Making effective supply chain transformation is a strategic priority is now one of the strongest ways for companies to provide excellent customer service. Since it is such a massive and complicated effort, each partner – from procurement and manufacturing and even beyond – must communicate and collaborate in order to generate cost savings, control risks, and make adjustments quickly to market changes. At first glance, supply chain comparisons with Starbucks may appear intimidating to the ordinary small or medium - business owner.
Starbucks's sales were falling in 2007 & 2008 due to rising costs and supply chain performance issues. And anyway, the coffeehouse generates over 22 billion dollars in annual revenue while running over 25,000 stores across six continents. And, given that it is expanding its business in China at a rate of one store opening every 15 hours, it shows no signs of slowing down. Starbucks currently runs 3,000 stores in China, with plans to expand to 5,000 channels this year.
Yet, it's only natural that every business or company, large or small, to experience ups and downs. And Starbuck's did as well. But before we get into Starbucks ' essential supply chain management strategy, we must decode what is supply chain management itself. Let's start the day!
What is a Supply chain Management Strategy?
In simple words, supply chain management regulates all processes, involving suppliers to function effectively together with manufacturers to transition a good or service from emergence to the customer's hands, having taken market dynamics into account along the way. Supply chain management (SCM) is the process of optimizing the emergence and glide of a product from raw resources to manufacturing, logistics, and service to the end consumer.
According to David Frayer, Assistant Dean for Outreach and Engagement at Michigan State University's Eli Broad College of Business and instructor in MSU's online Supply Chain Management Certification programs, this is all about enabling a highly customized delivery process: "Organizations and channels work together to move the product by balancing supply and demand across all members of the supply chain," Frayer says.
Why did Starbucks choose a Supply Chain Management strategy?
While businesses of all sizes can learn a lot from Starbucks' technique, also there are essential perspectives that can assist small and medium-sized business owners to take their supply chain operations towards a higher standard. Starbucks' progression is still highlighted as a model for the correction of supply chains despite overwhelming challenges and unbelievable growth. Starbucks was already a powerhouse in the 2000s, with revenue increasing from $4.1 billion in 2003 to $10.4 billion in 2008.
According to James A. Cooke of Supply Chain Quarterly, "between October 2007 and October 2008, for instance, supply chain costs in the U.S. Increased from $750 million to as much as $825 million, while sales for U.S. physical stores for at least a year fell by 10% over that same timespan." This crisis signified the need for a new strategy. Starbucks' fast expansion compelled a heavy reliance on global source management. Outsourcing agreements for transportation, logistic support, and manufacturing services accounted for 65% to 70% of supply chain operating costs.
Starbuck's Supply Chain Strategy
Starbucks' supply chain was then handed over to Peter D. Gibbons, who initially supervised global manufacturing facilities. His first steps were to assess how the whole company was handling stores and to gain a deeper understanding of costs. According to balancesmb.com, Gibbons discovered that only some of all store orders were delivered as promised. Gibbons and his crew then devised a three-pronged supply chain transformation strategy. It would first reorganize and standardize its supply chain, with clearly defined specific roles. Second, it would lower costs while increasing service standards. Eventually, it would lay the groundwork for maintaining and improving supply chain operations in the years ahead.
Simply put, in Starbucks's transformation program, the leadership took 3 immediate steps referred to as 3R's by Takethiscourse:
- Reorganize the supply chain
- Reduce cost to serve
- Replenished long term strategy
Reorganize the supply chain:
In the different phases of the process of 2008, the firm made a significant step toward simplifying and centralizing its subject to varying supply networks. The crew restructured the roles so that each one fit into one of 4 fundamental functional groups: strategy, supply, create, and distribute. These four steps concerned planning, resource management, and delivering orders on time.
Reduce cost to serve:
After the reorganization was done, each functional team was assigned to work on improved delivery of goods. For comparison purposes, the supplying team worked to determine the challenges that were provoking price hikes. It gained a better understanding of what product lines must charge via data analysis. And the byproduct was capable of negotiating deals/agreements. The manufacturing company, on one hand, calculated the response by establishing a 5th roasting plant in the U. S. This eventually lowered costs along with the delivery schedule.
One of the most important delivery benchmarks was order receipt "on time and in full."
A further crucial element of this transformation strategy was the implementation of a weekly balanced scorecard including specific service, price, and perspective approaches with improved etiquettes. This method yields a general understanding of the extended product life cycle, with targets associated with the organization's overall progress.
Replenished long term strategy:
With all strategies in place required to guarantee supply chain successful implementation in the moment and the following days, Starbucks embarked on a responsible hiring process that only the talented employees currently offered assistance to replenish its supply chain, management committee. In addition, the organization is dedicated to onboarding instruction for existing workers. The transformation's outcomes were commendable. It saved a quarter-billion dollars on supply chain costs in the following every two years.
Related Supply Chain Courses:
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- University of Illinois via Coursera
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- Jasmine Bayer via Udemy
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- Korea Advanced Institute of Science and Technology via Coursera
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Final Thoughts
In the end, this brilliant strategy saved Starbucks $500 million in 2009 and 2010. Starbucks made substantial progress, ensuring 100% sustainable coffee and various products, following environmental policy, and launching its Coffee and Farmer Equality program. Starbucks continues to maintain its success by enhancing customer satisfaction, including Instacart service and whatnot.
With Starbucks endorsing other innovative processes at its latest chain stores, this is the incredible success story of Starbucks!
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