Starbucks, Reorganize the supply chain

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With a motive from my favourite iced hazelnut latte, I chose to wrote about the famous Starbucks Corporation. It is a very well-known American coffee company, founded in Seattle in 1971. The company operates 27,339 locations worldwide. Starbucks is distinguishing itself from other coffee-serving venues by taste, quality, and customer experience. It first became profitable in Seattle in the early 1980s and the first Starbucks location outside North America opened in Tokyo in 1996. Nowadays, overseas properties constitute almost the one-third of its stores.

Starbucks is pretty much a household name. But like many of the most successful worldwide brands, it has been through its periods of supply chain pain. During 2007 and 2008, Starbucks leadership began to have serious doubts about the company’s ability to supply its 16,700 outlets and therefore, sales were falling. At the same time though, supply chain costs rose by millions. When the supply chain executive team began investigating the rising costs and supply chain issues, they found that service was indeed falling short of expectations. Problems were included like slow deliveries and poor outsourcing decisions. Starbucks’ leadership had three main objectives in mind to achieve improved performance and supply chain cost reduction. These were to reorganize the supply chain and reduce the cost of serving. In order to meet these objectives, Starbucks divided all its supply chain functions into key groups, known as “plan” “make” and “deliver”. Next, the company set about terminating partnerships with all but the most effective. When the supply chain transformation program was completed, the company had made savings of more than $500 million.

What we can learn from this example, is that in order to make significant and sustainable cost improvements, substantial change must take place. Starbucks had to shake up its third party relationships and increase production capacity. None of the changes took place overnight. These issues were tackled in phases. When it comes to making supply chain cost reductions that stick, each and every avenue must be explored. The only way to see sustainable cost reductions, is to see the big picture from a new angle and be prepared to step outside of the comfort zone.

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