Starbucks’s Supply Chain Challenges and how it overcame them

Starbucks is a well-known coffee chain that has been in operation since 1971.

The company currently serves millions of customers daily in over 80 countries. However, in 2008/2009, Starbucks’s supply chain challenges threatened its operations. During the economic crisis in 2008, many companies were affected, and Starbucks was one of those companies. The company’s supply chain was underperforming, failing to meet the needs of its 16,000 branches at the time, but that wasn’t all; it was also more expensive than ever. In other words, the supply chain was a complete mess.

The whole supply chain was a disaster. Management had to take action, but where to begin? Like any sensible board, they carried out an investigation.

This article explores how Starbucks’s supply chain turned a dire situation around when many other companies had gone under.

Starbucks’s Supply Chain Challenges

The team leading the investigation did a great job, but the report from the investigation showed that things were worse than they had thought.

There were three main challenges.

1. Overexpansion

Starbucks was facing an overexpansion problem.

The company had grown well, and new stores were opening rapidly. However, this growth strategy was bad and led to oversaturation in certain markets. Which meant it was not sustainable. The rapid growth, which was lauded initially as a success for the company, had now resulted in stagnated sales and a strain on the company’s supply chain.

2. Rising Costs

Another challenge that Starbucks’s supply chain faced was rising costs.

The price of their primary ingredient -coffee beans- had sharply increased, significantly impacting the company’s bottom line. In addition, other ingredients and products in the supply chain have also increased. For example, milk, sugar, plastic, and transportation had significant cost increases, piling on the overall cost of the company’s supply chain.

3. Redundant Supply Chain

Starbucks’s supply chain had failed to innovate and had difficulty performing well.

The company had experienced significant growth, and its supply chain struggled to keep up with demand because it failed to review its system. The lack of innovation resulted in delivery delays and a shortage of certain products, which also contributed to downtimes and the poor sales of some of their branches.

How Starbucks’s Supply Chain Overcame the Crisis

For the coffee giant, such a problem in the middle of the then financial crisis could have easily triggered the end for Starbucks. However, the leadership were not about to go down without a fight. Following the report, Starbucks began taking steps to correct the direction of its supply chain and turn the situation around.

1. Closing Unprofitable Stores

To address the challenge of oversaturation, Starbucks decided to close over 600 underperforming stores in the United States.

The move helped the company to streamline its operations and focus on its most profitable stores. It also allowed the supply chain to function much better.

2. Renegotiating Contracts

The economy was in crisis, and there were rising costs of essential and non-essential ingredients.

However, to address the problem, Starbucks diversified and renegotiated its contracts with suppliers. The company also worked with its suppliers to find sustainable ways of reducing costs without compromising the quality of its products. This move helped to reduce the piling cost on the company’s supply chain.

3. Innovating its Supply Chain

To improve efficiency, Starbucks worked to innovate its supply chain and implement a robust system that was constantly reviewing the supply chain’s performance.

The company implemented new technology and processes to streamline its supply chain operations. The company also developed new products and services, such as its mobile ordering app and drive-thru stores, to improve the customer experience and reduce the strain on its supply chain. Innovating its supply helped to reduce lead times and ensure that Starbucks branches never ran out of ingredients or service tools again.

4. Investing in Sustainability

Just around this period, there was a push for companies to become more environmentally conscious.

Although there were many myths and reservations by other parties and companies, Starbucks sensed an opportunity. The company invested in sustainability initiatives during this period. It worked with farmers to improve coffee beans’ quality while reducing coffee production’s environmental impact. The move helped ensure that Starbucks had a reliable supply of high-quality coffee beans while supporting sustainable farming practices.

In the long run, they could also market their sustainable practices to their consumers.

What Happened to Starbucks’s Supply Chain Over The Next Couple of Years?

• The supply chain’s lead time was reduced by over 80%
• Starbucks locations were no longer running out of stock.
• The icing on the cake? Their supply chain transformation saved the company over $500 million in the following years.

Conclusion

As times change, supply chain managers have to innovate or face their supply chain falling apart.

Starbucks’s supply chain faced significant challenges in 2008/2009, including overexpansion, rising costs, and supply chain issues. However, the company overcame these challenges through a combination of measures, including closing unprofitable stores, renegotiating contracts, improving supply chain efficiency, investing in sustainability, and focusing on innovation. 

By taking these steps, Starbucks strengthened its supply chain and continued to grow its business.