Supply chain management study material pdf

Under normal conditions, Starbucks main product, coffee is in a higher price category than alternatives such as coffee at home, but the share of discretionary spend is usually low and demand usually remains reasonably steady even during economic downturns. Demand fluctuation is however subject to external factors such as deeper economic downturns, pandemic, social unrest, industrial action or targetted social protests.

To avoid a shortage, Starbucks consistently tries to match capacity to demand, which is known as the chase strategy. An exception may be new products on same core theme, eg different flavours of frappucino that do not fundamentally change the underlying product ingredients needed.

Therefore a physically efficient process and SC is more suitable to be implemented in the business model. However, one size may not fit all, in other words, one type of approach may not be the best option suitable for each SC stage. Most of the cycle inventories are beverage-related products, which then determines the order quantity to meet the effective cost structure of the company or economic order of quantity.

There are also seasonal proucts based on mainly same ingredients, and accompanying merchandise products. The differences in the type of inventories mean a different approach to managing them. Management needs to consider the trade-offs between efficiency and responsiveness in designing strategies at both upstream and downstream stage of the operations and SC.

In each stage, it is important to define what is the driver that determines decisions to be made, such as the type of production, the network of facilities, types of inventories, and how the inventories will be managed, transportation, information flow management, etc. The operation and SC process in the context of Starbucks starts from sourcing coffee beans from various plantations worldwide.

In terms of distance between suppliers and market, Starbucks has a lot of offshore suppliers. The coffee beans from various coffee plantations are transported to roasting plants in six locations in the United States, closer to most of its major suppliers in South pg.

At the same locations, a wide range of supporting items for the retail stores are procured and prepared, such as concentrates for beverages, papercups, merchandise, etc. With growing demand in Asia, Starbucks will build another roasting plant in China, integrated as a full facility complex called Coffee Innovation Park. This strategy will allow Starbucks to localize their production process especially with wider opportunities to sourcing in Asia, so that they can benefit from tax incentives and avoid higher tariffs.

In conclusion, this expansion strategy is aimed to achieve the desired response time and logistic cost for operations in Asian countries.

Starbucks caters to a global market and is continuously expanding its presence worldwide. The market consequently becomes heterogeneous which then requires a localized network to enable the company to make final customization such as labeling, designs, etc.

This requirement is fulfilled by having distribution centers that serve retail stores in multiple locations. In terms of production or manufacturing, Starbucks strives to have centralized facilities so that quality and consistency of products can be ensured while enjoying the advantage of economics of scale from having large scale production with one setup.

However, when it comes to distribution, they require multiple and decentralized distribution centers or warehouses to cater to the localized retail shops coffee shops globally. The mass production concept is suitable for Starbucks since the variety of product involved is relatively low and basic but has a large volume. The main activities in their production process are the roasting of coffee beans to be later packed and sent to distribution centers.

Having mass production operations benefits Starbucks with low production costs and standardized control of quality and consistency. Dealing with a large scale of production, Starbucks also needs to adopt a lean strategy in order to identify areas that potentially create waste such as overproduction, waiting time, unnecessary movement, incorrect process, unnecessary inventory, excess motion, and defect products.

The main focus of the lean strategy is to have the optimum level of inventory as a continuous improvement so that other production wastes that are mentioned previously can be avoided. The decision to hire 3PL companies is driven by economical factors after considering the service cost pg.

Starbucks has a performance assessment system that allows them to assess third party logistic companies.

This strict assessment helps the company to achieve better SC management. The visibility of information and data to the SC partners enables the company to manage the SC in a single global system. The concept of information flow in the SC starts from market demand.

The information about how much the market demands will determine the size of orders the retailer makes from manufacturers, then cascades from manufacturers to suppliers. However the size of orders made is normally slightly larger than the initial information received, this is due to each SC unit wanting to achieve better pricing in purchasing economics of scale and to have safety stocks to be able to respond towards fluctuation.

When there is a lack of visibility in this flow of information, it will easily create a bullwhip effect in the SC process. The advantage of being involved in most of the SC stages like Starbucks, is having visibility of information, where normally the information is distorted between different stages of SC.

This can help the company make more accurate forecasting truly by market demand, not just based on orders. This system can potentially be improved by implementing smart SC methods that provide real-time data in logistics and operations, especially given that the nature of the SC management is pull based - driven by demand rather than forecasting.

In this way channel costs are lowered and operation efficiencies can be improved Li X. Since that Starbucks is involved in most of its own SC process from supplier, production, distribution and down to retail level, they have the advantage of being able to avoid many common obstacles around coordination in the SC. For example, the incentive and pricing obstacle by which only one entity but not overall SC stands to benefit, for example an entity has incentive of reducing inventory but eventually burdens the next entity in the SC by having excess quantity.

Additionally, excess materials can also be caused by long lead materials because it increases the tendencies to carry buffer stock to anticipate uncertainties. The lean concept needs to be implemented into various stages of SC management. The flow of materials is the main element throughout the process, it needs to be synchronized to reach the optimum level of distribution. This concept will ensure a maximum and optimum flow of materials between stages production — distribution — retail so that excess materials or inventory can be avoided along with responsiveness and faster distribution.

The company needs to develop a balance between the supplier up to users so that the flow of materials leaves minimum excess unlike in traditional approach where the buffer inventories and obsolete products create waste in the production and SC process. The JIT concept is also known as pull based SC management where the production and distribution is determined more by demand rather than forecasting. However, implementing JIT means it gives little room for disruption such as demand fluctuation.

The management needs to consider the trade-offs in implementing short-term or long-term planning in every stage of the SC since no size can fit all. In this way, they are implementing aggregate planning where they constantly trying to match production to meet demand by using safety inventory and backlogs. From the supplier side, some events can disrupt SC planning as well.

For example droughts, or disease may cause certain beans to be less available. To mitigate this risk, larger inventories can be held, but other strategies such as sourcing from several different plantation areas should be implemented. Comprehensiveness is key for successful forecasting management. For example farmers may be informed of future new products and impact on coffee bean needs. In this way, farmers can start their process to provide the supply of coffee beans and sell it at the right timing and quantity.

Unlike a traditional SC management where the relationship tends to adversarial, this collaborative approach can benefit both parties involved in the SC.

One the quality management methodologies promoted by Deming is to stop dependency on product inspection. This point is relevant with Starbucks where the consistency of products mainly coffee beans is a key factor to the business operation. To ensure the quality of the product being processed, the company needs to have a proper QA procedure from suppliers.

Other things need to be done to ensure quality such as proper training of employees, conducting regular check ups on the roasting equipment, so that the company can reduce inspection frequencies.

This ultimately will save costs because the inspection is non-added value activity. In implementing quality management, it is important to do continuous improvement by doing planning, implementation, checks, and taking appropriate actions to use the previous improvement to plan the next one. Therefore, it is also important to keep on the lookout of areas to be improved, leading to new targets to be achieved. In a retail operation, they have high interaction with customers and a relatively low level of service customization.

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