Transportation economics plays a crucial role in decision-making processes in the majority of organizations. Companies require considering the ease of movement of products and labor in decision-making. Apart from transportation economics, investment in an efficient supply chain management system helps to boost organizational performance. Businesses should monitor all the phases of production to guarantee quality. Additionally, they require procuring inventory control systems to minimize wastage and assure timely delivery of products to outlets.
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Starbucks Corporation is a multinational business that specializes in the sale of coffee. The company was established in 1971. Currently, it has over 23,768 branches across the world. The corporation differentiates itself from competitors through customer experience and quality (Mason, Cole, & Goza, 2017). It serves a variety of hot and cold beverages. Apart from the production of quality coffee, the company derives its success from the efficient supply chain and inventory management.
It also leverages transportation economics in decision-making. Starbucks has a supply chain management system that enables it to monitor and control all stages of coffee production. Moreover, it has state-of-the-art inventory management systems that help it to minimize wastage and deliver supplies on time (Mason et al., 2017). The adoption of technology has helped the company to improve service delivery and innovate, making it stand out from competitors. Indeed, Starbucks is regarded as the ambassador of the second wave coffee.
Transportation Economics and Decision Making
Transportation economics entails the movement of goods and labor, as well as the distribution of resources (Prentice & Prokop, 2015). Transportation economics is vital in decision-making because it impacts organizational efficiency. The majority of investors prefer to establish businesses in areas that are close to raw materials and labor. According to Prentice and Prokop (2015), transportation economics impacts the productivity of the business as it influences the flow of work and resources.
Starbucks leverages transportation economics in determining the location to establish outlets. The company targets high-end customers. Thus, it has to open stores in areas that are accessible to the target consumers. There is a correlation between demand and readiness to pay. Consumers are unlikely to travel a long distance just to buy coffee. Starbucks appreciates this association. Consequently, it considers the accessibility of its outlets to the target market before deciding to open a branch.
Starbucks sources its coffee from Brazil, Columbia, and Vietnam. Transportation economics affects how the company distributes coffee to different outlets. According to Seaford, Cultp, and Brooks (2012), Starbucks distributes coffee in two phases to minimize costs and guarantee the availability of the product at all times. In the United States, the coffee house has distribution centers in Nevada, South Carolina, Pennsylvania, and Washington.
The centers are spread based on the demand for coffee across the country. They serve as centralized locations where regional retailers can source their coffee. The centers do not only guarantee that local retailers have products at all times but also efficiency. The outlets receive products on time, therefore making sure that consumers can get coffee always.
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Supply Chain Management
According to Crandall, Crandall, and Chen (2015), Starbucks’ supply chain serves nineteen countries globally. The company ensures that it sources products from the best suppliers. The supply chain helps to source superior raw materials and transport them to different roasting, processing, and packaging companies. The centralization of the supply chain helps the company to streamline operations and manage the refinement coffee, thus guaranteeing that it sells standard beverages across the outlets. Li (2014) argues that Starbucks has integrated enterprise risk management (ERM) system into its supply chain. The system helps to identify challenges that might prevent it from offering quality services to clients.
Starbucks’ supply chain is vertically integrated, enabling it to examine every process. The ability to control each stage of the supply chain allows it to deliver quality services to customers (Agrawal & Smith, 2015). The company interacts with farmers to ensure that they produce a standard quality of the coffee. It monitors the roasting process to make sure that coffee tastes the same across the outlets. The effectiveness of the supply chain depends on its capacity to meet consumer demands.
Incorporation of technology into the supply chain management helps to identify consumer needs and address them adequately. Starbucks uses technology to interact with customers and understand their tastes and preferences. The company has installed WiFi in all its outlets, thus making them suitable for meetings. Additionally, the coffee house runs an online platform that enables it to interact with customers and understand their concerns.
The platform aids to gather customer feedback, which goes a long way towards enhancing service delivery. Starbucks uses digital technology to run the supply chain. The company has an automated information system that enables it to assess inventory, demand, and capacity of individual outlets. Moreover, the system helps to schedule and deliver products to various stores in real time. The technology enables the company to alter operations and strategies as necessary. The digital technology has helped Starbucks to realize its present degree of agility and efficiency.
Inventory control is paramount to the success of an enterprise. It ensures that business has products at all times to meet consumer demands. Starbucks’ regional retailers get products from distribution centers that are spread across the United States and Europe. According to Song, Dong, and Xu (2014), the company uses P-system to manage inventory at the retail level. The system is useful in minimizing shrinkage and waste. The corporation has linked the inventory management system (IMS) to its point of sale registers, which helps to monitor and replenish the stores before they run out of products. Starbucks orders and delivers products in two ways.
It uses P-system to order and replenish inventory at the retail level. On the other hand, the coffee house uses the economic order quantity (EOQ) system to procure products such as espresso, milk, cups, and pastries. At the corporate level, the company employs a Q-system to monitor and control the inventory of roasted coffee. The system helps to assess the demand for different varieties of roasted coffee. It enables Starbucks to meet the demand of individual stores, hence ensuring that they do not run out of supplies.
Benefits of Transportation Economics
Transportation economics maximizes shareholder value by enhancing organizational efficiency and cutting down operations costs. Starbucks uses concepts of transportation economics to identify suitable locations to open outlets (Simmons, 2012).
In return, the company is sure of the success of the shops due to the availability of cheap labor and ready market. Starbucks ensures that its stores do not run out of products. It establishes distribution centers in strategic locations to minimize transportation costs and boost the timely delivery of supplies. Enhanced organizational efficiency has helped Starbucks to open numerous stores across the world. The move improves its overall profitability, which translates to improved shareholder value. The company has built a high public image, resulting in the rise of the worth of shares. In other words, transportation economics augments organizational competitiveness, thus enhancing shareholder value.
Companies like Dunkin’ Donuts and McDonald’s that sell coffee should emulate Starbucks. The companies require integrating transportation economics into decision-making processes to minimize operations costs and increase efficiency. The two firms buy coffee from foreign suppliers. Thus, they need establishing distribution centers in strategic locations to improve efficiency. Being in touch with coffee farmers ensures that Starbucks gets quality products (Simmons, 2012).
Similarly, McDonald’s and Dunkin’ Donuts should invest in supply chain management systems that enable them to monitor all the stages of coffee production from growing, harvesting, and roasting to processing. It will allow the companies to sell quality and standard coffee across their retails. The majority of the products that Dunkin’ Donuts and McDonald’s sell have a short shelf life. Thus, they should invest in inventory management systems that allow them to replenish their inventories in real time to minimize wastage.
Incorporation of transportation economics in decision-making helps to enhance organizational efficiency and minimize operations costs. It enables business to decide on the most efficient way of distributing products. Starbucks leverages transportation economics in decision-making. Additionally, the company has invested in a supply chain management system that allows it to control all phases of coffee production and liaise with suppliers.
The system helps the company to deliver products to outlets without delays. Investment in technology enables Starbucks to interact with customers, understand their needs, and address them adequately. Starbucks has inventory management systems that allow it to furnish the various outlets with products in a good time. The system helps to minimize wastage and cut down on costs attributed to inventory management.
Agrawal, N., & Smith, S. (2015). Retail supply chain management (2nd ed.). New York, NY: Springer.
Crandall, R., Crandall, W., & Chen, C. (2015). The principles of supply chain management (2nd ed.). New York, NY: CRC Press.
Li, L. (2014). Managing supply chain and logistics: Competitive strategy for a sustainable future. New Jersey, NJ: World Scientific Publishing Co Inc.
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Mason, A., Cole, T., & Goza, N. (2017). Starbucks: A case study of effective management in the coffee industry. Journal of International Management Studies, 17(1), 43-48.
Prentice, B., & Prokop, D. (2015). Concepts of transportation economics. New Jersey, NJ: World Scientific Publishing Co Inc.
Seaford, B., Cultp, R., & Brooks, B. (2012). Starbucks: Maintaining a clear position. Journal of International Academy for Case Studies, 18(3), 39-57.
Simmons, J. (2012). The Starbucks story: How the brand changed the world. Tarrytown, NY: Marshall Cavendish Corporation.
Song, D., Dong, J., & Xu, J. (2014). Integrated inventory management and supplier base reduction in a supply chain with multiple uncertainties. European Journal of Operational Research, 232(3), 522-536.