Starbucks Global Supply Chain Management Essay Sample
Stacy Duda. LaShawn James. Zeryn Mackwani. Raul Munoz. and David Volk prepared this instance under the supervising of Professor Hau Lee as the footing for category treatment instead than to exemplify either effectual or uneffective handling of an administrative state of affairs.
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Building A SUSTAINABLE SUPPLY CHAIN
Over the last several old ages. Starbucks has instituted a new buying doctrine. We have done this because it is the right thing to make – for husbandmans. for our people. and for our concern. Because we have persuaded our clients to pay high monetary values for quality roasted java. we are able to pay high monetary values for green unroasted java. We besides believe that the high monetary values we pay for java allow us to be a possible force for positive reform in every portion of our supply concatenation. —Orin Smith. Former President and CEO ; and Dub Hay. SVP. Coffee. Starbucks Corporation
Starbucks Corporation was the world’s largest forte java retail merchant. with $ 6. 4 billion in one-year gross for the financial twelvemonth ended October 2. 2005. The company continued to spread out the figure of retail shops worldwide. and systematically saw strong growing in the gross revenues and net net incomes ( see Exhibits 1 and 2 ) . Since traveling public in 1992. its stock appreciated more than 4. 000 per centum after seting for stock splits.
In the 1990s. the forte java industry experienced mammoth growing. fueled mostly by the coffee-drinking wonts of college alumnuss and other educated professionals. In the old few old ages. nevertheless. a world-wide glut of lower-grade java had depressed the world’s market monetary values. doing it hard for java husbandmans to gain adequate gross to cover the cost of production. Although Starbucks merely purchased the highest quality Arabica java and paid premium monetary values. all husbandmans suffered from the glut of java ( see Exhibit 3 ) . 1 This instance is based on interviews with the following Starbucks representatives: Dub Hay. Vice President of Coffee Procurement ; Brooke Brown. Undertaking Specialist. Coffee ; Stephane Erard ; and Michelle Richardson. All subsequent quotation marks and mentions are from these interviews or information provided by Starbucks unless otherwise noted. Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 2 By the terminal of 2005. Starbucks was at a disputing point in its history. It boasted more than 10. 000 stores—up from 676 a decennary before—and roasted 2. 3 per centum of the world’s java.
Each twenty-four hours it opened an norm of four shops and hired 200 employees. To back up such a high growing rate. it was clear that an built-in portion of the company’s hereafter success would come from run intoing increased demand through a unafraid supply of high-quality java beans. Coffee beans constituted the staff of life and butter of Starbucks’ business—the company had to guarantee a sustainable supply of this cardinal trade good. Consequently. Starbucks partnered with Conservation International. an environmental non-profit-making organisation. to develop C. A. F. E. Practices ( Coffee and Farmer Equity Practices ) . C. A. F. E. ’s ends were to lend to the support of java husbandmans and to guarantee high-quality java for the long term. This enterprise was based on three rules: ( 1 ) a sustainable supply of high quality java beans. provided by a stable beginning of java farms with husbandmans who were non exploited by their trading spouses. ( 2 ) lands farmed with environmentally sound methods. and ( 3 ) households that live in healthy. secure and supportive societies. Such husbandmans would be more inclined and able to put in productiveness betterment tools and activities. and in their communities. thereby advancing a beginning of stable and sustainable java supply.
Starbucks was founded in 1971 when three academics—English instructor Jerry Baldwin. history instructor Zev Siegel. and writer Gordon Bowker—opened a shop called “Starbucks Coffee. Tea. and Spice” in Seattle. The spouses named the company in award of Starbuck. the coffee-loving first mate in Herman Melville’s Moby Dick. The company’s logo is a two-tailed mermaid encircled by the store’s name.
By the early 1980s. the company had four Starbucks shops in the Seattle country and had showed profitableness every twelvemonth since gap. However. the functions of the laminitiss underwent major alterations. Zev Siegel left the company. Jerry Baldwin took over daily direction and functioned as CEO. and Gordon Bowker remained involved as proprietor while giving most of his clip to other concern ventures.
In 1982. Baldwin recruited Howard Schultz. frailty president and general director of U. S. operations for Hammarplast. a Swedish shaper of fashionable kitchen equipment and housewares. as caput selling and retail shops supervisor. Schultz’s biggest thought for the hereafter of Starbucks came during the spring of 1983 when the company sent him to Milan. Italy. to go to an international housewares show. While walking from his hotel to the convention centre. Schultz spotted an espresso saloon and went inside to look around. The teller beside the door nodded and smiled. The barista ( antagonistic worker ) greeted Howard cheerfully. so gracefully pulled a shooting of espresso for one client and handcrafted a foaming cappuccino for another. all the piece discoursing happily with those standing at the counter. On Schultz’s return from Italy. he shared his disclosure and thoughts for modifying the format of Starbucks shops with Baldwin and Bowker. But alternatively of winning their blessing. Schultz encountered strong opposition. After many failed attempts seeking to carry Baldwin and Bowker. Schultz decided to go forth Starbucks and planned to open espresso bars in high-traffic downtown locations that would emulate the friendly. energetic ambiance he had encountered in Italy. Schultz left Starbucks in late 1985 to open his first Il Giornale shop a twelvemonth subsequently.
Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 3 In March 1987. Jerry Baldwin and Gordon Bowker decided to sell the whole Starbucks operation in Seattle—the shops. the roasting works. and the Starbucks name. Schultz raised capital and instantly bought the company. The new name of the combined companies was Starbucks Corporation. Howard Schultz. at the age of 34. became Starbucks’ president and CEO. In 2005. Starbucks had more than 10. 200 company operated & A ; licensed shops in more than 35 states. The shops offered java drinks and nutrient points. every bit good as beans. java accoutrements. teas. and music. Starbucks operated more than 5. 200 shops in 10 states ( 80 per centum in the U. S. ) . while licensees operated more than 2. 800 units in 28 states. U. S. licensed shops were located chiefly in shopping centres and airdromes. The company besides owned and licensed the Seattle’s Best Coffee and Torrefazione Italia ironss in the U. S. ( more than 100 stores ) . In add-on. Starbucks marketed its java through food market shops and licensed its trade name for other nutrient and drink merchandises.
THE SPECIALTY COFFEE INDUSTRY AND THE STARBUCKS COFFEE SUPPLY CHAIN Since the 1980s and particularly in the 1990s. the forte java industry grew dramatically. Many experts felt that the differentiated javas supported by the forte industry would go on to spread out at a much faster rate than conventional javas. However. the definition of forte in the United States continued to be refined. By 2005. it included javas that were non needfully high quality and were otherwise merely distinguished by being flavored ( e. g. . cocoa. cinnamon. and hazelnut. etc. ) and served as an espresso or milk-based drink. The industry began to redefine “specialty” to reflect more of a quality orientation ( see Exhibit 4 ) . Besides called “gourmet” or “premium” java. forte java was made from exceeding beans grown merely in ideal coffee-producing climes. It tended to have typical spirits. shaped by the alone features of the dirt in which it was grown. Specialty java became one of the fastest turning nutrient service markets in the universe. The per centum of grownups in the U. S. that consumed forte java daily increased from 9 per centum in 2000 to 16 per centum in 2004. and 56 per centum of grownups claimed to be occasional consumers. The entire forte java market was estimated to be $ 9. 62 billion in 2004.
In 2004. there were an estimated 18. 600 forte java mercantile establishments in the United States. 3 Starbucks’ success had prompted a figure of ambitious challengers to scale up their enlargement programs. Perceivers believed there was room in the class for at least two or three other national participants. ( See Exhibit 5 for Starbucks’ key competitors. )
Coffee beans could come from all over the world—about 50 per centum came from Latin America. 35 per centum from the Pacific Rim. and 15 per centum from East Africa. Most of the java manufacturers were little to moderate-sized family-owned farms. Some farms were able to treat their java beans. but most sold their end products to processors through local markets ( Millss. exporters or co-ops ) . The processors turned java “cherry” into parchment or green java. and so sold it to providers who were exporters or distributers. These providers provided many services to 2 “Specialty Coffee Retail in the USA 2005. ” Specialty Coffee Association of America. hypertext transfer protocol: //www. scaa. org/pdfs/news/specialtycoffeeretail. pdf ( February 5. 2007 ) . 3 Ibid.
Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 4 processors and husbandmans. such as selling. dry milling. proficient java expertness. funding. and export logistics. Starbucks besides purchased java through agents from single estates and manufacturer associations in add-on to providers. or straight from the processors. ( Exhibit 6 gives a simplified image of the supply concatenation of green java to Starbucks. ) C. A. F. E. PRACTICES
Despite its domination of the forte java industry. Starbucks did non utilize its buying power as a manner to squash its java providers in order to better borders. Alternatively. the company decided to utilize its market power as a manner to implement societal alteration within its supply concatenation through C. A. F. E. Practices. C. A. F. E. Practices was a manner for Starbucks to guarantee a sustainable supply of high quality java beans. which was an indispensable constituent of Starbucks’ concern. The enterprise built reciprocally good relationships with java husbandmans and their communities. It besides helped to antagonize the glut of low-grade java on the world’s market. which suppressed monetary values doing it hard for husbandmans to cover the cost of production. When Starbucks implemented C. A. F. E. Practices. it had six aims in head: 1. Increase economic. societal. and environmental sustainability in the forte java industry. including preservation of biodiversity.
2. Promote Starbucks providers to implement C. A. F. E. Practices through economic inducements and discriminatory purchasing position.
3. Buy the bulk of Starbucks java under C. A. F. E. Practices guidelines by 2007. 4. Negotiate reciprocally good long-run contracts with providers to back up Starbucks growing. 5. Build reciprocally good and progressively direct relationships with providers. 6. Promote transparence and economic equity within the java supply concatenation. C. A. F. E. Practices was a set of java purchasing guidelines designed to back up java purchasers and java husbandmans. guarantee high quality java and advance just relationships with husbandmans. workers. and communities. every bit good as to protect the environment ( see Exhibit 7 ) . It was non a codification of behavior or a conformity plan. Alternatively. it was a manner of making concern that was aimed at guaranting sustainability and equity in the java supply concatenation. This sustainability and equity was achieved through a set of planetary guidelines for Starbucks providers and a set of inducements to honor husbandmans and providers who followed those guidelines. The guidelines consisted foremost of a set of requirements. which had to be met in order to be considered for the C. A. F. E. Practices enterprise. These requirements set a minimal criterion for Starbucks providers. including java quality and economic transparence. The transparence requirement meant that providers were expected to exemplify economic transparence on the sum of money that was finally paid to husbandmans.
After the initial requirements had been met. providers were graded based on a set of environmental and societal standards. All providers were evaluated non merely on their public presentation. but besides on their supply webs of farms. Farmers were rewarded for java growth and processing patterns that contributed positively to the preservation of dirt. H2O. energy. and Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 5 biological diverseness. and had minimum impact on the environment. Besides. C. A. F. E. Practices encouraged husbandmans and others to do certain that workers’ rewards met or exceeded the minimal demands under local and national Torahs. Effective steps were required to guarantee workers’ wellness and safety and supply them with equal life conditions. Based on their public presentation. as measured against the environmental and societal standards. providers might gain up to 100 per centum points in C. A. F. E. Practices.
Under C. A. F. E. Practices. farms. Millss. and providers had to exemplify just payments to those who worked for them or sold to them. They had to show economic answerability and document their hiring and employment patterns. Tonss were audited by an independent voucher. and licensed by Scientific Certification Systems. a third-party enfranchisement company that provided independent analysis and enfranchisement of a broad scope of environment sustainability and nutrient safety accomplishments. 4 Since the voucher was independent of Starbucks. the cost of the confirmation had to be negotiated between the provider and the voucher. However. there was no cost to the provider to subject a C. A. F. E. Practices application to Starbucks.
In order to measure up for C. A. F. E. Practices provider position. providers had to be independently verified and run into minimal Social Responsibility standards. Points above 60 per centum increased the position of the provider. For tonss above 60 per centum. the provider qualified as a Preferred provider and would derive penchant in future Starbucks java purchases. Additionally. providers who earned tonss above 80 per centum would measure up as Strategic providers and would gain a Sustainability Conversion Premium of $ 0. 05 per lb of java for one twelvemonth. 5 In order to promote continued betterment. Starbucks besides offered an extra Sustainability Performance Premium of $ 0. 05 per lb of java to providers who were able to accomplish a 10- point addition above 80 per centum over the class of a twelvemonth.
Besides the monetary value premium for Strategic Suppliers. C. A. F. E. Practices allowed Starbucks to purchase from preferable providers foremost. paying high monetary values and offering discriminatory contract footings to those with the highest tonss. The premium monetary values helped java husbandmans make net incomes and back up their households. despite a planetary oversupply in the java bean industry. Additionally. Starbucks provided entree to affordable recognition to java husbandmans through assorted loan financess. They invested in societal development in java bring forthing states and collaborated with husbandmans through the Farmer Support Center in Costa Rica to supply proficient support and preparation. If a provider failed to run into C. A. F. E. Practices standards. Starbucks sponsored information Sessionss in java growth parts for husbandmans. ( See Exhibit 8 for a description of a husbandman benefiting from the C. A. F. E. Practices program. )
BENEFITS TO STARBUCKS
Even though the direct benefits of C. A. F. E. Practices helped providers and husbandmans. Starbucks received important indirect benefits from the plan. The plan strengthened Starbucks’ supply base. improved its selling ability. and increased its visibleness into the supply concatenation. 4 “About SCS. ” Scientific Certification Systems. hypertext transfer protocol: //www. scscertified. org/about. hypertext markup language ( March 1. 2007 ) . 5 On norm. Starbucks paid about $ 1. 20 per lb of java. “Starbucks – Corporate Social Responsibility Report. FY04. ” Starbucks Corporation. p. 15.
Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 6 Therefore. the benefits of C. A. F. E. Practices extended all the manner through the supply concatenation. from the farm to the terminal consumer.
On the supply basal side. the plan served to lock in strategic and high quality providers. This consistent. quality supply could supply Starbucks with a competitory advantage over other java roasters in the industry. Since providers would hold invested resources in following with Starbucks plans. they would hold an inducement to stay with Starbucks and would confront exchanging costs should they seek to show their excellence to another java roaster. The big pool of high quality providers would besides smooth supply fluctuations by supplying a basal supply of high quality agriculturists. Since Starbucks’ long purchase rhythm included signing purchase understandings before the harvest had even been harvested. any decrease in supply uncertainnesss and fluctuations could take to better planning of future supply in the signifier of faster procurance.
C. A. F. E. Practices could besides better Starbucks’ repute among providers. which would do it easier to spread out into buying in different states or locations. In the long tally. C. A. F. E. Practices besides sought to buffer against a signifier of bullwhip consequence that existed in the java industry supply concatenation. As java gross revenues increased during the 1990s with the growing of Starbucks and the forte java industry. providers and husbandmans began to react with a immense addition in the sum of land dedicated to coffee agriculture. The ensuing oversupply of java beans on the market led to decreased monetary values and a deficit of high quality java. Such fluctuations in monetary value and supply were common in trade good merchandises that faced really long supply response times. In order to battle monetary value and supply volatility. the C. A. F. E. Practices enterprise induced longer-term supply relationships with a consistent set of providers. Starbucks was hopeful that this plan would cut down its susceptibleness to monetary value and supply volatility in the planetary java market.
On the selling side. C. A. F. E. Practices supported Starbucks’ socially responsible ends. While C. A. F. E. Practices were non yet widespread and were non straight marketed to clients. an increased consciousness of Starbucks corporate societal duty ( CSR ) patterns could assist warrant Starbucks’ premium monetary values. C. A. F. E. Practices would let Starbucks to market its java as procured through a extremely selective procedure that ensured merely the highest quality beans. Awareness of this plan might promote other java roasters to fall in in the C. A. F. E. Practices plan ; nevertheless. Starbucks would be known as the discoverer of the plan. They might besides be able to trade name their patterns and sell the know-how to other roasters that were looking to implement similar enterprises. Such widespread enlargement of the plan would merely function to widen its benefits towards making a base of high quality java beans. With each betterment in the supply of beans. Starbucks achieved more flexibleness in being able to bear down premium monetary values at its shops. C. A. F. E. Practices besides improved employee morale by making an ambiance of societal duty that they could be proud of. Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 7 Supply Chain Visibility
Finally. C. A. F. E. Practices increased the visibleness of Starbucks’ supply concatenation by demanding documented and verified merchandise and fiscal flows through its suppliers’ supply ironss. In the yesteryear. Starbucks had really hapless visibleness into their supply base. as java husbandmans and processors were non really technologically sophisticated or mature in their concern procedures. By increasing the transparence of their supply base. Starbucks would be able to derive a better apprehension of the demands and the conditions of their providers. The increased visibleness would besides let Starbucks to better its relationships with agriculturists. who before had been isolated from them due to intermediaries—coffee exporters and distributors—that came between the two sides.
On a more practical note. increased visibleness in the supply concatenation could let Starbucks to break predict supply deficits as they arose. Since the bulk of Starbucks java was grown in developing states in Latin America. Africa. South America. and Southeasterly Asia. Starbucks had a important hazard of supply deficit due to regional instability. Without visibleness into the supply base. Starbucks did non hold a good manner to foretell the impact of regional instability to its java supply. With increased visibleness. an eruption of regional instability could be linked to a peculiar measure of expected java supply. giving Starbucks progress notice of the demand to happen alternate beginnings of java. This could let Starbucks to be proactive in pull offing supply breaks even before they arose.
Corporate SOCIAL RESPONSIBILITY
Starbucks provided assorted resources to advance and assist husbandmans follow with the guidelines of C. A. F. E. Practices and guarantee sustainability. In January 2004. the company opened a farmer support centre called the Starbucks Coffee Agronomy Company in Costa Rica that contained a squad of experts in dirt direction and field-crop production ( agronomists ) . and in java quality and sustainable patterns. These experts collaborated straight with husbandmans and providers in Central America and provided services to husbandmans and providers in Mexico and South America. This helped construct long-run and strategic relationships with members in the supply concatenation who were committed to the sustainable production of high-quality java. They besides administered C. A. F. E. Practices. oversaw regional societal plans. and engaged with local authorities on sustainability issues.
Starbucks besides bought certified or eco-labeled javas that had been grown and sold in ways that helped continue the natural environment and/or promote economic sustainability. There were three such types of environmentally sustainable java purchased by Starbucks: Conservation Coffee ( shade-grown ) : Starbucks. through its partnership with CI ( a non-profit-making organisation dedicated to protecting planetary biodiversity ) . encouraged java husbandmans to utilize traditional and sustainable cultivation methods. The basic purpose was to protect shadiness trees. which were frequently stripped off and replaced with tight rows of java trees on big java plantations. This non merely destroyed the home grounds of legion species but besides resulted in lower java production.
Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 8 Certified Organic Coffee: This java was grown without the usage of man-made pesticides. weedkillers. or chemical fertilisers to assist keep healthy dirt and groundwater. Fair Trade Certified Coffee: Through a licensing understanding with TransFair USA. Starbucks tried to guarantee that java husbandmans were reasonably compensated for their harvests. The Fair Trade Certified Coffee label certified that the java met Fair Trade standards. These standards focused chiefly on monetary value and other sustainable demands. Fair Trade Certified coffees merely came from democratically owned co-ops. non big farms or java pulled across supply channels. In order to better farmers’ entree to funding. Starbucks provided loan financess to several organisations to guarantee that husbandmans could obtain low-cost loans and to assist them derive some fiscal ability to better their agribusiness techniques. In 2004. Starbucks committed $ 6 million to several loan plans.
The importance and alliance of this upstream support constituent was highlighted in a quotation mark from Shari Berenbach of Calvert Foundation: “Starbucks has taken a leading place by alining its investing capital with the company’s mission and merchandises to make more sustainable java turning communities. ” Finally. Starbucks worked with local husbandmans to understand the greatest demands of their rural communities. which frequently lacked basic necessities such as equal lodging. wellness clinics. schools. good roads. and fresh imbibing H2O. Starbucks collaborated with these husbandmans to develop undertakings that helped run into their demands. particularly in countries where the company bought big volumes of java. In financial 2004. the company contributed about $ 1. 8 million for 35 societal plans.
C. A. F. E. PRACTICES IMPLEMENTATION
There were two chief challenges confronting C. A. F. E. Practices execution that could potentially be addressed with better integrated information engineerings. First. since some members of the supply concatenation had really hapless information systems. it could be really hard to derive economic transparency—a cardinal end of C. A. F. E. Practices—from these members. Second. as C. A. F. E. Practices were updated and refined. it became a dashing occupation to efficaciously pass on the revised demands and patterns to husbandmans. providers. and other members of the industry. In add-on. it had been a really labour-intensive and slow procedure to measure husbandmans for tonss in the C. A. F. E. plan. Hearers had non pick but to go to the farms. which were frequently located in hardly accessible countries.
The company was in the procedure of developing an internal system to track conformity with C. A. F. E. Practices. and link such informations to back up procurance. The program was to incorporate the C. A. F. E. Practices information. at the clip stored in spreadsheets. with the more various database. and to so associate the information with its procurance system. together with other information systems on quality informations.
To Starbucks. it seemed that a more comprehensive information system was needed to back up a large-scale execution of C. A. F. E. Practices.
Starbucks Corporation: Building a Sustainable Supply Chain GS-54 p. 9 FUTURE OF C. A. F. E. PRACTICES
As Starbucks embarked on the aggressive enlargement of C. A. F. E. Practices towards run intoing its end of providing the bulk of its java through the plan by 2007. there were a figure of internal and external challenges. Internally. Starbucks would hold to turn to its information system issues. Externally. Starbucks had to happen an effectual manner to pass on and interface with its low-tech providers.
The chance. nevertheless. was enormous. If Starbucks was able to get the better of the execution issues that it faced. C. A. F. E. Practices could travel a long manner towards bettering the sustainability of its java supply concatenation while at the same clip bettering Starbucks’ image as a socially responsible corporation.