Global Supply Chain of Starbucks - Essay Example

Global Supply Chain of Starbucks Contents Introduction 3 International Strategy 3 Global Supply Chain Strategy 6 Application of strategy on global supply chain elements 8 Integration amongst elements 10 Recommendation 11 References 13 Introduction Starbucks Corporation is a global coffee company, having its headquarters in United States. It is the biggest coffeehouse organization and operates across 63 countries with 21,160 stores. The company basically serve cold and hot beverages, microground instant coffee, pastries, snacks, full-leaf teas and whole-bean coffee. As per financial year 2013 the company has secured high revenue margins of US$ 14.89 billion. In this study internationalization strategy of Starbucks shall be highlighted along with its global supply chain strategy in the new market of Lithuania. International Strategy There are different strategy models which can be applied to Starbucks in order to analyze their current situation and steps to be taken for future internationalization. Figure 1: Strategy Models As per the five forces analysis, there is intense competitive rivalry present within the industry along with high bargaining power of suppliers. The core competency of the firm is its high quality product with exceptional customer service. According to game theory, the company can gain temporary advantage through focusing on unique selling proposition and staying aligned with customer demand of Lithuania. Dunning’s Eclectic paradigm is such theoretical framework that helps to define competitive advantage gained by a company. It states that monopolistic advantage supports a firm operating abroad to overcome prevalent disadvantages in foreign markets. There are two forms of advantages as per this paradigm such as location advantage and ownership advantage. Learning theories highlight psychic distance paradox as proposed by Lane and O’Grady. According to this theory, there exist some features in host country and operating country which facilitates business operations or results into complete failure (Ulwick, 2005). On the other hand, network theory indicates that commitment and trust are critical aspects for achieving success and growth. Learning and trust are further complimented by commitment, risk, control and uncertainty. Figure 2 clearly states that there are four kinds of strategy which can be chosen by a company in terms of business strategic implementation. Figure 2: Strategy Selection As per figure two there are four strategies based on local responsiveness pressure and cost reduction pressure. They are global standardization strategy, transnational strategy, international strategy and localization strategy. In case of Starbucks the best strategy which can be incorporated is internationalization strategy. This would enable the firm to expand over larger geographical area and acquire high profit margins. International strategy is all about implementing best possible strategy to establish a strong market position in foreign country. The four possible international strategies for Starbucks are joint ventures, franchising, exporting and acquisitions (Wintzer, 2007). Figure below represents the shift of Starbucks from one strategy to another. High Starbucks Internationalization Strategy Product Diversity Low Low Market Complexity High The above figure clearly states that Starbucks has shifted from its international strategy in order to acquire higher percentage of market share. The shift in its strategy is majorly because of market complexity and demand towards new products or services (Lasserre, 2012). For instance, Lithuania is an emerging market for coffee house companies and offers immense opportunities to Starbucks. Franchising strategy shall benefit the company in terms of reducing operational risks and overall costs. Global Supply Chain Strategy Starbucks encompasses complex tasks from product manufacturing to delivery at retail stores. The company is inclined towards global resource span where it acquires coco beans from one country and milk from another distant location. This supply chain strategy enables the firm to spread its operations across many locations. Starbucks Coffee has set its brand image in context of supplying superior quality coffee to all its customers. The raw materials that are gathered by the company are later transported to manufacturing, packaging and roasting plants (Chopra and Meindl, 2007). Global distribution of Starbucks can be well explained with the help of a map given in figure3. Figure 3: Global Distribution (Source: Schultz, 2012) Processing plant and coffee plantations of the company are located across the globe. These are the sources for acquiring raw materials and then producing final products. Lithuania is a completely unknown market for the company and hence franchising strategy would prove to be most appropriate for long-term growth and success (Radhakrishnan, 2001). Global supply chain strategy for the company would be to focus on coffee plantations in Palestine and Brazil, and supply coffee beans to nearby locations of Lithuania. These beans will be roasted in processing plants set up at Lithuania and supplied to franchisee’s located across the region. Northern Europe can be considered to be the source of cups and sugar for the company. There are a total of six roasting plants of Starbucks (Patton, 2006). However operational costs being saved by the firm due to franchised stores can be transformed into establishing a roasting plant at Lithuania. Application of strategy on global supply chain elements There are five basic elements of global supply chain like facilities, inventory, transportation, information sharing and procurement. The global supply chain strategy of Starbucks is well aligned with reducing costs and increasing efficiency. Strategic fit map outlines the position of the organization in global context. The above figure clearly states that the company’s position is between responsiveness spectrum and implied uncertainty spectrum. Decentralized facilities shall be incorporated to gain economies of scale. Manufacturing process is initiated at roasting plants and then roasted coffee beans are supplied to store locations with the support of third party logistics (Michelli, 2006). The strategy can be effectively applied to inventory element whereby required inventory cycle shall be maintained and lead time will be minimized. Safety inventory will be processed at franchised stores on basis of market demand trend. Transportation mode is another critical factor since roasted coffee beans need to be transported to retail outlets in specified time frame. Road transportation will be utilized, whereby coffee beans, sugar, milk and paper cups would be delivered through trucks. Majority of the raw materials shall be outsourced except for roasting mechanism of coffee beans to be held nearby Lithuania. Information sharing would focus on demand forecasting planning as per global supply chain strategy (Sadler, 2003). There will be proper integration of information so as to ensure that there is information flow across all departments. It would be based on pull strategy since market demand at Lithuania will influence production and marketing activities. Starbuck’s global supply chain strategy states that multiple procurement activities will be implemented. This is simply because coffee beans, paper cups and sugar would be acquired from different locations. Outsourcing activities will gain more importance within supply chain of Starbucks Coffee. The transportation mode most suitable for the company is road transport mainly with the help of trucks or rail. This form of transportation would help the company to gather raw materials in least time possible and deliver it to retail outlets. Integration amongst elements Supply chain elements have to be well integrated in order to deliver appropriate results. Manufacturing facilities whether centralized or decentralized are closely associated with inventory control. Transportation activities are dependent on the inventory level. Demand forecasting would initiate investment of a company towards production and transportation facilities. On the other hand, procurement activities facilitate production, inventory control and transportation (Leeman, 2010). It can be stated that information sharing amongst all units reduces time and increases production efficiency. Global distribution network of Starbucks has been outlined in figure2. Figure 4: Starbucks Network Design (Source: Burks, 2009) The company is centred towards decentralization manufacturing process in which processing plants and coffee plantations are located in different locations. Starbucks maintain proper inventory in order to meet market demand. The company is able to address customer demand due to efficient manufacturing process. Transport facilities are aligned with inventory cycle since in least lead time products has to be delivered in retail outlets. Procurement of raw materials through outsourcing is well implemented due to information sharing amongst different sectors. This technology enabled information sharing even facilitates smooth flow of business operations (Kumar, 2007). The global supply chain of the firm can be enhanced through expanding their supply chain operations. Starbucks till date has adopted best possible measures in terms of effectively connecting weakest and developed countries. It would support the company to expand over wide geographical areas and secure high profit margins (Chan and Lee, 2005). Recommendation Lead time should be as less as possible since excess inventory levels in the company would increase overall operational costs. The goods would be delivered to shops within time span between 7 to 8 hours. A distribution centre shall be located nearby Lithuania so as to facilitate rapid distribution to retail outlets. Lithuania is good for Starbucks simply because there is less number of players within the market place. Uppsala learning theories states that religion affects lives of individuals. The extent to which women or men possess similar opportunities makes them more open-minded. Starbucks would be able to gain strong market position through outlining and leisure and entertainment facilities that it provides. It is highly recommended that the company should focus on delivering exceptional quality and providing an appropriate store ambience. Leas time needs to be kept less so that high levels of inventory do not increase overall costs. During internationalizing the company can shift its supply chain operations to nearby locations, in order to reduce overall operational costs. References Burks, M., 2009. Starbucks. USA: ABC-CLIO. Chan, C. K., and Lee, H.W.J., 2005. Successful strategies in supply chain management. Pennsylvania: Hershey. Chopra, S., and Meindl, P., 2007. Supply chain management: strategy, planning, &operation. New Jersey: Upper Saddle River. Kumar, S., 2007. Connective technologies in supply chain. New Delhi: CRC Press. Lasserre, P., 2012. Global strategic management. Singapore: Palgrave Macmillan. Leeman, J. J. A., 2010. Supply chain management: Fast, flexible supply chains in manufacturing and retailing. Germany: Book on demand. Michelli, J., 2006. Starbucks experience. New Delhi: Tata McGraw-Hill Education. Patton, J. D., 2006. Logistics: Technology and management the new approach. New York: Jamaica. Radhakrishnan, P., 2001. Logistics and supply chain management. New Delhi: Allied Publishers. Sadler, P., 2003. Strategic management. London: Kogan Page Publishers. Schultz, H., 2012. Pour your heart into it: How starbucks built a company one cup at a time. New York: Hachette. Ulwick, A. W., 2005. Business strategy formulation: Theory, process and the intellectual revolution. Westport, CT: Quorum Books. Wintzer, E., 2007. Global competition and strategic management. Germany: GRIN Verlag. Read More