Management
Starbucks is “the global coffee and food retailer operates more than 21,000 locations in 66 countries” (Fortune 500). The history of the company began in 1971 when the first Starbucks café was opened in Seattle’s historic Pike Place Market. Since that time, the company has grown into one of the world leaders in coffee retail represented in 66 countries all over the world. Moreover, Starbucks became the symbol of ongoing process of the Americanization that embraced countries in Asia. Starbucks included in Fortune 500 on 146 place in 2016. Figure 1 illustrates Starbucks’s Fortune 500 rank history.
Figure 1 - Starbucks’s Fortune 500 rank history (Fortune 500)
The road for success to the company was not very easy: as almost every company in the world Starbucks faced with difficult situations and hard times. 2008 was the crucial moment for the company. World economic crisis badly affected Starbucks what resulted in losing market share and drop of company's stock prices to a minimum record $7.83 per share. 2008 showed that only fundamental changes in company’s strategy and policy will help the company to keep its leading positions.
Introduction of new products (seasonal drinks, specific tastes for certain markets);
Range extension of products (tea, juice, beer, wine, snacks such as cheese and truffle macaroni);
Training for employees;
Delivery service (only for some U.S. markets);
New technologies ( Mobile Order & Pay);
Global Responsibility Plan.
Howard Schultz is the person who is in charge of all of the changes that the company faces within recent years. His personal concernment in success (he is a co-founder of Starbucks) and managerial talents make Starbucks what we have it today.
Schultz once stated that there are two things in companies’ activity that are not paid much attention: HR and supply chain. He added that “I would say unequivocally that you cannot scale a company of any kind without having the expertise and skill base of a world class supply chain organization” (Bernam, 2015). These words underline the importance of efficient supply chain and, what is even more important, CEO’s understanding of this fact. We have already mentioned, that 2008 was a critical year fir Starbucks. Before that time, the company had stable profit and was not much interested in changes. Together with economic sufferings, the crisis 2008 brought unique opportunities to accumulate all the resources and develop new approaches in doing business.
In 2008 Schultz hired Peter Gibbons to run Starbucks supply chain. This was the step to make the company’s supply chain efficient. Schultz stressed that “growth is directly linked to technology and innovation and is geared towards the foundational needs of the supply chain” (Berman, 2015). It means that for Starbucks, as for any other customer oriented company, is obvious that innovations are the main keys to success. Moreover, innovation should be implemented in every aspect of business from production to distribution. At his new position, Gibbon observed the current situation of the company’s supply chain in order to find out where supply chain costs were come from. After this observation, it was found out that from 65 to 70% of the company’s supply chain were tired to:
“Outsourcing agreements for transportation;
Third-party logistics;
Contract manufacturing” (Kasireddy, 2010).
These results have shown that the main goal of future supply chain for Starbucks is to simplify the process. Gibbon has noticed the main problem of the company’s supply chain “we had been growing so fast that we had not done a good enough job of getting the supply chain fundamentals in place” (Cooke, 2010). His words means that Starbucks was concentrated on growing in scale and opening more and more cafes rather than on how to supply all these cafes all over the world. It becomes obvious, that in order not to lose its market position and even improve it, Starbucks is to concentrate on supply chain management and develop new strategies how to implement them.
In 2008 Starbucks supply chain was completely transformed using a three-step process:
1. “Re-organization of its supply chain structure;
2. Reduction of costs to stores and improvement its daily supply chain execution (i.e. delivering on time to stores).
3. Focus on future supply chain innovation or capabilities once the first two initiatives were achieved” (Shesterkin, 2015).
Moreover, Gibbon has developed a strategy according to which every step in the company’s supply chain should fall into four main functions:
Plan
Source
Make
Deliver.
Planning is the first step that should be taken before implementing changings. In the company special planning groups are organized in order to develop the most effective plan of action on a particular issue. In addition, such planning groups involve employees in the company’s activities, increase their interest in the result and increase their efficiency by making feel them respected and important for the company.
Source function is also very important for the company because Starbucks pays a lot of attention to its raw materials suppliers and chose only best ones. Sourcing activities have divided into coffee and "non-coffee" areas. It is interesting to mention, that “Starbucks spends US $600 million on coffee each year while on such non-coffee items as dairy products, baked goods, store furniture, and paper goods, total US $2.5 billion annually” (Cooke, 2010). The collaboration between Starbucks and Conservation International (CI) underlies the fact that Starbucks is interested only in best sourcing. The result of this collaboration was the implementation of the Coffee and Farmer Equity (C.A.F.E.) Practices, which has developed four man criteria for purchasing coffee: “product quality, economic accountability, social responsibility, and environmental leadership” (Starbucks Corporation, 2014). Figure 2 illustrates main suppliers for coffee beans.
Figure 2 – Suppliers for coffee beans
coffee beans for Starbucks, with market shares of 38%, 14.5%, 12.3%, and respectively” (Kasireddy, 2012).
“All manufacturing, whether done in one of the six roasting facilities in the U.S or by contract manufacturers, was assigned to the "make" functional unit” (Sherstekin, 2015). In 2009 Starbucks opened fourth plant located in the USA in Columbia, South Carolina. This step allowed to:
“reduce its transportation costs and lead times,
all of the U.S. coffee plants were able to switch from seven-day operations to five days” (Cooke, 2010).
And final “Deliver” step is devoted to all personnel working in transportation, distribution, and customer service. This last step was of the greatest interest for Gibbon and his team because deliver maintained most of the company’s supply chain costs. The reviewing of third-party logistics companies’ (3PL’s) activity was the first thing done by Gibbon’s team. They introduced a very simple system to evaluate 3PL’s efficiency: each activity of every 3PL’s was evaluated and they received scores of 1 or 0, depending on the success or failure to fulfill its obligations. This simple system allowed the company to select the best third-party logistics companies and break contracts with those who did not meet their requirements what, in its turn, resulted in reducing supply chain costs. The company concentrated on four categories to evaluate supply chain performance:
“safety in operations,
service measured by on-time delivery and order fill rates,
total end-to-end supply chain costs,
enterprise savings” (Cooke, 2010).
Nowadays Starbucks uses integrated make-to-stock supply model. This model “focuses on tracking demand in real time to meet the requirements of several different distribution channels” (University alliance).
Starbucks supply chain goals are in common with the basic goals of the company and do not contradict them. It means, that Starbucks pays a lot of attention to innovations and social responsible behavior. What concerns innovation in supply chain, Starbucks has introduced digital ecosystem for its customers. In December 2014 Starbucks began The Mobile Order & Pay service in Portland, Oregon. This service allows customers to save their time by ordering ahead and then pick goods at the nearest Starbucks. In 2015 “mobile payments now account for 21% of net transactions in U.S. company-operated stores, and this technology was only available in 7,500 of their 11,500 plus stores” (Watts, 2015). Moreover, the delivery services are available for customers but unfortunately only in some places in the USA. Nevertheless, such attention to customers helps the company to win customers’ loyalty and confirm their status of customer-oriented company. The first delivery pilot program Green Apron Delivery service is available for 12,000 people working in the Empire State Building, New York. One more delivery service started in October 2015 in Seattle. “Starbucks is collaborating with leading on-demand delivery service Postmates for a pilot program, where customers can have Starbucks food or beverages delivered to them within designated areas” (Starbucks Newsroom). The further developing of these services is a part of Starbucks future in the U.S. market.
Together with innovations Starbucks pays a lot of attention to its Social Responsibly Program. Starbucks involved in many world important social programs that aimed to save planet and improve people’s life. All activities of the company are aimed to be social responsible. So does supply chain. Starbucks social responsible behavior in supply chain include such practices as:
• “responsible coffee purchasing practices,
• providing farmer support centers,
• farmer loan programs and forest conservation” (Cooke, 2010).
We have already mentioned that Starbucks has established the company’s Coffee and Farmer Equity (C.A.F.E.) what “is a set of sustainability standards established for the coffee industry and verified by third-party experts” (University Alliance). These standards aimed to make coffee growing process both beneficial for people and the planet. In 2015 the company has invested $70 million “in its quest for ethical sourcing supporting coffee farming communities, reducing climate change impact and continued support of farm sustainability” (University Alliance). “C.A.F.E practices include key guidelines for farmers in four areas:
Quality;
Economic accountability and transparency;
Social responsibility;
Environmental leadership” (University Alliance).
All these initiatives make the company one of the world’s most social responsible company.
Starbucks is on its wright way. Some financial data will prove this. In 2015, “the revenue of the company was $19.2 billion (up 17% FY14), high margins (GAAP 18.8%) and increased customer traffic (3%), stocks have risen more than 60% since January 2014” (Watts, 2015). In this case, the company may concentrate on further world expansion. The main goals for the year 2016 are:
1. “to open 500 new stores in China in 2016,
2. to bring its specialty tea brand Teavana to India,
3. to enter the China ecommerce market” (Watts, 2015).
References
Fortune 500. Starbucks. Web. 24 July 2016. http://beta.fortune.com/fortune500/starbucks-146
Berman, J. Starbucks’ Howard Schultz: Finally, A CEO Who Gets the Importance of the Supply Chain. October, 03, 2015. Web. 24 July 2016. http://www.supplychain247.com/article/starbucks_howard_schultz_a_ceo_who_gets_supply_chain
Kasireddy, Jung, Ayala and Ari Eryorulmaz. Starbucks Coffee Distribution
Network. 2012. Pdf.
Shesterkin, Zhao and Sarah Platte. Quality Coffee, “One Neighborhood at a Time”; A look into the Starbucks Supply Chain. 2015.
Cooke, J. From bean to cup: How Starbucks transformed its supply chain. Quarter 4, 2010. Supply Chain. Quarterly. Web. 24 July 2016. http://www.supplychainquarterly.com/topics/Procurement/scq201004starbucks/
Starbucks Corporation. Official website. Web. July 24. 2016. http://www.starbucks.com/about-us/company-information
Starbucks Newsroom. Year in review 2015: Starbucks innovation. Dec.26 2016. Web. 24 July 2016. https://news.starbucks.com/news/year-in-review-2015-starbucks-innovations
Watts, N. 5 Shots Of Innovation From Starbucks. Nov. 12 2015. Web. 24 July 2016 http://www.ogilvydo.com/topics/features/5-shots-of-innovation-from-starbucks/
