Question

In order for Starbucks to maximize profits on its Frappuccino it must choose the most suitable distribution channels to get the product to its customers. From the perspective of managing marketing channels, logistics and supply chain:

1. Describe Starbuck's most appropriate value network and the approach that makes its supply chain operation most agile.

2. Decide the optimal channel configuration and the intermediaries that form part of this channel.

3. Outline the in-house physical distribution functions, what functions will be outsourced (and to whom) and how they'll be set up.

4. Identify the e-channels aspects that Starbucks must tackle and for each channel, describe
i. The appropriate level of distribution intensity to pursue
ii. The level of control and adaptability required, and
iii. The priority channel functions that require investment.

5. Put a logistics plan together for transportation, inventory management and order processing

Answer 1

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

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 ManagementStarbucks 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.

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.

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.

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.”

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.