Starbucks Coffee International is a global firm commonly known as Starbucks. The company specializing in coffee retailing was founded in 1971, in Seattle, WA, USA. Since its beginning in the USA, the company has established itself in over 70 countries and nine regions. Starbucks over the years has dominated the coffee industry with close competitors being Dunkin’ Donuts. Starbucks has an over 36% of global market share with the main stores and sales being in the USA and Europe (Starbucks.com, 2017). The company operates in four main plants in the USA namely, in Seattle, Nevada, South Carolina, and Pennsylvania.
It also has another plant in Netherlands and other 24 co-manufacturers in Europe, Latin America, Asia, and Canada. Over the past few decades, the company has increased the number of retail stores to about 240,000 around the world (Geereddy, 2013). The company’s growth has been magnificent leading to the company gaining billions in profits. The growth and development are mainly due to the value supply chain used by Starbucks management. The aim of this paper is to analyze this value supply chain by addressing the major process or components, the challenges encountered by the company, and recommendations which would aid in facilitating effective supply chain.
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Value Supply Chain
The ability of goods and services to reach the market within the time they are required by the consumer is a major determinant of the effective supply chain. The achievement of the successful supply chain is dependent on the availability of quality raw materials, the efficiency of production, experienced management and employees, determining the supply needed, marketing strategies, use of technology, and service delivery (Geereddy, 2013). These factors are combined to ensure that the goods are distributed to the consumers at the required time, and their quality is maintained all through the entire process to ensure satisfied consumers. Starbucks is the leader in premium coffee sales has over the years transformed its supply chain to enable gaining a competitive advantage over its rivals.
Since the appointment of Gibbons as Starbucks’ CEO in 2007, the company was undergoing huge distribution costs whereas the quantity of sales was declining. Gibbons in the bid to determine the costs increments carried out a logistics analysis of the supply chain and was able to identify the key issues that hindered efficient supply chain. He noted that the supply chain was complex and relied on third parties to enable smooth distribution of the raw materials, and finished products (Cole, 2008). The complexity of the supply chain structure provided loopholes for added intermediaries thus increasing costs of raw materials, hence the final costs of the coffee, tea, and other snacks the company sells. He saw the need to simplify the structure and provide functional roles. During the analysis, it was evident that Starbucks supply chain had about 65%-70% outsourcing outlay of its products thus increasing the supply costs (Cooke, 2010). The long and complicated supply chain led to a waste of time, quality, and revenue for the company as the company did not have control over the distribution of its raw materials and finished products.
The management in the bid to enable simplicity and efficiency identified five major components of the organization’s supply chains that needed changing. The inbound logistics led to the need of changing and enabling better relationship with the supplies. The availability of raw materials is essential for ensuring that the company can sustain the demand for its goods. Price increments and unreliable quality and quantity of raw materials would lead to a shortage of raw materials and quality of final products. Starbucks thus formed and enforced its relationship with the farmers through the Coffee and Farmers Equity (CAFÉ) Best Practices program. The program is used by the company to help farmers grow quality coffee in the major source of green coffee (Cooke, 2010). The coffee is imported from Latin America, for instance, in Costa Rica and Brazil, in Africa from Kenya, and Tanzania among other countries. The program ensures that the farmers produce coffee to the requirements and standards of Starbucks quality. It also provides efficient payments while reducing intermediaries who were increasing the prices of green coffee.
Direct purchase from the farmers is then transported in containers and later transported in trucks to the closest stores. The addition of stores, and main plants in the USA, and Europe enable the plants to be strategically located to reduce transportation costs. The company through strategical planning maps allocated stores depending on the demand population, for instance, the high demand for coffee in Texas and the south led to the construction of the South Carolina roosting plant and other retail shops (Boyer, 2013).
The other component was based on marketing strategies. Advertisements help the consumers gain knowledge on the products being sold by the company. Starbucks has various varieties of drinks and products ranging from different types of coffee, tea, and furniture supplies. The company competes with various fast food companies hence the need to effectively make their products known to the target consumers. The premium coffee mainly focuses on the wealthy due to the high costs thus the focus of improving quality to satisfy the customers (Cooke, 2010). Word of mouth among the social settings of the target group enables the spread, but the company mainly relies on its global goodwill of producing the best quality of the coffee. The brand name makes it have a competitive advantage.
Over the past few years, information technology has been the cornerstone of most businesses. Starbucks has adopted technology to set up a centralized logistic center to help predict changes in demand in different locations thus increase or decrease supplies. The automated logistics change depending on the market changes. Just as in the strategy used in ensuring reliable and timely supplies, the company’s service delivery is focused on clients’ satisfaction. The consumer oriented strategy ensures that quality and quantity ordered by the client are provided on time.
The price increments and lack of discounts for the loyal customers is one of the main shortcomings of the supply chain. Most businesses use consumer discounting tactics to enable loyalty as they enlarge their businesses. The price increments have made Starbucks’ coffee only affordable to the richer community thus discriminating other potential clients (Pelletier, 2016). Starbucks should introduce a price strategy where the premium quality is for the elite but also provide quality coffee at lower affordable prices for the other consumers.
Challenges and Recommendations
Agriculture is dependent on climatic changes which cannot be controlled by the company. The quality and quantity of green coffee have declined over the years resulting in uncertainty of the future. The C.A.F.E program should undertake innovative studies that will help farmers to increase quality outputs in this climatic conditions. Pests and fungus also have limited availability of quality green coffee hence the need to provide farmers with pesticides and farming education to limit such scenarios. Seasonality of agricultural products also affects the supply chains hence the need to build larger warehouses that will maximize on during peak season and be used to limit shortages during other seasons (Pelletier, 2016).
The economic constraints, for example, the 2008 global depression led to inflation of coffee prices. The company should have long term contracts to limit such increases during economic downturns. By limiting the intermediaries, the company will be able to contract farmers and other suppliers in long-term contracts to ensure better budgeting and projections (Pelletier, 2016). The use of solar and other renewable energy within the operations will enable climate change and energy conservation thus reduce the costs of production. The reduction of costs will enable reduction of selling price thus making their products affordable to more people than it is currently.
Lastly, capturing emerging markets should be a priority since most of the 240,000 retail stores are in the USA and Europe. The high number of retail stores in a location leads to diminishing competition which provides loopholes of quality (Cooke, 2010). The company should thus focus on emerging markets which will involve building stores and plants in Africa and Asia and reduce shipping costs. The reduction will be instrumental in the final costs of coffee thus gain a competitive advantage in emerging markets.
References
Boyer, K., (2013, September 20). Behind the Scenes at Starbucks Supply Chain Operations it’s Plan, Source, Make & Deliver. Supply Chain 24/7 . Retrieved July 18, 2017 from, http://www.supplychain247.com/article/behind_the_scenes_at_starbucks_supply_chain_operations
Cole, G. (2008) ‘Management Decision’ Review of Grande Expectations: a Year in the Life of Starbucks’ Stock, by Karen Blumenthal. Journal of Management History, 46 (4), pp. 673-675.
Cooke, J. (Quarter 4, 2010). From bean to cup: How Starbucks transformed its supply chain. Supply Chain Quarterly . Retrieved July 18, 2017 from, http://www.supplychainquarterly.com/topics/Procurement/scq201004starbucks/
Geereddy, N., (2013). Strategic Analysis Of Starbucks Corporation. Retrieved July 18, 2017 from, https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf
Pelletier, V. (2016, December 7). The challenge of sustainable coffee production. Linked in . Retrieved July 18, 2017 from, https://www.linkedin.com/pulse/challenge-sustainable-coffee-production-virginie-pelletier
Starbucks.com. (2017). Starbucks Coffee International. Retrieved July 18, 2017 from, https://www.starbucks.com/business/international-stores
