Starbucks Supply Chain
Many of the company’s products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores. From Starbucks’ founding in later forms in Seattle as a local coffee bean roaster and retailer, the company has expanded rapidly. In the 1990s, Starbucks was opening a new store every workday, a pace that continued into the 2000s. The first store outside the United States or Canada opened in the mid-1990s, and overseas stores now constitute almost one third of Starbucks’ stores.
The company planned to open a net of 900 new stores outside of the United States in 2009, but has announced 300 store closures in the United States since 2008. Buoyed by unprecedented success and focused on rapid expansion in the early 2000s, an efficient supply chain was not a top priority for the world-renowned coffee retailer Starbucks. But then the economic downturn set in, forcing Starbucks to re-engineer its supply chain. In 2010, the company removed more than $700 million (? 428m) from its supply chain costs, and used an innovative set of metrics to achieve remarkable results.
Gartner research vice president, Kevin Sterneckert, discovered how it moved from a struggling supply chain to one of the best supply chains in the world. Starbucks began to examine every detail of its supply chain, and found that its organization had become very siloed and divergently independent. Performance metrics and objectives differed by organization within the supply chain. In some cases, this led to competing activities that created unwarranted complexity and performance deficiencies. For example, the organization was scheduling store deliveries without considering its warehouse capacity, so delivery trucks would routinely leave he distribution centre (DC) with less than the full order for a store. Starbucks faced four key issues: 1. It lacked a supply chain strategy focused on delivering enterprise value. 2. It lacked organization calibration of benefits. 3. It lacked focus on the right supply chain metrics. 4. It needed to increase investments in talent enhancement and acquisition. Starbucks developed a strategic framework that it applied to all aspects of its supply chain strategy. It identifies the areas of focus for each division, as well as the level of maturity expected.
Further, the company recognized that enhancements to the way it manages and acquires talent would return significant benefits. The retailer transformed its supply chain strategy to move from a traditional logistics mindset to an organization purpose-built to deliver value. The company wanted its supply chain to accelerate speed to market and enable sales growth. Starbucks’ management challenged the supply chain organization to compress its cost to serve and elevate its service, while obtaining, training and retaining the best talent in the business.
Starbucks initiated a series of changes that aligned business practices with activities, as well as organizational changes that allow for a focus and direction to be placed on each, while avoiding the issues of “silos of excellence”. Starbucks learned through its transformational process that some metrics mattered. However, the company also learned that not all metrics mattered, nor could all metrics lead to improved decisions that would lead to improved performance A key metric for Starbucks is ‘on time in full’ (OTIF), which the company defines as the state when everything ordered is on time and complete as ordered.
This metric fell to a very low score at the apex of Starbucks’ supply chain issues. Starbucks reports OTIF to be one of the single most important indicators of cumulative success. When this number moves down, a host of additional metrics will point to the source of the supply chain’s inefficiencies. As the number rises, so do the improvements to COGS. One world, one logistics system The creation of a single, global logistics system was important for Starbucks because of its far-flung supply chain. The company generally brings coffee beans from Latin America, Africa, and Asia to the United States and Europe in ocean containers.
From the port of entry, the “green” (unroasted) beans are trucked to six storage sites, either at a roasting plant or nearby. After the beans are roasted and packaged, the finished product is trucked to regional distribution centers, which range from 200,000 to 300,000 square feet in size. Starbucks runs five regional distribution centers (DCs) in the United States; two are company-owned and the other three are operated by third-party logistics companies (3PLs). It also has two distribution centers in Europe and two in Asia, all of which are managed by 3PLs.
Coffee, however, is only one of many products held at these warehouses. They also handle other items required by Starbucks’ retail outlets—everything from furniture to cappuccino mix. Depending on their location, the stores are supplied by either the large, regional DCs or by smaller warehouses called central distribution centers (CDCs). Starbucks uses 33 such CDCs in the United States, seven in the Asia/Pacific region, five in Canada, and three in Europe; currently, all but one are operated by third-party logistics companies.
The CDCs carry dairy products, baked goods, and paper items like cups and napkins. They combine the coffee with these other items to make frequent deliveries via dedicated truck fleets to Starbucks’ own retail stores and to retail outlets that sell Starbucks-branded products. Because delivery costs and execution are intertwined, Gibbons and his team set about improving both. One of their first steps was to build a global map of Starbucks’ transportation expenditures—no easy task, because it involved gathering all supply chain costs by region and by customer, Gibbons says.
An analysis of those expenditures allowed Starbucks to winnow its transportation carriers, retaining only those that provided the best service. The logistics team also met with its 3PLs and reviewed productivity and contract rates. To aid the review process, the team created weekly scorecards for measuring those vendors. “There are very clear service metrics, clear cost metrics, and clear productivity metrics, and those were agreed with our partners,” Gibbons notes. Although Starbucks has a raft f metrics for evaluating supply chain performance, it focuses on four high-level categories to create consistency and balance across the global supply chain team: safety in operations, service measured by on-time delivery and order fill rates, total end-to-end supply chain costs, and enterprise savings. This last refers to cost savings that come from areas outside logistics, such as procurement, marketing, or research and development. Earning the company’s confidence Since Starbucks began its supply chain transformation effort, it has curtailed costs worldwide without compromising service delivery. As a company,” Gibbons says, “we have talked publicly of over $500 million of savings in the last two years, and the supply chain has been a major contributor to that. ” In Gibbons’ eyes, the transformation effort has been a success. “Today there’s a lot of confidence in our supply chain to execute every day, to make 70,000 deliveries a week, to get new products to market, and to manage product transitions, new product introductions, and promotions,” he says. “There’s a lot of confidence that we now are focused on service and quality to provide what our stores need and what our other business customers need. To sustain that momentum for improvement and to ensure a future flow of talent into the organization, Starbucks recently began an initiative to recruit top graduates of supply chain education programs. Along with its recruiting program, the company plans to provide ongoing training for its existing employees to help them further develop their supply chain knowledge and skills. The infusion of new recruits will allow Starbucks to stay focused on its supply chain mission of delivering products with a high level of service at the lowest possible cost to its stores in the United States and around the globe. Supply Chain Management For Starbucks