Problem: Bringing order to a chaotic inventory replenishment system

The Problem: Successful coffee retailing in space-constrained Britain requires creative resource utilization; the Starbucks "coffeehouse-on-every-corner" model is impractical. Costa Express, a unit of the Whitbread Group retail chain, has prospered by partnering with retailers to sell gourmet coffee from self-serve machines at airports, railway stations, hospitals, universities, offices, and gas stations.

Like many caffeinated growth companies, however, Costa faced the challenge of aligning its supply chain with a surge in business and the limits of its IT network. Since its 2011 acquisition by Whitbread, Costa had increased its machines footprint to 3,000 from 900. It also planned to expand beyond the U.K. But struggles with product replenishment threatened to derail its efforts. Though Costa's machines came with programs that supplied real-time sales data, its spreadsheet-based platform made it impossible to extract, consolidate, and present the data in a timely manner. Its replenishment-planning team was often left with the difficult task of estimating how much supply each site would need. They weren't always successful. As a result, many partners were overstocked, and inventory was lost to waste and spoilage that Costa couldn't reconcile. Costa realized the problem would only get worse as it continued to grow and the number of replenishment combinations multiplied.

The Solution: In early 2013, Costa purchased a cloud-based software application, called SO99+, designed by ToolsGroup, a Boston-based IT solutions provider. The system took the guesswork out of replenishment. The system automatically collected data every four minutes from all 3,000 machines to spot sales and order trends and to forecast demand. It calculated the variances in demand and how much buffer stock would be needed at each site. It then created schedules for resupplying the precise amount of inventory at each site.

Costa could now match actual sales data with the levels of stock on hand at each site. By improving the accuracy of its forecasts, Costa enhanced a customer's coffee-buying experience and did it with less inventory. The company's replenishment team, freed from micromanaging supply, could focus on helping partners increase sales, improve service quality, and troubleshoot non-inventory-related problems. The software's accuracy and user-friendliness gave Costa the confidence to enter into direct sales and service relationships with ingredients suppliers instead of going through its existing third-party logistics service provider (3PL). This improved Costa's negotiating outcomes and made it easier to communicate changes to its vendors as its business grew. Along with the new replenishment software, Costa brought in a new 3PL and significantly flattened its distribution network. The company went from having one central warehouse and nine regional locations to just one facility.

The technological and physical changes, combined with the ability to purchase supplies directly, paid huge dividends for Costa. After six months, its logistics costs had dropped by 30 percent. Its carbon footprint was cut by 70 metric tons. There was a 20-percent reduction in field stock held at partner sites, and delivery refusal incidents from partners were halved. Costa developed direct purchasing relationships with 15 suppliers covering more than 50 stock-keeping units (SKUs) and renegotiated changes in product prices and pack sizes that led to a cut in the cost of some items.

As for expansion, Costa in January launched an "intelligent coffee station concession" to be placed in high-end properties, starting with locations in Dubai. ToolsGroup software will link up to these machines in the same way it does with Costa's standard equipment. Costa also plans to use the software to manage its spare parts supply chain.

By the way, the new concession is equipped with a feature that releases coffee smells to create what is being labeled an "immersive coffeehouse experience." If Starbucks' color weren't already green, it might be turning green with envy.