BUS-FP 3022 SCM Assessment 3 PDF

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Summary

The assignment required to analyze the supply chain management of any company and its business models. Then, compare the company's supply chain management with another company and challenges involved in the process. ...

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Running Head: Forecasting and Planning

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Forecasting and Planning

Mike Spencer

Capella University

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Starbucks is hands down one of the most successful business in the world. But they did not become this way due to just extreme luck. It took many different people to come together to create this successful corporation. One of the key aspects to Starbucks success is their supply chain strategy. It has been hailed as one of the top in the world, and by diving more in depth into their supply chain model, one can definitely understand how it has become so successful. Starbucks Business Model Starbucks business model can be broken down into many segments: 1. Customer Segments – Starbucks has what is considered a mass market business model which includes basically anyone who loves coffee from students to business professionals to someone just needing a quick pick me up. 2. Value Proposition – anything that makes Starbucks appealing to customers. In the world of Starbucks those are innovation, accessibility, convenience, and brand status. a. Innovation – Starbucks always keeps its competitive edge by being the leader in product innovation. For example, when the Pumpkin Spice latte was introduced, 150,000 people visited the store the following two days which caused a market share increase by roughly 30 basis points (Team, 2016). When McDonald’s and Dunking Donuts launched the same coffee a week later, they saw their shares recede. b. Accessibility – Starbucks has a large number of stores in many locations which allow for it to be accessible to many customers. The products they sell also allow them to

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increase access. Products such as tea, smoothies, breakfast foods, all give customers many options to choose from. c. Convenience – Starbucks offer many different products and services to make customers lives more convenient. To a mobile app that allows customers to place orders on the go, to access to Wi-Fi at their locations, Starbucks has become the place to be between the home and office. d. Brand status – Starbucks has won many honors, including recognition as one of the “World’s Most Ethical Companies” by the Ethisphere institute for 10 years in a row, as one of the “Most Admired Companies in America” by Fortune for 13 years in a row, as “Retailer of the Year “by Visual Merchandising and Store Design and as one of the “World’s 50 Most Innovative Companies” by Fast company (“Company Starbucks”). The many awards Starbucks hold and the many years they have held them, has definitely shown their brand status. 3. Channels – Starbucks has their own stores as well as sells products through many stores, retailers and its website. Promotes their offerings through social media and their loyalty program. 4. Customer Relationships – Starbucks have customers that have been around for a long time and are loyal to the brand. 5. Key Activities – Marketing, research and development, and supply chain management.

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6. Key Partners – Coffee producers, outside trading companies, and exporters. Uses national, regional and local sources for food products. 7. Key Resources – Network of farmer support centers that ensures the supply of good quality coffee as well as their facilities, the many people they employ, and their brand which is known worldwide. 8. Cost Structure – Fixed expenses such as administration and store operations, cost of sales, and people costs. 9. Revenue streams – The sales they make from selling their many different products. Starbucks Supply Chain Strategy vs McDonald’s Starbucks has what is known as a vertically integrated supply chain which means the company is involved in every step of its supply chain process. Starbucks has over 300,00 coffee growers worldwide and works with them directly believing that this interaction with the farmers will result in all of its coffee beans having the same quality and flavor standards. Starbucks is only committed to selling ethically sourced Fair-Trade coffee. This close relationship and frequent communication with the farmers allows the companies supply chain to be less susceptible to any major disruptions. After the coffee beans have been picked and packaged, truckers take the beans to ocean liners that ship the beans to storage sites in the U.S. and Europe. In these facilities is where the beans are roasted and then ship to Starbucks distribution centers. By using only a certain number of these facilities, Starbucks is better able to closely manage them and ensure that the coffee taste the same in all of its retail locations. This also ensures that

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the distribution centers receive the product they need to fulfill orders and make weekly deliveries. Starbucks relies heavily on digital technology to help manage its supply chain. The automated information system that the company uses allows them to monitor demand, how much inventory they have on hand, and being able to schedule employees in real time. With this information, Starbucks can plan and adjust operations as needed. Starbucks simple structure and management tools, as well as its use of technology, allow the company to achieve a high level of efficiency and agility, both of which are key to organizational success (“Supply Chain Putting the Star in Starbucks”, 2017). In comparison to Starbucks, McDonalds has a horizontal supply chain that is 100% outsourced compared to Starbucks who has a vertical supply chain and is involved in every step of it. A horizontally integrated supply chain is a model whereby companies acquire or merge with industry competitors to achieve competitive advantage through economies of scale and scope (Fresard et al., 2014). A horizontal supply chain means supplier-buyer relationships are highly important when it comes to the supply chain. By having those close relationships within the supply chain, they are able to look more closely at the relationships between the many different entities that incorporate it. Both Starbucks and McDonalds believe heavily in the relationships with their suppliers when it comes to being able to achieve Supply Chain success largely in part to those relationships. McDonald’s largest distributor, Marin Bauer company LLC, has had a relationship

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with them since 1956. They now deliver supplies to almost all of McDonald’s 15,000 locations in North America (Laurent, 2017). The strategy behind McDonalds’s supply chain is known as the three-legged stool. The stool consists of McDonalds’ employees, owner/operators that run the restaurants, and McDonalds’ supplier partners. Their belief is that the stool is only as strong as all three legs. For one to prosper, they all must prosper. When decisions are made, they are made for the stool as a whole, not just for one. Starbucks Supply Chain Challenges One of the biggest challenges facing Starbucks supply chain is climate change. Warmer temperatures and changing rainfall patterns are affecting coffee farmers around the world. They are having to deal with decreased quality and yields as well as increased pests and disease. Coffee leaf rust is a fungus that is now being able to survive at higher altitudes due to wetter warmer climates. The Climate Institute estimates that global area suitable for coffee growing will decrease by 50% by 2050 (S., 2017). Starbucks has already begun steps to minimize the damage that climate change will cause. They are educating farmers on best practices with utilizing resilient production systems and shifting plantations to more favorable environments. They should also work on research and development of other methods to growing coffee to help with climate change adaption. Much needed research and development should begin to help combat the effects of climate change. Importance of Aggregate Planning

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Aggregate planning is the process of working out production requirements for a medium range period normally anywhere between six to eighteen months. These production requirements can be broken down into labor, raw materials, working capital, etc. Aggregate planning helps predict the supply and demand of product and services which in turn helps save money, streamline operations and increase productivity. Previous years, industry trends, economic forecast and feedback from marketing manager are all factored in in determining how probable demand will be. Starbucks uses an aggregate planning model to help develop a plan to determine staffing needs, materials needed, estimated timelines and budget costs to help plan ahead. By using aggregate planning, Starbucks minimizes how much their staffing fluctuates. By forecasting demand using aggregate planning, Starbucks is able to predict staffing needs and possibly be able to reduce or eliminate the need to hire extra workers. An example of this would be during the holiday season. Every customer oriented business increases how much they sale and produce for customers during this time. Starbucks is no exception and needs to ensure that they are fully staffed to meet the demand. By using aggregate planning, Starbucks can forecast how much is needed to produce for the season on order to meet demand which helps to understand how much supplies are needed to stay productive. This type of planning also reduces overhead allowing Starbucks to operate in a leaner manner and anticipate how much product is needed and when it is needed to avoid excess inventory. All of the information gathered does not only help Starbucks foresee what is needed but also their supply chain partners. Demand Forecasting and Starbucks

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Demand forecasting is the investigation of the companies demand for an item or SKU, to include current and projected demand by industry and product end use (Ahmed, 2016). It plays a huge role in any corporations’ supply chain strategy. Starbucks uses demand forecasting in the following ways: 1. Increasing customer satisfactions – By forecasting demand, Starbucks is able to predict how much product they need in order to keep the customers satisfied. 2. Reduce running out of inventory – demand forecasting can help Starbucks ensure they only receive product that they know they are going to sale. 3. Scheduling production – Starbucks can utilize demand forecasting to ensure they always have enough product on hand. 4. Lowering Safety Stock – safety stock is stock that is kept on hand for situations such as promotional items, seasonal variations, new product launches. Demand forecasting can help Starbucks to not have to worry and keep too much of this stock on hand. 5. Reducing Costs – forecasting demand will eliminate excess stock from being ordered and reduce the change of having stock on hand that will go to waste and cost the company money.

Price Promotions Effect on Demand Price promotions are when products are offered at a discounted price. Corporations utilize price promotions as sales incentives when they launch a particular product line. There are many

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different options when it comes to price promoting. Many corporations use the buy one gets one free (BOGOF) method. The most common use of price promoting is money off coupons which is offered to customers through newspapers, email or the Internet. Another popular price promotion is a loyalty scheme. With this type of promotion, rewards are offered for being part of a scheme and the more the customer spends the more points they accumulate, which leads to greater rewards. This is the most common way that Starbucks utilizes price promotion. Starbucks loyalty rewards program is undoubtedly one of the best out there. It gives the customer the ability to obtain points (stars) geared toward a free cup of coffee or discounts on other thing like free refills. The loyalty program also involves a mobile rewards app which allow consumers to pay for their order ahead of time. The app generates around six million sales per month, making up around 22% of all US sales for the franchise (McEachern, 2017). All of this has a big effect on demand for Starbucks. The more a consumer wants or buys a product or the more that a company has to give away a product (due to pricing promoting scenarios) the more of that product the company needs. For Starbucks, that will mean an increase in demand for primarily coffee beans. Other items also will increase in demand such as the material the cups are made out of or even the increase for bread that is used on breakfast sandwiches, if that is a part of the promotional pricing. Conclusion Starbucks is a very successful company and it shows in how they run the business. Their business model shows how much they are invested in not only their customers but the many

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partners and suppliers they have as well. Their supply chain is strategically set up to ensure optimal performance and customer satisfaction. By utilizing a vertical supply chain, they are able to be in constant communication with their supply chain partners. McDonalds’ supply chain which runs opposite of Starbucks being that it is a horizontal supply chain that is 100% outsourced, has the same value on relationships with partners and suppliers and shows that those relationships are a key aspect in any successful supply chain. Starbucks supply chain is not immune from the many global challenges almost all supply chains face. Climate change will have a big effect on Starbucks’ supply chain and they will have to invest a lot on research and development to get a handle on it. Not only does Starbucks deal with global challenges but some challenges are faced right here at home. Ensuring they have what the customer want when the customer wants it is a full-time job. Aggregate planning and demand forecasting helps to communicate with partners in Starbucks supply chain strategy to deliver in demand product exactly when it is needed for sale and alleviates the possibility of too much inventory that can incur many unnecessary costs. This also runs hand in hand with price promotions which will increase the demand for certain products. Being able to grasp these concepts and utilize the tools and methods that are at a corporations’ disposal, will help them succeed in their overall supply chain strategy.

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Ahmed, M. (2016, July 05). Importance of Demand Forecasting in Supply Chain- 9 Good Reasons. Retrieved January 25, 2018, from http://muddassirism.com/importance-ofdemand-forecasting-in-supply-chain/ Company Starbucks. (n.d.). Retrieved January 25, 2018, from https://www.cleverism.com/company/starbucks/

Fresard, L., Hoberg, G., and Phillips, G., 2014, The incentives for vertical acquisitions and integration, Discussion paper Working Paper University of Maryland. Available from : http://www-bcf.usc.edu/~gordonph/Papers/vertical_integration.pdf

Laurent, A. (2017, January 17). McDonald's' Supply Chain Success Shows the Benefits Of Collaboration | Articles | Chief Supply Chain Officer. Retrieved January 25, 2018, from https://channels.theinnovationenterprise.com/articles/mcdonalds-supply-chain-successshows-the-benefits-of-collaboration

McEachern, A. (2017, July 24). Loyalty Case Study: Starbucks Rewards. Retrieved January 25, 2018, from https://blog.smile.io/loyalty-case-study-starbucks-rewards

S., J. (2017, November 15). Starbucks global supply chain and climate change. Retrieved January 25, 2018, from https://rctom.hbs.org/submission/starbucks-global-supply-chainand-climate-change/

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Supply Chain Putting the Star in Starbucks. (2017, May 10). Retrieved January 25, 2018, from https://www.fronetics.com/supply-chain-putting-star-starbucks/

Team, T. (2016, October 13). Starbucks Is Maintaining Its Competitive Edge. Retrieved January 25, 2018, from https://www.forbes.com/sites/greatspeculations/2016/10/13/how-isstarbucks-maintaining-its-competitive-edge/#3b35c08759c1

Appendix 1.

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http://www.macs.hw.ac.uk/~yjc32/project/ref-business-model-canvas-tutorial/starbucksbusiness-model.jpg...