LOGISTICS AND SUPPLY

CHAIN MANAGEMENT
CASE-STUDY ON STARBUCKS

By: Nayana T U
Reg.no: 2023PGDM1164
Section: C
 LSCM – STARBUCKS - SUPPLY
CHAIN MANAGEMENT
Starbucks is a well-known global coffee retailer and coffeehouse
chain. The company is renowned for its premium coffee and
innovative customer service. Starbucks has consistently
invested in its supply chain strategy to maintain its competitive
advantage. Starbucks’ Supply Chain Strategy focuses on various
aspects, such as efficient sourcing of coffee beans,
manufacturing, logistics, and distribution. The success of
Starbucks can be attributed to its supply chain strategy.

After almost 50 years in business, Starbucks now has more than

25,000 retail stores across six continents with annual revenue of
more than $22 million. That’s a lot of coffee going to a lot of
places, and Starbucks’ secret ingredient may just be its highly
efficient supply chain.

During the financial crisis of 2008, Peter Gibbons headed supply

chain management of Starbucks. His key tasks were to detect
the downsides of Starbucks supply chain and create a
transformation plan. As a result, Gibbons and his team came
across the following weak points:

• Starbucks supply chain system could not keep up with

the global growth of the company and this resulted in
huge transportation expenses.
• More than a half of store orders were not delivered on
time.
• Starbucks heavily depended on outsourcing
arrangements such as logistics and contract
manufacturing.

Based on these weaknesses, the Starbucks supply chain

management team developed the following transformation plan:
 • Supply chain reorganization – The company
simplified its supply chain by leaving only the necessary
roles divided into four functional groups: plan, source,
make, and deliver.
• Improving processes – Each functional group got a
task to look at for improvement. The sourcing group,
for example, identified the factors that were causing
price increases. Besides this, the quality of service was
improved by introducing weekly scorecards with
metrics such as productivity, cost, savings, and safety.
• Looking into the future – Having reorganized and
improved its supply chain, the company focused on
investing into the future. They pay most attention to
retail staff and focus on candidates’ personalities first.
It is important that the candidate fits into the culture of
Starbucks. Nowadays, Starbucks heavily rely on more
than 2,00,000 employees working in locations around
the world and encourages their growth. For example,
the company conducts special trainings and boot camps
for baristas worldwide.

Implementation of this plan brought stunning results. During the

following two years, Starbucks reduced the supply chain cost by
half a billion dollars. Now Starbucks uses a vertically integrated
supply chain, meaning that the company is involved in each step
of its supply chain process.

Let’s take a closer look at how Starbucks supply chain works, from
bean to cup:

• Sourcing – So where does Starbucks coffee come

from? Starbucks sources its coffee beans directly from
nearly 30,000 coffee farms around the world, in
countries such as Brazil, Columbia, Guatemala, Kenya,
Mexico, Saudi Arabia, and Tanzania. Starbucks
suppliers are carefully selected by following Starbucks’
own Coffee and Farmer Equity (CAFE) standards and
Coffee Sourcing Guidelines (CSG). Each Starbucks
supplier needs to meet these standards and
requirements. According to Starbucks, the farms must
 have safe working conditions and not use forced or child
labor.
• Supplier relationship management – Long-term
relationships with suppliers are an important piece of
any successful supply chain. Continuously working with
their suppliers, Starbucks makes sure that each coffee
bean meets requirements. To protect itself against
possible coffee deficit, in 2013 Starbucks bought a
coffee farm in Costa Rica, as reported by Bloomberg.

Manufacturing and distribution – Starbucks distribution

strategy is really impressive. As we have already mentioned,
Starbucks stores are spread over six continents, so the company
has six central storage facilities that make it possible to
streamline the logistics across 25,000 stores in 69 countries.
After arriving at a storage facility, raw beans are roasted right
there, thus ensuring the same roasting standards in each
country. After that, the roasted and packaged beans travel to a
Starbucks distribution centre and then to large, regional or small
warehouses from where they are delivered to retail stores.
Additionally, the company utilizes advanced technology
to manage inventory and track shipments.

Delivery and sale – Every week Starbucks must process

70,000 global deliveries. To achieve this, the company actively
adopts new technologies. For example, with the Starbucks app
available both for iOS and Android, customers can make orders,
pay by using their smartphones, find stores, and much more.
Starbucks coffee and other related products are sold exclusively
in its own or other licensed stores. Additionally, the company
uses targeted marketing campaigns to increase customer
awareness and engagement.

In addition to coffee, Starbucks produces tea, cocoa, fresh food,

coffee mugs, accessories, books, gifts, and even coffee- and tea-
brewing equipment. This is a proof that the company has
successfully developed its own brand identity.
Overall, Starbucks’ supply chain strategy is a well-rounded
approach that enables the company to remain competitive and
ensure customer satisfaction.

The Role of Information Technology in Starbucks Supply

Chain Strategy

Information technology plays an important role in Starbucks’

supply chain strategy. The company utilizes advanced
technology and automation to streamline operations and ensure
maximum efficiency. This enables them to reduce costs, improve
quality, and increase customer satisfaction.

Starbucks utilizes a variety of information technology tools to

manage its supply chain. This includes enterprise resource
planning (ERP) systems that help the company track and
manage inventory levels. Additionally, the company utilizes
advanced analytics tools to monitor performance and customer
demand.
The company also utilizes various digital tools to manage its
logistics. This includes GPS tracking systems enabling the
company to track shipments in real-time and make necessary
adjustments. Additionally, the company uses automated robots
to sort and package products for shipment.

Starbucks’s Supply Chain Challenges

There were three main challenges.

1. Overexpansion

Starbucks was facing an overexpansion problem.

The company had grown well, and new stores were opening
rapidly. However, this growth strategy was bad and led
to oversaturation in certain markets. Which meant it was not
sustainable. The rapid growth, which was lauded initially as a
success for the company, had now resulted in stagnated sales
and a strain on the company’s supply chain.

2. Rising Costs

Another challenge that Starbucks’s supply chain faced was

rising costs.

The price of their primary ingredient -coffee beans- had sharply

increased, significantly impacting the company’s bottom line. In
addition, other ingredients and products in the supply chain have
also increased. For example, milk, sugar, plastic, and
transportation had significant cost increases, piling on the overall
cost of the company’s supply chain.

3. Redundant Supply Chain

Starbucks’s supply chain had failed to innovate and had difficulty

performing well.

The company had experienced significant growth, and its supply

chain struggled to keep up with demand because it failed to
review its system. The lack of innovation resulted in delivery
delays and a shortage of certain products, which also contributed
to downtimes and the poor sales of some of their branches.

How Starbucks’s Supply Chain Overcame the Crisis

1. Closing Unprofitable Stores

To address the challenge of oversaturation, Starbucks decided

to close over 600 underperforming stores in the United States.

The move helped the company to streamline its operations and

focus on its most profitable stores. It also allowed the supply
chain to function much better.

2. Renegotiating Contracts

The economy was in crisis, and there were rising costs of

essential and non-essential ingredients.

However, to address the problem, Starbucks diversified and

renegotiated its contracts with suppliers. The company also
worked with its suppliers to find sustainable ways of reducing
costs without compromising the quality of its products. This
move helped to reduce the piling cost on the company’s supply
chain.

3. Innovating its Supply Chain

The company implemented new technology and processes to

streamline its supply chain operations. The company also
developed new products and services, such as its mobile
ordering app and drive-thru stores, to improve the customer
experience and reduce the strain on its supply chain. Innovating
its supply helped to reduce lead times and ensure that Starbucks
branches never ran out of ingredients or service tools again.

4. Investing in Sustainability

The company invests in sustainability initiatives. It works with

farmers to improve coffee beans’ quality while reducing coffee
production’s environmental impact.
What Happened to Starbucks’s Supply Chain Over The
Next Couple of Years?

• The supply chain’s lead time was reduced by over 80%

• Starbucks locations were no longer running out of stock.
• The icing on the cake? Their supply chain transformation
saved the company over $500 million in the following
years.

Conclusion

As times change, supply chain managers have to innovate or

face their supply chain falling apart. Starbucks has been
successful in its supply chain strategy, and it is easy to see why.
By leveraging technology, focusing on efficiency, and prioritizing
quality, Starbucks has managed to create a supply chain that is
both cost-effective and dependable. In addition, Starbucks has
developed strong partnerships with its suppliers, which has
enabled it to keep its production costs low.

Starbucks’s supply chain faced significant challenges in

2008/2009, including overexpansion, rising costs, and supply
chain issues. However, the company overcame these challenges
through a combination of measures, including closing
unprofitable stores, renegotiating contracts, improving supply
chain efficiency, investing in sustainability, and focusing on
innovation.