May 26, 2010

Starbucks' supply chain finds success through simplicity

To combat rising costs, falling profits, coffee retailer focuses on execution, operations.

By DC Velocity Staff

In its comeback from falling profits and rising supply chain costs, coffee retailing giant Starbucks went back to basics, said Peter Gibbons, executive vice president of Global Supply Chain Operations for Starbucks, at the Warehousing Education and Research Council (WERC) Annual Conference.

According to Gibbons, the company began to see troubles in 2008 that were created in large part by its rapid expansion—at one point, Starbucks was opening eight new stores a day. "Sometimes we make things too complicated," he said. "We lose sight of our purpose. We are here just to get the product into the customers hands." In response, Starbucks set out to transform its operations by simplifying and focusing on execution.

The company operates 60 distribution centers that make more than 2.7 million deliveries to store and partner locations each year. The supply chain operation is responsible for everything that goes into Starbucks stores, Gibbons explained—from coffee and cups to display cases, chairs, and tables. And he believes how well the supply chain does its job affects how well the stores and its baristas can do theirs. "We know we have to get the tone right at the supply chain headquarters, or we won't get it right in the stores," he said.

As part of changing the supply chain operations, Gibbons imposed a perfect order score on supply chain performance, "The first thing we would do would be to measure service. It was right, or it was zero. The other thing we did was start to visit stores. That was a humbling and inspiring experience."

The company also developed a two-part —outward facing to help the company continue to grow and inward facing to build a world-class supply chain. Starbucks envisioned that world-class supply chain as focusing on three things, and three things only: service, cost, and talent. "We wrap everything into those three buckets," Gibbons said. "We won't win any prizes, but we have a genuine understanding of what we do."

He said the results so far have been improvement in the major metrics measuring performance in safety, service, operational expense, and on-time in-full deliveries.