. With over 70 000 deliveries per week, this was a critical step in its transformation. The global transportation cost map enabled the retailer to streamline its transportation process and to implement a performance-based transport system. Transport carriers and the third-party logistics suppliers that did not meet the performance criteria were eliminated while those that did had to maintain their efficiencies to remain in the system. The goal of the performance system was to create consistency across the global supply chain with regards to on-time delivery and order fill rates, complete end-to-end supply chain costs and organisational savings from areas such as procurement, marketing and research and development. By undertaking all the steps in the supply chain transformation to reduce operating costs and improve the execution of its services, Starbucks was creating the foundation for future supply chain capabilities. (Cooke, 2010)

2.The Role of Supply Chain Function in Starbucks

For multinational companies such as Starbucks, supply chain management is an integral part of their economic model. The advantages of an effective supply chain management model are that it creates a lean and competitive organisation. To analyse an organisation's competitive ability is best explained using Porter’s five forces. Porter’s five forces is a competitive analysis of the business environment that enables an organisation to take advantage of a strong position or improve a weak position in their business strategy. (Porter's Five Forces: - Understanding Competitive Forces to Maximize Profitability, 2020)

3. Porters Five Forces Analysis of Supply Chain Management in Starbucks Coffee

Porter’s First Force Competitive Rivalry

The first force discusses competitive rivalry. An efficient supply chain management system will enable an organisation to manage its inventories to meet customer demand and will have inventory buffers built-in for business continuity. The results of this are that an organisation will never run low on inventory and thereby incurring extra costs such as overtime, and it prevents customers from shopping elsewhere due to a lack of inventory. (The Advantages of Global Supply Chain Management, 2020) This ability has given Starbucks a dominant edge in a competitive environment.

Porter’s Second Force Supplier Power

The second of Porter’s five forces discuss supplier power. (Barutcu and Zinhni, 2012)The supplier power is the leverage that the supplier has with regards to price and exclusivity. Starbucks understood this by creating a group for sourcing in its supply chain model. They manage their process from bean to cup. Starbucks has a large coffee bean supplier network which is well managed. This has mitigated the risk of suppliers leveraging their powers. Although the coffee bean is a premium product suppliers will not risk their contracts due to the volume of the buying power of Starbucks.

Porter’s Third Force Threat of New Entrants

The third force in Porter’s five forces analysis is the Threat of new entrants. (Barutcu and Zinhni, 2012) Here the risk is high as the general product coffee is easily available. To mitigate this risk Starbucks have used their supply chain management to design transport and distribution channels which are managed end to end, from upstream to downstream. This enables the retailer to sell a concept that consists of the brand image, a premium product and the customer store experience and not just a cup of coffee.

Porter’s Fourth Force is the Threat of Substitution

The Threat of substitution is Porter’s fourth force. (Barutcu and Zinhni, 2012) Here Starbucks have used their supply change management two-fold to mitigate this risk. By ensuring a continuous supply of premium coffee beans to its roasting plants it has been able to standardise the premium quality of its product globally. Secondly, by ensuring adequate inventory supplies the supply chain management has enabled the retailer to be innovative and allowing it to offer new combinations of its product.

Porter’s Fifth Force is Bargaining Power of Buyers

The fifth force in Porter’s analysis is the Bargaining power of buyers. (Barutcu and Zinhni, 2012) This a high risk in the competitive coffee market. To maintain and increase brand loyalty retailers have to ensure that stores do not run out of products, their quality standards are standardised globally, and their social and environmental awareness is accessible in their product offering. Starbucks supply chain management is crucial to delivering this result from sourcing premium coffee beans to paper straws to on-time deliveries. The overall brand loyalty is interdependent on the supply chain model.

Figure 2 below illustrates the Porters Five Forces Analysis of Starbucks Coffee. In summary, the advantages of an efficient supply chain management model in multinational companies such as Starbucks Coffee are as follows:

1.  An adequate inventory supply
2. A premium quality product standard.
3. A consistent supply of raw materials
4. Strengthens the company’s ability to be innovative
5. Strengthens brand loyalty by consistent on-time deliveries

         Figure 2                                                              

4. Starbucks Strategic Objectives

Starbucks Coffee’s strategic objective is to be innovative with its products and dynamic with its supply chain to support its intensive growth strategies which are market penetration, market development and product development. A supply chain and logistics management plan must align with the strategic objective for the retailer to achieve its strategic goals. (Thompson, 2020)

Supply chain management is defined as a business model that networks all the business processes to drive the performance of the company. Logistics management is defined as the operational management of the transport, warehousing and distribution of products both externally and internally. (Is Logistics the Same as Supply Chain Management? 2020)

5. Strategic Alignment of The Supply Chain

The first building block in supply chain planning is Strategic Planning. To create the strategic fit between the strategic objective and the supply chain requires the following sequence of processes to be performed (Augustin and Dania, 2015):

1.     Understanding the end-user needs to determine the supply chain uncertainty. This process requires data on the following items (Augustin and Dania, 2015):

Ø The amount of inventory required at each store.

Ø The acceptable lag time that will satisfy the end-user

Ø The variety of product needed

Ø The performance levels required from distribution channels and stores

Ø The price of the product

Ø The level of innovation in the product

This information will enable the retailer to understand where on the Demand and Supply Spectrum (Figure 3) the supply chain will sit.

Figure 3 (Augustin and Dania, 2015)

2.     Understanding how the supply chain can best meet demand in an uncertain environment. There are two categories in the supply chain (Augustin and Dania, 2015):

Ø The responsive category which has a high cost

Ø Cost Efficiency category which has a low responsiveness

Figure 4 (Augustin and Dania, 2015)

3.     To achieve a strategic fit, the optimum balance between the following categories needs to be established (Augustin and Dania, 2015):

Ø Increasing implied uncertainty from customers and supply sources is best served by increasing responsiveness from the supply chain

Ø Low implied uncertainty can be served by a cost-efficient supply chain.

The relationship between these categories is represented by the Zone of Strategic Fit (Figure 5).

Figure 5 (Augustin and Dania, 2015)

For Starbucks Coffee, the optimal blend towards the Zone of Strategic Fit should look similar to Table 2.

6. 10 POINT SUPPLY CHAIN PLAN

10 POINT SUPPLY CHAIN PLANNING MAP

Figure 5 (Imanuel, 2020)

7. Supply Chain Management Strategies

Supply chain management is the movement of products or services from suppliers to customers. The factors that drive the success of supply chain management are strategy, financial performance and operational service. These three pillars are the foundation of Starbucks Coffee’s supply chain and enable the retailer to deliver the customer requirements when they require it and in the most cost-efficient process. (Murray, 2020)

THREE PILLARS OF SUPPLY CHAIN MANAGEMENT

      Figure 6

Strategy 1 Strategic Planning

Strategic supply chain processes include product development, customers, manufacturing, suppliers and logistics. (O’Byrne, 2016)

Ø Product Development

Product development defines which of the product offering are deemed basic products and which are deemed innovative products and their respective lifecycles. The lifecycles of the products determine if the company should introduce new versions of the available products or develop a new range of products to prevent sales decline. (O’Byrne, 2016)

Ø Customers

The organisation has to identify its target market for its products to ensure that marketing resources are adequately utilised as well as to aid in demand planning. (O’Byrne, 2016)

Ø Manufacturing

Using forecasting techniques an organisation can predict a sales estimate which will define the manufacturing and information technology infrastructure that is required. The process will also guide the need for additional capacity or subcontracting to the third-party providers. (O’Byrne, 2016)

Ø Suppliers

Organisations need to leverage their relationships with suppliers to achieve an optimum blend of quality, price and supply of materials from suppliers. (O’Byrne, 2016)

Ø Logistics

Order fulfilment is an important part of the supply chain process and organisations need to make decisions with regards to warehouses, distribution centres, modes of transportation and third-party logistics providers. (O’Byrne, 2016)

Strategy 2 is Tactical Planning

Operational services are important for the customer to receive the right service levels at the right cost to ensure repeat business. The process has three central components, inventory, policies and planning. (O’Byrne, 2016)

Ø Inventory

Customer satisfaction depends on a retailer's ability to maintain adequate levels of stock to meet customer demand at the store level. (O’Byrne, 2016)

Ø Policies

Policies standardise the supply chain by providing guidelines regarding inventory management and order fulfilment reducing the uncertainty in these processes. (O’Byrne, 2016)

Ø Planning

Planning in the area of sales and operations is a critical process that aligns the business needs with the needs of its customers. Planning has strong links to policies. (O’Byrne, 2016)

Strategy 3 Financial Efficiency Planning

Financial performance relates to the management of the cost factors arising from distribution network costs, warehouse operational costs, transportation costs and procurement costs. The effective management of these costs improves the financial performance of the business. (O’Byrne, 2016)

Ø Distribution Network Costs

To achieve a cost-efficient network business has to find the least expensive method to deliver fully on the organisations objective. Distribution network costs relate to the optimum location of distribution nodes and operationally feasible number of distribution nodes and reduced internal transport cost. (O’Byrne, 2016)

Ø Warehouse and Distribution Centres Operational Costs

Warehouses and distribution nodes need to have a layout that is optimised for cost efficiency reducing internal transport costs, order processing times and inventory damage. (O’Byrne, 2016)

Ø Transportation Costs

Transportation costs are linked to the number and placement of facilities. Partnerships need to be formed to achieve competitive transportation rates for the most efficient mode of transportation tied to service levels of delivery. (O’Byrne, 2016)

Ø Procurement Costs

The primary procurement aim is to extract value from every supplier relationship. Supplies should be categorised according to strategic importance and suppliers should be tiered accordingly too. (O’Byrne, 2016)

Starbucks leverages these strategies to maintain efficiency within its supply chain by ensuring on-time deliveries and order fill rates, total end-to-end supply chain costs and enterprise savings. Starbucks sees its symbiotic, long-term supplier relationships as the key to its future growth and success. It also shows its commitment to innovation by having a dedicated budget for the process.

8. The Effectiveness of Strategies Used By Starbucks to Maintain Supplier Relationships

With over 30700 stores and almost 400 000 coffee growers globally Starbucks Coffee has to have effective strategies to maintain its supplier relationships. One of its strategies is sustainable sourcing. (Supply Chain Putting the Star in Starbucks, 2017) Sustainable Sourcing is the integration of social, ethical and environmental performance factors into the process of building strong, long-term relationships with suppliers. (Sustainable Sourcing Definition | EcoVadis, 2020) Starbucks has a vertically integrated supply chain and are involved in every step of the process from growing, harvesting, hulling, drying, packing, blending, and roasting beans to the final brewing of the beans. Starbucks has its Coffee and Farmer Equity (C.A.F.E) standards and Coffee Sourcing Guidelines (CSG), which ensures that its coffee farmers comply with the guidelines to deliver ethically FAIR sourced coffee. These guidelines refer to worker's rights, safe working environment, minimum wages and the prevention of child labour. In return, Starbucks provides its suppliers with special education and training. This close relationship with its growers also ensures that there is no overplanting by implementing plantation techniques and quality assurances or worker shortages which could disrupt the supply chain. (Supply Chain Putting the Star in Starbucks, 2017)

Figure 1 (Kim, Narwood and Jong, 2013)

Another strategy of Starbucks Coffee is to maintain an efficient supply chain. From the farmers, the beans are transported to six storage sites in the US and Europe. The beans are roasted at these storage sites and packaged for transport to eight central and forty-eight regional distribution centres globally. By maintaining a limited number of roasting facilities Starbucks Coffee can be hands-on in the site's operation management thereby guaranteeing that all beans are roasted and packaged in the same way. With these hands-on management techniques, Starbucks ensures that a flat white taste the same in Dubai as it does in Tokyo. (Supply Chain Putting the Star in Starbucks, 2017)

Starbucks Coffee also maintains a sustainable supply chain with Tea growers, Cocoa growers and non- food items such as its consumables and furniture. It applies its Fairtrade policy across all its material requirements for unfinished and finished goods.

9. The Information Technology Used By Starbucks to Create Strategies in Developing Relationships With Suppliers

Starbucks Coffee utilises Enterprise Resource Planning (Figure 1) to track, collect and analyse data on processes, products and services from the various business units. Enterprise Resource Planning is a software that enables different technological applications to integrate and share information. The system manages the purchasing of coffee, tea, dairy, paper goods and other relevant supplies that Starbucks requires throughout the world. The system eliminated the need for paper forms and emailing orders instead purchase orders are updated live at the point of origin and are billed and paid for. The system also creates a coordinated effort between the finance department and the procurement department by releasing funds at the point of origin paperless. This has reduced the lag time that stores have to wait for supplies compared to conventional systems which generally take an extended time to go through many people and different processes before stores are supplied with the required goods. Suppliers also gain the same benefit by receiving instant payment and reducing their legislative compliance requirements. The system is not labour intensive and therefore reduces operating costs as less staff is required to perform these functions. With finance being integrated into the system Starbucks can apply cost paradigms to analyse what item costs are high and what needs to be done to improve them. Another advantage of the system is that it was custom designed for Starbucks and is user friendly and adaptable while maintaining the required functionality. This ensured the ease of use for Starbucks employees with minimal training. Also by being upgradeable it does not need to be replaced instead it can grow and develop with the company. This is also a future cost-cutting initiative on overheads. (Picegirl, 2014)

Figure 1 (Picegirl, 2014)

10. Recommendations

From my analysis of Starbucks Supply Chain Management practices the following recommendations can be applied:

Ø Using the supply chain reference model (SCOR) created by the Supply Chain Council and its focus areas of Plan, Source, Make and Deliver, to construct the supply chain will create an efficient supply chain. Using the focus areas a supply chain that is flexible and adaptable and integrates all the business functions can be designed.

Ø When planning the supply chain due consideration must be given to the strategic alignment of the supply chain to the business objective. Using the Zone of Strategic Fit a balanced model can be created that will assist the organisation to achieve its strategic goals.

Ø The three strategies of strategic planning, financial planning and tactical planning should be the foundation for any supply chain to deliver what the customer wants, when the customer wants it and to deliver it in the most cost-efficient manner.

Ø Build a vertically integrated supply chain and use sustainable sourcing to create strategic partnerships with suppliers to reduce disruptions to the supply chain.

Ø Use a software program that is custom-designed, user friendly, adaptable and upgradeable and will require minimal staff training.

Harvard Referencing

1.     Smith, C., 2020. 30 Starbucks Facts and Statistics (2020) | By The Numbers. [online] Expandedramblings.com. Available at: https://expandedramblings.com/index.php/starbucks-statistics/  [Accessed 29 June 2020].

2.     Cooke, J., 2010. From Bean To Cup: How Starbucks Transformed Its Supply Chain. [online] Supplychainquarterly.com. Available at: https://www.supplychainquarterly.com/articles/438-from-bean-to-cup-how-starbucks-transformed-its-supply-chain#:~:text=The%20first%20step%20of%20the,source%2C%20make%2C%20and%20deliver.  [Accessed 29 June 2020].

3.     SME, S., 2004. The SCOR Model For Supply Chain Strategic Decisions | SCM | Supply Chain Resource Cooperative (SCRC). [online] Scm.ncsu.edu. Available at: https://scm.ncsu.edu/scm-articles/article/the-scor-model-for-supply-chain-strategic-decisions [Accessed 14 July 2020].

4.     Mindtools.com. 2020. Porter's Five Forces: - Understanding Competitive Forces To Maximize Profitability. [online] Available at: https://www.mindtools.com/pages/article/newTMC_08.htm [Accessed 29 June 2020].

5.     United Global Sourcing. 2020. The Advantages of Global Supply Chain Management. [online] Available at: https://www.unitedgs.com/blog/global-supply-chain-management/the-advantages-of-supply-chain-management/ [Accessed 15 July 2020].

6.     Barutcu, S. and Zinhni, M., 2012. The Impacts of E-SCM on the E-Tailing Industry: An Analysis from Porter's Five Force Perspectives. In: 8th international strategic management conference. [online] Elsevier Ltd, pp.1047-1056. Available at: https://www.sciencedirect.com/science/article/pii/S1877042812045478 [Accessed 29 June 2020].

7.     Thompson, A., 2020. Starbucks’S Generic Strategy & Intensive Growth Strategies - Panmore Institute. [online] Panmore Institute. Available at: http://panmore.com/starbucks-coffee-generic-strategy-intensive-growth-strategies [Accessed 30 June 2020].

8.     Michiganstateuniversityonline.com. 2020. Is Logistics The Same As Supply Chain Management?. [online] Available at: https://www.michiganstateuniversityonline.com/resources/supply-chain/is-logistics-the-same-as-supply-chain-management/#:~:text=Supply [Accessed 30 June 2020].

9.     Augustin, W. and Dania, P., 2015. Finding The- Zone Of Strategic Fit High Responsive Supply Chains. [online] studylib.net. Available at: https://studylib.net/doc/9466155/finding-the--zone-of-strategic-fit-high-responsive-supply... [Accessed 1 July 2020].

10. Murray, M., 2020. Strategic Supply Chain Management Introduction. [online] The Balance Small Business. Available at: https://www.thebalancesmb.com/strategic-supply-chain-management-2221231 [Accessed 4 July 2020].

11. O’Byrne, R., 2016. The 3 Pillars Of Supply Chain Management. [online] Logisticsbureau.com. Available at: [Accessed 4 July 2020].

12. Fronetics. 2017. Supply Chain Putting The Star In Starbucks. [online] Available at: https://www.fronetics.com/supply-chain-putting-star-starbucks/ [Accessed 13 July 2020].

13. Kim, Narwood and Jong, 2013. Starbucks CAFE Practice. [image] Available at: https://id.pinterest.com/pin/417990409144145165/ [Accessed 13 July 2020].

14. Picegirl, 2014. The Effectiveness Of The ERP System At Starbucks | Weakness & Benefits. [online] Bohat ALA. Available at: https://bohatala.com/the-effectiveness-of-the-erp-system-at-starbucks/#:~:text=Starbucks [Accessed 13 July 2020]

Why did Starbucks have to change their supply chain?

What is the value that Starbucks creates for its customers how does the company create this value?

What is the likely value chain of a coffee shop for example how did the varieties of coffee beans get there?

Why is it so important to the company to maintain a consistent supply of premium coffee?