Wednesday, June 16, 2010

Starbucks Corporation: Developing a dynamic, customer centered supply chain

Developing a competitive advantage
Starbucks management knew that they needed to cement the supply of a resource vital to their operation, Arabica coffee, if they where to sustain their huge amount of growth. They wanted to do so responsibly and effectively. To do this they partnered with Conservation International1, an environmentally centered nonprofit. Together they developed what came to be known as C.A.F.E., a set of points based requirements that would be used to award future coffee bean purchases.
Farms caught on quickly and in some cases completely changed their growing patterns. Coffee farms where given Preferred status if they attained 60 percent and those farms above 80 percent received a $0.05 per pound premium. The best farms where awarded contracts that ensured that Starbucks would buy all they could produce.
The standards that C.A.F.E. brought to Starbucks added to the competitive advantage that they had been refining for years. The advantage of having an earth friendly procurement process outweighed the increased cost of their product has been seen. Sales grew and brand recognition soared. It has become an advantage in that they have a positive source of the much-needed coffee bean. The visibility that C.A.F.E. gave to Starbucks into their supply chain gave them the ability to develop lasting relationships.

Recent Struggles
While working to cement their global supply of coffee Starbucks needs to pay close attention to the ramifications of peering into 2nd and 3rd suppliers. Because many suppliers are processors that pull raw beans from many farms, they may be put off by an attempt to view past them into the supply chain. This becomes more of an issue as close competitors of Starbucks’ gain ground. Once the supply chain has been developed it is easy for a supplier to switch to providing the same product to another company, especially since coffee prices are set at a global level. The fear of being cut out of the equation may spur some processors to seek agreements elsewhere. Further it would be impossibly hard for such a corporation to adapt their management style to the relatively relaxed atmosphere common through Central and South America. The benefits of such a strategy quickly evaporate.
Starbucks has struggled in recent history. With low numbers and an emerging base of competitors, they are being faced with the necessity of redefining their product yet again. In at least one European market they have had to scale back operations. Complaints of substandard product have resulted in big losses for locations in Ireland, where competition is especially fierce2. Starbucks will be closing upwards of 100 stores in the hope of re-emerging into those markets in the near future.

Looking Forward: Focus on the other side of the supply chain
Amid this fierce competition, Starbucks has decided to focus on giving the customer what they want. In a recent interview3 C.E.O. Howard Schultz said that the trick will be to focus on the people involved forward in the supply chain. They will begin offering free Wi-Fi access in all their locations shortly.
Starbucks faces many challenges and barriers as it works to increase the market share of it’s brand; language and location being among the top concerns.
Customers in Ireland complained about their coffee being bitter. Does management know what this means? If they are supplying a universal product why are people in Ireland getting bitter coffee while everyone else loves it? Looking backward the supply chain is not muddled by vernacular but by the dominating language of the area. When pressing for higher output Starbucks will need to be careful not to burn bridges. Expert translators and even local agents should be used to provide an insiders viewpoint into situations that may arise.
Simple geographic situations arise as well. People in Ireland may simply want to support an Irish brand and the idea of a brand that is managed from England may be a turn off. Similar conflicts may arise in coffee producing countries.

2 comments:

  1. Here Here! I was just wishing the other day, as I looked at your long-ago post, that I had a MikeGripe to read. I always enjoy your passionate point-of-view!

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