Starbucks

Reflections Assignment

Starbucks went through a logistical transformation in 2008 when they revamped their supply chain strategy once they realized that the company’s operational costs soared while sales were declining. Between October 2007 and October 2008, supply chain expenses in the United States rose from $750 million to more than $825 million, yet sales for U.S. stores that had been open for at least one year dropped by 10 percent during that same period. Another problem that Starbucks faced was that they were opening up new stores at such a rapid pace, the supply chain expansion couldn’t be maintained. The executive vice president of global supply chain operations said, “We had been growing so fast that we had not done a good enough job of getting the supply chain fundamentals in place”.

The Senior Vice President made several visits to different Starbuck locations to analyze how they could improve the supply chain performance. A cost analysis revealed excessive outlays for outsourcing; 65 to 70 percent of Starbuck’s supply chain operating expenses were tied to outsourcing agreements for transportation, third-party logistics, and contract manufacturing. Outsourcing had been used to allow the supply chain to expand rapidly to keep up with store openings, but outsourcing had also led to significant cost inflation.

A 3 step supply chain transformation was developed and submitted to the board of directors. The plan consisted of first reorganizing its supply chain organization, simplifying its structure and more clearly defining functional roles. Next, Starbucks would focus on reducing the cost to serve its stores while improving its day to day supply chain execution. Once these supply chain fundamentals were firmly under control, the company could then lay the foundation for improved supply chain capability for the future.

The creation of a single, global logistics system was important for Starbuck’s supply chain. The company generally brings coffee beans from...