Contemporary Supply Chain Management - Starbucks and Apple - Case Study Example

Starbucks and Apple

Abstract

The supply chain is important in helping run a business efficiently. The supply chain is essential for a business to be competitive, and to operate profitability. To have an efficient supply chain companies need supply chain management systems to reduce operation costs, manage risk and optimize performance (Simchi-Levi, D., 2005). Companies use different models of supply chain management. It all depends on the type of business of the firm. The supply chain shows the decision-making process in each model and their efficiency to the company goals. The decision process should show strengths and weaknesses. It should also show special conditions due to the decisions, impact of poor decisions and improvements from the decision made. These decisions create the production strategies the firm will employ in its day to day operations. The strategies should be flexible and adapt to firms strategic objectives. The supply chain management systems show the quality status of the process at each stage to achieve the company’s goal and at the same time meet the consumer needs (Handfield, R.B. and Nichols, E.L., 1999). The supply chain gives importance to the views of the consumer, as each model has a communication line to receive consumer demands. Customer demands are met with minimal effect on the operations of the company, and at minimum cost. The main aim of organizations creating supply chain system is to increase competitiveness and remove all organizational barriers. The supply chain helps firms interact with the best partners in this situation outsourcing of components, which are not based on cost alone but other factors like skill and location (Christopher, M., 1998).

Introduction

The supply chain is an entire network entity consisting of vendors, producers, distribution centers and retailers who bring the product to the end consumer (Bowersox, D.J., Closs, D.J. and Cooper, M.B., 2002). The entities can be directly or indirectly interlinked to serve the customer. The chains are linked because; one cannot work without the other. The supplier of raw materials cannot manufacture and the manufacturer cannot be the retailer, he cannot give the consumer what without the input of everyone in the supply chain. Competition only happens through the supply chain and no matter the improvements from a party in the supply he will not be able to make for the deficiency. Supply Chain management is the process optimized in the supply chain to reduce the cost of operations of companies. Companies apply supply chain management models to provide products to consumers that suit the consumer needs. The chain ensures the flow of goods to the end user (Christopher, M., 1998).

This study looks at two different companies with the various models of supply chain management models to the end user. The firms are Starbucks, which uses the integrated make to stock model and Apple which uses build to order model. The integrated model tracks customer demands in real time so as to have an efficient production process will manageable inventory levels because of customer changing needs. The real-time information can be used to modify and develop production plans and schedule. The information is integrated down to the procurement department. The integrated model uses information systems to track and record. An example of an information system is Oracle automated system for manufacturing (GEMMS). The build to order model is where a product is assembled on customers order. This model requires inventory management of all the components of the product. The delivery of the elements in the supply chain is essential for timely delivery of the product. The benefit of this model is that the end user receives customized products specifically for his or her needs (Bowersox, D.J., Closs, D.J. and Cooper, M.B., 2002).

Literature Review

Supply Chain Models

Starbucks uses integrated information systems called Oracle automated system for manufacturing (GEMMS). The system does inventory control using MZP, distribution planning and manufacturing scheduling. Starbuck simplified its supply chain management system dividing it into four chain functions which are the plan, source, make and deliver. The planning department contains new product launches, production planning, and replenishments. The department of origin as the source was categorized into two coffee and non-coffee considering that Starbucks sells a lot of coffee worldwide. The purchase of items such as baked goods, store furniture, paper goods and dairy products were also placed under source. Make department also known as manufacturing department has all in-house and contract manufacturers. And lastly deliver department consists of customer service, distribution centers, and transportation. The planning phase is where they look at the cost drivers of all components of Starbucks. They look at the contracts signed by outsourcing companies, the cost of transporters, shipping costs and cost of each ingredient. This department negotiates for better prices to reduce the cost down and attract the consumers. The manufacturing group is where the roasted coffee beans are roasted and packed for transportation. Starbucks has thirty coffee plants all over the globe. They have four in the United States, one in Amsterdam, twenty-four co-manufacturers in Europe, Asia, Canada and Latin America. This has helped Starbucks reduce the cost of distribution, transportation, and other operating expenses. The process is simplified into one logistic system where coffee is shipped from different countries to six storage sites to the nearest roasting plant. Here the beans are roasted, packed and transported to the distribution centers. The distribution centers later transport to the retail stores. The issue with this kind of system are that has so many division managers and decision-making process is a bit slow. The other issue of this sort of system is that it is based on customer service information which can be falsified creating significant inventories into losses. This type of system has few ethical issues considering everything is automated giving little room for fraud activities by employees. Starbucks can change by outsourcing materials near the retails this include dairy products to reduce the cost of transportation. It can also increase more distribution centers to deliver the roasted coffee and other materials on time. Starbuck uses traditional supply chain where they sell from inventories (Wu, Z. and Pagell, M., 2011).

On the other hand, Apple follows three steps: Order, make and deliver. Apple does not have a warehouse to store its product. Due to this action, it cuts a lot of expenditure on inventories. Apple purchase components from suppliers, ships them to china then the consumer buys it at the Apple store. Apple uses its stores as its distribution channel which is near to the consumer. This process is fast and easy and cuts a lot of intermediary costs that can affect the products price. Being in the computer industry, it is precarious to have large inventories in an industry where a new product makes the previous one obsolete. Apple ships its components via air to their manufacturing plant in China to save on time. Forecasting demand without forecasting technologies is tantamount to losses in a technological advancing world. Apple gets into a long-term agreement with suppliers where they order components as soon as the customer orders. This model has one main weakness that demand might outpace supply leading to a shortage of the product and loss of revenue. Apple uses pull build supply chain where customer orders first. The process is fast, reliable and produces customized products (Thomas, D.J. and Griffin, P.M., 1996).

The supply chain models discussed are good but depending on the type of business. One major factor in the both models discussed is the issue of inventories. While Starbucks needs to have a lot of stockpiles, Apple can’t risk having the inventories stocked at warehouses due technology advancements. All the same one model has a long process for the consumer to receive his product while the other is simplified.

Decision making

Decision making is crucial in a supply chain since it optimizes supply chain flexibility which on the other hand optimizes inventory. Starbucks looks at a number decision-making operations process in its operations. It has applied coffee and farmer equity program in its supply chain. Starbucks has outsourced manufacturers to design of its goods like the mugs and other materials. It also has an efficient process and capacity design the firm has flexibility in their cafes where managers can hire more staff during peak hours. It focuses mainly on large population urban centers. Its decision is based computerized programs in all the operations of Starbucks where for example in manufacturing the roasted coffee beans should not deplete to a certain level, and as soon they are packed. The information is sent to the coffee planning department for more coffee beans making it a continuous process. Apple on the hand has few steps to ensure the consumer gets a quality product. Decision making is easy for Apple compared to Starbucks. Since Apple does not hold a lot of inventories but it rather focuses on product design and developments. If customer orders through its online stores, the order is conveyed to Apple, Apple conveys the message to a manufacturing plant in China which meets all the quality standards. Then China ships to Apple stores where the customer will receive his product. Apple has reduced the number of days from order to manufacture to deliver in an amazing five days (Yu, H., Zeng, A.Z. and Zhao, L., 2009).

Production Strategy

Production strategy is the transformation of a product from a raw form to a product intended for the market. Production strategies depend on the corporate strategy, business strategy and functional strategy. Starbuck production strategy is to meet the ever-changing customer needs on time while Apple strategy is to keep up with advancing technology to meet the client needs. Both companies use different strategies in the businesses. Starbuck has many functional units while Apple has few functional units. The strategies outlined are in line with company’s inventory management and control. The production looks at five core sectors. These are suppliers, buyers, substitutes and potential entrants to create a suitable production line to maintain or increase competitiveness. The strategies should adapt to the user changing needs. Starbucks needs to improve on the delivery of other products aside coffee while Apple needs to expand its marketing department to avoid lack of supplies in the market (Christopher, M., 1998).

Quality

Quality is explained in simple terms as the measure of the excellence in a product or service. Adhering to quality standards gives confidence to the state and consumers that all regulations governing the production of a certain product are met. Furthermore, the products are not hazards to humans aside their capabilities and benefits to consumers. Starbucks and Apple have a record of adhering to strict quality standards set the by the state and in many instances add more measures of their own. Starbucks carefully sources its coffee bean from certified farmers who meet Starbucks level of quality. The program is called Coffee and Farmer Equity program (CAFE). Quality service is encouraged through a friendly environment and servant leadership. While Apple quality management system emphasizes on controls and quality standards. Apple's Senior Vice President Coordinates with eight other Senior Vice Presidents to make sure company’s compliance and quality standards are met. It uses a holistic approach to addressing quality in its operation (Li, S. and Lin, B., 2006).

Consumers

Consumers are the end user of the supply chain. They regarded as the key purpose of the stability of the company. It is a challenge to meet consumer needs more than anything. Due to culture, habits and consumer preferences it has become harder every day to satisfy consumer needs in a product. Firms have developed research departments to research on the ever-changing user requirements (Tan, K.C., 2001).

Research Methodology

The literature study is a methodology developed for operations management research. The primary data was collected from Starbucks and Apple records. Other sources are research institutions, journals on supply chain management, operations research and information from textbooks. Conference papers and unpublished works were not included in the research material. The aim of the literature was to develop an absolute research on supply chain and supply chain management.

Conclusion

Supply chain management is very crucial to the success and growth of any business. From further analysis of the literature review, the models of supply used are focused on cutting costs and still maintaining a quality product in the long run. The overall design affects the decision-making process of the firms and its profitability. The design shows the production methods used to effect and impact in the company and to the end user. Sustainability is an essence in the day to day operations of the firms. Both Apple and Starbucks come out as having highly effective supply chain management systems. This is largely due to their adoption of technology in the supply chain process. Without this, the two companies would find it hard to compete in their respective markets.