Do you know how the Starbucks supply chain started and why it is so successful today?
Today – it is almost mandatory – to discuss how the supply chain of Starbucks, the world’s largest coffee shop, implements high-value strategies that have a positive impact on the business and, furthermore, why Starbucks is a successful company.
First of all, when we talk about the Starbucks supply chain, we absolutely have to mention the value chain and the supply chain for Starbucks coffee products. And this why? Proper reaction of Starbucks’ supply chain policies in times of crisis with stressful business conditions is considered to have achieved one of the company’s major successes.
In fact, in 2008, when Starbucks’ distribution channels began to expand around the world, the demand for a stronger and more efficient supply chain arose. Incredible, right?
For this reason, in this note, we will tell you how logistics began at Starbucks, how the Starbucks supply chain works and what the new supply chain strategy of a coffee shop like Starbucks is.
How did logistics start at Starbucks company?
But before talking about the logistics of the Starbucks company and its value chain, let’s take a look at how it started and what are the most important keys to the success of the Starbucks supply chain.
As you can imagine, Starbucks is one of the ten most admired companies worldwide, according to the Fortune magazine ranking, and it also appears in more than 20 lists of companies that stand out in innovation, brand value, best place to work, supply chain, corporate reputation, customer loyalty and even as one of the coolest brands on the planet.
And how did the success story of Starbucks start? This an admirable achievement for a company that began in 1971 in a small store in Seattle, Washington, and has grown into a $70 billion enterprise with 191,000 employees and more than 25,000 locations around the world.
In fact, one of Starbucks’ greatest assets is its supply chain model that they created to supply more than 25,000 stores globally. Maintaining the prices and quality of the products, in addition to being environmentally friendly. Today, Starbucks’ supply chain strategy is regarded as a world-class example of sustainability.
But Starbuck’s supply chain structure didn’t start out as a perfect system from the start. On the contrary, the company has achieved excellence like any other entrepreneur: by making mistakes, facing failures and learning from them.
Now, let’s see why Starbucks decided to change its strategy and implement an improvement in its supply chain.
Why did Starbucks change its supply chain strategy?
When the large corporation began its activity, the Starbucks supply chain was not a priority, according to the Research Vice President of the consulting firm Gartner, Kevin Sterneckert.
Until the late 2000s, they had to deal with a struggling supply chain. “When the economic crisis hit, Starbucks was forced to re-engineer its supply chain .”
During those years, the Seattle company had to face the economic recession. For the first time in its history, it saw its sales drop. This implied the increase in the costs of the supply chain of Starbucks, a very segmented operation (instead of being integrated), different logistics metrics within the same process, “and a significant decline in performance”, says the VP of Gartner in Retail Technology.
For example, the organization had scheduled deliveries to stores without having considered the capacity of the warehouse, so the trucks constantly left the distribution centre with fewer products than a store had ordered, says the executive.
So, according to the analysis of Retail Technology, the supply chain of Starbucks company needed to face and find the solution to the following problems:
- The lack of a supply chain strategy focused on the value of the dispatch.
- The lack of benefit adjustments in the organization.
- Lack of focus on the right metrics.
- The need to increase investment in talent enhancement and acquisitions.
The new Starbucks supply chain strategy
According to Kevin Sterneckert, Starbucks transformed its supply chain strategy from a traditional model to that of an organization focused on delivering value, monitoring and adding value at each stage of the production process.
“The company wanted its supply chain to accelerate speed to market and enable increased sales. Starbucks directors challenged their supply chain organization to compress costs to elevate service, while sourcing, training and retaining the best talent in the business.”
So which ones are the best in the Starbucks supply chain? To achieve this, the company began to implement various changes in many areas of its business model. Next, the following are those that are related to logistics management:
A problem-solving attitude
The first change in the Starbucks supply chain, try to find the solution to problems without drowning in a glass of water.
The traditional attitude of the company was to cover up problems and solve them with as little noise as possible. This changed direction and the company’s leadership began to point out the difficulties. Employees understand that their jobs now is to know what is not working and what needs to be improved, changed or fixed.
A better partner relationship
Did you know that the supply chain partners of a company as large as Starbucks were a key factor in improving its strategy? That’s how it is!
Starbucks partners were encouraged to ask for help, which is a more positive and encouraging attitude of bringing together different efforts under one goal, rather than dividing blame and responsibility among partners.
They learned that having too many metrics can divert logistics management from truly important goals, so they dropped those irrelevant metrics and kept only the essential ones.
“A key metric for Starbucks – explains Sterneckert – is ‘on time in full (OTIF, ‘on time and all’)”. Which is defined by the company as that state when everything that has been requested arrives on time and the order is fulfilled.
This metric within the Starbucks supply chain breaks down the main problems with the supply chain infrastructure and diagram.
Starbucks reports that OTIF is one of the most important indicators of cumulative success. When this number goes down, a bunch of additional metrics will point to the source of the chain that is operating inefficiently, and on the other hand, if the indicator goes up so do COGS improvements.
According to Supply Chain 24/7, when talking about inbound logistics in the Starbucks supply chain , it refers to the selection of the best quality coffee beans by Starbucks buyers who negotiate with producers in Latin America, Africa and Asia.
“In the case of Starbucks, the green or not yet roasted beans are obtained by Starbucks buyers directly from the farms. They are then transported and stored and subsequently roasted and packaged. They are then ready to be shipped to distribution centers, very few of which Starbucks owns, most of which are operated by logistics companies. The company does not outsource the obtaining of the beans to ensure quality standards, precisely from the point of selection of the coffee beans.”
There is little or no presence of intermediaries in the sales process within the Starbucks supply chain.
Most of the products are sold in their own stores, or in those that have licenses. As a new initiative, the company has launched a new range of single-origin coffee, which will be sold through some of the leading retailers in the United States. These are in Guatemala Laguna de Ayarza, Rwanda Rift Valley and Timor Mount Ramelau,” Supply Chain 24/7 adds.
An important part of this Starbucks supply chain is based on mutual and permanent trust between the company and its suppliers.
Starbucks agents travel to Asia, Latin America and Africa – explains Supply Chain 24/7 – to obtain high-quality raw materials and thus get the best coffee to its consumers. The agents establish a strategic relationship and a partnership with the supplier, which is built from the recognition and communication about the company’s standards, which are maintained with the direct involvement of the company right from the base, where it is selected. the best raw material, which in the case of Starbucks is coffee beans.