A Comprehensive Report on Starbucks Supply Chain Optimization

This report analyzes the significant changes Starbucks implemented to improve its supply chain performance. Faced with rising costs and inefficient operations, Starbucks streamlined its logistics and transportation by focusing on vendor consolidation, clear performance metrics, and the optim...Read More

a. What is the significant and substantial change according to you is taken by Starbucks
to improve on overall performance of their supply chain?
In 2007-08, supply chain costs increases to more than 825 million from 750 million but at the
same time, there was no increase in revenue. This left the management wondering where the
additional money they are pumping is going. Management realized that it is growing at a very
rapid rate and thus many decisions were taken in a hurry to support the growth without proper
reasoning. This resulted in inflated cost of supply chain. Management soon introspected and
found out that 70% of their total supply chain costs are coming from 3rd party logistics,
contract manufacturing and transportation.
The most significant and substantial change is the decision to streamline the logistics and
transportation operations of the company. The reason is because logistics and transportation
are the source of 70% of the supply costs. Starbucks is buying the raw material or unroasted
beans from Africa, Latin America and Asia and sending it to America in ocean containers.
From there, these containers are transported to their production plants where these beans are
roasted. After that, these beans are packed and transported to distribution centers which
serves the retail stores. Apart from coffee beans, there are other items like cups, tissues,
magazines are also stored and distributed. Their supply chain includes dealing with multiple
vendors. Some 3 PL are chosen for transportation, some are managing their distribution
centers in America and some are in other countries. Starbucks owns only 2 distribution

centers in US, apart from this, all others in US and other countries are managed by 3 PL
vendors.
The improvement started from vendor consolidation where the goal was to keep the most
effective vendors only that have global operations and big portfolio of services to utilize them
in other supply chain areas (Ivanic, Tsipoulanidis, & Schonberger, 2016). Apart from it,
Starbucks also defined clear metrics for each vendor after finding that more than 50% of the
shipments were late and inaccurate also. There were clear service metrics and assessment is
based on only 2 numbers 1 and 0. 1 means accurate shipment is picked and 0 means in
inaccurate shipment. This scorecard approach helps the organization to get the information as
well as to improve the performance of its vendors (Gualandris, et al., 2015).
b. How do you think objective laid down by Starbucks Leadership would have helped
them to achieve this sustainable improvement in supply chain?
When the company is on its rapid growth journey, there is definitely a time when it has to
looks into its operations, polices and analyze that if all the basics are in place for the company
before embarking on its journey or should it make some changes.
There are many companies that streamline their operations, implement ERP systems and
make changes in their strategy so that when they expand rapidly, they have the basic things in
place. Same is done by Starbucks here. Starbucks was having 16,700 retail stores in 51

countries serving more than 55 million customers. By 2007 -08, Starbucks has already
become a big brand and successful company but during the same time, its leadership began to
doubts about the capabilities of supply chain of the company. It has achieved growth very fast
that resulted in the supply chain complexity and increased costs. The company was quite
promising about the future growth but it decided to look inside the source of such high supply
chain costs and then continue the growth.
The main decisions were reorganizing the supply chain by simplifying the complex things,
streamline transportation and 3rd party logistics operations by vendor consolidation and
defining metrics for their assessment and setting up the ground work for bringing the
company’s confidence back in its supply chain and for future capabilities (Power, &
Simpson, 2016). The company systems have become quite complex and if there is any further
growth without improving the basics and building strong foundation, it would further
deteriorate the matter.
All these initiatives and improvements not only helped to company to save 500 million in
2008-2010 but also it gives them confidence to manage 70,000 deliveries a week. Starbucks
is now ready for managing product transitions, promotions and new product transitions. In
order to continue the momentum, management also decided to hire fresh graduates from the
top supply chain management schools and then train those graduates by providing real life
experiences. These objectives helped the company to become sustainable in its supply chain
operations and today it has more than 30,000 retail stores across the globe.

References:
Gualandris, J., Klassen, R. D., Vachon, S., & Kalchschmidt, M. (2015). Sustainable
evaluation and verification in supply chains: Aligning and leveraging accountability to
stakeholders. Journal of Operations Management, 38, 1-13.
Ivanov, D., Tsipoulanidis, A., & Schönberger, J. (2016). Global supply chain and operations
management: A decision-oriented introduction to the creation of value. Springer.
Power, D., & Simpson, D. (2016). Aligning Goals and Outcomes in Sustainable Supply
Chain Management. In Sustainable Value Chain Management (pp. 161-172). Routledge.