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Chloe Wyse

on 25 February 2015

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Aqsa Javed, Rhona MacMichael, Chloe Wyse and Heena Yadav
Critical Evaluation of Starbucks Supply Chain
Background to Starbucks
What is sustainability?
What is the supply chain?
Raw Materials/Suppliers
End User/Consumer
Conclusion - 3 spheres of sustainability
Originally named Starbucks Tea and Coffee, the first store opened in 1971 in Seattle's pike Place Market

Starbucks has grown from a single store to a multi- national company in less than forty years

Starbucks are currently the premier roaster and retailer of specialty coffee in the world

Background to Starbucks
‘to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.’

Starbucks have opened over 1700 stores in the past two years

In 2013 Starbucks delivered record performance with revenues reaching a record of $14.9 billion

Starbucks have had more than 3 million customers in more than 19,000 stores in 62 countries

Key Facts & Figures
What is Sustainability?
Sustainability can be defined as the successful meeting of present
social, economic and environmental needs without
compromising the ability of future generations to meet their needs

A shift from the importance on shareholders to a needed
balance between stakeholders and shareholders
(Laszlo and Zhexembayeva, 2011).

Companies today have to consider much more than just
environmental impacts!

Can anybody tell us who Starbucks main competitors are?

Starbucks Competitors
Two of Starbucks main competitors are Mcdonalds and Caribou Coffee
McDonald's: Sustainable?
An Energy Efficiency Education Dashboard

An environmental scorecard for suppliers

A successful sustainable fisheries program

Next-generation fryer
Starbucks Vs McDonald's
Starbucks: Overview
Over 21,000 stores in over 60 countries, $14 billion revenue.

Mc Donald’s: Overview
Over 34,000 restaurants in 119 countries; $27.5 billion revenue
Starbucks Values
Main Mission Statement: to inspire and nurture the human spirit – one person, one cup

Environmental Mission Statement: Starbucks™ Shared Planet™ is our commitment to do business in ways that are good for people and the planet.

How do they do it? C.A.F.E Practice

McDonald's Values

Mc Donald’s Mission Statement:
be our customers' favorite place and way to eat and drink. Our worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion.

Values in Action:
Good Food, Good Sourcing, Good Planet, Good People and Good Community.

Are Starbucks &
McDonald's Competitors?
McDonald's - Fast Food Chain

Starbucks - Coffee Company

McDonald's can't be all things to all people
Caribou Coffee
Caribou Coffee was founded in 1992 by John and Kim Puckett

The company owned and operated the second largest non-franchised coffee chain in the U.S (behind Starbucks) with about 300 stores in 12 states

100% Rainforest Alliance Certified
Rainforest Alliance Certified
The most comprehensive sustainability certification developed to date

The certification is built on three pillars of sustainability - environmental, social and economic - and works by setting standards to guide growers and farm operations of all sizes to true sustainable agriculture practices
Caribou Coffee: RAC
“When I started buying coffee more than a decade ago it was an altogether different endeavor. You didn't ask questions about the environment, worker welfare, or prices paid to farmers; or, more accurately, these weren't well-received questions if one did ask them. Through our partnership with Rainforest Alliance we've now been asking these questions for years as we have worked together to minimize anonymity in our supply chain and work collaboratively to improve environmental and social conditions for everyone involved. But it hasn’t been easy, and we continue to face steep challenges.”

Chad Trewick, Caribou Coffee’s Senior Director of Coffee

Similarities between C.A.F.E Practices & RAC
C.A.F.E practices coffee farms ensure high quality coffee
Promote equitable relationships with farmers, workers and communities
Protect the environment
Workers' wages met or exceeded the minimum requirement
Workers health and safety and provide them with adequate living conditions

Caribou Coffee - Rainforest Alliance Certified coffee farms ensure
That the environment and wildlife are protected
Workers receive decent wages and improved working and living conditions
Workers and their families have access to education, medical care and clean water
Coffee is harvested and processed responsibly.

Starbucks - Shared Planet
What is the Supply Chain?
Supply Chains differ from business to business however…

Successful supply chain management is a business aiming to provide the best value to the customer by efficiently integrating, planning and managing all steps in the chain (Basu and Wright, 2008).

Starbucks must continuously reevaluate
their supply chain processes to ensure
competitive success.

Howard Schultz's view on Sustainability
‘The complexity of these times requires, in my view, businesses that complement their main goal of profitability with actions that can help our society move forward in ways that benefit as many people as possible.’ (Howard Schultz, 2013).

Howard Schultz View

So… how do Starbucks bring sustainability into their supply chain processes?
End User/Consumer
Serving the customer, once again, is the top priority for supply chain managers.’ (Veldhuijzen, 2010).
Starbucks are also committed to socially responsible standards for merchandise, furniture and other items found in store

They do this through:
More energy efficient stores and facilities
Conservation of water and energy usage
Front of store recycling for customers
Greener stores
food packaging
reusable cups
Energy Efficient Stores & Facilities
80% of Starbucks greenhouse gas emissions comes from the energy produced in store

In 2001they joined the US Green Building Council to adapt a LEED for retail program

in 2013, 65% of their newly built stores were LEED certified
Merchandise & Food Packaging
Strong Standards for suppliers

Buyers work directly with suppliers who share Starbucks commitment to their social and environmental values

Work with the Global Compliance Programme
Reusable Cups
In 2013, Starbucks launched a $1 reusable cup in the US & Canada and £1 cup in the UK

Offer a discount to customers who bring in their own cups

Goal for 2015 - to have 5% of sales in reusable cups
Starbucks are aware that they can never have full control of the recycling of all of their packaging
Conservation of Water and Energy
Use of water is obviously critical to the operation of the company

Incorporated water and energy conservation strategies into the development of new stores

Filter water at all locations and in 2013 implemented a reverse osmosis filtration system in 503 stores

Serving Local Communities
Starbucks believe that their stores can bring people together by:

Investing in Youth Leadership
Youth Leadership Grants
LeaderUp Initiative
The Starbucks Foundation
So... how sustainable are Starbucks?
Starbucks state that the increased sustainability of their supply chain is to ensure long term sustainability of their business but to also ensure the health of each of the communities within which they are present

So, supply chain is not only about the suppliers, we agree to this by now …

Distribution and warehousing functions will be the final steps in delivering the product to the end customer.

Lot’s of coffee…everywhere A comedian quipped about Starbucks: “I don’t know how fast they are growing but they just opened one in my living room.”
Instant coffee is a 24 billion dollar global market and had no growth or innovation over 50 years.

Starbucks decided to grow and re-invent this commodity. Howard Schultz identified this opportunity to build complementary channels of distribution by integrating the retail footprint.

They currently serve 80 million customers a week and make 2.7 million deliveries per year.

Starbucks have 21,445 stores worldwide - as of today
Many stores - so distribution & delivery is key!
in 1987 Starbucks had 11 stores
Starbucks Distribution Network
Long-term agreements with logistics providers and foodservice distributors e.g. Sysco & HAVI complement the Company-operated retail stores and the network of distribution channels.
Channels include retail and grocery store licensing agreements, wholesale club accounts, joint ventures and direct-to-consumer channels, via mail orders and online. Convenience stores, department stores, movie theatres, businesses, airports, schools and medical facilities.

Outbound Logistics
Higher the number of channels, the greater the company’s market coverage and rate of growth of its sales and this principle is well illustrated by Starbucks.

But, how many marketing channels should a company use to distribute its products and services?

Product/ service quality may suffer
Channel Conflict
Losing market control
So, how is everything shipped & delivered?
Source: Starbucks Annual Report 2014
5 regional distribution centres (DCs) in U.S – out of which 2 are company-owned and 3 are operated by 3PL’s

2 DC’s in Europe and 2 in Asia, all of which are managed by 3PLs…

Distribution Centres
3 PL'S
3PL’s are Third Party Logistics Companies! (we learn something new everyday)!
Involves the use of external companies to perform logistics functions that have traditionally been performed within an organization. The functions performed by the third party can encompass the entire logistics process or selected activities within that process (Lieb, 1992)

3 PL's Working With Starbucks
Licensed Channels
Sustainability is not just about caring for the environment - agree or disagree? (3 spheres of sustainability)
So, what can we make out of Starbucks distribution network?

Reduce carbon emissions – less store deliveries.
Working with innovative eco friendly logistics partners
Building relationships and working together
Ensuring growth does not affect service quality.

-Howard Schultz-
"The man who built the company, left it, came back and saved it"
C.A.F.E. Practice
End of 2005 Starbucks held massive marketing power with 10,000 stores

Opened 4 per day, hired 200 employees

Improve margins Vs Social Change

Teamed up with Coffee and Farmer Equity Practices (C.A.F.E.)

C.A.F.E. Practices
Ensures Starbucks is sourcing sustainably grown & processed coffee
Measured against a detailed set of criteria
Conservation International found C.A.F.E. Practices has benefited over 1 million workers - Latin America, Africa, South America and South-East Asia
(SCS Global Services)
C.A.F.E. Practices
Ensures that Starbucks is sourcing sustainably grown and processed coffee

Measured against strict guidelines

Benefited more than 1million participating farms
Starbucks Coffee has become a giant global company, but what exactly goes into the process from coco beans in a field to a steaming cup of delicious coffee?

Acquired an amazing supply chain that spans across almost nineteen countries

Coco beans can come from one country while milk could come from an entirely different country hundreds of miles away!

Enables Starbucks to expand the company and reach more countries than ever before

All raw materials are sent to roasting, manufacturing, and packaging plants.
How it works...
Not a compliance program, it is a way of doing business - aimed at ensuring sustainability & fairness in the coffee supply chain
Incentives and rewards are given to suppliers who follow C.A.F.E practice guidelines
Minimum prerequisites were set for suppliers, including coffee quality and economic transparency

Meant that suppliers were expected to to illustrate economic transparency on the amount of money paid to farmers
How it works cont'd...
Evaluated not just on performance but also network supply of farms

Farmers rewarded for practices that contributed positively to the conservation of soil, water, energy and had minimal impact on the environment

C.A.F.E. Practices encouraged farms to make sure their workers' wages met minimum wage or exceeded this

Ensure adequate living decision are provided for workers
How it works cont'd...
Suppliers may earn up to 100 C.A.F.E. Practice points

Practices, farms, mills and suppliers must display equitable payments to workers

Scores audited by independent verifier

Scored above 60 = qualify as preferred supplier and would gain preference in future Starbucks purchases

Scored above 80 = qualify as strategic supplier and would earn a sustainability conversion premium of $0.05 per pound of coffee for one year
C.A.F.E. Practices benefits to Starbucks supply chain
Enabled Starbucks to lock in high quality suppliers - incentives to stay

Would boost reputation among other suppliers when venturing into other countries

Supports Starbucks social responsibilities

The verification of cash flows through the suppliers help raised the status of Starbucks supply chain
Boyer (2013)
Starbucks has six roasting centers where the beans are prepared.

These roasting centers make sure every single one of the beans is prepared, manufactured, and packaged in the exact same way and quickly through a series of well-designed manufacturing processes.

Once the beans are prepared, Starbucks has a tedious, well thought out delivery process.

The amount of coffee being deliver each day is astonishing (hundreds of thousands of pounds).
Roasting Centers...
Porters 5 Forces
Thanks for listening!
Any questions are welcome
Downside to C.A.F.E. Practices
Dub Hay, Starbucks vice president for coffee procurement called the changes in the developing areas "The Starbucks Effect"

However many farmers and communities living in these areas had not seemed to reap the benefits of 'The Starbucks Effect'
Starbucks marketing and websites
show the change they are making,
however many people are not seeing
the changes themselves.
(Boyer, 2013)
• Alley, T. (2011). ‘Just how sustainable is Starbucks? New Logo, New Waste.’ Available at: http://www.triplepundit.com/2011/01/sustainable-starbucks-new-logo-new-waste/ [Accessed 16th February 2015].

• Basu, R. and Wright, N. (2008). ‘Total Supply Chain Management.’ Elsevier.

• Boyer, K . (2013). Behind the Scenes at Starbucks Supply Chain Operations it’s Plan, Source, Make & Deliver. Available: http://www.supplychain247.com/article/
behind_the_scenes_at_starbucks_supply_chain_operations. Last accessed 14th February 2015.

Brizek, M. (2013). ‘Coffee Wars: The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts.’ Journal of Case Research in Business and Economics. 5: 1-12.

• Chayner. (2010). Starbucks: Brewing a Successful 3PL Relationship.Available: http://www.ohl.com/news/2010/08/starbucks-brewing-successful-3pl-relationship. Last accessed 14 February 2015.

• Cooke, J. (2010). From bean to cup: How Starbucks transformed its supply chain. Supply Chain Quarterly. Quarter 4 (4), p1-5.

• Eco Strategy Alliance. (2010). Sustainability at Starbucks: Thinking outside the cup. Available: https://vimeo.com/6281315. Last accessed 12 February 2015.

• Gobble, M. (2012). ‘Innovation and Sustainability.’ Research Technology Management. 55(5): 64-66.

• Kiron, D. et.al . (2012). Sustainability Nears a Tipping Point. MIT Sloan Management Review. 53 (2), p69-74.

• Laszlo, C. and Zhexembayeva, N. (2011). ‘Embedded Sustainability: The Next Big Competitive Advantage.’ Greenleaf Publishing Limited: California.

• Lee, H. (2008). Embedding sustainability: lessons from the front line.International Commerce Review : ECR Journal. 8 (1), p10-20.

• Lieb, R. (1992). The Use of Third-Party Logistics Services by Large American. Journal of Business Logistics. 13 (2), p29-42.

• Loxcel Geomatics. (2015). Loxcel Starbucks Map Showing 21,445 Stores. Available: http://www.loxcel.com/sbux. Last accessed 15 February 2015.

• Philip Kotler. (2009). Distribution and channels: Kotler on marketing.Available: http://www.marsdd.com/mars-library/distribution-and-channels-kotler-on-marketing. Last accessed 10 February 2015.

• Pagell, M. and Wu, Z. (2009). ‘Building a More Complete Theory of Sustainable Supply Chain Management using Case Studies of 10 Exemplars.’ Journal of Supply Chain Management. 45(2) 37-56.

• SCS Global Services . (2008). Starbucks C.A.F.E. Practices. Available: http://www.scsglobalservices.com/starbucks-cafe-practices. Last accessed 14th February 2015.
• Starbucks Annual Report (2014). ‘Fiscal 2014 Annual Report.’ Available at: http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome [Accessed 28th January 2015].

• Schultz, H. (2013). ‘Fiscal 2013 Annual Report.’ Available at: http://news.starbucks.com/uploads/documents/Starbucks_Fiscal_2013_Annual_Report_-_FINAL.PDF [Accessed 26th January 2015].

• Starbucks. (2014). Starbucks Annual Report - 2014. Available: http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual. Last accessed 6 February 2015.

• Starbucks (2015). ‘Company Information.’ Available at: http://www.starbucks.com/about-us/company-information [Accessed 7th February 2015].

• Starbucks (2013). ‘Global Responsibility Report Goals and Progress.’ Available at: http://www.starbucks.com/responsibility/global-report [Accessed 28th January 2015].

• Starbucks (2015). ‘Our Heritage.’ Available at: http://www.starbucks.com/about-us/our-heritage [Accessed 7th February 2015].

• The Telegraph Online (2011). ‘Forty Years Young: A history of Starbucks.’ Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8505866/Forty-years-young-A-history-of-Starbucks.html [Accessed 16th February 2015].

• Trkman, P. et. al. (2007). Process approach to supply chain integration. Supply Chain Management. 12 (2), p116-128.

• Veldhuijzen, R. (2010). ‘Supply Chain Customers Back on Top in 2010.’ Supply Chain Europe. 19(3): 10-11.

• Webb, A. (2011). Starbucks’ quest for healthy growth: An interview with Howard Schultz. Available:
http://www.mckinsey.com/insights/growth/starbucks_quest_for_healthy_growth_an_interview_with_howard_schultz. Last accessed 12 February 2015.

References Cont'd...
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