History of Starbucks
Starbucks is an American multinational corporation (MNC) that deals with coffee. It is a coffeehouse chain, which first came into operation in 1971 in Seattle (Schultz 13). By November 2016, it was operating in 23,768 locations in the global economy, a number that increased in 2017 (Schultz 15). It distinguishes itself from other coffeehouses in the United States and the international community through its customer experience, quality, and taste. Its popularity arises from its utilization of roasted coffee. Its competitors in the contemporary market use quality to target the market, while Starbucks targets espresso machines for safety and efficiency reasons.
The company serves micro-ground whole-bean coffee through cafe latte, espresso, Teavana tea and leaf tea products. It is championing fresh juices snacks, La Boulange pastries, Frappuccino beverages, and crackers, among many others to expand its market (Patterson, Scott, and Uncles 41). It also offers appetizers, beer, and wine to survive the market. Nonetheless, the global market associates it with Starbucks-brand coffee. It is a development that exists despite the fact that it sells the other products as well as bottled cold coffee.
The first profit that Starbucks ever made was in Seattle in the 1980s (Patterson, Scott, and Uncles 42 & Schultz 17). In the same period, towards the late 1980s, British Columbia and the Midwest experienced an economic downturn that affected its expansion (Schultz 17). However, it benefited in the 1990s when it entered into California (Patterson, Scott, and Uncles 42). The founders of the organization were Jerry Baldwin, Gordon Bowker, and Zev Siegl. Currently, the key people are Kevin Johnson, who is the chief executive officer (CEO), as well as the president of the firm and Howard Schultz, who I the executive chairman. The products that it offers include coffee beverages, baked goods, tea, sandwiches, and smoothies. The average annual revenues are $19.16 billion, while its average operating income is $3.6 billion (Starbucks 1). The average net income is $2.76 billion, while its total assets are over $13.45 billion (Starbucks 1). Its total equity is over $6.82 billion (Starbucks 1). Its number of employees is over 258,000 in the global economy (Starbucks 1).
Reasons for Starbucks Ascent in the AMR Top 25 Charts
According to Gartner (1), Starbucks is position 12 in the AMR Top 25 Charts. The ranking reveals that the firm is a supply chain leader and implements best practices. Gartner (1) & Gallaugher, and Ransbotham (73) describe the features of Starbucks’ supply chain management that gave it the ascent that it has in the charts. One of them is its use of big data. It uses the internet and other applications to identify and provide solutions for inefficiencies that exist in the chain. Another feature is its flexibility. Starbucks has a relatively flexible supply chain management (SCM) and can interconnect with emerging markets and incorporate other players. Other features that enabled the firm to be at the position it is are inventory optimization, customization, sustainability, and visibility.
Logistics Network
Starbucks has a single global system of logistics (Ganesan et al. 84). The reason for this is its far-flung supply chain. It brings coffee beans from Asia, Africa, and Latin America and transports it to Europe and the United States through ocean containers. When it is at the port of entry, it is unroasted green beans that are in six storage sites (Ganesan et al. 84). Then, the transporters take it to a roasting plant that is nearby. After roasting, the company packages it as finished products and trucks it to regional distribution centers. The centers range between 200,000 and 300,000 square feet. It runs five centers in the United States (Ganesan et al. 85). In both Asia and Europe, it has 2 (Ganesan et al. 85).
Warehouses and Distribution Centers
The company has stores and distribution centers near the ports of entry in the specific occasions that it has. The discussion identified that Starbucks has five distribution centers in the United States, two in Asia, and two in Europe (Ganesan et al. 85). Warehouses are dependent on the locations in which it operates. Regional distribution centers supply the stores. The company also has small warehouses that it calls central distribution centers (CDCs). It uses 33 CDCs in the United States (Ganesan et al. 85). It has seven in Asia (Pacific Region), three in Europe, and five in Canada (Ganesan et al. 85). Third-party logistics companies operate all the CDCs except one of them. They carry baked goods, dairy products, and paper items like napkins and cups. The firm combines coffee with the products to deliver to retail stores and sell the Starbucks-branded products.
3PL
There are supply chain professionals that do not prefer third-party logistics (3PL). However, others do. Starbucks is one of the companies that use 3PL. According to Gartner (1), it is efficient in the organization. Being a global company and needing a global supply chain, Starbucks states that it must link procurement and distribution. Its supply chain has a basis on four crucial concepts. They are the plan (replenishment, production planning, and launches of new products), source (procurement divided into noncoffee and coffee), make (it performs all manufacturing through contractors and in-house), and deliver (distribution, transportation, and customer service). Gartner (1) states that it reduces its costs through the 3PL model and considers its future logistics system through which it plans to create a single global system of logistics.
Collaborative Forecasting and Replenishment Strategies
The company considers hiring only the top 10% of supply chain professionals that from its partner graduation schools (Gartner 1). According to its website, the candidate must have experience in working with one of Fortune 500 companies. Since it must improve the skills and capabilities of each supply chain professional that it hires, it developed a program that covers 30 supply chain capabilities (Patterson, Scott, and Uncles 43). Relatively, the firm plans to create a single global system of logistics. Currently, it operates five regional distribution centers in the United States and 33 central distribution centers, which it operates through 3PL (Gartner 1). Its replenishment strategies involve analysis of its global transportation expenditures and a scorecard that assess the performance of its 3PL strategy.
Use of ERP Software
The enterprise resource planning (ERP) that Starbucks uses enables it to maintain a competitive advantage. According to Schultz (82), it uses SQL for cloud services and Microsoft Office 365 for services of emails. In addition, it performs functions of customer relationship management (CRM) through Oracle Siebel. It gives customers a loyalty system that other coffeehouses lack. It has ties to Oracle ERP platform. One advantage that it has is that it is available on-demand and on-premises, and gives a combination of engagement, analytical, and transactional services. However, the disadvantage of the type or ERP that it uses is that it has to build a point-of-sale warehouse of data.
Green Strategies
There are ten green or sustainability strategies that the company implements. Gallaugher and Ransbotham (91) and Hamann et al. (57) explain each of them. One is that it recycles its waste, reducing the environmental impacts of its disposable cups. Two, it uses dishwashers and ice machines that conserve up to 22% of water (Hamann et al. 57). Then, it designs its buildings and operates its stores by using environmentally responsible materials. It is a strategy that it calls green building. The fifth one is climate change. It employs energy conservation tactics, uses renewable energy and advocates and collaborates with partners. Other green strategies are the use of responsibly green coffee, ethically sources tea, ethically sourced coffee, support for community farmers, and ethos water fund.
Lean Approaches
There are four Lean Approaches that Starbucks implements in its operations. The first one is launching of better tools and training for its employees than before. Hamann et al. (65) mention that it introduced the new concept of store design. To improve it supply chain management. The next one is re-ignition of emotional attachment. It restores its connection with its customers by branding stores and coffee. The other approach is its strategy of streamlining organizational management with an aim to improve its customer-focused initiatives. It is a long-term approach that will ensure support for its planning functions. Finally, there is an expansion of its presence around the world. It builds a profitable business in the international economy by taking advantage of its enormous potential.
Supply Chain Metrics
The firm uses the vertically integrated system of the supply chain. It has involvement in every step of the supply process. It participates in the production of the coffee bean to the selling of the coffee to the customers. It believes in interactions with over 300,000 farmers in the world it deals with (Ganesan et al. 90). It also works with its growers directly with the aim of ensuring that it has ethically sources raw materials. It implements “Coffee Sourcing Guidelines” (CSG) and “Coffee and Farmer Equity” (CAFÉ) as standards that ensure it meets quality, sustainability, and ethical basis. The final metric of the supply chain is its commitment to the provision of specialized training and education to its suppliers. It directly interacts with growers and teaches them about social responsibility and sourcing standards.
Purchasing Strategies
The company implements four purchasing strategies. Schultz (112) explains them. The first one is coffee purchasing strategy. It buys at the outright prices, builds direct relationships with the farmers, signs long-term contracts, and builds long-term relationships with other organizations. It buys coffee at outright prices after negotiations with the farmers. It does not consider the prevailing market prices. It is a strategy that gives predictability and stability. In building long-term relationships with farmers, it ensures that it knows the suppliers that it can trust. It does this through the assistance of a third-party facilitator who delivers the prices to them. The strategy of signing long-term contracts ensures that the negative implications of the current economic system do not affect it. The agreements guarantee that farmers can supply it with the coffee in the future through predictable prices. A typical deal is between two and five years (Schultz 112). Finally, building relationships with organizations ensures that it has valuable partners. For example, it has an ongoing relationship with Fairtrade Labelling and Conservation International which are organizations that purchase coffee through CSG and CAFÉ practices.
Supplier Management
Starbucks simplified its supply management objectives into four categories including plan, source, make, and deliver. “Plan” refers to replenishment, production planning, and launching of new products. “Source” applies to procurement through non-coffee and coffee divisions. “Make” relates to manufacturing through contractors and in-house. Finally, “deliver” regards to distributing the finished products, transporting them, and customer service. According to Ganesan et al. (93), the supply chain management performance involves several metrics. They include operations safety, services measured by delivery on time, total costs of the end-to-end supply chain, and enterprise savings. The process of supply chain involves bringing coffee beans from Asia, Latin America, and Africa to Europe and United States through ocean containers. Then there is placing of the unroasted coffee beans in trucks. After that, there are finished products that go into the regional distribution centers as the main products go into warehouses. Some of the challenges that Starbucks supply chain management faces are bulk-operating expenses, gathering of costs of supply through regions, and meeting execution and delivery costs.
- Gallaugher, John, and Sam Ransbotham. “Social media and customer dialog management at Starbucks.” MIS Quarterly Executive 9.4 (2010).
- Ganesan, Shankar, et al. “Supply chain management and retailer performance: emerging trends, issues, and implications for research and practice.” Journal of Retailing 85.1 (2009): 84-94.
- Gartner. “Gartner Announces Rankings of the 2016 Supply Chain Top 25.” Technology Research | Gartner Inc, Gartner, 19 May 2016, www.gartner.com/newsroom/id/3323617. Accessed 24 Oct. 2017.
- Hamann, Lisa, et al. CSR in the coffee industry: Sustainability issues at Nestlé-Nespresso and Starbucks. Technische Hochschule Wildau, 2014.
- Patterson, Paul G., Jane Scott, and Mark D. Uncles. “How the local competition defeated a global brand: The case of Starbucks.” Australasian Marketing Journal (AMJ) 18.1 (2010): 41-47.
- Schultz, Howard. Pour your heart into it: How Starbucks built a company one cup at a time. Hachette UK, 2012.
- Starbucks. “Starbucks Corporation – Financial Data – Annual Reports.” Starbucks Corporation – IR Home, 2017, investor.starbucks.com/financial-data/annual-reports/default.aspx.
