Starbucks is one of the major coffee shops in the world. It was established in 1971 in Seattle and expanded its business worldwide through its 22519 stores (Koapaha & Tumiwa 2016; Starbucks 2018). Starbucks sources coffee beans from Brazil, Costa Rica, Colombia, Guatemala, Nicaragua Peru, México, Panamá, Salvador, Honduras and Puerto Rico (Starbucks 2014). The company is the largest buyer of Arabica coffee globally (Starbucks 2014). The company applies the highest standards of excellence to all of its operations starting from the selection of suppliers to delivery of coffee to the customers. Starbucks takes the pride in selling and serving roasted coffee beans (Paryani 2011). The following section provides a critical analysis of Starbucks global supply chain, evaluation of the company way of sourcing coffee beans and the company’s ability to manage its global and local risks.
The value chain analysis has been introduced by Porter in 1985 as cited in Janithri, De Silva, & Fernando (2015). It refers to the way customer value is delivered through a chain of activities within the organization. The company has to gain a competitive advantage to be able to survive in the market. It has to deliver a customer value that could be done through the value chain management. The competitiveness of the value chain decides the competitiveness of the company.
The strategy of Starbucks is to place itself in the third place in the consumer lifestyle, as the consumer is expected to spend his time at home, work or Starbucks. The supply chain refers to the network of core and supporting activities that deliver the products and services to the customers. It starts with raw materials, assembly, warehousing, entry of orders, distribution and delivery. Facilities refer to the warehouses, plants, centers of processing, centers of distribution, retail outlets and offices. Activities and functions refer to the forecasting of demand, purchasing, managing inventories, information management, scheduling, quality assurance, production, delivery and customer service. Supply chains have two main folds represented in, first: the total approach of managing the flow of material, money and information from the supply of raw materials to the warehouse and finally to the end customer and the second: is the coordination of business functions within the business organization and through the supply chain. The effective supply chain is a major component of successful competition in the global marketplace. The Starbucks supply chain starts with sourcing the highest quality of Arabica coffee beans planted in the developing countries. Then adding value to the coffee beans through the transformational process of roasting dark coffee packaging and delivery to the retail stores. At the stores, coffee is served to the customers. In order to assure quality, Starbucks manages its own supply chain. It pays good prices to the farmers to make sure they add the required fertilizer and the required maintenance of growing the harvest. Coffee is under or over roasted and if it sits too long on the shelf it is stalled. It is important to produce the right quantity and keep the right amount of inventory to ensure the effectiveness of the supply chain. Also, the water used affects the taste and if it is left in the pot for more than twenty minutes, it is not fresh. Moreover, to assure the quality of the supply chain, coffee is served in ceramic cups for serving inside the retail store and a paper cup for carrying out. Starbucks depends mainly on serving coffee that is why it does not outsource the coffee beans ad prefers to deal directly with the farmers (Paryani 2011; Gereffi & Lee 2016).
Although Starbucks sores could be found across the six continents, it has centralized its critical supply chain management functions to assure the efficiency of the supply chain (Morai Logestics 2010). It has five locations in the USA, two in Europe and two in Asia.
According to the agency theory, the human agents’ traits shape the various managerial decisions and actions in the supply chains (Li, Tangpong & Hung 2017). Starbucks offers standardized training to the employees to assure the consistency of the services delivered to the customer. It also uses the JIT system to manage the inventory for forecasting, ordering, scheduling and delivery of products. It also assures the application of the total quality management in its operations (TQM) (Custom Written 2009). Moreover, Starbucks uses a scorecard system, including four categories, the safety of operations, on-time delivery, a total end to end supply chain costs and enterprise savings from activities outside the logistics as the R&D, marketing or procurement. Starbucks adopted the scorecard system in the 2000s when it found that its operational costs increasing despite the decreasing rate of sale. This system is used to measure the company cost and performance (Morai Logestics 2010). It was the solution to keep the main objectives of the company and address the weaknesses before they transfer into large problems. The company utilizes the latest technology to provide agility to the supply chain and best service to the customers. The automated information systems enable the company to monitor the demand worldwide and to get information on the stock level, transport schedule and storage capacity on demand (Morai Logestics 2010). It allows more flexibility in the supply chain, the company could address the peaks in demand with agility. The company could utilize the internet of things and access the cloud technology as the enterprise resource planning systems (Gadsden 2015).
The global value chain system allows the organization to reduce the transaction costs of the location of land by managing the global value chain that allows the activities to be linked with the international movement of materials that the multinational corporation’s control and not necessary to own them. It is important to examine the activities involved in the global value chain that could be grouped based on selected criteria (Hernández & Pedersen 2017).
Figure (1) shows the traditional value chain of Starbucks. The upper stream shows the product development, including the international influences and research to develop the instant coffee. The company searches the globe to find fair trade suppliers of the high-quality beans. Products are then distributed to the retail stores, franchise locations, grocery stores and airport terminals and it could be taken home by the customer (Lee 2010).
Figure (2) shows the new value chain with the international development upstream to allow developing new products for the international markets that match their cultures and add value to the US market as the green tea latte sold in Japan’s Starbucks stores,. In the downstream, the online storefront customization allows the customer to create an online profile, order online, create new drink any many more services. This new value chain allows for more forward integration while sustaining its backward integration with its traditional suppliers in the farms of the developing countries (Lee 2010; Bonnet et al. 2015).
Starbucks maintains a mutually beneficial long-term relationship with its suppliers to allow its future growth and success. Starbucks seeks sustainability as a core of its sourcing practices. It has established its coffee and farmer equity sustainability standards for the third part suppliers in order to support its suppliers. This approach allows its isolated suppliers in isolated locations to feel as an integral part of its operations. The company has a strict supply vetting policy to ensure that the supplied materials are according to the company sustainable and efficient business operations. In order to maintain the supply vetting, the company has issued the coffee sourcing guidelines (CSG) to set the standards of coffee suppliers. As the supplier meets the guidelines, he becomes approved and a formal buyer-vendor relationship is established. Moreover, the supplier has to meet Starbucks social responsibility standards, for example, the company does not accept a supplier who employs under 14 years old workers (Gadsden 2015).
Starbucks sources its food and materials from a variety of domestic, international business partners or it could be sourced from direct licenses. Suppliers provide high-quality products in a timely manner to ensure the quality of service. Finding the right supplier outside of the US is a challenging issue for Starbucks, as it depends on products from the developing countries, regions with poor infrastructure, and political instability and failing economies (Starbucks 2017). On the long run, Starbucks has to buffer against the bullwhip effect that takes place in the supply chain of the coffee industry. Coffee sales had increased in 1990s and Starbucks business also witnessed growth in the same time. The suppliers in farms have responded with a large increase in the size of land used to plant coffee beans. This action from the side of farmers has resulted in decreasing coffee prices and shortage in high-quality coffee. Starbucks has conducted a program called farmer equity (C.A.F.E) to ensures sustainability in the coffee market and ensures fair prices to be paid to the farmers. The company also has increased its visibility and transparency that allowed it to better understand its suppliers (Duda et al. 2007).
Regarding the acquisition activities of Starbucks, it has lately signed an agreement with Nestle to control its retail operations from the bag in the grocery stores to the k-cup for $7.15 billion. This agreement tends to expand the coffee bean products into more markets worldwide increasing the forward integration by this acquisition (Galarza 2018).
The risk is the probability of variation in an anticipated outcome. It has been examined in different fields. The supply chain risk is the potential occurrence of an incident in the inbound supply that leads to an inability to fulfill the customer demand. The natural disasters, legal concerns, poor demand forecasting and price fluctuations are considered as sources of risk (Carter & Rogers 2008).
In order to analyze the global, national and local risks that face Starbucks, it is useful to use the Porters five forces analysis, it could be discussed according to Geereddy (2012) and Paryani (2011), as follows:
In addition, The NGOs create pressure on Starbucks, this pressure has started with the major coffee production crisis in the 1990s. The NGOs claim that increasing the planted areas of coffee beans has resulted in the forest loss (Perez-Aleman & Sandilands 2008).
Conclusions
Starbucks is the largest buyer of Arabica coffee globally, The Starbucks supply chain starts with sourcing the highest quality of Arabica coffee beans planted in the developing countries. Then adding value to the coffee beans through the transformational process of roasting dark coffee packaging and delivery to the retail stores. At the stores, coffee is served to the customers. Starbucks internalizes its transactions through managing its own supply chain to assure quality. It has centralized its critical supply chain management functions to assure the efficiency of the supply chain. Starbucks uses a scorecard system, including four categories, the safety of operations, on-time delivery, a total end to end supply chain costs and enterprise savings from activities outside the logistics.
The company utilizes the latest technology to provide agility to the supply chain and best service to the customers. Technology allows more flexibility in the supply chain, the company could address the peaks in demand with agility. The company could utilize the internet of things and access the cloud technology as the enterprise resource planning systems. The company searches the globe to find fair trade suppliers of the high-quality beans. The new value chain with the international development upstream to allow developing new products for the international markets that match their cultures.
References
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