Starbucks Sustainable Supply Chain Strategies - Case Study Example

How Does Starbucks Develop Sustainable Supply Chain Strategies in Order to Maximize Customer Satisfaction?

Introduction

Starbucks is a big coffeehouse chain based in the United States. The company had started in 1971 in Seattle, Washington, but today it has operations in over 23000 locations all over the world (Starbucks, 2017). It represented the “Second wave coffee” sellers, which tried to distinguish themselves on the basis of quality and distinct taste. Starbucks has also made partnerships and created joint ventures with firms like Hyatt hotels, Pepsi as well as other supermarkets like Safeway to increase its market penetration.

Supply Chain Strategies of Starbucks

Centralization

Starbucks has focused on creating a centralized value creation system. This has helped streamline its operations in their distribution centres spread across many continents including Europe and Asia. Starbucks follows a “one world, one logistics” strategy by implementing a perfect blend of localized knowledge and centralized planning (Starbucks, 2017).

Efficiency: It has developed its very own “scorecard system” to measure the efficiency level of its supply chain operations (Starbucks, 2017). Safety, timely delivery, reduction of operational costs and generating savings on a routine basis are the major criteria used for evaluating the operations.

Digital Technologies: Starbucks has leveraged digital technologies in a way that has allowed it to monitor real-time fluctuations in demand. The major advantage of digitalization is that a company can predict when demand will peak (Hugos, 2011). This gives the firm an opportunity to be ready to meet the challenges. Starbucks has adopted Enterprise Resource Planning or ERP software system by accessing cloud technology. This smarter management of data allows the company to improve its understanding of patterns of customer demand. This also helps predict any requirements or shortages in the inventory. IT-enabled monitoring helps place orders for items that will be needed in a near future much faster (Starbucks, 2017). The globally distributed network of suppliers and retail stores can also be better integrated with the help of digital technology.

Human Resources: The firm has also taken initiatives to make the services more robust yet lean. Savings in operation are possible because of highly skilled professionals (Starbucks, 2017). To ensure a steady flow of high quality talent, the company pursues a policy of graduates from top institutes. The turnover rate of employees at the company is low. This is a result of the handsome compensation as well as attractive incentives that are paid by the firm.

Increased efficiency resulting from the centralization of Starbucks’ operations means that customers all over the world will get the same high-quality products and services from the company.

Supplier Relationship

Starbucks has also improved its relationship with suppliers by developing long-term bonds. The firm establish a benchmark for sustainability called Coffee and Farmer Equity (CAFÉ) (Starbucks, 2017). It is based on the belief that the company can only flourish when its suppliers are financially solvent. Suppliers feel an important part of the supply chain as the company pays them well while sourcing coffee. Such an approach is mutually beneficial for both the parties.

Under the CAFÉ system, the company is able to adhere to sustainable coffee procurement in three distinct ways.

Conservation Coffee – The firm encourages farmers to grow coffee using traditional means. This reduces the cutting of shade trees and replacement by coffee trees on modern, large-scale plantations (Luttinger and Dicum, 2011). The protection of biodiversity is at the heart of the company’s plan.

Soil protection – Starbucks also uses certified coffee beans that have been grown without the use of harmful inorganic chemicals like pesticides and fertilizers (Starbucks, 2017). This helps the soil to remain healthy. The groundwater also does not get polluted because of the harmful chemicals. The company makes sure that the farmers stick to the company policy regarding quality standards, as espoused in the Coffee Sourcing Guidelines or CSG.

Increased visibility and compensation of suppliers – In the past, the farmers who used to supply coffee to Starbucks did not get enough transparency. This has changed dramatically in recent times. Many of the farmers who supply the coffee are from Asian and African countries which have unstable political climate (Jaffee, 2014). As a result, these farmers can often suffer from financial woes (Raynolds, 2009). To reduce their uncertainty, the firm embraced the strategy of compensating them in a transparent manner. Loans were also arranged to help out farmers in countries like Costa Rica. In other countries like Rwanda, there are farmer support centres which provide technical know-how of methods that can reduce production costs (Starbucks, 2017). They are also provided other resources like technologies to produce top quality coffee as well as reduction of fungus infection.

Green and Sustainable Supply Chain

Child Labour - To maintain a good public image, Starbucks also does not associate with any supplier that employs children below the age of 14 (Starbucks, 2017). This move shows the company’s commitment in eradicating child labour. Since many of the countries where from suppliers originate have poor track record in terms of under-age employment (Wu and Pagell, 2011), this move can strike a chord with the modern consumer who is increasingly conscious of the social responsibilities of corporates (MacDonald, 2007).

Recycling – Green initiatives are important ingredients of corporate governance today (Carter and Easton, 2011). As a part of its corporate social responsibility, Starbucks uses recycled cups in all of its stores. Moreover, it also uses aims to recycle the waste that has been generated in their stores.

Green Cups – There is now increasing evidence that customers are becoming sensitive to environmental concerns (Green et al, 2012). Research shows that companies which are using green technology will attract more customers (Sarkis, Zhu and Lai, 2011). Starbucks has responded smartly by adopting several strategies over the years to make greener cups. In 1997, the company had introduced cup sleeves that would have protected customer’s hands from the heat of the beverage (Schultz, 2012). This would have reduced the need of taking two cups and hence would reduce waste. In fact, the firm had even organized a green summit where key players in the company’s supply chain including government bodies, other retailers, suppliers and vendors were present.

Water – Water is an important as well as scarce natural resource. As such, Starbucks has decided to lower the amount of water used in the company. Most of its water is used for making the tea and coffee, while the rest is used for cleaning utensils (Starbucks, 2017). For the latter, the reduction in water usage has come about in the form of more innovative technologies. For instance, the company now uses high pressure air blast instead of water flow from a tap to clean blender pitchers (Starbucks, 2017).

Providing Customer Satisfaction

Ensuring High Quality Products Through Supply Chain Management

The company is capable of providing great worth to its clients. The first step of this process is the procurement of the finest quality coffee beans. The company trains its agents vigorously before they travel to countries in Asia, Africa and other places (Schultz, 2012). It becomes possible to procure the finest quality bean by way of the strategic and long-lasting relationship that is built between the company’s agents and the suppliers. At every step, the technology used is checked to see if it is sustainable enough. However, the checking of the coffee continues at various points of its transit in the trade route. The company also installs GPS tracking systems on the packages so that they cannot be stolen or misplaced (Schultz, 2012). A sample of the beans from the distribution centres is tested for quality for the last time before being packaged. The beans are then roasted and packed in one of its several roasting plants in USA and Europe (Geereddy, 2013). The expectations that the customer holds in terms of quality is maintained through this rigorous process of checking.

The roasting plants also maintain a high degree of efficiency in identifying any possible quality reduction during processing the coffee. For instance, the modern automated systems at the roasting plants are able to keep the temperature within a limit that does not harm the coffee (Schultz, 2012). The firm sees to it that the delivery of coffee beans remains unhindered by any political or economic disturbances in the countries where its outlets and stores are located. In other words, the customers are assured of high quality coffee beans even in the case of unpredictable events. Starbucks guarantees this by developing close links not only with all the nodes of the supply chain but also with important people in governments of these countries and other concerned bodies.

Starbucks reduces the dependence of third parties and puts full control in the hands of the company (Wisner, Tan and Leong, 2014). The coffee that is procured from the suppliers is licensed and cannot be sold at any other store (Schultz, 2012). Therefore, the customers are always served with unique Starbucks quality. Its single-origin coffee range is sold at several retailers across the US.

Extensive Marketing

Starbucks does not rely on aggressive marketing practices unlike some of its peers (Schultz, 2012). Instead of depending on advertising, the main selling proposition of a retail chain lies in the quality of its products and the superior customer service at its outlets (Seuring, 2013). However, the premium coffee seller does use traditional means of marketing at a local level for running specific campaigns about its newly launched products or any special scheme or discount that may be available. Keeping the loyal customer base of Starbucks updated about the latest product lines is the main agenda of the firm’s marketing strategy.

Sustainable Purchasing Practices

Starbucks gives a lot of attention to its purchasing efforts. It is one of the most transparent buyers as it has established stringent guidelines for choosing one group of suppliers over others. It has an internally generated points or rating system based on which only those sellers who have been able to reach 100 points will be eligible to sell to Starbucks (Schultz, 2012). These points are offered on the basis of the labour, technological and other sustainable production practices of the sellers. Starbucks also stresses on variety of flavour, which is why they procure from different regions which have their local variations of coffee flavour (Schultz, 2012). However, once a suppler is able to convince Starbucks of its quality standards, a long-lasting relationship ensues. Starbucks seeks to cement such a relationship by providing financial incentives to its partners, thereby ensuring sustainability of the business. This also helps build the trust over the years and a symbiotic relationship results in the process.

Enhanced Customer Service

The overall purchasing experience improves with direct engagement with customers (Andreani, Taniaji and Puspitasari, 2012). A unique experience has to be created to provide value to the customers (Oliver, 2014). For example, the company had launched a website called mystarbucksidea.force.com where the customers were encouraged to share their opinions and ideas (Schultz, 2012). Research shows that customers are ready to pay higher rates for fairly traded coffee (Yang et al, 2012). Starbucks promotes its coffee by stressing on its transparent procurement policies.

The stores also have unrestricted Wi-Fi availability (Schultz, 2012). This, together with the fact that people are not asked to hurry up and leave after they have finished drinking their coffee, has allowed the stores of Starbucks to emerge as alternative meeting places for friends and office goers alike (Tu, Wang and Chang, 2012). Customers can also order their drinks using the company’s app and can get notified once they enter the store.

Innovative Strategies for Greater Sustainability

Constant innovation in supply chain management is necessary to sustain profitability as well as sustainability (Ashby, Leat and Hudson-Smith, 2012). The innovation with regard to cups show the efforts of the company towards the sustainability through protection of environment. However, not one to remain stagnant, the firm has made significant inroads in several other segments like fast food and entertainment products. It integrates its sales with other entertainment products like music as well as home accessories like cookware. The customers are able to avoid standing in long queues by using internet and mobile services for placing their orders.

Conclusion

Starbucks has invested significantly in its supply chain management practices. Some of these efforts include adoption of green technologies, sourcing from trusted suppliers, providing support to farmers by helping them reduce production cost, among others. The firm also took security in its supply chain operations seriously. It has been able to please customers by delivering on time. It also regularly makes huge savings by reducing costs from one end to another end of the supply chain. All these factors, combined together, have helped pull customers away from its competitors.

Reference List

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