Growing by Delighting Customers at Starbucks

An Insight from the 2018 Next Generation Operations Summit

Part of a Series

This Insight is taken from the 2018 Next Generation Operations Summit.

To see the complete report, click here.

In this digital era, chief operating officers and chief supply chain officers have an unprecedented opportunity to harness new business models and be on the forefront of enterprise growth. Yet realizing the potential of emerging ideas is often difficult. What does this journey look like for supply chain leaders striving to break through barriers and leverage new business models to elevate the customer experience and increase enterprise value? At its core, Starbucks, the number one purveyor of coffee in the world, is and always has been, about creating the Third Place Experience, a place where all are welcome; a place to connect with one another over a cup of coffee. To accomplish this, Starbucks aims to create the best experience possible for its customers around the world, and this is integrally connected to the supply chain and operations of the company.

“We reset the way we work. We moved from a compartmentalized way of working - pretty opaque way of working - to something more transparent. It was uncomfortable for a lot of our team members. They thought ‘my 15 bosses are going to see that I have a problem’, and that’s true. The point is to let us all in on it, so we can fix it together”
Hans Melotte
Executive Vice President of the Global Supply Chain, Starbucks

The Third Place

Starbucks has over 330,000 partners around the world, including partners (employees) in the stores and in corporate offices globally. For Hans Melotte, Executive Vice President of Global Supply Chain at Starbucks, each one of those 330,000 partners represent a relationship that has to be nurtured for Starbucks to fulfill its mission of being a place where people come to for inspiration and community. Starbucks describes these aspirations as becoming the “third place” in our daily routines. The “third place” is a social surrounding separate from the two common social environments of home and work. Successful third place locations are warm, welcoming, and community-oriented, and facilitate connections. With locations all over the globe, Starbucks aims to make every store feel like the one that’s in your neighborhood. To do that well, Melotte has to ensure that products are consistent and of the same quality, store to store, whether that store is in Seattle or Singapore.

To date, Starbucks has been successful; and, as the company matures and continues growing, Melotte and his team are looking at new approaches to improve product delivery and enhance the impact of supply chain on the business, ultimately ensuring the customer experience is always front and center. To achieve this, Melotte is testing the capabilities of the supply chain against three key criteria:

To gain agility, Starbucks supply chain transformation moved the company from being defined by a “patchwork” of suppliers and hubs to an integrated and transparent network. Now, supply chain professionals have the visibility they need to be proactive, not reactive.

As part of its transformation to an agile supply chain, Starbucks created a fit for purpose architecture that allowed the supply chain team to think of its suppliers as an intelligent network. The result is fewer forecasting errors and better business relationships.

Core to Starbucks value model is an experience that includes caring for customers and for one another. In practice, it means delivering the finest coffee in the world to customers globally and creating an experience of warmth and belonging. Starbucks supply chain is integral to achieving this by providing the tools and delivering the coffee, food, and products central to the experience, central to the barista, and central to its customers.

Fit for Purpose Architecture

As Melotte and his team transition Starbucks into an agile and responsive supply chain, they realized it was necessary to create a fit for purpose architecture. To do this meant revising the design of networks, standards, and the role of the supply chain to continuously make sure that resources are being used efficiently and producing the intended outcomes. Previously, a few hubs were serving most of the business, but with no guarantee that each was providing service in the same way. The new architecture is designed to right-size capacity, ensure all nodes –distribution centers, plants, and third parties – are in the right locations, shape and elevate the capabilities of the supplier network, and finally, ensure the company is using the right distribution channels.

Starbucks consistently monitors its fit to for purpose architecture through quarterly network monitoring. Commodities markets are very vulnerable to changes in climate, price, and distribution. Where other retailers might only have to line up supply networks twice a year, Starbucks has to have a complete picture of the coffee market each quarter to account for changes and plan accordingly. Over time, Melotte plans to expand this type of modeling to cover the total supply chain to drive growth and gain new insights. Eventually, with the help of technology, having this level of visibility will help drive automation so, for instance, restocking can be managed algorithmically from end-to-end. In the short-term, it means store managers will have the right inventory to consistently meet customer requests.

Network modeling has also helped Melotte and his team forecast with significantly fewer errors. Melotte has a better understanding of where to put resources in the short-term, medium-term, and long-term. These insights give the supply chain team the ability to identify new ways of creating value and strengthening relationships with network partners by becoming a smarter, more agile customer.

“No matter how many machines and bots we have running our business, at the end of the day, the ecosystem, I firmly and deeply believe, can only be efficient, effective, and caring if it's run by people. People with emotions, people who care.”
Hans Melotte
Executive Vice President of the Global Supply Chain, Starbucks

Conclusion

With more than 29,000 stores around the globe, ensuring the capabilities of Starbucks supply chain is imperative.

Melotte and his team have integrated more technology into Starbucks supply chain to increase transparency and improve forecasting. By getting connected, the supply chain team is also looking ahead to nascent technologies like blockchain and starting to think about the best ways to incorporate better traceability and tracking. The technology will also help Starbucks own the last mile of its business, which is creating a customer experience that delights, inspires, and keeps people coming back.

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