Industry
Discuss about the Supply Chain Management of Starbucks.
Supply chain management as per Fahimnia, Sarkis and Davarzani (2015) refers to the entire network of raw materials, people, firms and processes which are responsible for moving products from manufacturers to consumers. Business organisations are dependent on their supply chains to provide them with high quality raw materials which in turn enable them to produce finished products of high quality. The aim of the essay is to explore supply chain management and its role in the business context taking Starbucks as the example. Then the researcher would go on to shed light onto two issues Starbucks face and finally recommend ways to tackle the two issues.
Starbucks belongs to the food industry which comes heavily under the impact of macroeconomic or PESTL effects. For example, the coffee chain has to comply with the food laws made by bodies like U.S. Food and Drug Administration (fda.gov 2018). The international fast food chain comes under economic impacts like changes in the exchange rates of USD to other foreign currency like Euro, GBP and Chinese Yen. The social aspects which influences Starbucks consist of diverse preferences of food items among different customer bases. For example, Muslims do not consume pork while certain religious groups are strictly vegetarian. Thus, Starbucks while acquiring the raw materials in these markets have to incorporate the cultural preferences of the customer segments in the supply chain management (Perrea, Grunert and Krystallis 2015). The fast food giant while operating in Asia offer food items according to the culture and affordability of the Asians. The fast food giant has to comply with various laws and legislations in power both in its home country, the USA and host countries while sourcing raw materials from its supply chains. It has to ensure that its suppliers do not indulge in illegal activities like slavery and child labour (Sanghera 2017). The tremendous capability of Starbucks to adapt its food products to these macroeconomic influences prevailing both in its home and host countries has enabled it to acquire supply chains which spread across the world. The supply chain provides the fast food chain with high quality raw materials like coffee and milk products (starbucks.com 2018). This ability to offer high quality products allows the company to counteract threats from international competitors like MacDonalds. This attributes the coffee chain the high competitive advantage it enjoys in the global market (Poters 5 forces).
Company
Starbucks Corporation is an American company listed primarily on the NASDAQ. The company in an international chain of beverage and fast food having presence in more than twenty companies. The company offers food products like coffee, smoothies, crushers and baked food items. The company earned a revenue of USD 22.387 billion in 2017 which (starbucks.com 2018). A SWOT analysis of Starbucks shows that the listing on NASDAQ and immense revenue generation attributes it with its robust financial structure. The high brand image which Starbucks enjoys globally helps it acquire supply chains all over the world. However, the coffee suppliers which supply coffee to Starbucks are often said to indulge in illegal practices like forced labour in coffee plantations. Starbucks thus by acquiring coffee from them indirectly support forced slavery. This shows that illegal and unethical activities within the supply chain can prove to be a threat to the brand image of international companies like Starbucks (economist.com 2018).
The supply chain of Starbucks follows lean supply chain model. The fast food giant aims to reduce the wastage of its resources and cut down costs. The lean supply chain model enables the company to align its inventory ordering and management as per demand which ensures smooth production of products to meet the demands of customers (Fernie and Sparks 2014).
Changing preferences of customers is an important issue facing the supply chain of Starbucks in the global market. Starbucks is present all over the world with North America and Europe as its main traditional markets. These customers of these two markets share several common attributes as far as consumption preferences and food habits are concerned. However, the fast food giant is also concentrating on Asian markets like China and India. These markets have different cultures which impact the food habits of the consumers. For example, the Chinese customers prefer food products which are related to Chinese cuisine while a large consumer segment of both the markets are vegetarian (Martínez-Jurado and Moyano-Fuentes 2014). This means the company has to offer food items by incorporating these factors while making product strategies for the Asian markets. This means that Starbucks needs to acquire new supply chains in the Asian markets to acquire raw materials to make food products adapted to the tastes of the Asian customer base. An emerging trend among the consumers is increase in demand of low fat and organic food products. This demand of consumers requires Starbucks to acquire new supply chains producing it with organic food products. Thus Starbucks is required to keep on revamping and expanding its supply chain to cater to the dynamic consumption preferences of customers (Silvestre 2015).
Supply chain
Illegal and unethical practices in the supply chain is an important issue in the supply chain management of Starbucks. The suppliers of raw materials like coffee, especially the intermediary suppliers are claimed to practice forced labour on the farms to make farmers produce more coffee (theguardian.com 2018). These suppliers have detrimental influence on the goodwill of the fast food giant. This requires Starbucks to restructure its supply chain to ensure that its supply chains do not indulge in illegal activities.
The third issue the supply chain of Starbucks faces is sustainability. The corporate social responsibility of Starbucks intertwine with its raw materials sourcing strategy. The company sources raw materials like coffee from more than 170000 farmers around the world. It, besides sourcing coffee from farmers also invests towards bringing about economic development among the farmers. This means that Starbucks has to spend immense initial amount to make its supply chain sustainable (Mota et al. 2015). This adds to the supply chain management expenditure of the company which puts huge strain on its financial resources.
Conclusion:
One can conclude from the discussion above that supply chain plays a very significant role in the revenue generation of international fast food companies like Starbucks. The supply chains comes heavily under the macroeconomic influences just like the companies owning them. One can also conclude that though companies like Starbucks own supply chains spanning the world, they cannot control their supply chains completely. The supply chains form the base of their competitive advantage in the global market and the companies like Starbucks require to form strategies to counteract the supply chain issues. The following are the recommendations for Starbucks regarding its supply chain management:
Starbucks in order to match its supply chain management with the dynamic customer preferences should conduct continuous market survey. The company should also use social media websites to gain information about the expectations of the consumers. It should incorporate this information in its product strategy and choose its supply chain accordingly. This will enable it to align its supply chain with the preference of the consumers. This will enable Starbucks to make its supply chain more profitable and sustainable.
Starbucks should take strict actions against suppliers which indulge in illegal and unethical business practices. This is because since, these suppliers are less known in the market, loss of goodwill have less severe impact on their business generation. Starbucks, on the contrary is an international fast food chain which depends on its goodwill to a great extent to generate business. Thus, the international fast food chain should abstain from carrying on business with these illegal suppliers practicing slavery and child labour. The American fast food giant should impose certain ethical parameters which its suppliers would have to qualify to supply it with raw materials. The company using its brand power can put ethical pressure on suppliers to produce raw materials ethically and abstain from indulging into unethical practices. Starbucks in addition to putting ethical pressure on suppliers should also conduct investigations into the actual business practices of the suppliers. The international fast food chain should take legal actions against its suppliers which breach the contract of ethical compliance and indulge into unethical practices.
Starbucks should take steps to strengthen its sustainability and become more environment friendly. The international fast food chain should stress on educating more farmers on growing of crops like coffee using more sustainable ways. The company must recycle its organic wastes to produce organic manure which these farmers would be able to use in agriculture. Moreover, it would enable Starbucks recycle its wastes to reuse it again. This would enable the farmers cultivate more crops which they would supply to Starbucks. Thus, the international food chain should make its supply chain more sustainable by encouraging development of the suppliers.
References:
Fahimnia, B., Sarkis, J. and Davarzani, H., 2015. Green supply chain management: A review and bibliometric analysis. International Journal of Production Economics, 162, pp.101-114.
Fda.gov. 2018. Foods. [online] Available at: https://www.fda.gov/Food/default.htm [Accessed 6 Jun. 2018].
Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers.
Martínez-Jurado, P.J. and Moyano-Fuentes, J., 2014. Lean management, supply chain management and sustainability: a literature review. Journal of Cleaner Production, 85, pp.134-150.
Mota, B., Gomes, M.I., Carvalho, A. and Barbosa-Povoa, A.P., 2015. Towards supply chain sustainability: economic, environmental and social design and planning. Journal of Cleaner Production, 105, pp.14-27.
Perrea, T., Grunert, K.G. and Krystallis, A., 2015. Consumer value perceptions of food products from emerging processing technologies: A cross-cultural exploration. Food quality and preference, 39, pp.95-108.
Sanghera, J., 2017. Unpacking the trafficking discourse. In Trafficking and prostitution reconsidered (pp. 37-58). Routledge.
Seager, A. 2018. Starbucks, the coffee beans and the copyright row that cost Ethiopia £47m. [online] the Guardian. Available at: https://www.theguardian.com/world/2006/oct/26/usa.ethicalliving [Accessed 6 Jun. 2018].
Silvestre, B.S., 2015. Sustainable supply chain management in emerging economies: Environmental turbulence, institutional voids and sustainability trajectories. International Journal of Production Economics, 167, pp.156-169.
Starbucks Coffee Company. 2018. The Best Coffee from Starbucks Coffee. [online] Available at: https://www.starbucks.com/coffee [Accessed 6 Jun. 2018].
The Economist. 2018. Storm in a coffee cup. [online] Available at: https://www.economist.com/node/8355026 [Accessed 6 Jun. 2018].
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