CASE STUDY Study Starbucks (5 marks) Like Intel, Starbucks is pretty much a household name, but like many of the most successful worldwide brands, the coffee-shop giant has been through its periods of supply chain pain. In fact, during 2007 and 2008, Starbucks leadership began to have severe doubts about the companys ability to supply its 16,700 outlets. As in most commercial sectors at that time, sales were falling. At the same time, though, supply chain costs rose by more than $75 million. Supply Chain Cost Reduction Challenges: When the supply chain executive team began investigating the rising costs and supply chain performance issues, they found that service was indeed falling short of expectations. Findings included the following problems Fewer than 50% of outlet deliveries were arriving on time Several poor outsourcing decisions had led to excessive 3PL expenses The supply chain had, (like those of many global organisations) evolved, rather than grown by design, and had hence become unnecessarily complex The Path to Cost Reduction: Starbucks leadership had three main objectives in mind to achieve improved performance and supply chain cost reduction. These were to: 1. Reorganize the supply chain 2. Reduce cost to serve 3. Lay the groundwork for future capability in the supply chain To meet these objectives, Starbucks divided all its supply chain functions into three main groups, known as plan make and deliver. It also opened a new production facility, bringing the total number of U.S. plants to four. Next, the company set about terminating partnerships with all but its most effective 3PLs. It then began managing the remaining partners via a weekly scorecard system, aligned with renewed service level agreements. Supply Chain Cost Management Results: By the time Starbucks had completed its transformation program, it had saved more than $500 million over the course of 2009 and 2010, of which a large proportion came out of the supply chain, according to Peter Gibbons, then Executive Vice President of Global Supply Chain Operations.

1) Think as a companys logistics supervisor, what suggestions do you have to overcome the challenges that the company was facing? (6-7 lines)

2) Will this strategy change the customer satisfaction or demand? Will this prove to be a competitive advantage? How? (6-7 lines)