Million of people around the world walk into Starbucks to have a morning cup of coffee. Starbucks offers a great customer service, good environment and friendly stuff that help customers in any question or problem with the service. Although the strategies and structure of Starbucks. Is a good model to follow, due to it international success. The good reputation of Starbucks as a café and food industry, it shows the importance of sustainability through high quality product, service reliability and management operations. We will identify and analyze solutions to enhance and improve the performance of Starbucks in our country.
First of all we will take you through shout over view about Starbucks and how do Starbucks maintained their business then we will discuss the key factor why Starbucks become very well known. Then we will discuss Starbucks inventory management process from raw material reaching the hand of the customer .Finally in our project we will show the cost analyses by evaluate the prices using available data also by the strategic cost analysis as well as timing and out sourcing
Starbucks Coffee Company
It’s not a mere a normal cup of coffee that attracts millions of people to walk to Starbucks to have their cup of coffee everyday, but it is that great vision associated with this cup that make people prefer it due, to the culture and principles of Starbucks, its product quality, cheery, friendly environment, and excellent level of services.
So, what the secrets behind Starbuck cooperation’s success? Here is the story.
The history of Starbucks Cooperation
Starbucks Corporation is an American global coffee company and coffeehouse chain based USA. It is a roaster, marketer and retailer of coffee operating in more than 60 countries, with 20,891 stores all over the world, including 13,279 in the United States, 1,324 in Canada, 989 in Japan, 851 in China, and 806 in the United Kingdom. In addition, Starbucks is an active member of the World Cocoa Foundation. The first Starbucks store was opened in 1971, and was named after Herman Melville’s Moby Dick. In 1982, Howard Schultz started working in that store as the company’s marketing officer. Starbucks began providing coffee to fine restaurants and espresso bars. In 1983 Howard Schultz travelled to Italy where he was inspired by the Milan’s very popular espresso bars. He brought this European-styled coffee back to the founders of Starbucks and convinced them to try this coffeehouse concept.
In 1984, Seattle, the first Starbucks Café Latte was served. In 1985 Schultz established his own coffee company called II Giomale, which offered brewed coffee and espresso beverages. In 1987 Shultz acquired Starbucks‟ assets and changes the name to Starbucks Corporation. From 1988 till 1990 Starbucks expanded its headquarters in Seattle to reach to 84 ones. In 1991, Starbucks Became the first privately owned U.S. company to offer a stock option program. In 1993 Starbucks opened a coffee roasting plant in Kent, Washington, as a step in the vertical integration. In 1995 Starbucks introduced its Frappuccino, which contained a mix of coffee, milk, sugar, Flavorings and ice. In1996 Starbucks began their international expansion and opened a store in Tokyo, Japan, which was the first store outside North America. They started collaboration with Pepsi-Cola to sell bottled Frappuccino in supermarkets.
In mid-1987, Schultz bought his employers out and he became the president of the Starbucks Coffee Company. In 1998 it expanded its activity to open coffee roasting plants in Pennsylvania and in Malaysia, New Zealand, Taiwan and Thailand, . In 1999, it began to call for partners in Middle East like Kuwait, Lebanon, and other countries like China and South Korea. Kuwait was the first country that opened Starbucks store in it by making a licensing agreement with trading partner and licensee MH Al-shaya WLL, a private Kuwait family business since 1999. Today Al-shaya Group, recognized as one of the leading and most influential retailing franchisees in the region, operates more than 230 Starbucks stores in the Middle East and Levant region. In addition to its Starbucks stores, the Al-shaya Group operates more than 1,700 other retail stores in the region, providing jobs for more than 15,000 employees of more than 35 nationalities.
In 2000, Starbucks Started to purchase Fair trade coffee, and new stores opened in Australia, Bahrain, Hong Kong, Qatar, Saudi Arabia, United Arab Emirates. In 2001 Starbucks Introduced the Starbucks Card, and new stores opened in Austria, Scotland, Switzerland and Wales. In 2002, Starbucks established coffee trading company in Lausanne, Switzerland, Launched Wi Fi in stores, and new stores opened in Germany, Greece, Indonesia, Mexico, Oman, Puerto Rico and Spain. the year of 2004 witnessed the opening the first Farmer Support Center in San Jose, Costa Rica, and new stores opened in France and Northern Ireland. In 2005-2006, Starbucks acquired Ethos Water, launched the industry’s first paper beverage cup containing post consumer recycled fiber, and new stores opened in Bahamas, Ireland and Jordan. Brazil and Egypt. In 2009, Starbucks opened East Africa Farmer Support Center in Kigali, Rwanda, and new stores opened in Aruba and Poland.
In 2010, Starbucks Expanded digital offerings for customers with free unlimited Wi- Fi. New stores opened in El Salvador, Hungary and Sweden. In 2011, Starbucks introduced Starbucks® Blonde Roast, opened Farmer Support Centers in Manizales, Colombiaand Yunnan, China.and new stores opened in Costa Rica, Finland, India, and Norway. In 2013, Starbucks strengthened ethical sourcing efforts with new coffee farming research and development center in Costa Rica, expanded partnership with Green Mountain Coffee Roasters, and new stores opened in Vietnam and Monaco. So, the total number of Starbucks stores all over the world from 1971 till 2013 reached to more 19,767
The key factor of business growth and sustainability in star bucks through the most important factor that the Starbucks cafe reliable on the ethic factor their diversity like for example: i. they provide the working farmer who process the coffee seed better quality life and you can find this in their mission ii. they provide the children clean water
iii. they built green store
iv. they help the farmer reduce the global worming in the crops v. they make all Starbucks cups recyclable
vi. employee stock ownership plan
they always seek customer satisfaction
take suggestion from customer and feed buck
provide customer service training(product and service information training ,face to face service training ,telephone service training ,billing and managing payment ,talking customer order and handling customer complaints training the telephone compliant service have high importance in star bucks the employee shall talk clearly take the order summarize the customer order give him the price and end up by saying good bye within 10 minuets they prevent loyalty program which register usurer in gift card to give them free free of charge use of wifi or refill of coffee or tea they have automated system to know their demand
they refund the customer within fourteen day if he want to change item he order it before they have positive psychology the staff performance is highly indicator to Starbucks cafe
B-High product quality
Starbucks cafe always insure that the customer will have high quality fresh and clean food and drinks the Starbucks helps to support water sanitation and hygiene the Starbucks cafe provide good highly nutritious and fresh fruit with water as juices the production of coffee
there are two type of seed cleaning and collection
the dry method which the labor collect the seed and let it dry by air and then smash them to remove massive part by hand, the other method wash the selective seed by big amount of water to remove the massive part of the seed and this way is the most using method then , get store in bags as green coffee then the green coffee roasting by heat and temperature to have the needed flavor depend on the coffee type then the coffee grinding then it serve hot normally by adding additional heated liquid like water or milk
They have leader ship management the most important aspect to achieve the compliance is the customer satisfaction the first idea is design the shop then create positive experience they take suggestion and feed buck from customer the Starbucks cafe always seek the optimum profit through implementing market researches they do two type of researches primary and secondary research the primary research gives them over view of the target customer by getting data out of face to face interview questionnaires ,focus on group customer panel the primary research to seek customer preference and demand . the secondary research conduct by internet and articles to discover whether the business is doing good on the country and the weakness area and the strength Because of development pressures resulting from the globalization, and increasing of development of customers ” development waves of works”, through the last periods, starting from the management and goals, achievements, passing with total quality control then administration of the total quality, after that reestablishing business administration, lastly managing of electronic supplying chain.
As a result of above supplying chain for operators and contractors, suppliers it became difficult to convince them in confirmed image. Supplying chain became important phenomenon because of costing which through may the organization achieve what it want to do, the big and new next waves of opportunities may located between the organization and their agents and between the organization and suppliers. This because the administration of supplying relating to the department of information flow and materials, services, finance through any activity by the way which may adding the effectiveness of operations it is relevant to by submitting new tools or changing, modifying known techniques, that because the efficiency is to achieve correct something.
In marketing the supply chain management system means coordination of organizing and strategic operations for usual employment, planning such jobs inside the company and through a series of works inside the supply chain, in order to developing the long range performance for companies, individually and for supplying series as a whole. Targets of supply chain management are:- Increasing of information and at the same time, decreasing store expenses and operating the operation. Finding transparency in the information, decreasing obstacles which may be found. Finding comprehensive aspect for supplying operations.
Development of the continuity of managing materials and information, and finance flow. Decreasing the complexity of works to the maximum range.
Achieving of benefits through cost and time and quality.
The supply chain management performing continual connection and effective
with the following administration: planning, and follow up, including sails, procurements, production andstores. Any company need supply chain management system; in this report will concentrate on discussing the supply chain of beans in Starbucks and in particular United States, then will analyzing the international suppliers and their effect on supply chains the company.
The coffee demand in the United States is very increased, but the risks which Starbucks faces is default of delivery by the suppliers, damaged beans, unexpected demand. Despite the star bucks thought of expected high cost of beans, which may it face still high prices in the normal range. Hence Starbucks will meet 100% of demand which is projected from 2011 -2016. The practices which are used by Starbucks may providing high quality of beans supplying. Also promoting guidelines to guarantee the high quality of beans. High quality considered important factor in supply chain management, in order to ease the process of supplying and processing beans. We find that brazil and Vietnam and Columbia contributed essentially in supplying star bucks the required beans with high quality, and that with market share about 38%, 14% and 12%.
However we noticed that coffee beans prices in 2011 increased more than2010 with about 90%. Distribution network playing very important role in supply chain management system for star bucks, the location is very important too, you should ensure that every supplier is meet 100% of demand. Also, to ensure that every distribution center producing the required number to meet the expectation, Starbucks achieved a lot of such targets and through its supply chain it developed the demand and the process of supplying. Star bucks concerned about the phase starting from transferring the beans from the suppliers into the distribution centers. That point is very important point where it may save a lot of costs which is the company may face. But we recommend star bucks to concentrate and advice the suppliers in order to meet the distribution demands as well, distribution center representing corner stone for star bucks company, it allocated a well cost for such distribution centers for meeting regional demands of retailers.
Star bucks depending on very big base of suppliers who save the appropriate and required amount of resources for that companies, and that benefit push it and helping the company to open new branches in order to expand both its distribution centers and their suppliers around the world.Starbucks using Kraft in the process of distribution since thousandsof years and that putting a big load on the company, according to the study star bucks should saving money by drawing such krafts from the market. Supplying chain in star bucks works to transfer the customer- demand- to the agent may be having non sufficiency in the storing process, until it can achieve the demand of the customer, and changing the agent to retailer, this supplying chain may existing before the internet, the charging through the internet became spread phenomenon in a lot of industries and services, products charged by multiple factories, and services the products can be charged from many factories into the stores of agents this to be restored and transported directly to the end of the stage without to be in the store, the matter which may decreasing time and saves money.
Supplying chain often referred to as values chain, this term reflects that the value added to the product and services when it being produced or through the series. Value chain or supplying is to collect separate works organization, as it formed from two factors for each organization: including the supplying and demand.The demand chain includes sales and distribution as a part of value chain. It is being mentioned that the bio organizing of value chain is the way to create the value itself, through organizing and coordinating the activities in effective image to perform the internal operations, to develop the activities of work networks which created in essential image of new markets. Starbucks performing supply chain through the following:
Managing the chain of supplying as the management of internal supplying chain. Chain management as concentrating on the resources. Chain management as managing the works networks which including the agent in addition to suppliers Star bucks using supply chain planning which depending on the mathematics to help in developing flow and efficiency of supplying chain, also, decreasing the storage to the least amount, this program depending on the accuracy of information in which it being updated first by first. Planning of supply applications is available for the factors or main chain of supplying.Also, the program of planning the needs of materials and resources which is considered effective and important tool of supplying chain. Starbucks depending on the following when using its strategy about the second form which is flowing of information in supply chain, which may be used with better image, through developing the performance when making the following factors available: High quality of resources
Decreased fixed cost
Decreasing cost for the retailer
Changing grade in the demand is decreased
All such factors contribute in the successful achievements for the company
The importance of sustainability in Starbucks Company:
During the process of supply chain management (bean to cup), there are many issues coffee farmers face; including environmental affect and economic challenge. If these issues are not addressed well, it could affect the long-term sustainability.
What is Starbucks retail strategy? Starbucks retail strategy is to maintain customer loyalty, to hire and train knowledgeable servers, to associated products and to educate customers about their special drinks. One of the Starbucks strategies in targeting customers is to feel convenient and relax atmosphere for loyal customers. By encouraging this idea, Starbucks stores consist of electronic equipment and furnished with comfortable benches and seating. While making customers more comfortable and relax, causes them to stay more and pay more to have another cup of coffee or have some pastries and sandwiches.
What makes Starbucks special is in each store; there is a card for customer recommendation. These cards help the management team to keep in touch with what customers recommend for the store products. Starbucks has a guarantee statement “Your drink should be perfect, every time. If not, let us know and we will make it right”. Starbucks continuously takes feedback through direct feedback at the counter or customer connections or a questionnaire. By having a look at customer’s response, it helps the company to determine the importance issues and areas by tracking the performance of customer satisfaction through company community activities, quality products and reliable service.
Source in Origin Countries:
Starbucks company helps farmers to build up their quality of living while establishing a sustainable supply of high-quality coffee by obtaining at signing long-term contracts, outright prices and purchasing from farms and cooperative.
Starbucks Company and producers take an advantage of long-term contracts with suppliers. Farmers are committed an agreeable prices over multiple years. Starbucks Company has the ability to protect the future coffee supplies at predictable cost.
Coffee prices can be agreeable at outright prices or in relationships to the current wholesale price. Today Starbucks favorite choice is to source coffee at outright prices. This provides the reliability and predictability for buyers and sellers.
Medium size farms produce most of the coffee beans for Starbucks coffees. The company visited many of these many of these farms and built up a relationship with the growers. More than twelve percent of out supply was acquire directly from farmers and co-ops, which is confirm that more of purchases price went to farmers.
Starbucks supply chain
Starbucks has a wide range supply chain that covers almost nineteen countries, which it is great to expand its business and also get lower prices for the ingredients to the customer. It has 6 roasting plants, 17000+ stores, 70000+ deliveries per week and worldwide global reach. (figure 1,2). “Peter Gibbons” was hired in 2008 to run and role the supply chain for Starbucks. His achievement was rating the serving stores that the supply chain could do. And to find out the sources of the costs to reduce them and make an efficient improvement. The first transformation plan is making main structures for the supply chain which they are: (figure 3):
You can find that everything in their stores comes from supply chain. It is planning everything from Raw materials to manufacturing to retailers until it reached to the customer (end user). A coffee supply chain is the most complex and unique supply chain and distribution channel with the number of daily deliveries.(figure 4,5). The coffee beans come from Africa, South America and South East of Asia. The most common countries are Brazil, Ethiopia and Ecuador. They are shipped to the storage sites by oceans or air. After that it is moved by trucks to the roasting centres. It has 6 roasting centres with an effective centralized system. The green coffee beans (raw material) are manufactured at many stages: 1- Harvest :
First, picking the beans cherries manually in the small farms or mechanically in large ones. The manually pics only the damaged or ripped ones, but in the mechanically it picks the whole crop (figure). Cropping happening once or twice a year. After that it moved to the procedures or processors – the most important step in supply chain – pulping the coffee beans out of their cherries by using special separation machines. Beans are proceeds in two ways dry method or wet method. Each one has its steps.
* First, the steps of dry method:
1- Sort the cherries which were harvested. In order to separate the damaged and unripe or overripe from the good ones. 2- Wash (clean) the dirt out of the coffee cherries by washing machines. 3- Dry them by spreading the cherries under the sun.
4- Peeling and hulling to remove the upper layer (skin) and the pulp.
5- Storing them to roaster or export (inventory).
* Second, the steps of the wet method:
1- Sort and clean at the same time by putting them in machined filled with water, the floated cherries means that they are damaged, and the sinking one are good.
2- Removing the pulp mechanically.
3- Removing the last layer by Milling.
4-washing them again to remove any sticky thing came out from pulping.
5- Drying them mechanically or under the sun.
6- Storing them to roast or export.
2- Export and import:
Government in some countries is making the export of the coffee beans, while others the private buyers are the one who is making the export. At the import, countries do the test for the coffee beans by tasting and inspecting, and then store them in the warehouses until making a shipment to the roasters.
3- Production ( roasters) :
It means turning the green beans to the final product of beans we are using to make coffee. It includes sorting, roasting, cooling and packaging. First, removing the cracked beans then roast them under a high degree between (350 – 550) for a specific time depends on the required specifications. Cooling is the next procedure by using a cooling system. Finally packaging the coffee beans, there is different typed of it depend on the Starbucks managers choice like (aluminium, paper, etc.).
All Roaster centre make certain that all the beans are going through all the process in the right and responsive way.
The roaster products are distributed to the retailers through wholesalers. Coffee retailers have an expected continuous product supply. Starbucks use many distribution designs which mean there are multiple distribution
channels for them. It sells their products direct retail system, it also provide their products in shopping centres and supermarkets to sell them. Also direct system uses a direct mail selling. When selling to the grocery store, it uses the single selling system.
Starbucks coffee is served directly to the customer with the added value in coffee stores and retail shops. They need to find a location store to allocate the demand, supply and minimum transportation cost.
It must confirm the need of the customers, from the time and the quality of the service. Shipments must be delivered upon agreement (on date). Having a program specialized in transportations is good to satisfy customers and gives high level of benefits and advantages. In transportation shipment (ocean, air) and rucks or vehicles are used to move the product from one place to another. There are some factors that may affect the transportation operation: 1- The cost of Fixed operating such as any related cost with airports or terminals whether the vehicles were working or not. 2- Trio cost – uploading and unloading.
3- Overhead cost – planning cost of the transportation.
Inventory must kept in between any process as a raw material, work in progress products and finished goods, in order to satisfy demands of the customers. Starbucks is using for inventory the P-system and EOQ system. It helps to decrease the losses and wastes. It uses a computer programs to track its inventory. The shipping and ordering system in Starbucks is done by two ways, first with the EOQ, it has two days lead time. The other one is by using the P-system and it is done every week with three days lead time.
* supply chain goal:
The basic goal of the Starbucks supply chain is to insure and provide the availability of coffee at every branch with a reasonable and affordable price.
* Strategies to develop the supply chain:
1- Cooperative farmer’s development. It control and organize the independent farmers and make a collective union called C.A.F.A (coffee and farmers equity. It provides a guideline to support the farmers and lift the equal long term relationships. 2- Increase production and open new markets for special kinds of coffee like espresso. The price of green coffee beans is depending on many factors, such as, weather, economic situation in the production countries. The demand of the coffee depends on customer choice, country region, health level and risks.
Finally, Starbucks is a model of success to follow. Starbucks’s key success of the Starbucks brand is determined by people’s interaction with the Company’s experience, and the culture and values of how they relate to customers. By investing and creating a unique relationship with the staff and getting them to understand that first of all is the primary target to exceed the expectations of the employees and then of the customers. People at Starbucks are never viewed as commodities, but as business partners. Also, The Company’s primarily role or responsibility is to ensure that the organizational culture is compatible with the kind of people that they want to attract and retain. The Company’s motivation to develop the most recognizable brand was also based on the good planning and positioning strategy. These all reasons and others make Starbucks retains its worldwide position, recognized as one of the most successful globalized companies that has created a strong brand and international experience.