Read the case study below and answer ALL questions. [100 Marks] From bean to cup: How Starbucks transformed its supply chain It takes a well-run supply chain to ensure that a barista pours a good cup of Starbucks coffee. That's because the journey from bean to cup is a complicated one. Coffee and other merchandise must be sourced from around the globe and then successfully delivered to the Starbucks Corporation's 16,700 retail stores, which serve some 50 million customers in 51 countries each week. But in 2008, Starbucks wasn't sure that its supply chain was meeting that goal. One clue that things were not quite right: the company's operational costs were rising even though sales were cooling. Between October 2007 and October 2008, for example, supply chain expenses in the United States rose from US $750 million to more than US $825 million, yet sales for U.S. stores that had been open for at least one year dropped by 10 percent during that same period. In part, Starbucks was a victim of its own success. Because the company was opening stores around the world at a rapid pace, the supply chain organization had to focus on keeping up with that expansion. "We had been growing so fast that we had not done a good enough job of getting the supply chain fundamentals in place," says Peter D. Gibbons, executive vice president of global supply chain operations. As a result, he says, "the costs of running the supply chain, the operating expenses were rising very steeply." To hold those expenses in check and achieve a balance between cost and performance, Starbucks would have to make significant changes to its operations. Here is a look at the steps Gibbons and his colleagues took and the results they achieved. The first step of the transformation plan, reorganizing Starbucks' supply chain organization, got under way in late 2008. According to Gibbons, that involved taking a complex structure and simplifying it so that every job fell into one of the four basic supply chain functions: plan, source, make, and deliver. For instance, anybody involved in planning be it production planning, replenishment, or new product launches was placed in the planning group. Sourcing activities were grouped into two areas: coffee and "non-coffee" procurement. (Starbucks spends US $600 million on coffee each year. Purchases of other items, such as dairy products, baked goods, store furniture, and paper goods, total US $2.5 billion annually.) All manufacturing, whether done in-house or by contract manufacturers, was assigned to the "make" functional unit. And finally, all personnel working in transportation, distribution, and customer service were assigned to the "deliver" group. After the supply chain functions were reorganized, the various departments turned their attention to the second objective of the supply chain transformation: reducing costs and improving efficiencies. As part of that effort, the sourcing group worked on identifying the cost drivers that were pushing up prices. "We went out to understand the contracts we had, the prices we were paying, and the shipping costs, and we began breaking items down by ingredient rather than just purchase price," Gibbons says. "We built more effective 'should cost' models, including benchmarking ingredients and processes, which showed that we could negotiate better prices." Meanwhile, the manufacturing group developed a more efficient model for delivering coffee beans to its processing plants, with the goal of manufacturing in the region where the product is sold. Starbucks already owned three coffee plants in the United States, in Kent, Washington; Minden, Nevada; and York, Pennsylvania. In 2009, the company added a fourth U.S. plant, in Columbia, South Carolina. The benefits of that approach were quickly apparent; regionalizing its coffee production allowed Starbucks to reduce its transportation costs and lead times, says Gibbons. Moreover, once the new facility was up and running, all of the U.S. coffee plants were able to switch from seven-day operations to five days. Even though it spread production across a wide territory, transportation, distribution, and logistics made up the bulk of Starbucks' operating expenses because the company ships so many different products around the world. Getting that under control presented a daunting challenge for the supply chain group. 2 "Whether coffee from Africa or merchandise from China, our task was to integrate that together into one global logistics system, the combined physical movement of all incoming and outgoing goods. Answer ALL questions below. Question 1 (20 Marks) There are four major elements of supply chain management: integration, operations, purchasing and distribution. Each of these foundations relies on the other to provide a seamless path from plan to completion as inexpensively as possible. Outline each of the four elements and provide examples from the article above to support your answer.