Starbucks Supply Chain

1 Starbucks’ Supply Chain Introduction Starbucks Corporation, founded in 1971 in Seattle, Washington, is a world-renowned coffee chain with over 28,200 branches globally. The company was founded by Gordon Bowker, Jerry Baldwin, and Zev Siegl after learning the art of roasting coffee beans from coffee-brewing entrepreneur, Alfred Peet. Due to its high-quality coffee blends and flavors, Starbucks stood out from its competitors and as a result developed a loyal customer base. By 1978, Starbucks had four new locations in Seattle. From 1987, Starbucks went through a rapid and aggressive expansion plan after acquiring new management. It opened stores in prime locations internationally and was listed in the stock market in 1992. Starbucks success can be attributed to its innovative supply chain strategy that has ensured that it meets the customers' needs promptly and through quality products.

Starbucks has a supply chain that spans six continents and over 100 countries. Most of the ingredients used in its stores come from different countries across the world. Starbucks owns only six roasting cent roasting centers, but through its centralized supply chain system, it can promptly transport its roasted coffee beans to its stores. At the roasting centers the beans are prepared and packaged through a standardized process which guarantees the quality of its products.

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STARBUCKS’ SUPPLY CHAIN MANAGEMENT 2 Starbucks delivers a large quantity of coffee daily from the farms to its warehouses and finally to its stores through a vertically integrated supply chain. The company deals with nearly 300,000 coffee growers whom it interacts with to ensure that all its coffee is grown according to the required standards. This paper examines the efficiency of Starbucks' supply chain. It seeks to establish how Starbucks uses its supply chain to gain a competitive advantage over its industry peers.

Starbucks’ Suppliers Starbucks purchases high-quality raw materials from its suppliers. The corporation gets into purchase agreements with specific suppliers from Latin America, Asia, and Africa, who can grow the preferred quality of coffee beans. These agreements are necessary because firstly, they reduce the uncertainty of the source of raw materials and secondly, they enable Starbucks to place specific conditions on the farming methods that the farmers will use to produce high-quality crops. In addition to forming agreements, Starbucks also uses Coffee and Farmers Equity (C.A.F.E.) practices to ensure that its suppliers meet the quality and sustainability standards (Munson, 2013). The C.A.F.E. practices ensure that there’s a mutually beneficial relationship between the farmers and the farming communities and Starbucks.

C.A.F.E. practices provide a buffer against the purchase of low-grade coffee and the fluctuation of raw materials that is common in the coffee industry. Under the C.A.F.E practices agreement, Starbucks purchases thousands of tons of coffee beans from Asian, African and South American coffee farmers from different continents which are then shipped to Europe and North America for storage and roasting (Sarkar, 2017). The key factor when purchasing the coffee beans is to ensure they meet the required quality standards since that is essential to the production of good coffee in Starbucks stores. Despite the complexity of the

STARBUCKS’ SUPPLY CHAIN MANAGEMENT 3 scale of its operations, Starbucks can consistently supply fresh and high-quality coffee in its stores daily.

After harvesting, the coffee beans are dried and transported to Starbuck’s storage facilities where they are stored in the appropriate conditions as inventory. At all levels of the supply chain, a GPS tracking device is used to monitor the movement of the products to prevent mishandling. From the storage facilities, the coffee beans are transported to roasting plants whenever required where they are roasted, packaged and transported to the warehouses.

Starbucks saves costs on transportation by contracting third-party logistics companies to manage the movement of its products through various stages of the supply chain cycle.

Starbucks also recruits regionally and locally for vendors for its other products such as milk and other food products.

How Starbucks Achieves its Supply Chain Objectives The primary objective of the stores' supply chain is to effectively utilize economies of scale and obtain and supply the required products at the right time, price and quality. To achieve a high level of efficiency, Starbucks used a three-step process to enhance the performance of its supply chain. The first step is creating a reorganization plan which was aimed at improving the activities involved in the supply chain process such as transportation of raw materials to storage and the roasting plants. This step resulted in the saving of time and money. The second step in the process was to simplify every task involved in the supply chain process into four essential functions; planning, procurement, production, and distribution.

These processes were kept separate and distinct from each other to avoid the duplication of duties and thus increase the optimization of the supply chain. The planning unit involved all the activities that were involved in creating an efficient supply chain such as replenishment

STARBUCKS’ SUPPLY CHAIN MANAGEMENT 4 and developing new products (Golinska-Dawson, and Kolinski, 2016). Procurement involves sourcing for the right materials at the right price. There are two main categories of purchases the company makes. These are; coffee and non-coffee products. Production involves the conversion of the raw materials into finished goods; it can either be done by the company or sub-contracted to third parties. The distribution unit includes all the parties involved in the transportation, delivery and customer service in the corporation. The reorganization of the supply chain functions enables Starbucks to reduce its costs significantly, and to increase the efficiency of its operations.

Supply Chain Transparency The implementation of C.A.F.E. practices has created a higher level of transparency and accountability in Starbucks' supply chain. Before its implementation, Starbucks was not able to adequately control the quality of the raw materials it received from farmers. However, these practices have created a relationship of mutual understanding between Starbucks and the producers. Through this agreement, the farmers grow high-quality crop under the right conditions for Starbucks, and in return, they receive competitive compensation and development projects for their communities (Munson, 2013). The trade contracts and C.A.F.E. practices also reduce the probability of fluctuations in coffee supply, which are common in the coffee industry. This helps to ensure the continuity of Starbucks’ business in all of its stores.

Supply Chain Analysis Starbucks has a strong supply chain that comprises three primary activities; inbound logistics, operations, and outbound logistics. Inbound logistics involves matching the sourcing, production, and distribution to the needs of the business. It begins with the purchase

STARBUCKS’ SUPPLY CHAIN MANAGEMENT 5 of beans from farmers, distribution to storage facilities and then transferred to shipping facilities so that they can be delivered to roasting plants. At the roasting plants, they are roasted and packaged and finally distributed to Starbucks stores globally for brewing.

To achieve an efficient and responsible supply chain Starbucks has implemented certain strategies such as modern information technology systems to ensure that there is a fast and smooth flow of information at each level of the supply chain system (Ross & Ross, 2016).

The IT systems facilitate the effective tracking of the movement of products and management of inventory. Starbucks also has strategically located distribution centers which enable the easy shipment of the roasted beans to the coffee stores. To maintain the efficiency of its inbound logistics, Starbucks endeavors to develop and sustain a good relationship with their suppliers, partners, and distributors.

Outbound Logistics Starbucks supply chain success derives from its flexible distribution channels which are divided into two; company-operated, and non-company operated distribution channels (Oliveira, & Gimeno, 2014). To achieve higher distribution effectiveness, Starbucks has partnered with various partners in its different locations to increase its distribution network.

Conclusion Starbucks' winning strategy with regard to its supply chain has been to deliver highquality products to its customers across the globe promptly. This approach has been enabled by the effective integration of the series of steps involved in the supply chain process. One of the most significant contributors to Starbucks continued growth is its effective supply chain.

To achieve a successful supply chain, Starbucks reorganized its processes, reduced its supply

STARBUCKS’ SUPPLY CHAIN MANAGEMENT 6 chain costs, improved its services and incorporated advanced IT systems into its supply chain.

As a result of these changes, Starbucks has attained market leadership and innovation.

STARBUCKS’ SUPPLY CHAIN MANAGEMENT 7 References Munson, C. (2013). Ethical Product Sourcing In The Starbucks Coffee Supply Chain. FT Press.

Golinska-Dawson, P. and Kolinski, A. (2016). Efficiency in sustainable supply chain.

Springer.

Munson, C. (2013). The supply chain management casebook. Upper Saddle River, N.J: Pearson.

Oliveira, A., & Gimeno, A. (2014). Supply Chain Management Strategy: Using SCM to Create Greater Corporate Efficiency and Profits. Pearson FT Press.

Ross, D. and Ross, D. (2016). Introduction to supply chain management technologies. CRC Press.

Sarkar, S. (2017). The supply chain revolution. AMACOM.

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