Peet’s Coffee meets market changes with Dynamics 365

When COVID-19 hit, business needs took a dramatic turn: e-commerce and direct-to-consumer (DTC) sales surged by a factor of two, fueled by stay-at-home orders. Meanwhile, warehouse operations adjusted to social distancing and safety protocols, changing the day-to-day work at distribution centers. Peet’s rapidly modified the Dynamics 365 implementation plan to support immediate business needs. Ultimately, Peet’s pivoted to address pandemic-driven business needs while completing a successful implementation. 

With Microsoft Dynamics, Peet’s has a unified business management solution that enables smart decision making and efficiency in operations. 

Craft coffee: a complex supply chain 

To bring customers the finest craft coffee, Peet’s Coffee has a hands-on supply chain. A dedicated team works closely with suppliers to source beans, seeking the highest quality and focusing on socially responsible, transparent, and sustainable supply chain practices. The roasting process is critical to the flavor and quality of the coffee, and Peet’s Coffee processes all their beans in small batches in their own LEED Gold Certified roasting plant in California. 

Freshness matters, so the speed and agility of their supply chain from roasting to sale is critical. Peet’s Coffee aims to sell all their coffee in the grocery channel within 90 days. In Peet’s retail stores, the freshness code is just 21 days, meaning coffee ships to coffee shops and is sold within 21 days. To make this a reality, Peet’s Coffee follows a “roast-to-order” process (versus a classic make-to-stock model) and needs a supply chain planning solution to enable them to optimize their production. 

Peet’s Coffee reaches customers and consumers through multiple channels:

• Brick-and-mortar: There are over 440 Peet’s locations in the US where customers can enjoy their favorite beverage, have a snack, and purchase freshly roasted coffee beans to take home. Customers also have the option to order online and pick up their coffee in the store. 
• Traditional retailers: Peet’s sells wholesale to many major retailers. You can find Peet’s on the shelf at many grocery stores nationwide. 
• Online retailers: Customers can purchase Peet’s through Amazon or other online retailers.
• DTC (e-commerce): Customers can order directly from Peet’s own e-commerce site, where they can find online exclusives, limited releases, and curated subscription options.

How the pandemic transformed coffee businesses

During the pandemic, coffee drinkers started brewing and sipping their coffee at home instead of in the office or at coffee shops. As wholesale and coffee shop volumes shrank overnight, coffee saw a sharp increase in direct-to-consumer (e-commerce) and grocery sales. This meant big growth in the direct store delivery (DSD) channel. Today, Peet’s is expanding their distribution network to meet demand. Having the infrastructure and flexibility in Dynamics 365 gives them the ability to activate and support a national DSD network. 

Buying preferences shifted radically and swiftly. In the first weeks of the pandemic, grocery sales increased dramatically, later levelling off as online purchasing rose significantly by late 2020.

“Online purchases have jumped by 57% as coffee buyers cut back on trips to the supermarket, according to the survey commissioned by the National Coffee Association.”—Reuters.com

Before Dynamics 365

Peet’s Coffee was running the business on a dated and highly customized, on-premises system. The application was no longer supported, and updates weren’t available. The system was essentially at the end of its life. At the same time, the shape of the business had changed from highly retail/bulk order to a consumer-packaged goods operation requiring more planning and production to planned inventory levels.  

Peet’s evaluated other systems, and Dynamics 365 offered the most comprehensive solution for a multi-channel organization while providing the best flexibility to adapt to specialty coffee production needs. Peet’s needed to streamline business processes with redesigned integrations and automation, and centralize master data management, to improve accuracy and visibility to support more timely decision making and better collaboration. They also needed a new warehouse management system to adapt to changing supply chain trends. 

From a technology perspective, moving off their legacy, on-premises solution to a fully cloud-based ERP capability was also a key strategic requirement.  

“…Dynamics 365 gives us the cloud-based architecture we require to support the growth requirements of the business. The combination of Dynamics 365, Power Platform, and Azure cloud services provides Peet’s with a scalable and supportable technology foundation for the future.”—Allan Smith, Chief Information Officer, Peet’s Coffee

Dynamics 365 is the hub of financial reporting and inventory management for Peet’s. The solution includes core financials, supply chain, and inventory management. The supply chain runs on Dynamics 365, all the way from the roasting plants and procurement of green coffee through delivery to stores or consumers. The most significant business impacts came from adding the supply chain capabilities. 

Warehouse management: With enhanced warehouse management based on multi-channel customer requirements, two closely located warehouse locations serve multiple channels: direct-to-consumer, retail coffee bars, customer warehouses, e-commerce customers, and DSD warehouses. Supporting a diverse range of channels calls for additional data and application flexibility.

• Inventory management: Transitioning from batch-based transaction handling to real time enhanced visibility to available inventory throughout the business day.
• Product information management: Adding lot and product expiration tracking enabled product traceability, eliminating offline tracking to meet FDA requirements.
• Master planning: Peet’s moved from a manual production planning process to using Material requirements planning (MRP) to create production, purchase, and transfer orders.
•  Project Operations: The company transitioned from Excel for project approval and tracking for capital projects, recording labor against capitalized work, and capitalized purchase orders.

The implementation 

Not every business problem is solved by technology alone. Blue Horseshoe Solutions guided Peet’s Coffee through a warehouse transformation to support the significant uptick in e-commerce demand. They focused on physical layout and flow, new processes—slotting planning, more efficient receiving, and sorting for inbound—and implemented Dynamics 365 to support these best practices. 

The implementation was a big undertaking. To support growth in some channels, digital transformation was critical and it took time to get it right. The interfaces to other systems proved to be one of the greatest sources of complexity for the project, which required significant technology design, engineering, and testing efforts to complete. Data conversion presented challenges as well. Master data from the legacy ERP system wasn’t consistent and was complicated by the considerable level of customizations done over the years. It was time to standardize, clean up the data, and adopt a data governance approach to drive valuable analytics downstream. Other disruptions to the project timeline included consolidation of a subsidiary company into the legacy system on a rapid timeline, with yet another need for data cleaning from a different ERP. This resulted in unexpected effort and time to clean and enhance data needed to leverage vital functionality in Dynamics.

Dynamics 365 went live in August 2020, while the world was deep in a global pandemic. In addition to ongoing disruption based on changing customer shopping preferences, the go-live was a big bang—all locations and functions were operationalized at once across the whole organization. “We never expected to go live with a virtual team,” says Cindi Gillette, Senior Director, Business Transformation, Peet’s Coffee.

Impacts and benefits

Peet’s transformation involved more than just technology. With the technology implementation, Peet’s redesigned business processes to facilitate digital transformation. In some places, the previous business processes were not consistent, were not robust, or were simply not best practice. At first, many felt that they had more work in the new Dynamics 365 system because the system enforced common, standardized, leading business practices. The changes culminated in a full digital twin of the supply chain with reliable, real-time, data and insights, driving better and faster decision making. Ultimately, Peet’s leapfrogged to a new state of business maturity and agility enabled by the system. The benefits include:

• Increased inventory visibility: Peet’s created a digital twin for inventory in Dynamics 365. This includes digital twins (data replicas) of third-party logistics providers (3PLs) and the DSD network and provides end-to-end visibility of all inventory levels, positions, and movements. On-hand inventory is visible in real time, enhancing customer experience and warehouse inventory management.
• Reduced inventory shrinkage: Improved visibility to product aging, along with advanced analytics and automated workflows, has improved warehouse managers’ ability to proactively adjust inventory levels, reducing inventory write-offs.
• Supply chain maturity for growth: Moving away from manual processes to integrated, automated processes set the stage for growth. Peet’s now has agility and flexibility to bring on new locations and configure different fulfillment options, and the scalability to meet customer demand.
• Product availability: Peet’s didn't see major efficiencies overnight. In fact, at first it seemed like more work for procurement and planning. Largely, that is because better (and often more robust) business processes were put in place and enforced by the new technology. In turn, that yields better data and decision making. These days, data provides more and richer information needed to drive decisions, and automation is enabling efficiency in planning and replenishment. Together, these improvements allow Peet’s to maintain a 98% fill rate on their ever-increasing e-commerce business.
• Improved product traceability: The concept of batch tracking in the system requires work to transact against; it takes more clicks and more work to record transactions. As with product availability, it took time for the benefit to flow through, but the result is a huge improvement in speed of traceability. Today, product batch tracking is vastly improved with speed and accuracy of product and materials quality traceability. 
• Fulfillment accuracy: Implementing warehouse management and best practices has improved order fulfillment accuracy and efficiency.
• Timely decision making: With standardized data and central data governance, data accuracy improved. This data is used for reporting that provides real-time visibility to information needed to support timely decision making and better collaboration, which are essential to adapt to the continually changing marketplace.

What’s next for Peet’s?

Peet’s will be expanding its supply chain network to include multi-site distribution facilities as well as advanced supply and demand planning processes using the Dynamics 365 data foundation. “We set ourselves up with the capability to expand our supply chain. We're no longer locked into what we’d customized to. We have the flexibility to expand the supply chain wherever it makes sense to fit growth plans,” says Ms. Gillette. “We’re staying current with the updates... It took a little time to get in the groove, but now we’re staying current. The last update was completely seamless to the business.”

Grab a cup of Peet’s coffee and enjoy a little more reading

Want to learn more about Peet’s transformation? Here are a few more articles you may enjoy:
Note, these articles were referenced in writing this story.
Peet’s Coffee: The Roasted Bean Supply Chain (forbes.com)
Supply Chain Resiliency at Peet's Coffee (bhsolutions.com)
U.S. coffee drinkers consume as much at home during pandemic, poll shows (reuters.com)
How to Keep Your Coffee Fresh (peets.com)