Value chain and

inventory management
at Starbucks
Background

 The Starbucks journey began with a single store in Seattle in the year 1971 to
become one of the most recognized brands globally.
 Starbucks mission is, per its web site, “to inspire and nurture the human spirit –
one person, one cup and one neighbourhood at a time.”
 Between 1987 and 2007 Starbucks opened on average, two new stores every day.
 Today operating in 83 countries with more than 32K stores.
 Other global brands: Teavana, Seattle’s Best Coffee, Evolution Fresh, Ethos,
Starbucks Reserve and Princi.
 Ethically sourcing high-quality coffee.
CONCEPT OF VALUE CHAIN

 Series of activities or processes which aims at creating and adding value to an

article (product) at every step during the production process.
 Segregation useful and wasteful activities.
 Business aim – Enhance margins, value creation, competitive edge.
 Business activities – primary and secondary(support function).
Starbucks Value-Chain Analysis
 PRIMARY ACTIVITIES

INBOUND OPERATIONS OUTBOUND MARKETING AND SERVICE

LOGISTICS LOGISTICS SALES

1. In house 1. Operates in 83 1. Sale of products 1. Less aggressive on 1. Idea is to make the

procurement to countries. Has more through store itself. marketing. stores third place to
ensure high quality than 32K stores- either 2. Little to no presence 2. Tie up with Apple live after Home and
standards. owned or licensed. of intermediaries in and Amazon’s Alexa office.
2. Deep roast as per 2. Standardised process product selling. for online sale. 2. High end customer
standards, at all the outlets. service to build
packaging and 3. Promoting own customer loyalty.
transportation. brands.
3. Effective supply 4. Example: coffee
chain management. beans are grounded in
4. Ethical coffee the store to create the
growing and aroma and ambience of
sustainability. coffee inside the store.

INFRASTRUCTURE
General support activities like
management, planning,
accounting, finance and legal
support and government
relations.
SECONDARY ACTIVITIES
HUMAN RESOURCE
MANAGEMENT
Most valuable asset of the
company. There is continuous
evolvement of training and
development programs.
Motivation through tangible
and intangible incentives
TECHNOLOGY
DEVELOPMENT
High end technology adopted.
Specially designed German
make coffee vendors used .
Free and unlimited wifi access
to customers making it a
makeshift office.
PROCUREMENT
Procurement from Asia, Africa
and Latin America procuring
excellent green coffee beans.
Fixed-price and price-to-be-
fixed purchase commitment,
depending on market
conditions.
Inventory management

 Operations and inventory mgmt.- key to improved quality of the company

products.
 Inventory mgmt. is central in the overall operations.
 Starbucks inventory – raw material, raw ingredients, processing equipment and
finished goods.
 Inventory management involves specification layout and space.
 Involves what product is to be stored at what level at any given time.
 Starbucks has implemented an ERP system that enables it to track and share
information regarding its products, functions, processes, and activities.
 To adequately manage store level inventory – EOQ system and P-system.
 Curtail stock decline and redundant ravage.
 Inventory ordering and shipments assume 2 ways.
 P – system is used for retail stores.
 P-system used for coffee bean orders and bottled water.
 The EOQ system is used daily to maintain adequate levels of stock.
 Orders placed 7 days before with interim receiving time of approx. 3 days.
 15% over stock of whole Starbucks inventory.
 EOQ placed daily with lead time of 48 hours.
 Computerized system for each store.
 Inventory is replenished from point of sale data.
 Demand is believed to be fairly constant with few exceptions.
 Being in retail industry, have to deal with both product and service inventories.
 The ordering system is also attached to the delivery company serving the stores,
so that preparations for shipments can be made.
 To help ensure the future supply of high-quality green coffee and to reinforce our
leadership role in the coffee industry, Starbucks operates nine farmer support
centers, including our China Farmer Support Center located in the Yunnan
Province of this high-growth market.
 SCOR MODEL
DELIVER RETURN
PLAN SOURCE MAKE

• Procurement • Coffee sourcing • Coffee making • Customer • Customer

• Inventory • Other raw process service. feedback
• Coffee material. • Value chain • Consumables
processing
• Store layout