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Supply Chain Management (SCM) is an essential element to operational efficiency. SCM can
be applied to customer satisfaction and company success, as well as within societal settings,
including medical missions; disaster relief operations and other kinds of emergencies;
cultural evolution; and it can help improve quality of life.
Starbucks is the largest coffeehouse company in the world, with 20,,891 stores in 63
countries, including 13,279 in the United States, 1324 in Canada, 989 in Japan, 851 in China,
806 in the United Kingdom, 556 in South Korea, 377 in Mexico, 291 in Taiwan, 206 in
Philippines, 171 in Thailand and 8 India and more. The supply process 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.
Objective of the Project Paper

Problem Statements
In Starbucks, Working conditions for coffee plantation workers are sometimes
overlooked in the process from bean to cup where workers are normally paid very low
wages and endure extreme working conditions.
The company's operational costs were rising even though sales were cooling.
Starbucks had been growing so fast that we had not done a good enough job of getting
the [supply chain] fundamentals in place. The costs of running the supply chainthe
operating expenseswas rising very steeply.
Transportation and deliveries problems: less than half of store deliveries were arriving
on time.
Excessive outlays for outsourcing; 65 to 70 percent of Starbucks' supply chain
operating expenses were tied to outsourcing agreements for transportation, third-party
logistics, and contract manufacturing

Background of Starbucks Corporation

Starbucks Corporation is an international coffee company and coffeehouse chain based in
Seattle, Washington. Starbucks is the largest coffeehouse company in the world. Starbucks
sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, coffee beans,
salads, hot and cold sandwiches and panini, pastries, snacks, and items such as mugs and
tumblers. Through the Starbucks Entertainment division and Hear Music brand, the company
also markets books, music, and film. 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
The first Starbucks opened in Seattle, Washington, on March 30, 1971 by three partners:
English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker. The
three were inspired by entrepreneur Alfred Peet (whom they knew personally) to sell high-
quality coffee beans and equipment.

Literacy Review on supply chain and its management

A supply chain refers to the flow of materials, information and services, from raw material
suppliers through factories and warehouses to the end customers. A supply chain also
includes the organizations and processes that create and deliver these products, information
and services to the end customers. According to the SCM Forum at Ohio State University, a
supply chain management (SCM) is the integration of business processes from the end
user through original suppliers that provide products, services and information that add
values for customers. It includes many activities such as purchasing, materials handling,
production planning and control, logistics and warehousing, inventory control, and
distribution and delivery.
The function of the SCM is to plan, organize and coordinate all the supply chain's activities.
Today the concept of SCM indicates a holistic approach to managing the entire supply chain.
The efficiency and effectiveness of supply chains in most organizations are critical for the
success of EC and are greatly dependent upon on the supporting information systems, as will
be described soon.

The components of supply chains
The supply chain is composed of three parts:
a. Upstream. This part includes the suppliers (which can be manufacturers and/or
assemblers) and their suppliers. Such a relationship can be extended, to the left, in
several tiers, all the way to the origin of the material (e.g., mining ores, growing crops).
b. Internal supply chain. This part includes all the processes used in transforming the inputs
received from the suppliers to outputs, from the time the inputs enter an organization to
the time that the product(s) goes to distribution outside the organization.
c. Downstream. This part includes all the activities involved in delivering the product to
final customers. (The supply chain actually ends when the product reaches its after use
disposal -- presumably back to Mother Earth somewhere).

Benefits of Supply Chain Management

The goals of modern SCM are to reduce uncertainty and risks along the supply chain, thereby
positively affecting inventory levels, cycle time, processes and customer service. All these
contribute to increased profitability and competitiveness.
The benefits of supply chain management were long recognized not only in business but also
in the military. Clerchus of Sparta said, as early as 401 BC that the survival of the Greek
army depended not only upon its discipline, training and morale, but also upon its supply
chain. The same idea was echoed later by famous generals such as Napoleon and
Eisenhower, and by entrepreneurs such as Henry Ford, who purchased rubber plantations to
ensure a supply of tires for the cars he manufactured. (Vertical integration strategy)

How Starbucks currently dealing with problems

C.A.F.E. Practices could also improve Starbucks reputation among suppliers, which would
make it easier to expand into purchasing in different countries or locations. In the long run,
C.A.F.E. Practices also sought to buffer against a form of bullwhip effect that existed in the
coffee industry supply chain. As coffee sales increased during the 1990s with the growth of
Starbucks and the specialty coffee industry, suppliers and farmers began to respond with a
huge increase in the amount of land dedicated to coffee farming.
The resulting glut of coffee beans on the market led to decreased prices and a shortage of
high quality coffee. Such fluctuations in price and supply were common in commodity
products that faced very long supply response times. In order to combat price and supply
volatility, the C.A.F.E. Practices initiative induced longer-term supply relationships with a
consistent set of suppliers. Starbucks was hopeful that this program would reduce its
susceptibility to price and supply volatility in the global coffee market.
C.A.F.E. Practices
Despite its domination of the specialty coffee industry, Starbucks did not use its purchasing
power as a way to squeeze its coffee suppliers in order to improve margins. Instead, the
company decided to use its market power as a way to implement social change within its
supply chain through C.A.F.E. Practices. C.A.F.E. practices were a way for Starbucks to
ensure a sustainable supply of high quality coffee beans, which was an essential component
of Starbucks business. The initiative built mutually beneficial relationships with coffee
farmers and their communities. It also helped to counteract the oversupply of low-grade
coffee on the worlds market, which suppressed prices making it difficult for farmers to cover
the cost of production.

When Starbucks implemented C.A.F.E. Practices, it had six objectives in mind:

1. Increase economic, social, and environmental sustainability in the specialty coffee
industry, including conservation of biodiversity.
2. Encourage Starbucks suppliers to implement C.A.F.E. Practices through economic
incentives and preferential buying status.
3. Purchase the majority of Starbucks coffee under C.A.F.E. Practices guidelines by
4. Negotiate mutually beneficial long-term contracts with suppliers to support Starbucks
5. Build mutually beneficial and increasingly direct relationships with suppliers.
6. Promote transparency and economic fairness within the coffee supply chain.
C.A.F.E. Practice was a set of coffee buying guidelines designed to support coffee buyers and
coffee farmers, ensure high quality coffee and promote equitable relationships with farmers,
workers, and communities, as well as to protect the environment. It was not a code of conduct
or a compliance program. Instead, it was a way of doing business that was aimed at ensuring
sustainability and fairness in the coffee supply chain.
This sustainability and fairness was achieved through a set of global guidelines for Starbucks
suppliers and a set of incentives to reward farmers and suppliers who followed those
guidelines. The guidelines consisted first of a set of prerequisites, which had to be met in
order to be considered for the C.A.F.E. Practices initiative. These prerequisites set a
minimum standard for Starbucks suppliers, including coffee quality and economic
transparency. The transparency prerequisite meant that suppliers were expected to illustrate
economic transparency on the amount of money that was ultimately paid to farmers.

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 outletseverything from furniture to cappuccino mix

Analysis and Findings

Supply Base of Starbucks
On the supply base side, the program served to lock in strategic and high quality suppliers.
This consistent, quality supply provided Starbucks with a competitive advantage over other
coffee roasters in the industry. Since suppliers would have invested resources in complying
with Starbucks programs, they would have an incentive to remain with Starbucks and would
face switching costs should they try to demonstrate their excellence to another coffee roaster.
The large pool of high quality suppliers would also smooth supply fluctuations by providing a
base supply of high quality growers.
Since Starbucks long purchase cycle included signing purchase agreements before the crop
had even been harvested, any reduction in supply uncertainties and fluctuations could lead to
better planning of future supply in the form of faster procurement.

Upstream Supply chain of Starbucks

Figure: supply chain of Starbuck
Their supply chain operation of Starbucks starts from coffee growers as they believe that their
success depends on thousands of farmers who grow coffee beans for them. They purchase
coffee beans from all over the world especially equatorial belt where coffee production is
highest. They ensure that the coffee beans they are purchasing are of high quality so as to
yield high quality coffee. The dried coffee beans are shipped to storage facilities where they
are stored as inventory. The USP of Starbucks supply chain is that all the shipping is tracked
through GPS tracking device so mishandling can be avoided.
According to the demand these dried coffee beans are sent to the roasting plants where it is
roasted, de-stoned & further checked for the taste. After this process next stage is automated
packaging where the caf is palletized & then sent to warehouses through truck.
Distribution they have outsourced to third party logistics which are located regionally and
work 24 hours a day. They have vendors to provide other products & merchandise to the
distribution centre through push/pull boundary.
They have company owned & licensed retailers located globally who review the inventory
like coffee and milk once per week & food products four times a week.

Supply Chain Drivers at Starbucks

1. Starbucks Facilities
Facilities are the actual physical location in the supply chain network where product is stored,
assembled, or fabricated. The two major types of facilities are production sites and storage
sites. Decision regarding the role, location, capacity, and flexibility of facilities have a
significant impact on the supply chains performance.
Starbucks Corporation is an American global coffee company and coffeehouse chain based in
Seattle, Washington. But it expand grow with rapidly opening coffeehouse within and out of
the country to improve their responsiveness for close to customers. Besides, they also provide
WI-FI in their coffeehouse. Then, nowadays Starbucks is the largest coffeehouse company in
the world with 20,366 stores in 61 countries including 13,123 in the United States, 1,299 in
Canada, 977 in Japan, 793 in the United Kingdom, 732 in China, 473 in South Korea, 363 in
Mexico, 282 in Taiwan, 204 in the Philippines, 164 in Thailand and 7 in India.
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. In July 2008, the company announced it was closing 600
underperforming company-owned stores and cutting U.S. expansion plans amid growing
economic uncertainty. In 2003, Starbucks closed all six of its store that located in Israel
because the on-going operational are challenges and a difficult business environment. The
Starbucks location in the former imperial palace in Beijing closed in July 2007. The
coffeehouse had been a source of ongoing controversy since its opening in 2000 with
protesters objecting that the presence of the American chain in this location was trampling on
Chinese culture.
Role of Starbucks facilities in the supply chain
Starbuck have established a lot of coffeehouse in the world for promote and serve their coffee
directly to their customers. The coffeehouse is marketing place which the Starbuck can sale
and communicate with their customers. It will attract more customers to come while they
provide more facilities like WI-FI, television, iTune music, and comfortable sofa. Increasing
the number of coffeehouse will increase facility and inventory cost but it will decrease
transportation cost and reduces response time. Because the increase amount of inventory
coffee bean are synchronous with the increase of coffeehouse. In addition, the increase of
coffeehouse also will improve the responsiveness for serve customers.

Role of Starbucks facilities in the competitive strategy
Starbuck have locating their facilities close to customers with increase the number of
coffeehouse. Some of the methods Starbucks has used to expand and maintain their dominant
market position such as buying out competitors' leases, intentionally operating at a loss, and
clustering several locations in a small geographical area.
Role of Starbucks inventory in the supply chain
Starbuck have gained the economies of scale by buying large amount of coffee bean from
suppliers. Besides, they also ensure the products are ready and available when the customers
want it. Increasing inventory generally makes the supply chain more responsiveness and also
can reduce transportation costs because of improved economies of scale.
In the early days, Starbucks did not have to focus on improving market share, productivity,
and profitability. When a new store opened customers came by word-of-mouth. Starbucks
excelled at three things, which is their coffee, their people, and the Starbucks Experience. It
is no longer enough to measure success by whether production or purchasing according to a
standard or supply chain management program is growing. But, Starbucks should turn their
focus to whether the standard is effective in delivering the result it was designed to achieve.
With the assurance and the nuance the assessment provides, they can assure that every dollar
invested in their strategies makes a different.
Integration of the activities will help Starbucks to achieve their objectives. This integration
plays a crucial role in the whole Starbucks supply chain, as poor performance or failure at
any step or activity of the supply chain will jeopardize the whole venture. Examples of
activities and elements involved in this integration include building long-term relationships
with suppliers, elimination of obstacles to cooperation, establishing common goals and tools
for cooperation, strategies and tactics, analysis and sharing of information by all supply chain
participants. An example of such activities at the beginning of the chain would be the work
with coffee growers on cultivation practices that improve coffee quality and provide
consistency and continuity. This in turn better matches the roasting process, allowing for
paying premium prices to growers which then contribute to creating a sustainable source of
coffee beans through C.A.F.E. practices.


References and Bibliography
Chase, R. B. et al., Production and Operations Management, 8
Ed. Chicago: R. D. IRWIN,
Handfield, R.B. and E.L. Nichols, Jr., Introduction to Supply Chain Management, Upper
Saddle River, NJ: Prentice Hall, 1999.