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STARBUCKS:

SUPPLY CHAIN:

Reorganizing Starbucks' supply chain organisation was the first phase in the transformation plan, which began in late 2008. According to Gibbons (Chief Executive Office), this entailed taking a complicated system and simplifying it so that each job fit into one of four simple supply chain functions: plan, source, manufacture, and produce. For example, everyone involved in planning was assigned to the planning department, whether it was for manufacturing, replenishment, or new product launches.

The tasks of sourcing were divided into two categories: coffee and "non-coffee" procurement. (Every year, Starbucks spends $600 million on coffee.) Such purchases, such as dairy products, baked goods, store furniture, and paper goods, total $2.5 billion a year in the United States.) The "make" functional unit was allocated to all production, whether performed in-house or by contract manufacturers. Finally, all transportation, distribution, and customer service staff were transferred to the "deliver" category.

Following the reorganisation of supply chain functions, different departments focused on the supply chain transformation's second goal: cost reduction and efficiency improvement. The sourcing team focused on identifying the cost factors that were driving up costs as part of this initiative. "They went out to understand our contracts, the rates they were paying, and the shipping costs," started breaking products down by ingredient rather than just purchasing price." "By benchmarking ingredients and processes and building more effective should cost' models, they were able to negotiate better prices."

Meanwhile, the manufacturing company created a more effective model for supplying coffee beans to its processing plants, with the intention of producing the commodity in the area where it is sold. Starbucks already had three coffee shops in the US: one in Kent, Washington, one in Minden, Nevada, and one in York, Pennsylvania. The company opened a fourth plant in the United States in Columbia, South Carolina, in 2009. According to Gibbons, the advantages of this strategy were immediately apparent: by regionalizing its coffee production, Starbucks was able to reduce shipping costs and lead times. Furthermore, once the new facility was up and running, all of the coffee plants in the United States were able to transition from a seven-day to a five-day service.

Starbucks also has a coffee plant in Amsterdam, the Netherlands, and a manufacturing plant for its Tazo Tea subsidiary in Portland, Oregon, in addition to the four coffee facilities it owns in the United States. In addition, the company works with 24 co-manufacturers, the majority of which are located in Europe, Asia, Latin America, and Canada. Since Starbucks ships, so many different goods around the world, shipping, distribution, and logistics accounted for the majority of its operating expenses, despite the fact that it spread production over a large territory. Getting that under control was a difficult task for the supply chain team.

LOGISTICS:

ONE LOGISTICS SYSTEM, ONE WORLD Because of its extensive supply chain, Starbucks needed to create a single global logistics system. In ocean containers, the company transports coffee beans from Latin America, Africa, and Asia to the United States and Europe. The "green" (unroasted) beans are trucked from the port of entry to six storage sites, either at a roasting plant or nearby. The finished product is trucked to regional distribution centres, which range in size from 200,000 to 300,000 square feet, after the beans have been roasted and packed. Starbucks has five regional distribution centres (DCs) in the United States, two of which are managed by the company and three of which are operated by third-party logistics firms (3PLs). It also has two distribution centres in Europe and two in Asia, which are both run by third-party logistics providers. However, coffee is only one of the many items stored in these warehouses. They also manage a variety of other products required by Starbucks' retail locations, such as furniture and cappuccino mix.

The stores are supplied by either large regional DCs or smaller warehouses known as central distribution centres, depending on their location (CDCs). Starbucks has 33 CDCs in the United States, seven in Asia/Pacific, five in Canada, and three in Europe, all of which are currently operated by third-party logistics firms. Dairy products, baked goods, and paper goods such as cups and napkins are all available at the CDCs. They combine the coffee with these other things to allow regular deliveries to Starbucks' own retail stores and retail outlets that sell Starbucks-branded goods using dedicated truck fleets.

Gibbons and his team set out to improve both distribution costs and execution because they are interconnected. According to Gibbons, one of their first moves was to create a global map of Starbucks' transportation expenses, which was no simple task because it required collecting all supply chain costs by area and consumer. Starbucks was able to narrow down its transportation providers by analysing their expenses and only keeping those that offered the best service.

The logistics team also met with their third-party logistics providers to discuss productivity and contract prices. The team developed weekly scorecards for evaluating certain vendors to help with the review process. "They settled on very straightforward service metrics, clear cost metrics, and clear efficiency metrics with their partners,"

The evaluations of a 3PL's results were based on a very simple method that only used two numbers: 0 and 1. A vendor running a warehouse or DC, for example, will receive a "1" for picking a commodity correctly. The 3PL was given a score of "0" if even one pallet was missing from a shipment. Starbucks started making service data by the shop, distribution lane, and stock-keeping unit (SKU) accessible to its supply chain partners as part of the scorecard initiative. "The scorecard and weekly rhythm (for scorecard review) ensured transparency about how they were strengthening the cost base while maintaining a focus on looking after our employees and serving their customers,"

Starbucks uses a variety of metrics to assess supply chain efficiency, but it focuses on four high-level categories to maintain continuity and balance across the global supply chain team: operational safety, service as measured by on-time delivery and order fill rates, overall end-to-end supply chain costs, and business savings. This last point applies to cost savings derived from areas other than logistics, such as sourcing, marketing, or R&D.

Starbucks was setting the groundwork for potential supply chain capabilities by taking all of those measures to reduce operational costs and increase execution.