Starbucks Supply Chain Managemnt Case Study Solution
McDonalds Mc Cafe
Mc Cafe is gradually gaining the market and rising as a potential competitor of Starbucks. This is mainly because McDonalds has an established name, along with thousands of stores across the globe. It not just focusses on coffee, but some other beverages and food items too. By 2015, Mc Cafe was in the list of top 3 seller of coffee, with over 4500 outlets generating $1.4 billion.
Dunkin Donuts
Dunkin donuts was founded in 1950 in Massachusetts USA. It is a donut company, as well as a coffee house. It has expanded to the world’s largest chain of coffee and baked goods. It’s operating through 11,500 restaurants in over 35 countries. In 2010, it had an estimated sales of six billion dollar, with an estimated $828.9 million revenue stream by 2016. It focuses on producing 65% drinks, and only 8% donuts.
Café Coffee day
It is another globally recognized company that has the largest Arabica beans production and export in Asia. Founded in 1996, it has turned out be a world brand with over 1500 outlets in 28 states of India by 2015. It is well known for cutting the cost down by making coffee machines, furniture of its outlet and owning Arabica coffee plants.Invalid source specified.
Other packaged brands:
These include Tazo, Twinnings, Tetley, Dilmah. These tea brands provide an excellent alternative to coffee due to their flavorings and health benefits. Their aroma, medicinal qualities and taste attracts the customers more as compared to coffee. (Bhasin)
Even with so many brands and alternatives present, it is nearly impossible for Starbucks to lose their market. Most of the other brands almost offer everything, so they can never compete Starbucks, whose focus has always remained on coffee. Starbucks concentrates on few products only and tends to master them. Along with that, Starbucks has a strong supply chain and inventory management that always makes them to stay at top of the list.
Perceived Supply Chain Opportunities
Starbucks had a wide supply chain spread across a large number of countries. However, still the company has numerous opportunities in its supply chain, which can be exploited for the purpose of gaining an operational efficiency and a competitive advantage in the market.
Supply chain opportunities lie in introducing technological advancement in each area of supply chain. Most popular technology being used in the supply chain giant companies is the “Artificial Intelligence”. Other supply chain opportunities for Starbucks include supply chain partnerships, vast transportation networks etc.
Application of Artificial Intelligence (AI) in Supply Chain
In modern world, technology is being utilized in almost every area of business. The most popular technology that is being utilized is the Artificial Intelligence. Starbucks can implement AI in its supply chain to gain operational efficiency and competitive position in the market. It can utilize various areas of AI like Genetic Algorithms, Expert Systems etc. to manage its supply chain. There are number of problems that Starbucks is facing in managing its supply chain like efficient management of inventory and production levels, operational schedules, transportation and shipment costs, fluctuating consumer demands etc.
Application of AI in its supply chain would be quite beneficial for Starbucks in long run as the company has extensive geographical presence and a business strategy of further expansions. These expansions could only be made effective by efficient management of company’s operations.(Sofia Danielsson, 2018)
There are a number of organizations that have implemented AI in their operations, and have been quite successful in reducing their operational costs. Amazon’s Flywheel plus other production areas of AI and Uber’s Self-Driving Trucks (as shown in Exhibit 1 and 2) are good examples of AI application in various organizations.
Starbucks can implement various areas of AI to solve its problems related to supply chain management. It could introduce self-driving trucks like Uber to reduce shipment costs. It could also use AI expert systems to forecast the future demands accurately.
Costs and benefits related to AI implementation in Starbucks Supply Chain includes the high implementation costs and initial investment. Although AI implementation would lead the company to invest its productive resources in AI technology and could require huge amount of implementation costs, but it would reduce the overall operational costs of the company. For example, if the company implements AI expert systems for inventory control and management, the company would get a rapid decline in inventory holding costs, which would increase the long term returns of the company.
One of the best metric for evaluating an opportunity is the evaluation of cost and benefits of the opportunity. The overall valuation of AI in the attached Spreadsheet, on the basis of assumed implications of AI, shows a very healthy NPV of $ 5724092000. However, the implementation would require huge amount of investment, which should be considered for exploiting the opportunity.
There are various risks attached to the implementation of AI in supply chain. AI is considered as an evil in society. There are a number of world renowned leaders which accuses AI as a replacement to human beings. The employees of the companies have also various concerns over AI implementation. Star buck’s employees may become dissatisfied with the company’s decision to implement AI in its supply chain and resist to change. Along with it, the overall communities in which the company has its operations, which might criticize the implementation of AI in Starbuck Supply Chain.
Supply Chain Collaboration
Another supply chain opportunity for Starbuck is the collaboration of its supply chain with other global players dealing in same products. The company could merge its supply chain with Dunkin Donuts and McDonald Mc Cafe, which have almost same product portfolio and have a far and wide geographical existence. (Soonhong Min, 2005)
A supply chain collaboration would require low amount of additional costs, as the companies suggested for merging supply chains have already well developed supply chain networks. The merger would also enable the company to increase its supply chain network without implementing additional costs. The supply chain collaboration would result in continuous flow of supplies in the company, and would reduce shipment costs. It would also enable the company to target more customers using an extensive supply chain…………
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