International School - Vietnam National University

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TABLE OF CONTENT

INTRODUCTION 3

STARBUCKS SUPPLY CHAIN OVERVIEW & SITUATION: 4

1. Business model 4
2. Manufacturer and Suppliers 6
3. Customers: 7
4. Distributors 7
5. Stakeholders 8
WHY IS GLOBAL SUPPLY CHAIN MANAGEMENT IMPORTANT FOR
REDUCING COSTS? 9
HOW DOES STARBUCKS MANAGE IN REDUCING COSTS TO CONTRIBUTE
SUPPLY CHAIN EFFICIENCY? 12
1 . Supply chain design 12
1.1. Logistics management 12
Warehouses organization 12
Transportation system 13
Third-Party Logistics (3PL) Providers 13
1.2. IT system 13
ERP system 13
Invest in E-mobile 15
→ How technology changed Starbucks Supply Chain 15
Manufacturing: 15
Distribution 16
Retail Location (Starbucks Shop) 16
Customers 16
2. Lean six sigma system improves service quality management 17
2.1. Lean Production in Retail Store: 17
2.2. Six Sigma 19
3. Maintain Supplier Relationships 21
3.1. Sustainable sourcing strategies 21
3.2. Applied Information Technology to Create Strategies in Developing
Relationships With Suppliers. 22
RECOMMENDATIONS 23
REFERENCES 24
CONTRIBUTION 25

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INTRODUCTION

Starbucks Corporation was founded by Gordon Bowker, Jerry Baldwin, and Zev Siegl in
1971, the first shop was opened in Pike Place Market in Seattle. In 1982, Howard Schultz
attended Starbucks as director of retail operations and marketing. Starbucks starts providing
coffee to quality restaurants and espresso bars. After five years, Schultz bought Starbucks and
took the Italian coffee house culture to Seattle, his vision was to broaden Starbucks to a
country-wide coffee chain from a tiny local operation to a multinational brand. At the present,
Starbucks has ended up a coffee empire really well worth eighty-two billion USD with
numerous milestones and awards. For many years, Starbucks has received the award of Best
Company Happiness, Best Company For Women, and Best Company Work-Life Balance
because of way to its contribution to the staff and society. In 2019, Starbucks marked a global
milestone with its 30,000th shop. (Starbucks, 2019). For Starbucks, one of the keys to the
brand's success is the supply chain. The global coffee massive has extensively studied and
acclaimed supply chain management practices, which, according to some, make Starbucks'
coffee and consumer experience advanced to those of its competitors.

So, what exactly is Starbucks doing differently than other international coffee retailers? Is its
coffee truly better?

Starbucks Bà Nà Hills (Source image: junytour)

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STARBUCKS SUPPLY CHAIN OVERVIEW & SITUATION:

Once the corporations had been surely described the coffee store then evolved numerous
value paradigms for every system withinside the corporation to become aware of value
drivers. From this analysis, Starbucks identified the need for extra roasting plants and they
finally opened more plants. This allowed the company to go from a 7 operating day week to a
5 operating day week. The subsequent system in the transformation changed into creating an
international map of the store's transportation costs inclusive of fees by location and fees per
store. With over 70 000 deliveries per week, this turned into a vital step in its transformation.
The global transportation cost map enabled the shop to streamline its transportation system
and enforce a performance-based totally transport system. Transport companies and the
third-party logistics companies that did not meet the performance requirements had been
eliminated while those who did want to maintain their efficiencies remained in the system.
→ The purpose of the performance system was to create consistency throughout the
worldwide supply chain as regards on-time delivery and order fill rates, the entire end-to-end
supply chain expenses, and organizational financial savings from regions which include
procurement, marketing, and research and development. By undertaking all the steps in the
supply chain transformation to reduce operating costs and enhance the execution of its
services, Starbucks was creating the foundation for future supply chain capabilities. (Cooke,
2010)

1. Business model

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The business model of Starbucks is entirely based on the company the offer provides to its
customers and architecture and networking partner for the creating, delivering, and marketing
value formulated from valuable revenue streams.

Starbucks' business model is well designed to make the business work and also, how it can
make more profit. Starbucks gathers its value through incredible customer interaction and
experience.

What is unique about the business model of Starbucks?

Starbucks has opted for the most creative and unique marketing strategies. It has received
immense success through its business model and strategies. But the thing that makes the
business model utterly unique is the Classic Logo which works best to engage more loyal
customers throughout. The concept of the logo is to gather a huge audience base.

The other thing is how it presents its advertisements to its customers. With its store, modern
cup design, digital content and many others, it provides the customers with a feeling of
warmth and comfort. That's why the audience connects more with Starbucks. It offers instant
on-time delivery to its customers, consistently.

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Especially, Howard Schultz calls Starbucks’s business model “Vertical integration to the
extreme” because the company buys and roasts all its own coffee and sells it through entirely
company-owned stores. Some of the reasons Starbucks use:

● By controlling the value chain, through control the experience and maintain the level
of quality much better than if you are dependent on external partners.
● In the world of coffee, this is an issue when dealing with suppliers in developing
nations with varying standards of quality.

2. Manufacturer and Suppliers

Suppliers:
Each region of the world can grow different types of coffee with different flavors, in Latin
America, coffee has the acidity and smell of cocoa beans; in Africa succulent, floral, lemon,
and strawberry; In Asia Pacific, it is dark, smooth, with a grassy, ​woody smell.
Because of that difference, Starbucks buys coffee directly from farmers from four
coffee-growing places around the world: john party's coffee in Hawaii, coffee from a small
portion of farmers in Arlington in Sumatra, and the coffee of the Baumann family in Mexico.
These are all coffees with very unique flavors that are nowhere in the world, which has
contributed to the success of Starbucks.
● In addition, Starbucks also has companies that provide equipment, and modern
machinery systems as well as companies that produce packaging and coffee cups.
● In their relationship with suppliers, they always treat them with respect and ethics,
always creating the best conditions for Starbucks partners to operate effectively.

Manufacturer:
Some manufacturing factories are established by Starbucks to serve the company's own
needs, the rest cooperate with other factories. Starbucks has 7 main production factories,
typically some main factories such as

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● Kent factory in Kent in Washington, Kent is a flexible factory and the only one with 3
continuous production processes, roasting Starbucks coffee and the best Seattle
coffee, mixing Tazo tea and instant flexibly for Starbucks VIA coffee ready to brew.
Built-in 1992, Kent is the oldest factory in the company.
● Bay Bread Bakery Factory in South San Francisco, California,.' Shaw is the nickname
for the road this factory is located on but is officially known as Banh Mi Bay. It is the
largest factory with three functions: preparing products for La Boulange stores,
preparing products for Starbucks stores, and testing and developing new products.
● York Coffee Roaster in York, Pennsylvania. The York factory is one of the world's
largest coffee processing plants and Starbucks' largest distribution center. Nsó
supplies products to local and international Starbucks and grocery stores. It has also
been part of the York County community for the past 17 years.
● Sandy Run factory in Gaston, South Carolina. Sandy Run is a highly automated
coffee roaster. Introduced in 2008, Sandy produces more than 1.5 million pounds of
coffee weekly. The factory received LEED gold certification.

3. Customers:
Starbucks expands the experience to all customers, recognizing and responding to their
unique preferences and needs. Starbucks wants to provide unique customer experiences by
connecting with them culturally appropriate way.

Starbucks uses different channels to distribute its products outside the company-operated
stores. These include arrangements with food service companies, licensed partners, grocery
channels, warehouse club accounts, direct-to-customer market channels, joint ventures, and
other specialty operations. This means the company utilizes more than one distribution
design. Firstly, Starbucks sells its products through a direct retail system in company-owned
stores. They import and process coffee and then sell it under their own brand name in their
own stores. However, Starbucks also sells its products in supermarkets and shopping centers.
Additionally, Starbucks has distribution agreements with office coffee suppliers, hotels, and
airlines. Using multiple distribution channels allows the company to reach a wider market,
however, while doing so Starbucks needs to be careful with this approach due to the potential
for channel conflict.

4. Distributors
Starbucks created a system of coffee shops by itself to introduce and sell products. Starbucks’
store systems are distributed throughout the world. In addition to creating its own Starbucks
stores, it also franchises its business to many companies around the world. The company also
plans to open hundreds more stores in Vietnam in the coming years and more than 3000
stores in North America in the next 5 years. It can be said that Starbucks’ product distribution
system is very large and they have a very reasonable market expansion strategy to sell their
products.

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5. Stakeholders
The set of five powerful people who hold the largest individual shares and directly run the
corporation
● Howard Schultz acquired Starbucks in 1987 from founders Zev, Jerry, and Gordon
when the chain had grown to six locations. From a small coffee chain in Seattle, the
Jew has turned Starbucks from 6 locations to an amazing 26,000 with more than
330,000 employees, bringing the brand to global stature while also taking control of
the balance. world coffee industry and has now expanded to tea, beer, and wine.
Despite giving away the throne, Howard still holds nearly 28 million shares and
becomes the single largest shareholder holding the largest share in the company, a
worthy reward for his "vision" and "effort".
● The second largest individual shareholder of Starbucks is John Culver. According to
NASDAQ, as of December 12, 2016, he currently holds about 342,000 shares. John is
the president of Starbucks China and the Asia Pacific region, and he has also held
many key roles in other branches of the group.
● The third largest individual shareholder is Clifford Burrows, who has worked at
Starbucks since April 2011 with shares holding about 250,000 (according to
NASDAQ as of May 18, 2017). He was vice president of Starbucks in the UK in
2006, and president of Starbucks for Europe, the Middle East, and Africa from 2006
to 2008. Burrows currently joins Siren Retail's group of presidents in charge of
managing operations. growth of Starbucks “specialty” stores such as Roastery,
Starbucks Reserve, and Princi bakery/cafe.
● The fourth largest individual shareholder is Mellody L Hobson, a powerful
African-American female general with a shareholding of about 168 thousand
(according to NASDAQ as of November 21, 2016). She has been on the Starbucks
board of directors since 2005.
● The fifth person is none other than Johnson, the new CEO of Starbucks, he currently
holds about 136 thousand.

In addition, most of Starbucks' pie over $80 billion belongs to financial institutions with
shares holding more than 1 billion and accounting for nearly 70.7% (worth $61 billion). In
which, leading this group is 5 illustrious institutions such as Vanguard Group Inc ((holding 92
million shares), BlackRock Inc (holding 85 million shares), State Street Corp (60 million
shares) from Boston, and investment fund Fidelity also comes from Boston (48 million
shares), Capital World Investors (holding 44 million shares).

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WHY IS GLOBAL SUPPLY CHAIN MANAGEMENT IMPORTANT FOR

REDUCING COSTS?

Starbucks operates effectively by managing the influences of the five factors in the coffee
shop industry worldwide by settings with excellent performance. Understanding Starbucks's
competitive advantage through Porter's 5 forces model and Resource-based View (RBV) to
approach which Starbucks must incorporate into its business strategy. The following methods
are designed to achieve competitiveness along with the company's vision and mission.

● Competitive rivalry (Moderate to high)

Starbucks faces stiff competition of various sizes. Besides, lower switching costs
promote the competition, customers face this drawback when switching from one brand to
another, and regarding both specialty and approach, the community of rivals is rather diverse.
● Bargaining Power of Buyers (Moderate to Low)
There are many Customers of coffee but they cannot demand discounts. Starbucks
offer highly specialized and differentiated items to a variety of consumer population with
low-volume orders, reducing buyers' bargaining power. Starbucks clients are primarily
quality conscious and ready to pay high for high-quality items However, they cannot charge
unreasonable prices because they will search for alternative options and will begin to switch.

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● Bargaining Power of Suppliers (Low to Moderate)

Starbucks’ key ingredients are Arabica coffee, cultivated in certain locations, resulting
in a low cost of swapping between alternative suppliers. Starbucks has self supplier diversity
policy for the careful selection of suppliers. Besides, they deal directly with coffee producers,
this strategy allowed Starbucks to have better control of the supply chain. They seem to have
built strong partnerships with farmers to receive advice, and support them in maximizing
turnover.
● The threat of substitutes (moderate to high)
There are various items, and coffee shops that replace Starbucks coffee that appear in
the market, therefore these factors create a significant threat. However, several features are
available to mitigate this risk: Starbucks offers premium packed specialty coffee with
premium quality coffee, outstanding customer service, and a comfortable atmosphere.
● The threat of new entrants: moderate
New players can bring to competition with Starbucks locally but the opportunity for
success is still low because Starbucks is a brand's leading position in the market. However,
new companies can gain customers’ interest by offering cheaper pricing. Starbucks has a
competitive advantage in raw materials and suppliers’ accessibility. The company has access
to the coffee of premium quality and suppliers worldwide because of the company’s scale,
range, and payment capability.
⇒ Thanks to Michael Porter’s Five Forces model, Starbucks understands the main
competitive forces at work in the industry. Then they adjust their strategy to improve
profitability.
When Starbucks understands the main competitive advantage, it used the Resource-based
View (RBV) as an approach to achieving competitive advantage.
● RBV framework is constructed on studying and choosing sources that make
contributions to commercial enterprise competitiveness and integrating them
strategically. Starbucks' most crucial sources are retail stores, brand equity, and
human capital. Starbucks carefully selects its shop sites, primarily in affluent
neighborhoods where customers are not sensitive to prices. Customers experience a
connection to Starbucks outlets. Place where people get to stay so far away from their
daily problems. A company's essential power is its brand image which is the
company's competitive edge. Starbucks set up a strong significant brand by
promoting the best quality coffee merchandise by supplying its customers with a
one-of-a-type experience, performed thru wonderful customer service,

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well-maintained coffee stores that display various groups in which they operate, and
creating excessive consumer loyalty. Starbucks has advanced great domestic and
overseas provider networks, to assist the company's business method of increasing
globally.
⇒ Starbucks’s overcome greater competitors and gained a top priority brand in coffee stores.
Therefore, Starbucks was a sufferer of its very own achievement while the corporation was
opening shops around the world at a fast pace, the supply chain organization needed to
cognizance to maintaining up with that expansion. As a result, he says, "the expenses of
running the supply chain—the operating fees—were growing very steeply. The company's
operational expenses were rising despite the fact that income has been cooling. Between
October 2007 and October 2008, for example, supply chain costs in the United States rose
from the US $750 million to greater than the US $825 million, but income for U.S. shops
that had been open for at least three hundred and sixty-five days dropped by 10 percent
during that same period.

⇒ To maintain the costs in check and obtain stability among cost and performance, Starbucks
would make considerable adjustments to its operations. According to Porter (1980), one of
the competitive strategies for cities is the cost advantage. A well-led reducing costs plan
creates cost advantages, while a better level of customization and service tends to boost
profitability.

Starbucks knew that it had to transform its supply chain management if the company was to
continue to be financially viable. The retailer identified three important objectives that the
transformation had to achieve.
● Firstly it had to restructure its supply chain organization.
● Secondly, it had to reduce the operating costs of servicing its stores while improving
the efficiency of the process.
● And lastly, it had to create a platform for future supply chain capability. (Cooke,
2010).
=> The global supply chain helps make manufacturers and industries more efficient and
profitable by reducing costs and encouraging businesses to expand into international markets.

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HOW DOES STARBUCKS MANAGE IN REDUCING COSTS TO

CONTRIBUTE SUPPLY CHAIN EFFICIENCY?

1 . Supply chain design

1.1. Logistics management
a) Warehouses organization
A warehouse refers to the organization’s planned space that they use to store and handle
goods and materials (Tompkins, 2010). Furthermore, warehouses serve as focal locations for
product and information movement between suppliers and recipients. Starbucks Corporation
uses private warehouses as its warehouse ownership arrangement. The company owns and
operates these warehouses, which are used to hold only its own inventory of products and
resources. At the roasting factory, Starbucks has six storage locations for "green coffee
beans" (Cooke, 2010). Coffee beans arrive in warehouses from Asia, Latin America, and
Africa. Furthermore, Starbucks Corporation has five regional distribution hubs in the United
States where bagged roasted beans are stored (Cooke, 2010). Two regional distribution
centers (DCs) are owned by the organization, while three DCs are operated by third-party
logistics businesses (3PLs). Dairy products, coffee, paper goods like napkins and cups, and
baked goods are all kept in the central distribution hubs.
Because fewer cargoes are engaged in the process, the storage technique will help to alleviate
congestion at the receiving ports. Similarly, by reducing congestion at the receiving port, the
organization will save time and save other logistic costs that would have been paid if
congestion existed. Third, because Starbucks' roasting plants' warehouses pack and label
coffee, they can postpone or delay final coffee production until they receive actual demand
from customers. Because the corporation will not finalize packaging until they receive an
order for a certain label, the processing and postponement technique helps to reduce risk.

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b) Transportation system
With a consolidation strategy, the warehouses collect products and resources from numerous
roasting plants and mix them for a certain distribution center using a consolidation approach.
The merchandise and materials would be transported together in a single shipment. The firm
will benefit from obtaining the most cost-effective transportation options. Because the
procedure involves integrating the logistical flow of multiple small shipments to a certain
location, the organization will save money on transportation.

c) Third-Party Logistics (3PL) Providers

Starbucks and third-party logistics providers have been partners for a long time, and their
relationship is growing due to the high level of service they give and their intimate
knowledge of the Starbucks Supply Chain. Both organizations immediately found that their
cultures and synergies were remarkably similar. In addition to warehousing, they currently
manage inbound raw materials, green coffee transfers, vendor inbound, plant transfers, and
outgoing retail and consumer products. They worked together to identify inefficiencies in
their supply chain and collaborated with their regional and corporate teams to reduce costs
while increasing service. One of their fundamental values is continuous improvement, and
here are a few examples of how they used it with Starbucks:

● Pilot Program: This initiative allowed inventory to be delivered to stores faster and
without the need for store labor to receive deliveries. 3PL suppliers provided
comments on the pilot program, which included modifying the kind and size of
delivery vehicles, which resulted in lower route and delivery costs and annual savings
of millions of dollars.
● Holiday Promotions: Every year, Starbucks announces a holiday launch date.
Decorations, modifications to their in-store products, and even the style of the cups
are all part of this. Their supply chain was considerably backed up during these
campaigns, and following further discussion, 3PL providers recognized certain
efficiencies and cost reductions.
● Green Coffee: 3PL providers collaborated with the Starbucks team to assess their
green coffee storage and handling process, recommending improvements to their
facility structure and the deployment of more efficient material handling equipment
that decreased their green coffee storage footprint.

1.2. IT system

Back in the early 2000s. Starbucks' business was starting to gain momentum but its supply
chain and logistics teams were struggling to keep up. The famous coffee business quickly
realized that they needed to put strategies and technologies in place to master the movement
of their ingredients, materials, and products. For this study, we will only discuss some
highlighted, not all, technological aspects of Starbucks' supply chain.

a) ERP system
Starbucks –Advantages of ERP Implementation

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- The advantages of Starbucks' implementation of a new Enterprise Resource Planning

System were very typical of many other ERP implementations with a massive
awareness on supply chain management. Starbucks discovered that their annual costs
for their supply chain were growing and over the same period, annual sales at stores
that were opened for at least one year dropped by 10%. They were capable of finding
out that the 2 main issues with their supply chain stemmed from the untimeliness of
deliveries and that 65-70% of the costs for their supply chain were due to outsourcing.
The new system reorganized the supply chain into simplified chain functions that
would put focus on the procurement aspect. Since Starbucks spends $600 million
annually on coffee and $2.5 billion annually on dairy and paper goods this was a
major area that needed to recognize in the new system. The system is able to manage
the purchasing of goods from the many coffee plants that they are involved with
throughout the world. Starbucks recognized $500 million in financial savings in the 2
years after the implementation of this new system. The system also eliminated the
need for paper forms and email orders. All orders undergo the system and are
automatically updated while the purchases were acquired, billed, and paid for.
→ With the new streamlined processes the effectiveness and timeliness of ordering
and shops receiving the products needed, shops are no longer waiting for goods to be
delivered and are now able to get the product to the customer without issues.

- Since the new system integrates the supply chain with the other aspects of the
company such as the financial system it again cuts down on paperwork, which leads
to less confusion during communication between both parties. This means fewer
mistakes and a decrease in mistakes with ordering and finances it greatly increased
the efficiency of the supply chain. With efficiency comes more “goodwill” to
customers who don’t have to wonder if the Starbucks around the corner from their
home will have their favorite coffee or not. With more “goodwill” comes customer
loyalty which will in turn lead to more return customers which will increase sales
annually.

- Another advantage of the system is that it reduces operating and supply chain costs.
Operating costs are decreased because less personnel is needed to operate the entire
system effectively. With everything being computerized and all information being
available on the system there is no need for certain types of employees, thus cutting
salary costs. Since all of the information and documents are computerized there is no
need for paperwork, in turn, cutting back on overhead costs and with the amount of
paperwork that Starbucks could be using this is a huge amount of overhead costs that
are removed. Even with the personnel cutbacks, the system is still able to run
smoothly and efficiently. All aspects of the company are integrated into one system,
streamlining processes that used to take a long time to go through many people with
no sense of the timing that was needed to effectively order, manufacture, and supply
stores with the required goods.

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- With the accounting system being integrated into the system Starbucks is able to
maintain a watchful eye on all transactions that occur allowing them to see what is
costing them too much and need to make improvements. The system combines all of
the necessary information into one easy-to-comprehend document for managers and
employees to read and evaluate. With the information in one place is it easier for
managers to make decisions on what needs to be done now and in the future.

- Another advantage of this system is that it was specifically designed and implemented
for the use of Starbucks. This means that it was developed for ease of use by
employees of the company. Again allowing for timely transactions within the
organization. The system was designed to easily be manipulated in the future in the
event that the system needs more applications or updates are required. This will cut
down on future costs of the system and again cut back on overhead.

b) Invest in E-mobile
Although the information technology background was not as strong as it is now, Starbucks
aimed to implement digital transformation 11 years ago. Starbucks has now released an app
that allows consumers to place orders and pay for them online.
This app is viewed as a method of increasing consumer loyalty. Starbucks encourages
customers to continue with the company by awarding star points for each purchase, which
customers may then redeem for free beverages or larger drink sizes.
Customers can also pre-order through the app to save time, then go to that Starbucks to pick
up their things without having to wait. Besides, they can provide feedback and thoughts about
products and services using an online app created by Starbucks. This input allows Starbucks
to better understand client preferences, allowing them to improve products and services and
increase customer satisfaction.

→ How technology changed Starbucks Supply Chain

● Manufacturing:
Starbucks does not just sell a steamy cup of coffee, it is likely customers have also
encountered some packages of instant coffee on its shelves. Often, other instant
coffees lacked taste or were bitter, and it appeared like they never dissolved
completely. But all that has been modified with Starbucks’ latest soluble coffees—like
its VIA Ready Brew brand—made in a new, current plant with sophisticated
non-stop procedure controls and packaging. Starbucks management thought that with
the right tools, the company could make a soluble coffee that would change the way
consumers feel about instants and compete successfully in the soluble coffee market
segment, especially if it could replicate the flavor of coffee freshly brewed in its
stores. By designing, building, and operating the Georgia- based facility from top to
bottom, Starbucks could tap into new technologies to create a more efficient,
automated process. Starbucks set out to create a facility with a proprietary design, not
a single outside vendor’s off-the-shelf system. (Labs, 2015)

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● Distribution
Management has made significant short and mid-term investments in digital
technology to lessen waste and restrict the inefficiency of their supply chain in the
latest years. One such instance is their adoption of an automatic information system
mixed with a centralized logistics making plans network. This permits real-time
monitoring of demand down to the shop level, as well as up-to-date information on
stock levels, storage capacities, and trucking schedules.

Other applications of technology in the distribution system that customers are more
aware of are the My Starbucks Rewards Program and Mobile Order & Pay system.
While those are certainly advertising and operations-driven initiatives, the data series
with those systems for local and seasonal demand fluctuations in product mix related
to customization similarly complements the responsive abilities of their digital supply
chain systems.

Starbucks is making plans to Adopt RFID Technology. In the early days of February
2020, McDonald’s and Starbucks introduced the idea of pilot programs. This
program’s reason was to set up and test systems for collecting, cleaning, and
redistributing plastic coffee cups. It means that you could get a coffee cup you used a
few months ago in the coming years while you order coffee from McDonald’s and
Starbucks. There had been winning proposals, one being a UK-based start-up called
CupClub in which coffee drinkers test an RFID tag at drop-off and pick-up locations.
After the scanning procedure, all the cups will be stacked up and sent for the cleaning
process. Coffee cups, integrated with RFID tags, may be tracked at diverse store
counters and close-by series sites.

● Retail Location (Starbucks Shop)

The company said it plans to double the variety of $11,000 Clover coffee brewers in
stores. The machines can hook up with the cloud through a system referred to as
CloverNet, track customer preferences, update recipes digitally, and self-monitor
overall performance so issues may be flagged up. It isn't just coffee makers which are
being given a makeover. The coffee massive is also considering linked refrigerators
that reveal ingredients -- for example, the era that informs baristas while milk has
spoiled. (Osborne, 2013)

● Customers
Starbucks has been the usage of reinforcement mastering technology — a type of
system studying in which a system learns to make selections in complex,
unpredictable environments based upon external feedback — to offer an extra
personalized experience for customers who use the Starbucks® mobile app.

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2. Lean six sigma system improves service quality management

Lean techniques are intended to reduce the time to deliver products to the customer, decrease
costs, and reduce waste while ensuring that the value and customer experience are not
compromised. Restaurants are challenged to deliver hot and fresh food to customers, reduce
waste, manage costs by controlling the purchase of raw materials, etc

2.1. Lean Production in Retail Store:

The challenges for Starbucks with coping with lean are distinct from that of a quick food
chain. Lean processes are known to make processes robotic in nature. However, getting
coffee at Starbucks is an experience that needs to be treated with care. Starbucks employees
are endorsed to have interaction in conversations with customers while taking their orders,
while the same time making sure that customers don’t have to wait in lines for very long. The
idea was to grow the number of beverages each Starbucks worker could make in a green
manner, thus reducing the wide variety of saving personnel leading to cost savings for the
organization. Approximately 24% of the annual sales for the organization is in-store labor
and there was room for development to decrease that number. Scott Hayden, the VP of lean
thinking said “Motion and work are different things. Thirty percentage of the partners’ time is
motion; the walking, reaching, bending”. The following techniques were hired at a Starbucks
location resulting in a reduction of the time to make coffee from more than a minute to 16
seconds.

1. Moving items nearer decreased the moves behind the counter

2. Altering the order of assembly of the coffee also helped.

3. Commonly used syrups were stacked away in an easily reachable place

4. Whipped cream, chocolate, and caramel drizzle were moved toward the delivery area
because it was the last step before serving up the coffee

Starbucks apparently give over 80,000 distinctive mixtures of drinks. However, has a
universal code to keep the track of the drink specifications. The coffee cups are designed in
such a way that permits the cashier to understand and speak each minute element of your
drink to the Starbucks employee preparing your coffee.

Starbucks employees are called baristas. The Starbucks website describes baristas as the face
of Starbucks, who "create uplifting experiences for the people who visit our store and make
best beverages - one drink and one person at a time."

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The illustration above indicates an instance of some drink combinations and the various
methods those combinations can be communicated by the purchaser, understood by the
Barista, and communicated returned to the customer from the Barista: long form, short form,
and various other combinations. Starbucks is in contrast to other coffee stores it creates a
unique experience for customers who should adapt to the Starbucks language. Businesses can
cut costs by heeding the lean workforce principles. The baristas effectively communicate
with one another to ensure customers receive the beverage they ordered through Signal. It
starts with the barista at the cash register who takes the customer's order and writes their
name on the correct size. The barista who takes customer orders relays the order to a
co-worker who then starts the process to make the beverage. Customers can choose several
variations including sizes, flavors, preparation techniques, and how to order in Starbucks'
unique language, customers order and are taken notes directly on the cup which helps the
barista conducts accurately, and also language communication among baristas. Once the
beverage is made, the barista calls out the name on the cup and gives the customer their
finished beverage.

Acronyms help Starbucks employees prepare the right drink and even announce the kind of
drink while serving it up to the customer. This helps in making the customer feel special
because Starbucks has not only managed to concoct your favorite drink but is also able to
repeat your highly customized order. This is a significant process improvement as opposed to
writing down orders in a paper and having to check back regularly to ensure it is the right
combination being asked for.

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2.2. Six Sigma

It seems that the majority of the effort in Starbucks' adoption of lean manufacturing principles
is around increasing the quality of the coffee, more consistent taste outcomes, and reducing
the time it takes to make coffee and serve the customer.

like most queues in restaurant operations, customers arrive based on an M/M/1 distribution or
can be described by a Poisson model with heavy periods in the morning, around lunch, and
perhaps through dinner time

M/M/1: Random Arrival, Random Service, One Service Channel (one cashier)
+ The number of customers in the system is very large.
+ The impact of a single customer on the performance of the system is very small, i.e. a
single customer consumes a very small percentage of the system resources.
+ All customers are independent, i.e. their decision to use the system is independent of
other users.
Looking at the queueing assumptions for the M/M/1 distribution, I can see how (1) and (3)
could be true. But, I don’t believe assumption (2) holds: service time is random, especially
given the complexity of product combinations at Starbucks (Incidentally, making service time
more consistent is part of the Starbucks lean effort – to make service time more predictable).
Moreover, the impact of a single customer could be very large, especially if that customer’s
order was mistakenly made and Starbucks had to fix the order – that type of rework adds an
undue burden to the system

Modeling a restaurant operation queue:

■ λ (lambda) = Arrival Rate, or more specifically, the time between arrivals. For
most queues, we can assume that the arrival distribution can be approximated by
a Poisson distribution; which means that the time between arrivals is not
deterministic, but random.
■ μ (mu) = Service Rate, or more specifically the time for an arrival to be serviced.
■ ρ (rho) = λ / μ
■ C = Number of Service Channels
■ M = Random Arrival/Service rate (Poisson)
■ D = Deterministic Service Rate (Constant rate)
Let’s assume an average Starbucks location gets 240 Customers on a 10-hour day

+ μ = 24 customers/hour
+ the time to serve a customer is 3 minutes (λ = 60 mi
+ nutes per hour / 3 minutes between customers = 20 customers on average per hour).
Average service time would be 60 minutes per hour / 24 customers per hour (μ) = 2.5
minutes on average per service required.

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Given the above, we get:

■ The probability of having zero customers in the system: Po = 1 – ρ

■ The probability of having n customers in the system (where n is greater than
zero): Pn = (ρ^n) * Po
■ Expected average queue length: E(m) = ρ / (1 – ρ)
■ Expected average total time: E(v) = ρ / (λ (1 – ρ))
■ Expected average waiting time: E(w) = E(v) – 1/μ

■ λ = 20
■ μ = 24
■ Average server utilization (ρ) = λ / μ = 20 / 24 = 0.8333
■ Expected average queue length = E(m) = Average number of customers in the
system (L) = = ρ / (1 – ρ) = 0.8333 / 0.1667 = 5
■ Expected average total time: E(v) = ρ / (λ (1 – ρ)) = 0.833 / (20*(1-0.833)) =
0.833 / (20*0.1667) = 0.833 / 3.334 = 0.25
■ Expected average waiting time (Wq or E(w)) = E(v) – 1/μ = 0.25 – (1/24) =
0.2083
■ The probability of having zero customers in the system: Po = 1 – ρ = 1 – 0.833 =
0.1667 or 16.67%

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the probability of 5 customers in line = P(5) = (ρ^n) * Po = 0.8333^5 * 0.1667 = 0.402 *

0.1667 = 0.067 or 6.7%

=> the results above are theoretical and not really accurate because the quick model I created
in the span of 3 minutes doesn’t take into account peak periods, but it gives you and idea of
what is possible. Without context, the results above are really useless, but an interesting
exercise nonetheless.

Here’s the upshot for how to make queueing models helpful for Starbucks (or most restaurant
operations):

The factor for which Starbucks has the most control is the service time – in general, reducing
service time allows for more predictable queueing distribution.

3. Maintain Supplier Relationships

3.1. Sustainable sourcing strategies

By 2030, Starbucks' specific goals include:
Reducing carbon emissions by 50%.
Reduce sprints by 50% through conservation or replenishment.
Reduce the amount of waste going to landfills by 50%.

With an announcement made by Arla Foods, Starbucks has partnered with a farmer-owned
dairy cooperative to continue the leading coffee chain's sustainability efforts.
Currently, dairy emissions account for 22% of Starbucks' global carbon footprint. With this
partnership, over a three-year pilot, the two will work to create an industry-leading

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sustainable sourcing blueprint. The blueprint will support suppliers across Starbucks Europe,
Middle East, and Africa (EMEA).
Not to mention, Arla foods is one of the most carbon-efficient dairy farmers in the world,
producing milk with emissions half of the global average, making Arla a top contender. for
Starbucks to cooperate directly. This is for the purpose of identifying innovative new farming
methods and industry-leading methods for associated emission reductions.
Appreciated by Arla's sustainable research and development work, Starbucks and 14 Arla
farmers will focus on managing the environment, animal health, and welfare while ensuring
farmers' returns. The pilot will be independently validated by a third party who will assist and
advise on the development of industry best practices.

3.2. Applied Information Technology to Create Strategies in Developing

Relationships With Suppliers.

Starbucks is working with Microsoft to develop a blockchain-based supply chain tracking

system and mobile app. From there it is possible to track the supply chain journey of the
beans they buy and the coffee they drink. For example, IBM's blockchain-based Food Trust
blockchain network, launched in August 2017, is used by more than two dozen retailers and
food vendors, including Dole, Driscoll's, Golden State Foods, and Golden State Foods. and
Golden State Foods. , Kroger, McCormick, and Company, Nestlé, Tyson Foods, Unilever,
and Walmart. IBM and Microsoft are not alone. SAP has also launched a blockchain-based
service; it is used by companies like Bumble Bee Foods to track and trace its tuna. Food
vendors add QR codes or barcodes to their shipping labels that can be scanned and entered
into a blockchain database, which becomes a transparent ledger for all participants. Members
can see as shipments move along the supply chain. Pharmaceutical wholesalers and other
companies have also been using blockchain cloud services to authenticate their products and
avoid counterfeit drugs. Just like Starbucks is doing with its beans, jewelry and gem suppliers
are also using blockchain to ensure their stones are ethically sourced and not part of the
diamond trade. . Blood, which used slave labor in war-torn parts of Africa to mine for gems.
Starbucks did not detail when the supply chain and blockchain-based mobile app will go live,
but it said it is currently interviewing coffee farmers in Costa Rica, Colombia, and Rwanda,
"learn more about the question." Their stories, knowledge, and needs in determining how
digital traceability can best benefit them They have partnered with Alibaba and will use
technology developed by Ele. me, which was recently acquired by the retail giant, a food
delivery service built on smart technology, choosing to partner with Alibaba instead of
developing its own delivery service. in China could be a wise move. Alibaba (and its
subsidiary Ele. me) already have a sophisticated distribution network and use AI to increase
efficiency.
-> Through a better understanding of habits and familiarity with customers, Starbucks can
build brand loyalty by offering the right products at the right time and offering promotions. is
personalized. This means they can tailor their product range and marketing strategy to the
video market, using potentially relevant local datasets. Create an advantage in the market and
closely associate with suppliers.

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RECOMMENDATIONS

● Starbucks' increased method in the saturated U.S. market has to focus on getting
additional penetration into untapped rural markets.
● Another growth sector is its packaged coffee packets and iced beverage products.
Starbucks has to construct better relationships with large container retailers to get
premium shelf area and increase the efficiency of this distribution channel.

Currently, the challenges Starbucks' global supply chain and logistics face with the impact of
COVID-19 and its implication in sustaining competitive advantage. Implementing a
step-by-step supply chain transformation scheme to solve this challenge while maintaining
the company's competitive advantages is the best answer. The first step would be to entirely
rearrange the supply chain, which is likely to be unduly complicated. The goal is to simplify
it so that each job can be classified as one of the four main supply chain operations: plan,
source, manufacture, and distribute. The planning process and new product launch might be
included in the planning group, while procurement activity would be divided into two
sections: coffee and non-coffee. All manufacturing jobs would be assigned to the make
functional unit, and all transportation, distribution, and customer service duties to the deliver
functional unit. The transformation plan's next step is to save costs and increase efficiency.
As a result, the sourcing team can pinpoint the expenses, such as material transportation
expenses and the increase in the ocean rate as a result of COVID-19. The manufacturing team
then devises a more efficient delivery mechanism for coffee beans. The idea is to move
toward a more centralized structure, with manufacturing taking place in the location where
the goods are marketed and the pandemic under control. Starbucks may strengthen
relationships between business stakeholders to be continually updated with bookings or any
delays so that inventory can be properly handled, which will help to alleviate the problem of
rising transportation costs. Starbucks may then lay the framework for increased supply chain
sustainability after these supply chain essentials are under control (Kotler & Lee, 2004 )

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REFERENCES
Blanchard, D. 2010. Supply chain management best practices. Hoboken, N.J: John Wiley &
Sons.
Cooke, J. A. 2010. From bean to cup: How Starbucks transformed its supply chain.
CSCMP’s? Supply Chain Quarterly, 4(4), 35-55.
Tompkins, J. A. 2010. Facilities planning. Hoboken, NJ: John Wiley & Sons.
Ru-facts.com. 2022. What new technologies strongly affect Starbucks? – Ru-facts.com.
[online] Available at:
<https://ru-facts.com/what-new-technologies-strongly-affect-starbucks/> [Accessed 17 June
2022].
The Balance Small Business. 2022. How Starbucks Changed Supply Chain Management to
Better Grow the Company. [online] Available at:
<https://www.thebalancesmb.com/how-starbucks-changed-supply-chain-management-41568
94> [Accessed 17 June 2022].
Pro, E., 2022. MBA Agile Management : Starbucks Coffee Company in the 21st Century
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contributor, G., 2022. Supply Chain Putting the Star in Starbucks. [online] Fronetics.
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June 2022].
prezi.com. 2022. STARBUCKS COFFEE SUPPLY CHAIN. [online] Available at:
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Linkedin.com. 2022. Role of Supply Chain Function in Starbucks Coffee by Anesh Soni
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[Accessed 17 June 2022].

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CONTRIBUTION

No. Student’s Name Student’s ID Contribution

1 Đỗ Thị Hoài Ngọc 19071442 100%

2 Nguyễn Phương Thảo 19071501 100%

3 Vũ Thị Ngọc Nhung 19071464 100%

4 Trần Thái Thanh Thư 19071515 100%

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