Starbucks Company’s Supply Chain Management Strategies

Introduction

One can hardly doubt that building a sustainable and effective supply chain is the foundation of any properly functioning business. This assumption is especially applicable to the performance of multinational corporations (MNCs) since they have to establish means of delivering supplies across different countries. Concerning the MNCs, it is evident that the sustainability of their performance can be vastly affected by even minor changes in their supply chain strategy. Moreover, this assertion can be employed for explaining both positive and negative progress in performance.

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Therefore, since the principal importance of building an efficient supply chain was briefly observed, it is possible to choose the Starbucks company as an example of a company, which has developed a highly functional and sustainable supply chain strategy. This paper aims to discuss the numerous questions related to the selected subject, including the following: the significance of Starbucks’ supply chain strategy, the type of its business model, supply chain risk management and its analysis, the development of supply chain in the context of traditional functions of business, and other related questions. The purpose of this paper is to give a profound analysis of Starbucks’ supply chain performance.

The Significance of Starbucks’ Successful Supply Chain

First of all, it is essential to discuss the importance of the chosen company’s supply chain success before dwelling upon more particular aspects of the question. The proper reaction to stressful business conditions could be considered one of the primary reasons for the company’s current success. In 2008, when the company started to expand across the world, the demand for a stronger and more efficient supply chain emerged.

One of the leading indicators for such changes was the fact that the operational costs of the company increased from 750 million dollars to more than 825 million dollars, and sales declined by 10 percent during the same period (Cooke, 2010). Therefore, the necessity of a stronger supply chain was evident. The following subsections will discuss the operational processes of the company and the beneficence of the supply chain’s type.

Operational Processes Related to Planning, Sourcing, and Delivering

As it was already mentioned, the company had to meet the demand in developing a stronger supply chain, available for supporting the expansion of Starbucks across the world. The company’s planning process includes the global development of the resource span because, for example, beans are coming from one country and milk is coming from another one (Boyer, 2013). Further, the sourcing process is the next step in the supply chain.

Starbucks uses the centralized system of only six roasting centers, which prepare, manufacture, and package beans for further delivery (Boyer, 2013). Such amount of factories can seem very small for the multinational company; however, it allows Starbuck to be in better control of its product’s quality. Finally, the packaged beans are delivered to the stores and outlets across the world with over 70 000 deliveries daily, which is enough to supply the company’s global network (Boyer, 2013).

The Type of Supply Chain and Its Functionality

Further, it is possible to assume that Starbucks’ supply chain is an example of the value chain model (Bajpai, 2015). The concept of value chain comprises a series of actions and processes which has an overall purpose of adding value to the company’s product at every stage of production (Bajpai, 2015). Therefore, this model is capable of excluding the insufficient policies along with gaining the profitability of the company.

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Concerning the example of Starbucks, it is possible to distinguish between the company’s primary activities (including inbound and outbound logistics, operations, marketing and sales, and customer service) and support activities (comprising infrastructure, human resource management, technology development, and procurement) (Bajpai, 2015). Each of the mentioned aspects is the subject of adding value, and thus the beneficial effect of Starbucks’ value chain manifests itself in the company’s immense profitability.

Changing of the Business Model in Order to Remain Competitive

Since the fundamental aspects of Starbucks’ supply chain were discussed, it is possible to more profoundly dwell upon the change of the company’s business model, which was necessary for the further expansion of the business. As was already mentioned, in 2008 the company was in a position when a change of pace was needed to remain its place in the industry. It is possible to observe that two primary aspects were influencing the company’s decision: the customers’ demand and the industry’s demand. The following subsections will discuss each of these aspects in detail along with the observation of a successful supply chain strategy’s importance.

The Customers’ Demand

It is evident that the ultimate goal of any company is to deliver its product to the customer. It is the definition and foundation of any business; therefore, if the customer’s demand is not met, then the company could face the decline of its profitability. A similar situation emerged in 2008 in the Starbucks company, when the company’s production expenses were increasing while the profitability was regressing (Cooke, 2010). One of the core reasons for the customers’ dissatisfaction was the inability of the current supply chain to provide more than half retail stores with timely deliveries (Cooke, 2010). Also, the customers demanded new products and the extension of services’ range. Therefore, a sustainable supply chain was needed to fulfill the customers’ desires.

The Industry’s Demand

Concerning the business environment in which Starbucks was operating, it is possible to say that the industry also had its requirements which should be necessarily followed. It is also evident that the second critical purpose of any business after fulfilling the customer’s demand is the profitability of a company. If the company is taking a loss and does not make any profit, then the company cannot survive long enough.

To meet the demands of the industry standards, Starbucks had to achieve two primary goals: (1) to simplify the complexity of the current supply chain and (2) to develop a centralized logistics system for distribution across the world (Cooke, 2010). Therefore, this subsection along with the previous one established the problematic aspects of Starbucks’ supply chain which were to be changed in order to be competitive in the industry. The following subsection will summarize the steps which were taken by the company to implement a successful supply chain strategy.

How the Starbucks’ Current Supply Chain was Designed

It is possible to claim that today Starbucks runs a highly successful supply chain strategy, which was tailored to the customers’ needs and the business environment. The first step which was taken to implement such a strategy was simplifying the complexity of the previous supply chain. It was decided to reduce the diversity of the company’s job hierarchy to four basic supply chain functions, which were the plan, source, make, and deliver (Cooke, 2010).

This categorization simplified the functional roles of the company’s employees and allowed them to distribute the responsibilities, which increased the overall efficiency. Further, when the supply chain was reorganized, every unit focused on reducing the costs. The sourcing group identified the principal reasons for the increasing prices, including the contracts and shipping costs (Cooke, 2010).

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The manufacturing unit developed a more efficient model of delivering coffee beans to the factories, with the aim to manufacture the product in the region where it was supposed to be sold (Cooke, 2010). Additionally, the global logistics system was designed to be more straightforward in measuring and thus more efficient. In overall effect, it gave Starbucks an opportunity to build a stronger supply chain, which met the higher demands, justified by the expansion of the company.

Relationships with Customers and Suppliers

Further, it is essential to discuss Starbucks’ relationships with customers and suppliers. These factors have a vast impact on the sustainability of the company’s supply chain and overall prosperity. Concerning the suppliers, it is possible to mention Starbucks’ Coffee And Farmer Equity (C. A. F. E.) Practices, which were launched in 2004 (Baer, 2013). C. A. F. E. Practices are the program that incorporates a set of social, environmental, economic and quality objectives to improve the relationships and enhance the productivity of third party producers (Baer, 2013). Despite that this initiative has its weaknesses which could be developed, C. A. F. E. Practices are a significantly beneficial aspect of Starbucks’ supply chain.

Concerning the relationships with customers, it is possible to notice that Starbucks has significantly developed these aspects of its business. It is made not only by meeting their customers’ demands and providing a high-quality service but also by means of “involvement in service operations” (Sigala, 2014, p. 78). For example, the customers can participate in the service design of the company on each developmental stage, including “idea generation, evaluation, implementation, prototyping and testing, and launch and promotion” (Sigala, 2014, p. 79). Another example is the customers’ influence on procurement, which is implemented in two primary ways:

  1. by providing self-service and volunteering, and
  2. by applying programs of resources reuse (Sigala, 2014).

Such involvement of the customers into the operational processes of the company creates trusting relationships, which are significantly important for the expansion of the brand and establishment of its positive public image. Also, customers can influence positively on the sustainability of the supply chain (Sigala, 2014).

The Development of Supply Chain in the Context of Traditional Business Functions

Furthermore, it is possible to discuss how four traditional business functions, including operations, sourcing, distribution, and customer service strategy, are influencing the development of the supply chain. It should be mentioned that Starbucks operates in 65 countries, which imposes significant pressure on its supply chain. Concerning the sourcing, the company has built its supply chain with the aim to control the whole process of manufacturing the product, from selecting the finest coffee beans to packaging (Bajpai, 2015).

One of the core characteristics of Starbucks’ distribution is “very little or no presence of intermediaries,” which allows meeting the customers’ demand directly (Bajpai, 2015). Finally, speaking of customer service strategy, it is possible to observe that the company’s main policy is to establish the customer’s loyalty by providing high-quality service (Bajpai, 2015).

Supply Chain Risk Management at Starbucks

It is evident that any supply chain is a subject for numerous risk factors, and thus the supply chain risk management is needed. One of the most critical demands that should be met by Starbucks is the necessity to “fulfill efficiency- and effectiveness-driven objectives” (Heckmann, Comes, & Nickel, 2015, p. 130). Since these requirements are opposing to each other, it is essential to find a balance between “distribution costs and shipment rates, or overall logistics costs and service level” (Heckmann, Comes, & Nickel, 2015, p. 130). The application of supply chain risk management is essential due to possible severe consequences, caused by the exposure to the risk factors.

SWOT Analysis at Starbucks

One of the better means of measuring the supply chain risks is the Strengths, Weaknesses, Opportunities, Threats (SWOT) framework, which is employed by Starbucks. This framework allows us to predict possible adverse outcomes and to establish the company’s profitability. Concerning Starbucks’ strengths, it is possible to mention a recognizable brand image, an extensive global supply chain, and the system of subsidiaries, which diversify the business (Lombardo, 2017).

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However, the following factors could be considered as the company’s weaknesses: significantly higher prices, generalized standards which do not always align with local demands, and the imitability of products (Lombardo, 2017). It is evident that the inaccessibility of the company’s products for lower-middle and lower classes consumers and their generalized nature make numerous people choose in favor of another brand.

Further, opportunities and threats should be discussed. For further efficient growth, Starbucks can consider the following possibilities: (1) to expand in Asia, the Middle East, and Africa; (2) to diversify the product range, and (3) to make partnerships with other firms (Lombardo, 2017). The expansion in Asia is profitable due to the increasing economic rates in the region, and the minimal presence of the company in the marketplace of the Middle East and Africa is also an opportunity to grow.

The diversification of Starbucks products will increase the competitive potential of the company while making new partnerships with smaller firms and businesses will help to strengthen the company’s position. The insufficient employment of the mentioned opportunities can cause several threats to the company’s prosperity, including the competition from the sellers with lower costs, imitation of Starbucks products, and the social movements against global coffeehouse chains like Starbucks (Lombardo, 2017). For example, such brands as McDonald’s and Dunkin’ Donuts offer coffee at significantly lower prices than Starbucks.

Further, the direct imitation of the company’s business can easily emerge since it meets the customers’ demand. Overall, it is possible to observe that the company has significant strengths, but the further employment of the current opportunities is needed.

Conclusion

Finally, it is possible to come to two primary conclusions, based on the conducted analysis of the Starbucks company. First of all, it is essential to notice that the company’s organizational performance vastly depends on the successful accomplishment of a well-designed and excellent functioning supply chain management. It is evident from the analysis that Starbucks implemented its current supply chain strategy to increase the company’s productivity and to be able to expand successfully across the world.

Secondly, it should be noted that the supply chain strategy design and relationship with suppliers built upon communication are directly involved in the company’s success. It is also evident from the analysis that Starbucks was able to build beneficial relationships with its suppliers. Overall, one can assume that Starbucks’ supply chain is an example of a significantly successful business strategy.

References

Baer, E. (2013). Building a sustainable supply chain – lessons from Starbucks. Supply Chain 247. Web.

Bajpai, P. (2015). Starbucks as an example of the value chain model. Supply Chain 247. Web.

Boyer, K. (2013). Behind the scenes at Starbucks supply chain operations its plan, source, make & deliver. Supply Chain 247. Web.

Cooke, J.A. (2010). From bean to cup. How Starbucks transformed its supply chain. Supply Chain Quarterly. Web.

Heckmann, I., Comes, T., & Nickel, S. (2015). A critical review on supply chain risk–Definition, measure and modeling. Omega, 52, 119-132.

Lombardo, J. (2017). Starbucks Coffee SWOT analysis. Panmore Institute. Web.

Sigala, M. (2014). Customer involvement in sustainable supply chain management: A research framework and implications in tourism. Cornell Hospitality Quarterly, 55(1), 76-88.

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StudyCorgi. (2020, November 11). Starbucks Company's Supply Chain Management Strategies. Retrieved from https://studycorgi.com/starbucks-companys-supply-chain-management-strategies/

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StudyCorgi. 2020. "Starbucks Company's Supply Chain Management Strategies." November 11, 2020. https://studycorgi.com/starbucks-companys-supply-chain-management-strategies/.

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