Soriano, John Dexter Z.

STARBUCKS SUPPLY CHAIN MANAGEMENT

Standards Starbucks uses a vertically integrated supply chain, which means that the company is
involved in every step of its supply chain process, all the way from the coffee bean to the cup of coffee
sold to consumers. The company believes that interacting directly with farmers ensures that all of its
coffee beans will achieve the same quality and flavor standards. Starbucks also works directly with
growers because the company is committed to only selling ethically sourced, Fair Trade coffee.The
company even has its own Coffee and Farmer Equity (C.A.F.E) standards and Coffee Sourcing
Guidelines (CSG), which require that all suppliers must meet certain ethical, sustainability, and quality
standards. Starbucks uses a stringent vetting process to ensure its growers meet and adhere to these
guidelines. Not only do the C.A.F.E. practices and CSG benefit Starbucks, they also provide
advantages for suppliers. The guidelines protect workers’ rights and ensure that all growers have safe
and humane working conditions. Suppliers also must adhere to minimum-wage requirements and
commit to not using child or forced labor. Lastly, as a part of its C.A.F.E. guidelines, Starbucks commits
to providing its suppliers with special training and education programs. Starbucks’ direct interaction with
growers, along with their sourcing and social responsibility standards, make suppliers feel like they are
integral parts of Starbucks’ corporation. The close relationship and frequent communication between
Starbucks and its suppliers, therefore, make the company’s supply chain less susceptible to major
disruptions, such as overplanting or worker shortages.
Process After the growers pick and package the coffee beans, truckers drive the unroasted beans to
ocean liners that ship the beans to six storage sites in the U.S. and Europe. The beans are roasted in
these storage facilities and then packaged for shipment to Starbucks’ eight central, and forty-eight
regional, distribution centers. By only using a handful of storage facilities, Starbucks can closely
manage the sites’ operations and guarantee that all beans are roasted and packaged in the exact same
way. The company’s close control over the roasting process also ensures that Starbucks’ coffee tastes
the same in all of its retail locations. Starbucks’ active participation in the supply chain also ensures
that the distribution centers receive the products they need so they can fulfill orders and make their
roughly 70,000 weekly deliveries on time. The size and scale of Starbucks’ operations should make its
supply chain inherently complex. In 2008, however, Peter Gibbons, the Executive Vice President of
Global Supply Chain Operations, overhauled the company’s expensive, ever-growing supply chain into
a streamlined, cost-effective process that relies on simple operational structures and metrics. First, he
grouped all supply chain jobs into four categories: plan, source, make, and deliver. Next, he developed
a highly centralized logistics system that allows the company to better manage and coordinate its global
network. Lastly, he implemented a binary, 0 or 1 “scorecard system” to assess all supply chain activities
on four metrics: safety in operations; service measured by on-time delivery and order-fill rates; total
supply chain costs; and enterprise savings. Along with the simple tools and processes that Gibbons
created, Starbucks also relies heavily on digital technology to manage its supply chain. The company
uses an automated information system that allows it to monitor demand, inventory, capacity, and
scheduling in real time. Therefore, Starbucks can quickly adjust its plans and operations as needed.
Starbucks’ simple structure and management tools, as well as its use of digital technology, allow the
company to achieve a high level of efficiency and agility, both of which are key to organizational
success. Market Starbucks’ biggest competitor in the international coffee market is Dunkin’ Donuts. In
contrast to Starbucks, which owns its entire supply chain, Dunkin’ Donuts outsources its production
processes. Dunkin’ Donuts relies on a third-party intermediary, National DCP, to handle the company’s
supply chain operations. Dunkin’ Donuts also franchises its manufacturing locations, as well as nearly
all of its retail spaces. Conversely, Starbucks franchises less than 50% of its retail locations, and, as of
March 2016, was no longer accepting applications for new U.S. franchises. Starbucks also uses few to
no intermediaries to carry out its supply chain operations. Unlike Starbucks — which is committed to
using 100% sustainably grown, Fair Trade-certified coffee beans — Dunkin’ Donuts promises to
produce its coffee as “sustainably as possible.” The company works with Fair Trade USA and the
Rainforest Alliance to implement sustainable sourcing practices, as well as training programs for
farmers. However, Dunkin’ Donuts only offers two permanent menu items that are Fair Trade-certified:
30% Rainforest Alliance Certified™ Dark Roast Blend and 100% Fair Trade Certified™ espresso. While
Starbucks’ critics may try to argue that the company’s supply chain model and social responsibility
efforts are not true differentiators, the statistics tell a different story. Starbucks was founded roughly
twenty years after Dunkin’ Donuts, but the company is already much larger than its rival. In 2016,
Starbucks generated $16.8 billion dollars in revenue, while Dunkin’ Brands earned only $828.9 million.
Starbucks also has a larger global presence, with nearly 26,000 retail stores in 75 countries, compared
to Dunkin’s 11,500 locations in 60 countries. Starbucks also primarily markets to higher-income
customers looking for a premium coffee experience, while Dunkin’ Donuts has traditionally retailed to
more blue-collar consumers who want coffee on the go. Therefore, Starbucks’ clientele is willing to pay
more for coffee that they perceive to be made from higher-quality, socially responsible sources.
Starbucks’ customers will also pay more for coffee in order to enjoy the amenities offered in the
company’s coffeehouses. Because Starbucks’ patrons generally have higher disposable incomes than
those of Dunkin’ Donuts’ customers, they are less likely to adjust their consumption patterns during
economic downturns. Thus, Starbucks is less susceptible than Dunkin’ Donuts to major fluctuations in
revenues that could result from negative macroeconomic swings. While Dunkin’ Donuts loyalists,
particularly those in New England, may never accept the merits of Starbucks coffee, majority opinion
argues that Starbucks offers higher-q
The Future While Dunkin’ Donuts loyalists, particularly those in New England, may never accept the
merits of Starbucks coffee, majority opinion argues that Starbucks offers higher-quality beverages and
better customer experiences. Statistics show that Starbucks is outperforming its rival, which is evidence
of the success of a simple and efficient global supply chain. In fact, Starbucks, which is already larger
than Dunkin’ Donuts both domestically and abroad, plans to open more new retail spaces than its
competitor over the next five years.
What Can We Learn From Starbucks’ Supply Chain Management?
With over 15,000 stores globally spanning 50 countries, Starbucks has massive potential for
procurement waste and inefficiency as it builds a sustainable supply chain. But for Starbucks, efficiency
and sustainability are the two key chromosomes that form the DNA of the company as we know it today:
they sit at the foundation of its modern business model. With sustainability weaved into the fabric of its
core business model, Starbucks simply has no room for waste and inefficiency – especially in its supply
chain. They employ many best practices, with the following six initiatives taking the lead.
aistro uses cookies to enhance your experience, track usage and preferencesI understandCookie
Policy US 1 (855) 702-8794|INT +44 (0) 800 048 8664 Login Toggle navigation What Can We Learn
From Starbucks’ Supply Chain Management? David Gadsden | March 05, 2015 | With over 15,000
stores globally spanning 50 countries, Starbucks has massive potential for procurement waste and
inefficiency as it builds a sustainable supply chain. But for Starbucks, efficiency and sustainability are
the two key chromosomes that form the DNA of the company as we know it today: they sit at the
foundation of its modern business model. With sustainability weaved into the fabric of its core business
model, Starbucks simply has no room for waste and inefficiency – especially in its supply chain. They
employ many best practices, with the following six initiatives taking the lead. A Centralised System
Starbucks uses one centralised system to manage its supply chain and logistics network across six
continents. By doing so, Starbucks is able to operate and manage multiple global distribution centers
centrally with complete control: five in the United States, two in Europe and two in Asia. Starbucks also
uses one, simple “scorecard system” to evaluate its supply chain efficiency. The four high-level
categories Starbucks assesses are: Safety in operations On-time delivery and order fill rates Total end-
to-end supply chain costs Enterprise savings
Leveraging Digital Technologies Starbucks makes use of digital technology to ensure its supply chain
is efficient and can cope with the growing demand for high-quality coffee globally. Using an automated
information system, the company is able to monitor this demand in real-time. By doing so, production
and distribution plans & schedules can be developed and modified as and when needed, giving
Starbucks’ supply chain added flexibility and allowing the company to address peaks in demand with
agility. Through digital technologies, Starbucks also has on-demand access to constantly-updated
information on things like stock inventory, transport scheduling and storage capacity, allowing the
company’s supply chain to operate at maximum efficiency at all times. According to Computer Weekly,
Starbucks has also been leveraging cloud technology like Enterprise Resource Planning (ERP)
systems for “a long time”.
age and preferencesI understandCookie Policy US 1 (855) 702-8794|INT +44 (0) 800 048 8664 Login
Toggle navigation What Can We Learn From Starbucks’ Supply Chain Management? David Gadsden
| March 05, 2015 | With over 15,000 stores globally spanning 50 countries, Starbucks has massive
potential for procurement waste and inefficiency as it builds a sustainable supply chain. But for
Starbucks, efficiency and sustainability are the two key chromosomes that form the DNA of the
company as we know it today: they sit at the foundation of its modern business model. With
sustainability weaved into the fabric of its core business model, Starbucks simply has no room for waste
and inefficiency – especially in its supply chain. They employ many best practices, with the following
six initiatives taking the lead. A Centralised System Starbucks uses one centralised system to manage
its supply chain and logistics network across six continents. By doing so, Starbucks is able to operate
and manage multiple global distribution centers centrally with complete control: five in the United States,
two in Europe and two in Asia. Starbucks also uses one, simple “scorecard system” to evaluate its
supply chain efficiency. The four high-level categories Starbucks assesses are: Safety in operations
On-time delivery and order fill rates Total end-to-end supply chain costs Enterprise savings Leveraging
Digital Technologies Starbucks makes use of digital technology to ensure its supply chain is efficient
and can cope with the growing demand for high-quality coffee globally. Using an automated information
system, the company is able to monitor this demand in real-time. By doing so, production and
distribution plans & schedules can be developed and modified as and when needed, giving Starbucks’
supply chain added flexibility and allowing the company to address peaks in demand with agility.
Through digital technologies, Starbucks also has on-demand access to constantly-updated information
on things like stock inventory, transport scheduling and storage capacity, allowing the company’s
supply chain to operate at maximum efficiency at all times. According to Computer Weekly, Starbucks
has also been leveraging cloud technology like Enterprise Resource Planning (ERP) systems for “a
long time”. Supplier Relationship Management Starbucks sees mutually-beneficial, long-term supplier
relationships as the key to its future growth and success. Sustainability is at the core of Starbucks’
sourcing practices. The company established its Coffee and Farmer Equity (CAFE) sustainability
standards for third-party suppliers in 2004 to substantially support its suppliers. As well as benefiting
Starbucks itself by ensuring the growth of high-quality coffee, CAFE standards promote long-term
equitable relationships with suppliers. With the majority of its suppliers in isolated, rural locations, this
approach to Supplier Relationship Management also enables Starbucks to make its suppliers feel like
an integral part of its operations. This SRM strategy also allows for better collaboration and
communication with its suppliers, which is critical given many suppliers’ isolated positioning.
Strict Supplier Vetting Starbucks has strict supplier-vetting guidelines in place to ensure that every
supplier is in line with the company’s sustainable, green and efficient approach to business operations.
The company’s Coffee Sourcing Guidelines (CSG) sets standards for its coffee-producing suppliers,
and only when these strict guidelines are met will a producer be approved as a supplier. And only when
these guidelines are met will a formal buyer-vendor relationship be formed. In addition, suppliers must
meet Starbucks’ social responsibility standards which, like its CSG policy, are highly detailed. For
example, the company states a Zero Tolerance policy regarding working with suppliers who employ
anyone under the age of 14. The combination of these strict supplier vetting and social responsibility
guidelines allow Starbucks to ensure a “green and sustainable supply chain” according to USFCA.
Innovation Faced with a decline in production of its main coffee blend due to a fungus, Starbucks
decided to address the serious threat to its supply chain by purchasing a farm in Costa Rica. Although
the farm will initially be used for research to learn more about this dangerous fungus, the company has
visions to create its own coffee blends, which could result in full-scale coffee production in the future.
This move could end up being a huge coup for Starbucks, as it would allow the company to gain a
massive advantage over its competitors, by having greater control over its ability to meet increased
demand as the industry itself faces a decline in global production. Just this week, The Telegraph
reported how a “coffee crisis” could hit Europe in the next 3-5 years, as consumer thirst for high-quality
coffee continues its unprecedented upwards trajectory. Such is the demand for high-quality coffee that
the industry is at serious risk of a supply shortage. This risk is already becoming something of a reality,
with an anticipated deficit of 3.5 million bags of coffee beans for the current production year. Such is
Starbucks’ commitment to innovation that as much as one fifth of its annual income is spent on
innovative strategies, according to Computer Weekly. Reducing Waste & Inefficiencies Starbucks’
efficient and sustainable operations go far beyond its supply chain. After 17 loss-making years,
Starbucks UK reported a profit of £1.05 million ($1.54 million) in 2014. For a global enterprise operating
in 50 countries, this profit may seem nominal. But when you consider that Starbucks UK’s previous
years (2013) results reported a loss of £20 million ($29.2 million), the feat appears all the more
impressive. UK managing director Mark Fox stated when the results were released that the significant
turnaround was down to “engaging with [their] employees, giving customers more, growing the
business and improving [their] model by rebalancing the store portfolio and carefully managing costs.”
Learning from Starbucks With the above in mind, there are many elements to Starbucks’ superior
Supply Chain Management. The company has continually crafted its sourcing, Supplier Relationship
Management and Supply Chain Management strategies over almost half-a-century, working tirelessly
to achieve a sustainable supply chain: something your company can achieve in a substantially-shorter
period of time. Like Starbucks, you can use a centralised system like the Maistro accelerated
procurement & managed services platform to achieve an efficient and effective supply chain. By
leveraging our AI-driven marketplace at Maistro, your organisation can also access innovation, improve
supplier relationships.