Starbucks Supply Chain Strategy AND Design PDF

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STARBUCKS SUPPLY CHAIN STRATEGY AND DESIGN ID- 20211939 Total Words Count 4000

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Table of Contents Executive Summary ................................................................................................................................ 3 Introduction ............................................................................................................................................. 4 Mission & Values: .............................................................................................................................. 4 Starbucks Business Model Canvas ......................................................................................................... 4 PESTEL ANALYSIS.............................................................................................................................. 5 Porter’s Five Forces Analysis ................................................................................................................. 5 Resource based view of Starbucks .......................................................................................................... 7 VRIO analysis ......................................................................................................................................... 8 Starbucks Strategic Fit .......................................................................................................................... 10 Differentiation Strategy ........................................................................................................................ 10 SWOT Analysis ................................................................................................................................ 11 Strategic Alignment: ............................................................................................................................. 12 Procurement .......................................................................................................................................... 13 Starbuck’s Supplier Relationships ........................................................................................................ 14 Blue Ocean Strategy vs Red Ocean Strategy ........................................................................................ 15 Corporate Social Responsibility of Starbucks ...................................................................................... 15 Supply Chain Drivers, Metrics & Risk ................................................................................................. 16 Facilities ............................................................................................................................................ 16 Innovation ............................................................................................................................................. 18 STrategic Gaps ...................................................................................................................................... 18 Starbucks Future Challenges ................................................................................................................. 18 Conclusion/Recommendations.............................................................................................................. 19 REFERNCES ............................................................................................................................................ 20

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EXECUTIVE SUMMARY This research offers a strategic review of Starbucks Firm, the top coffee house company. Initially coffee was discovered in Ethiopia (East Africa) as a warm drink around early middle ages, (Amamo, A.A., 2014). Coffee is now a massive worldwide business employing over 20 million people. A group of academic individuals Gordon Bowker, Jerry Baldwin, and Zev Siegel, who built the very first coffee outlet in Seattle named "Starbucks Coffee, Tea, and Spice" in 1971. Starbucks is now a multinational corporation that's been in the coffee sector and has branded itself as a marketer of luxury coffee goods. Intelligent product segmentation and market growth initiatives helped Starbucks in market domination. Starbucks need strategic guidance since the firm confronts significant hurdles in long term. These threats come from existing rivals such as McDonald's and Dunkin' Donuts, who are defying Starbucks market supremacy by pursuing competitive low-priced tactics. Furthermore, new coffee market trends have created new categories with tremendous development potential. This paper intends to be a strategic guide, exposing several strategic possibilities in terms of various opportunities and risks in future. Starbucks corporate status is excellent to build competitive edge. Starbucks external position is neutral, reflecting the corporation's capability of responding to environmental factors. Furthermore, oversaturation in domestic economy has raised Starbucks competitive pressure. Starbucks is well-positioned to deal with market shifts, according to the report. On a corporate level, Starbucks requires to maintain continued expansion, new product development, downsizing in no profitable products, and partnerships in weak market segments as their vital business strategies. Starbucks old strategies are good to defend its market share while they must continue to employee strategic changes to sustain their market leadership.

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INTRODUCTION Starbucks, a multinational US coffee shop company originated and instituted in Seattle (WA) in 1971 as a producer, distributer and seller of premium coffee. Starbucks had a total of 32,660 coffee shops in eighty three different nations, 16,637 company-operated and 16,023 permitted shops (September, 2020). Howard Schultz bought the company in 1980's which was launched by the academic founders Jerry Baldwin, Zev Siegl, and Gordon Bowker in 1971 at Pike Place, Seattle. Products & Services: Starbucks has a product portfolio of brewed and handmade premium quality coffee drinks, teas and a range of fresh foods, and other espresso drinks. Starbucks also offers pastries and confectionery, sodas and juices, coffee-related items like Starbucks mugs, and other caférelated goods (Starbucks, 2022b). Mission & Values: One individual, one cup, and one community at a time. To inspire and nurture the human spirit. To innovate and expand the organization, Starbucks is bravely working, confronting the status quo and collaborating in every activity. Staying engaged and interacting with integrity, compassion, and love (Starbucks, 2022c). STARBUCKS BUSINESS MODEL CANVAS Key Partners

Key Activities

Value Proposition

Mob app/Loyalty

Marketing

Coffee Farmers/ Suppliers

Cups with customer names

Supply Chain Management

Key Resources

Equipment Manufacturer

World’s best coffee drinking experience

Mass Market

Channels Cozy & Cool Starbucks stores (own & Franchise)

Starbucks Brand

Stores/ Distribution Network

Grocery Stores

Cost Structure Marketing

Customer Segments

Customer Relationship

Revenue Streams Stores

Suppliers

Sales of Food & Beverages

Additional revenue streams: Franchise, licensing etc

Fig.1. Starbucks Business Model by Periera D, 2021 (Source: https://businessmodelanalyst.com/starbucks-business-model/) 4

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PESTEL ANALYSIS Starbucks PESTEL analysis identifies the external factors affecting the business. Starbucks must examine these factors to uphold its leadership in the industry.

Fig.2: Source: Gillespie, A., 2007. PESTLE Analysis of Starbucks

PORTER’S FIVE FORCES ANALYSIS Starbucks operates effectively by managing the influences of the five factors in coffee shop industry worldwide by settings with excellent performance. This study reveals the most significant variables which Starbucks must incorporate to their business strategy. The following methods are designed toachieve competitiveness along with company's vision and mission.

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Fig 3: Starbucks Porter’s Five Forces Analysis (Source: https://www.mbaknol.com/businessanalysis/starbucks-porters-five-forces-analysis/) Competitive Rivalry (Moderate to High) In coffee sector, Starbucks encounters a significant competition of strong rivalries of various sizes. Regarding both speciality and approach, the community of rivals is rather diverse. Furthermore, lower switching costs promotes the competition, customers face this drawback when they switch from one brand to another. Example In coffee house, Coffee bean is a competitor of Starbucks. Coffee Bean is trying to establish third position in this sector, but they differentiate by creating a unique environment. Starbucks attempts to create an elegant European ambience and Coffee Bean aims to make an American atmosphere to their coffee shops. Bargaining Power of Buyers (Moderate to Low) There are many Customers of coffee but they cannot demand discounts. Starbucks offer highly specialized and differentiated items to a variety of consumer population with low-volume orders, reducing buyer's bargaining power. Starbucks clients are primarily quality conscious and ready to pay high for high-quality items However, they cannot charge unreasonable prices because they will search for alternative options and will begin to switch. Bargaining Power of Suppliers (Low to Moderate) Starbucks key ingredients are quality Arabica coffee and coffee beans cultivated in certain locations, resulting in a relatively low cost of swapping between alternative suppliers. Suppliers can only apply light to moderate pressure to Starbucks. Starbucks has self supplier diversity policy for the selection of suppliers. Starbucks deals directly with coffee producers, 6

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this strategy allowed company to have better control on supply chain. They source directly from farmers, there is no middle man. Starbucks has built strong partnerships with farmers to consult them on improved cocoa growing methods and assist them in maximizing revenues to decrease the power of intermediaries. Threat of Substitutes (Moderate to high) There are several alternative items of Starbucks coffee present in the market, ranging from tea to specialty coffee. There are restaurants and cafe's that offers pleasant atmosphere and high-quality food as well as people can also produce these products at home. These elements combine to form replacement items a significant threat. Nonetheless, several features are available to mitigate this risk to certain level. Starbucks offers premium packed specialty coffee with premium quality coffee, outstanding customer service, and a pleasant atmosphere. Premium quality and brand image mitigate the danger of replacements. Threat of new entrants: moderate Barriers to new entrants are low and launching a new business of coffee is also low. Coffee industry has an adequate dominance level. New players can easily compete with Starbucks locally but the chances of success for them are still reasonably low because Starbucks has a leading position in the market due to its quality, effectiveness and its infrastructure. Nonetheless, Threat of new entrance is still there because of minimal switching costs, new companies can gain customers interest by offering cheaper pricing. Yet brand recognition, market dominance and other elements such as customer loyalty helps to minimize the threat. Starbucks have a competitive advantage of raw materials and suppliers accessibility. Company has access to coffee of premium quality and suppliers worldwide because of company scale, range and payment capability. McCafe by McDonald's escalated the threat by its entrance to coffee shop industry. RESOURCE BASED VIEW OF STARBUCKS RBV framework is built on analyzing and selecting sources which contribute to business competitiveness and integrating them strategically. Starbucks most essential resources are retail shops, brand equity, and human capital. Starbucks carefully selects its shop sites, primarily in affluent neighbourhoods where customers are not sensitive to prices. Customers feel a connection to Starbucks outlets. Place where people get to stay away from their daily problems. A company's vital fundamental strength is its brand image which is the company's competitive edge. Starbucks established a strong significant brand by selling the highest quality coffee products with providing its customers a one-of-a-kind experience, achieved through excellent customer service, well-maintained coffee shops that reflects diverse communities in which they operate, and create a high customer loyalty. Starbucks has developed excellent domestic and foreign supplier networks, to assist company's business strategy of expanding globally.

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Starbucks spent $245.7 million US dollars internationally in 2019 and $15 million in 2018. Starbucks made investments in the development of solutions to enhance the sustainability of its goods. Company is dedicated to recycling and trash reduction. Starbucks have implemented significant social responsibility activities and earned the respect of domestic communities where they operate. Starbucks is well-known for its skilled staff. Company's most valuable assets are its employees, and they get several advantages including company shares, a retirement fund, and even a healthy culture. The system of farmer assistance centres are filled with agronomists and sustainability specialists, which is a significant physical resource to assure an availability of premium quality coffee. Starbucks is expanding and enhancing its ethical sourcing through collaborating with local and worldwide groups like as NGOs, government organizations, and certified bodies to guarantee a positive impact of their strategy. VRIO ANALYSIS

Fig 4: A Comparative Analysis of Starbucks and Dunkin Donuts (Source: https://studymoose.com/starbucks-organizational-strategy-essay) Years of professionalism, emphasis on customer service and quality of product, have led Starbucks to a successful journey. Starbucks primarily work on differentiation strategy. Three key factors have set the brand besides the competition. The first and most crucial consideration is quality. Starbucks have grown abroad and well known for quality coffee, exceptional consumer experience and ethics. Starbucks also gained customer loyalty and 8

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established a leadership in the market. Some of its advantages are readily apparent on the ground, (Hart D). Strong Global Presence Valuable: Starbucks another significant asset is its global presence operating in 24000 outlets in 70 countries. It comprises of better access to markets, higher profitability, and protection from media. Rare: Starbucks is a well known among multiple international coffee shops. Inimitable: Three key pillars have made Starbucks brand image: Quality, customer service and business ethics. It’s impossible to imagine any other brand in competition. Organization: Starbucks infrastructure helps to establish outlets all around the globe. Competitive Advantage Impact: Perceived Sustainable Competitive Advantage Upscale and Cosy Atmosphere Valuable: Starbucks has intended to transform how Americans see coffee until Howard Schultz's shopping trip to Milan in 1983, transforming that into a "experience" instead of a breakfast necessity. As a result, their unique shop ambience is calm, friendly, and welcoming. Rare: Starbucks have a consumer friendly atmosphere which is another distinguishing characteristic of the business to keep consumers attracted. Inimitable: Other brands can easily replicate Starbucks coffeehouse atmosphere by changing their décor. Organization: It's inherent inside the company's DNA, and the firm has developed on this idea since 1980s. Competitive Advantage Impact: Perceived Competitive Parity Specialty Coffees Valuable: Starbucks is recognized for its premium quality and variety of flavours of coffee which attract the customers. Rare: These drinks are common. These specialized drinks are available at every coffee shop chain and small stores. Inimitable: Similar specialised coffees are currently available at other coffeemaker businesses. Organization: Starbucks utilises this asset by altering its menu on a regular basis. Competitive Advantage Impact: Perceived Temporary Competitive Advantage

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STARBUCKS STRATEGIC FIT Strategic fit is a philosophy in which strategy is a method of enhancing a fit between an organization's external factors and internal competencies to gain a competitive edge over rivals, Genus, (1998).

DIFFERENTIATION STRATEGY Starbucks should continuously innovate to maintain the distinctiveness of its goods in the long haul because of differentiation strategy. Starbucks competitive edge might decrease if rivals figure out how to duplicate or surpass the coffee company's distinctiveness. Starbucks focus on speciality coffee items due to their generic approach (Michael Porter's model) and Starbucks development and expansion strategy, is influenced by multiple growth techniques. Furthermore, Starbucks is restricted to point-of-sale promotion and word-of-mouth strategy for marketing, and Starbucks is lacking in Public relations methods and expertise. Starbucks should implement proactive approach of strategic management to solve their problems to acknowledge the mistakes and able to express a devotion to extremely organization's ethical behaviours by using number of marketing channels of communication effectively.

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SWOT Analysis

Fig 5: The level of Strategic Fit for Starbucks (Source: www.starbucks.com)

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STRATEGIC ALIGNMENT: Strategic Fit

SWOT Analysis

External Opportunities/ Threats

Internal Strengths/ Weaknesses

VRIO PESTLE

Five Forces Analysis

Resource + Competences = Capabilities

RBV

Fig 6: Analysing supporting a judgement of Strategic Fit. (Source : https://www.thinkswap.com/au/unsw/mgmt2002-managing-businesscommunication/mgmt2002-full-lecture-notes) Starbucks aim is to "position itself as the foremost provider of the specialty coffee worldwide," with "inspiring and nurturing" its consumers' spirits. The new emphasis on profitability in existing outlets is a sign of business maturity than a change in strategy (Increased Profit by reduced wastes). Starbucks with the strategy of controlled expansion in important areas, the firm has modified its initial objective of market control by limiting its development in emerging outlets with more productivity and efficiency. Starbucks primary objective is further supported by the approach of building the foundation of corporate clients through the Seattle's Best section. Seattle's best does not promote a company rival in surroundings, it only provide an additional distribution channel for range of products. This approach promotes the ''premier coffee'' of Starbucks to extra customers who are customers of competitors and never experienced Starbucks. Profitability will be stimulated and stock prices will be stabilized if a continuing focus on customer satisfaction is combined with successful tactics for new product developments.

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PROCUREMENT Mr. Howard Schultz, the CEO of Starbucks, has stated that company has no intention of vertical integration. Starbucks purchases coffee from more than 300,000 farmers across the world. Starbucks purchased its own coffee plantation in Costa Rica in 2013. In 2015, Starbucks purchased Hacienda Alsacia, a 600-acre coffee field in Costa Rica, to try cultivating its own beans. The Alsacia nursery's primary goal is to "expand the genetic foundation for coffee", Gruley & Patton, 2...