Starbucks Global Supply Chain Management

Subject: Case Studies
Pages: 9
Words: 2633
Reading time:
11 min
Study level: Master

Background

Starbucks is a good example of managing extended supply chains; coffee is an exchange commodity which is sold in grains. Usually, when a company needs to buy a specific type of coffee, it can be done cheaper on the stock exchange, where the offer is lower. At the same time, the quality of coffee is almost impossible to check in advance. Starbucks buys only a part of coffee beans on the stock exchange (Richey & Ponte 2021). Often, the company directly negotiates with farmers, including contractual obligations to invest in the development of the enterprise, updating equipment, protecting the environment, and improving working conditions. Such contracts are beneficial to farmers: their payment is constant and regular; they develop products, create stable jobs, improve equipment, invest in fertilizers and seeds (Wiengarten et al. 2021). Cooperation with suppliers and local communities and investments in eco-friendly farming helps achieve social and environmental sustainability in supply chains. And Starbucks gets a noticeable benefit in the long run — as a result, their product has stable quality, delivery, and price.

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The Role of Supply Chain Function in Multinational Company

The complex development of trade processes within the framework of the Eurasian Economic Space makes it necessary to search for new management solutions aimed at optimizing international supply chains. The factor of regionalization and the expansion of markets beyond national borders has acquired a crucial role in global logistics. Starbucks is a successful example of macro logical systems of an intercontinental nature, reinforcing the trend of globalization (Chowdhury 2017). It is much more challenging to track a supplier in another country or on another continent than a company in the neighborhood. Most of the economic activity is becoming global, so long supply chains are the current reality. The longer the supply chain, the more difficult it is to maintain, so reducing the length of the chains is one of the ways to increase sustainability.

Plan For the Effective Functioning of The Supply Chain

Risk Mitigation

It is necessary to improve the risk management system to better cope with difficulties and to use new risk management methods from scenario analysis to stress testing. Due to the increase in implicit risks, the company should pay more attention to improving organizational stability and emergency planning. In unpredictable and ambiguous business conditions, Starbucks needs structures that are resistant to risks at their occurrence (Xiao, Wang & Lu 2020). In such situations, risk managers should actively use the tools of horizon scanning, early warning systems, stress testing, flexible approaches to identifying risks and planning response measures in case of emergencies. It is also necessary to adjust incentive systems taking into account performance indicators.

Customer Relationship Management

The increasing competition in the industrial markets forces companies to strive to achieve sustainable competitive advantages to ensure their effective functioning. When forming supply chains, attention should be focused on the analysis of competitiveness reserves to create and manage the company’s intangible assets. The orientation of supply chains to the consumer is the rule of appropriate behavior of organizations in competitive markets where informed buyers operate. In competitive markets, it is necessary to stay closer to the buyer since competition can change the situation (Kang & Namkung 2017). The organization of an effective supply chain is an essential step towards creating, maintaining, and expanding strong relationships with consumers.

Demand And Inventory Management

The next important objective is the effective management of inventory and demand in the company. Competent planning consists of several stages; the first is the forecasting of demand, which is estimated for each group of goods. To make a forecast, the current sales volumes, unsatisfied customer demand, the volume of available warehouse balances are analyzed (Lombardi, Chidiac & Record 2021). Then, based on the results of forecasting consumer demand, a sales plan is made. Then, to determine the optimal volume of the insurance stock, all factors that affect the level of sales are taken into account. Only after completing these steps, a purchase schedule can be created. When doing this, several critical indicators should be considered, such as the minimum batch volume that the supplier can offer and the cost of its delivery.

Introduction Of New Products

For the company to work successfully, it is necessary to introduce new products into the range, which entails changing the already existing supply chain. In forming a new branch in the supply chain, it is necessary to pay attention to a large number of products. The supply contract occupies a special place in civil turnover, it is an integral part of modern market relations. Competent execution of the supply contract allows to qualify the legal concerns of the parties in the agreement (Herningsih et al. 2019). This way they can apply the norms of laws relating specifically to supply contracts and not to any other contracts. The main component of any contract is its subject (a new product). The list of goods that should be determined by generic characteristics is of great importance in the subject of the contract. It is essential to determine which products will need to be delivered when developing a new menu item.

Procurement Management

The organization and management of procurement activities are aimed at ensuring that the company receives the necessary goods at the right time and at a favorable price. Therefore, procurements one of the most critical functions at Starbucks; particular attention should be paid to the strategic side of supply (Cohen & Lee 2021). This is the process of procurement management, communication, and interaction with external suppliers, the needs and requests of the end-user, planning, and development of new procurement schemes and methods. The potential of the strategic procurement sphere at Starbucks is excellent. Its development depends both on the knowledge of the company’s management about such potential and on the ability to allocate corporate resources effectively. It should be the responsibility of those authorized to manage the supply function to find strategic opportunities everywhere and attract the attention of the company’s top executive management.

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Production Flow Management

The movement of goods in the process of fulfilling received orders is impossible without management. It is carried out by distributing material resources and planning economic relations, and at the same time it requires a specific organization, such as choosing the optimal transportation system. In the process of organization, conditions for the effective functioning of the production logistics system should be created (Zhang & Wang 2019). Supply chain management should ensure constant monitoring of the progress of production orders and have the necessary impact on the logistics system to keep its parameters within the specified limits. It is essential to choose the method of organizing the transpiration of goods, which affects the number of links in the movement of products and the number of intermediate warehouses. For example, the conversion to a transit scheme for organizing cargo flows will decrease the number of links in movement and reduce the volume of work on processing goods.

Transportation And Warehousing Management

The management of the supply chains in the transportation process and the organization of cargo transportation is the next objective considered. Within its framework, the following different tasks should be solved. They are the creation of transport systems, ensuring the technological unity of the transport and warehouse process, choosing a method of transportation, and determining rational delivery routes. The critical role of transportation is explained by the large share of transportation costs in the company’s expenses (Um & Han 2021). Payments for services rendered by transport organizations are carried out using transport tariffs. They include fees charged for the transportation of goods and fees for additional operations related to the transportation of goods. It is necessary to choose the basis for selecting the type of transport optimal for the particular product. The choice should be based on information about the characteristic features of various types of transport. Among the main factors that a company should take into account when choosing a type of transport are delivery time and reliability of compliance with the cargo delivery schedule.

Return Flow Management

The return flow is formed between participants in the supply chain who have concluded contracts with each other within the framework of a direct flow. Thus, the return logistics flow moves along the same chains as the direct flow. The product is sometimes returned to replace it or restore its consumer properties. The company should decide on a strategy for determining whether the product is subject to reuse or it should be disposed (Li et al. 2021). If the goods are sent for removal, then the flow of such goods is already reversed. Also, the category of return flows includes packaging and containers intended for reuse. It is essential to organize the process of planning, organizing, and controlling return flows (Falkenhausen, Fleischmann & Bode 2019). Starbucks has to optimize the process of returns and minimize their number.

Strategy For Working with Intermediaries

The choice of partners in the sales channel is one of the most critical strategic decisions in the organization of sales of the company’s products. By making this decision, the manufacturer practically determines its success or failure when offering an effect on the market. Thus, taking into account the interdependence of the sales channel participants, choosing channel partners should be given particular importance. Following the selection strategy and using the methods of evaluating potential partners, it is possible to reduce the risk of sales activities and increase the efficiency of the sales system. The process of selecting partners for a sales channel can be divided into three stages (Kim & Chai 2017). They are determining the availability of channel participants, conducting an initial evaluation of participants, and a detailed analysis of participants. In addition, it is necessary to evaluate the activities of suppliers regularly. From the point of view of suppliers, the movement of intermediaries can be assessed by several parameters. They include the contribution of intermediaries to the organization of sales, and the participation of the intermediary in making a profit.

Automation Of Current Processes

To achieve the correct organization of processes, which includes integrating effective planning and all participants, it is worth automating the supply system to the maximum. Changes in the supply chain management system associated with introducing new technologies will help regulate the operation of existing technological lines. With their help, it will be possible to create optimal plans about what and in what sequence should be produced, considering the limitations in capacity and the availability of materials. The introduction of a new complex requires high financial costs and time for implementation from any enterprise (Verghese, Koufteros & Huo 2019). First, it is necessary to provide a single information space where all employees can work together. The next step is setting up automation and information analysis; the entire automation strategy should be based on several principles. They are strategic calculated supply planning and the development of a continuous supply chain. In addition, automation will help in tracking market demand, analyzing and building products based on it, and the constant introduction of new sales and distribution channels.

Effectiveness Of Strategies

The form of Starbucks ‘ involvement in the activities on the international market is direct investment; they consist in opening their own subsidiary company on it. The main advantages of this form of ownership include strengthening the relationship with suppliers of raw materials (Li 2018). Thus, Starbucks creates prerequisites for optimizing business processes and standardizing its marketing strategy, thereby constantly increasing its competitiveness in the international market. Gradually gaining experience in the market, Starbucks optimizes profits by saving on transportation costs, expands sales, and conducts marketing events of the same type for all coffee shops (Sreekumar & Chai 2018). Due to establishing favorable relations with suppliers of raw materials, Starbucks delivers products to all coffee shops of its network while observing uniform quality control of the products offered. This policy has led to an increase in the company’s competitiveness in the American coffee market. Starbucks also provides cards for corporate sales, which are provided as a gift to the supplier. This allows to increase the loyalty of the supplier to the brand.

Analysis Of the Information Technology

The entire procurement process at Starbucks is automated, which minimizes the number of miscalculations related to the human factor, and leads to the establishment of strong relationships with suppliers. The fundamental tasks of procurement activities are the determination of the need for goods and the formation of a product matrix, search, and selection of reliable suppliers (Adnyana, Hartati & Sudarma 2020). This allows to maintain a precise regulation of relations with them and eliminate any ambiguities or inaccuracies. In addition, the use of information technologies in the analysis of information about the properties of goods and the delivery process can make relations with suppliers more reliable. The introduction of information technologies into working with suppliers and the automation of each process helps to strengthen ties with suppliers.

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The Role of Procurement

The work of the purchasing department affects all the activities of Starbucks: sales, effective use of working capital, the fullness of warehouses, and the efficiency of the internal supply chain. It is connected with employees of almost all departments — from accounting to the transport service (Azriuddin et al. 2017). In this regard, the company has carefully thought out the organizational aspects of procurement logistics—the primary purchasing model for Starbucks purchases directly from the supplier. This is the most effective scheme from the point of view of transport logistics, which is also characterized by a low level of costs. These features allow to create a single technology for working with all suppliers, form a single information space, and achieve a single document flow, improving procurement logistics quality. Thus, an essential direction of the company is the continuous improvement of information support for procurement logistics. It allows Starbucks to create integrated supply chains that minimize costs, form a single information space and a single document flow procedure.

The Role of Logistics

Logistics at Starbucks is responsible for quality planning; the company managed to create a tool that allows to fully control the transportation process. The company has a confident, positive trend in reducing logistics costs, and a unified logistics system has been established for all coffee shops around the world (Niu et al. 2021). Logistics is of priority importance for this business area, as it ensures uninterrupted, timely, and fast delivery of goods to the consumer. The company’s global trade is constantly developing, so the importance of logistics is overgrowing. Also, Starbucks logistics has a lot of indirect tasks: it also monitors the safety of goods during transportation. High-quality logistics allows to deliver fresh goods to coffee shops that have not lost their presentability and quality characteristics; in addition, the company constantly optimizes and rationalizes logistics processes.

Recommendations

For successful integration of supply chain management, several requirements must be met. This is the support from the direction of the management company, their active participation, the readiness of the staff for changes, and the understanding that continuous changes are inevitable and profitable. There must be a general agreement on the process approach and the allocation of shared resources to the initiating company (Kumar, Mittal & Chu 2019). A large company like Starbucks should act as an initiator of external integration of supply chains based on long-term partnership agreements. The presented methodology of integrated logistics is very relevant for the international economy in the context of globalization. At the same time, it is necessary to consider the basic requirements for each of the potential participants in the supply chain. They are the implementation of the process of internal integration of supply chains at the enterprise and the rejection of the functional structure of logistics management. These measures guarantee the effectiveness of the organization and management of integrated supply chains of products to the world market.

Reference List

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Chowdhury, R 2017, ‘The impact of business environmental factors on organization’s change management process – a study on a multinational company “Starbucks corporation’, Business Chronicle, vol. 1, no. 2, pp. 46-56.

Cohen, MA & Lee, HL 2021, ‘Designing the right global supply chain network’, Manufacturing & Service Operations Management, vol. 22, no. 1, pp. 15-24.

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