Question

Explain the value chain concepts for Starbucks Coffee Malaysia, and how Starbucks Coffee Malaysia leverage value chain for competitive advantage with real and relevant examples. (An appropriate diagram could be applied to enhance clarity of your answer

Answer 1

The following figure represents Starbucks Value-Chain analysis for the Malaysian market:

The value of value-chain analysis in practical level can be explained in a way that it allow to critically analyse each component of a business practice in an individual manner, and search additional sources for competitive advantage within the component.

PRIMARY ACTIVITIES

Inbound Logistics
The inbound logistics for Starbucks refers to selecting the finest quality of coffee beans by the company appointed coffee buyers from coffee producers in Malaysia. In the case of Starbucks, the green or unroasted beans are procured directly from the farms by the Starbucks buyers. These are transported to the storage sites after which the beans are roasted and packaged. These are now ready to be sent to the distribution centers few of which are company owned and some are operated by other logistic companies. The company does not outsource its procurement to ensure high quality standards right from the point of selection of coffee beans.

Operations
Starbucks operates in 65 countries either in the form of direct stores operated by the company or as licensed stores. Starbucks has more than 21,000 stores internationally which includes Starbucks Coffee, Teavana, Seattle’s Best Coffee and Evolution Fresh retail locations. According to its annual report, the company generated 79% of the total revenue during fiscal year 2013 from its company operated stores while the licensed stores accounted for 9% of the revenue.

Outbound Logistics
There is very little or no presence of intermediaries in product selling. Majority of the products are sold in their own or licensed stores only. As a new venture, the company has launched a new range of single-origin coffees which will be sold through some leading retailers in the U.S.; these are Guatemala Laguna de Ayarza, Rwanda Rift Valley and Timor Mount Ramelau.

Marketing and Sales
Starbucks invests in superior quality products and high level of customer services than aggressive marketing. However, need based marketing activities are carried out by the company during new products launches in the form of sampling in areas around the stores.

Service
Starbucks aims at building customer loyalty through high level of customer service at its stores. The retail objective of Starbucks is, as it says in its annual report, “to be the leading retailer and brand of coffee in each of our target markets by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience.”

SUPPORT ACTIVITIES

Infrastructure
This includes all departments like management, finance, legal, etc which are required to keep the company’s stores operational. Starbucks well designed and pleasing stores are complemented with good customer service provided by the dedicated team of employees in green aprons.

Human Resource Management
The company’s committed workforce is considered a key attribute in the company’s success and growth over the years. Starbucks employees are motivated through generous benefits and incentives. The company is known for taking care of its workforce and this is perhaps the reason for a low turnover of employees, which indicates great human resource management. There are many training programs conducted for employees in a setting of a work culture which keeps its staff motivated and efficient.

Technology Development
Starbucks is very well known for use of technology not only for coffee related processes (to ensure consistency in taste and quality along with cost savings) but to connect to its customers. Many customers use Starbucks stores as make a shift office or meeting place because of the free and unlimited wifi availability. The company in the year 2008 also launched mystarbucksidea.force.com as a platform where customers can ask questions, give suggestions and openly express opinions and share experiences. The company has implemented some of the suggestions given via this forum. Starbucks also uses Apple’s iBeacon System wherein customers can order their drink through the Starbucks phone app and get a notification when they walk in the store.

Procurement
This involves procuring the raw material for the final product. The company agents travel to Malaysia for the procurement of high grade raw material to bring the finest coffee to its customers. The agents establish strategic relationship and partnership with a supplier which is built up after reconnaissance and communication about the company standards. High quality standards are maintained with direct involvement of the company right from the base level of selecting the finest raw material which is coffee beans in case of Starbucks.

Bottom Line
The concept of value chain helps to understand and segregate the useful (which help in gaining a competitive edge) and wasteful activities (which hamper market lead) accompanying each step during the product development process.

It also explains that if value is added during each step, the overall value of the product gets enhanced thus helping in achieving greater profit margins.