Starbucks as a specialty coffee retailer has well-planned and organized processes to ensure it produces and delivers high-quality coffees to end-user consumers. However, there are some challenges that the company faces while carrying out these operational processes. Such Starbucks supply chain issues and challenges, if not well managed, can be very detrimental to the company’s growth.
The network of individuals, activities, and companies that are involved in creating this company’s product and delivering it to end-user consumers is known as the Starbucks supply chain. Managing a company’s supply chain is very important because when optimized, it results in a more efficient production cycle and lower costs.
Starbucks, over these years, has successfully implemented new strategies to tackle its supply chain issues and this is one of the reasons why the company is a good case study for many small-scale businesses, working towards building a strong brand.
Before discussing some of the prominent supply chain issues of Starbucks, let’s have an understanding of the process and how the company manages its supply chain.
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What type of supply chain is Starbucks?
Starbucks is a vertically integrated supply chain. The company is celebrated for its premium coffee and innovative customer service. In order to be on top of its game in the retail coffee and snacks store industry, Starbucks’ value chain is vertically integrated in a way that the company is actively involved in every stage of its supply chain process.
Just like every other company, Starbucks’ supply chain begins with sourcing raw materials and ends when the finished product is delivered to the end-user consumer.
The company’s primary supply chain involves sourcing raw materials (coffee beans), moving them to roasting plants, packaging, and transporting the roasted coffee beans to distribution centers that further send the coffee beans to the company’s retail stores scattered across the globe.
The supply chain objective of Starbucks
The objective is focused on providing ethically sourced, Fair Trade coffee and beverages. Starbucks’ supply chain process functions to provide handcrafted coffee, tea, and a variety of high-quality food items to its customers.
The company is committed to efficient and ethical supply chain processes. In order to ensure compliance with its rigorous ethical and quality standards, Starbucks controls all raw material sourcing, coffee roasting, packaging, and the global distribution processes used in its operations.
Starbucks’ supply chain process is implemented in a way that minimizes costs and environmental impacts while increasing profit margins and efficiency. Hence, its primary objective is to maintain the company’s standing as one of the world’s most recognized and respected environmental-friendly brands.
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Starbucks Supply Chain Management
Starbucks vertically integrates all its supply chain processes to ensure that its customers get quality products while minimizing costs and environmental impacts. It is one of the well-known companies with vertical integration strategies.
It is a company that is known to be actively involved in all its supply chain process; from the procurement of the coffee bean to the cup of coffee sold to customers.
By having ownership of the entire supply chain, Starbucks is able to ensure efficient sourcing of coffee beans, manufacturing, logistics, and distribution of its product. This guarantees quality all the way through the supply chain and makes the company less susceptible to major disruptions.
Due to the size and scale of Starbucks’ operations, the company had an expensive, ever-growing supply chain which was restructured in 2018 into a streamlined, cost-effective process that depends on simple operational structures and metrics. This was done by Peter Gibbons, the Executive Vice President of Global supply chain operations.
Starbucks manages the procurement of its raw material, by working directly with more than 400,000 coffee growers across 30 countries to ensure a sufficient supply of its raw materials. In order to streamline transportation and warehousing operations, the company established regional distribution centers from which the company ships its roasted coffee and other products to the company’s stores around the world.
The management invests in the company’s operations and brand to achieve long-term targeted revenue generation and income growth. This includes expanding the company’s global store base and adding stores in both existing, developed, and higher-growth markets. The company also optimizes the mix of company-operated and licensed stores across the globe.
This coffee company is able to manage the retail activities ahead of its supply chain by establishing more company-owned retail stores and franchises only less than 50% of its retail stores. This enables Starbucks to have more control over how its brand is presented to customers.
Also, in order to effectively manage its supply chain, the company depends heavily on digital technology. Starbucks makes use of technology and automation to streamline operations. This enables it to quickly adjust its plans and operations as needed.
The digital technology and the simple structure and management tools used in Starbucks’ supply chain process, therefore, enable the company to achieve a high level of efficiency and agility that gives it a competitive advantage.
All the vertical integration strategies used by Starbucks have successfully established a kind of supply chain that can quickly respond to changes in customer demand. The forward and backward vertical integration strategy employed is therefore one secret to how the company has been able to manage its supply chain effectively, in order to maintain its competitive advantage.
Nevertheless, a well-managed supply chain does not guarantee a problem-free production cycle, as the company is still likely to encounter some challenges. The common Starbucks supply chain issues usually encountered include challenges like climate change, shortage of supplies, and price hikes. All these are discussed below.
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Starbucks’ supply chain process
- Raw material sourcing
- Manufacturing
- Starbucks’ logistics and transportation system
- Starbucks distribution centers
- Customer service
Generally, Starbucks’ supply chain management process is a well-rounded approach that allows the company to remain competitive and ensure customer satisfaction; it involves the following main stages:
Raw material sourcing
The procurement process of raw materials is the first stage of Starbucks’ supply chain process. Being a specialty coffee retailer and coffeehouse chain, coffee beans are the company’s primary raw material. The company is able to ensure a sufficient supply of its raw material, by managing its 240-hectare coffee farm (Hacienda Alsacia) in Costa Rica and working directly with more than 400,000 coffee growers across 30 countries.
The procurement stage is highly important in the supply chain of Starbucks coffee and therefore has to be managed properly to ensure quality coffee for end-user customers.
The company is committed to only selling ethically sourced, Fair Trade coffee and so works closely with its farmers and suppliers to ensure ethical and sustainable production practices are followed. That is, Starbucks only makes solid purchase agreements with suppliers (coffee bean growers) that meet the company’s Coffee and Farmer Equity (CAFE) standards and Coffee Sourcing Guidelines (CSG).
Suppliers are selected using a stringent vetting process that is based on Starbucks C.A.F.E. practices and CSG. According to these standards, coffee farms must have safe working conditions, adhere to minimum-wage requirements, and must not use forced or child labor. The company also provides its suppliers with special training and education programs as part of its CAFE guidelines.
All these implemented approaches ensure that all the purchased coffee beans have the same quality and flavor standards. It also helps to avoid issues in Starbucks’ supply chain that could cause major disruptions, like overplanting or worker shortages.
Apart from the whole bean coffees and coffee beverages sold in Starbucks stores, the company also offers tea, ready-to-drink beverages, and food items like pastries, breakfast sandwiches, and lunch items which it purchases from several national, regional, or local specialty suppliers under long-term supply contracts.
The company also purchases paper and plastic products, like cups and cutlery, from several companies in order to meet the needs of its retail stores.
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Where does Starbucks get its supply from?
Starbucks gets its supply of coffee beans directly from coffee growers in Latin America, Africa, and Asia; in countries like Brazil, Kenya, Columbia, Mexico, Guatemala, Kenya, Mexico, Saudi Arabia, Tanzania, etc.
Also, Starbucks doesn’t make the food products it sells, rather it outsources them. It gets its supply of baked products through partnerships with small-scale bakers across the United States and Europe.
Even though Starbucks does not manufacture its food, it has instilled strict legal and ethical guidelines for its suppliers regarding food safety and transportation. The company obtains a particular food item from one company to ensure that all its food tastes and looks the same anywhere you go.
Some of the suppliers involved in Starbucks’ supply chain management process include:
- Premium Brands Holding Corp supplies breakfast sandwiches
- Steven Charles dessert company (SROriginals) supplies baked goods like cakes and desserts.
- Nestle supplies Teavana tea
- Starbucks gets its silk soymilk, creamers, and milk from Dean Foods.
- Pepsico supplies most of the company’s ready-to-drink products.
- International Paper supplies paper cup
Manufacturing
The next stage in Starbucks’ supply chain management process is the manufacturing stage. The company owns and uses a handful of manufacturing/roasting facilities. It closely manages its sites’ operations to ensure that all beans are roasted and packaged in the exact same way.
After the coffee beans are harvested, they are packaged and taken to ocean liners that ship them to any of these roasting plants in Europe and the U.S:
- Carson Valley Roasting Plant and Distribution Centre in Carson Valley, Nevada
- Augusta Roasting Plant in Augusta, Georgia
- Sandy Run Roasting Plant in Gaston, South Carolina
- Kent Flexible Roasting Plant in Kent, Washington
- York Roasting Plant and Distribution Center in York, Pennsylvania
Each of these manufacturing plants is capable of producing about 1.5 million pounds of coffee beans per week.
Removing the outer fruit shell is the first step in processing coffee beans which can be done by hand, but is mostly done by machine. After this, the coffee beans are cleaned and sorted to be roasted. The coffee beans are roasted until evenly browned. After roasting, they are removed from the roaster and blended.
This coffee processing process is closely monitored to ensure that Starbucks coffee tastes the same in all the company’s retail outlets. The blended roasted beans are then packaged and shipped to the company’s central, and regional distribution centers for distribution.
Starbucks’ logistics and transportation system
One of Starbucks’ supply chain management processes is its efficient logistic system. This stage involves the commercial activity of transporting the company’s products. The company uses different modes of transportation to deliver its raw materials and processed products to various stores.
The type of logistics system used will depend on geographical distance and market forces. For instance, an increase in product demand in the marketplaces prompts the company to use a faster delivery model.
Generally, the company uses ocean shipping to transport coffee beans from different parts of the world. That is, the company imports coffee beans from Africa, Latin America, and Asia in ocean containers. From the port of entry, these coffee beans are then trucked to the company’s manufacturing plants.
Trucking through the road is another mode of transport that Starbucks uses in its supply chain process. After the coffee beans are roasted and packaged, they are trucked to distribution centers.
Starbucks also has a fleet of distribution trucks that deliver its products to stores and also has partnerships with some logistic companies. For example, the company has partnered with ITS Logistics for over 18 years.
The highly centralized logistics system used by the company is very important for Starbucks’ supply chain process because it helps to deliver products to customers quickly. This global logistics system functions to ensure that Starbucks distribution centers receive the products they need in order to fulfill orders and make their roughly 70,000 weekly deliveries on time.
Starbucks distribution centers
Companies distribute their products to consumers through various distribution channels like stores, wholesalers, retailers, online platforms, etc. Starbucks distribution centers are, therefore, a huge part of the company’s supply chain.
The company employs an effective distribution strategy by establishing four regional distribution centers and smaller warehouses called central distribution centers (CDCs) which has helped to streamline the company’s transportation and warehousing operations.
Starbucks products are held at these distribution centers and shipped from there to retail stores around the world. Depending on their location, these retail stores are supplied by either the CDCs or regional distribution centers.
Starbucks’ distribution system consists of 33 warehouses (CDCs) in the United States, seven in the Asia/Pacific region, five in Canada, and three in Europe; all of these CDCs except one are controlled by third-party logistics companies.
In the United States, the company has two regional distribution centers (one on the East Coast and one on the West Coast). It also has one regional distribution center in Asia and Europe.
Customer service
Starbucks’ supply chain management process is not complete without its end-user consumers. In order to reach its customers in a cost-effective and timely manner, the company has a wide range of retail outlets, both physical and online.
The company has its own stores, and partners with third-party businesses and physical stores at ideal locations. This enables the brand to have a greater reach to consumers. The retail objective of Starbucks’ supply chain management process has always been to provide a unique experience for its customers.
According to the words of the company’s former CEO, Howard Schultz, Starbucks is not in the coffee business serving people but is in the people business serving coffee. The company offers quality products and customer service to its customers using its store’s design, location, and the expertise of its baristas. When its baristas make drinks for customers, a substantial amount of value is created.
Hence, the company supply chain management is a people-centered approach. It focuses the customer’s attention on the quality of the experience, where customers are served a cup of coffee with their name on it, from their favorite flavor and size, within a beautiful space.
The coffee supply chain of Starbucks helps to ensure its coffee is always the same and comes with a different flavor for each and every customer. Apart from its coffee, the company also serves food items like breakfast sandwiches, egg bites, lunches, desserts, and protein boxes.
It offers an in-store customer service experience where customers can sit with friends over a cup of coffee, work, or order and take their coffee away with them to their desired location. The company has positioned its retail stores as a place for convenience and connection for customers.
Digital adoption to offer convenience and improve customer experience is also part of Starbucks’ supply chain management process. This involves integrating mobile ordering to reduce in-store congestion and establish more contactless pick-up experiences.
Starbucks’ Mobile Order and Pay app allow customers to pre-order food and drinks from the comfort of their homes or workplace. Customers are then able to pick up their orders from the pickup-only stores established in various locations.
The introduction of the mobile app meets the customer’s needs for customization and convenience at any time of the day. Customization is established, through the integration of the mobile app into the retail system of the Starbucks supply chain process because the app recommends drinks and food items to customers based on their search histories and buying habits.
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Does Starbucks have supply chain issues?
Just like every other business, Starbucks has supply chain issues and challenges. The supply and price of its coffee and products can be affected by several factors such as weather, natural disasters, crop disease, an increase in the cost of farm inputs, production cost, transportation delays, as well as political and economic conditions.
If there is a natural disaster in any country that supplies raw materials to Starbucks, there will definitely be a shortage of raw materials and the price will go up. For instance, coffee growers may face challenges like drought or crop diseases which will cause a poor yield and a shortage of raw materials.
Transportation is a very important part of Starbucks’ supply chain process, thus, any delay or increase in the cost of transportation will affect the supply chain. The company can experience supply chain issues when transportation is affected by an increase in fuel price or is delayed due to weather, war, or a pandemic.
In recent times, shortages and price hikes are the Starbucks supply chain problems faced. The retail system of the company’s supply chain is being affected as commodities are all becoming more expensive and there is a shortage of basic ingredients/items, due to disruptions in the global supply chain.
Also, there are some economic and political factors in Starbucks’ retail locations and suppliers’ countries that can cause disruption in the company’s value chain.
We will discuss these major Starbucks supply chain issues below.
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Video Case Study of Starbucks Supply Chain Issues and Process
Starbucks’ supply chain issues and problems
- Climate change
- Economic condition of coffee suppliers’ country
- Transportation delays
- Inflation and price hike
- Staffing shortage
- Shortage of base ingredients and items
- Economic downturn
- Natural disasters and public health hazards
- Mobile app order issues
- Overexpansion challenges
- Implementation of local authority’s policies
Economic condition of coffee suppliers’ country
The economic condition of the country of a coffee supplier is a major issue in the supply chain of Starbucks.
The company purchases the majority of its raw coffee beans from East Africa and Latin America. Most of the countries in these areas are emerging economies and have economic structures that are not yet matured. This is a major Starbucks supply chain issue because sourcing raw materials from these countries can be highly risky and unstable.
For instance, if the economic conditions in these countries do not favor the coffee market, the farmers will get discouraged. The price of coffee goes down when there is more volume of available coffee than demand; this can cause suppliers to leave the coffee growing business and venture into another business, leading to labor shortage.
For instance, in the 90s, there was an oversupply of lower-grade coffee beans which resulted in a lower price of coffee beans across the globe. Farmers became discouraged because they were getting lower revenue than their production cost and started to leave the coffee beans growing business.
At this time, Starbucks was expanding and needed premium coffee beans for long-term business goals. The company had to partner with a non-profit organization called Conservation International to develop Coffee and Farmer Equity Practices (C.A.F.E) for the welfare of farmers and to ensure long-term premium quality coffee beans supply.
Due to the economic condition of some of the coffee-growing countries, coffee farmers live in poor conditions and are uneducated. Most of the coffee farms in these countries are even very difficult to access. But with the launch of C.A.F.E in 2004, Starbucks was able to measure farms against economic, social, and environmental criteria.
This verification program was designed to promote transparent, profitable, and sustainable coffee growing practices and also protect the well-being of coffee farmers, their workers, families, and their communities. As these farmers earn better, they tend to stay longer in the coffee-growing business which eventually solves this issue in the supply chain of Starbucks coffee.
By resolving farmers’ issues, the company has been able to increase premium coffee beans production and reduce the possibility of coffee bean scarcity disrupting the Starbucks supply chain process.
The C.A.F.E practices approach is definitely one way the company has been able to manage the supply chain problems arising from suppliers. However, one of Starbucks’ supply chain issues with the C.A.F.E practices is the challenge of having access to suppliers that can fulfill the company’s quality and sustainability standards.
Another economic factor that contributes to Starbucks’ supply chain issues is exchange rates and interest rates. When dealing with international trade, the exchange rates affect the company’s supply chain. For example, if the currency of the country of a coffee supplier falls, Starbucks pays less when importing its raw material into its country, but when the currency of the coffee supplier rises, the company is forced to pay more when importing its raw materials.
Transportation delays
Starbucks uses ocean shipping and trucking for its operations. Hence transportation delays are one of the Starbucks supply chain issues that occur from time to time. Delays could arise due to natural disasters, road construction, accidents, road debris, inclement weather, rush-hour congestion, etc.
There could also be delays in transporting raw materials to the manufacturing plants when there is a shipping container shortage or port congestion.
Disruptions in Starbucks’ logistics and transportation system can impact the availability of certain ingredients or materials, which can affect the production and profitability of the business.
For example, in 2021, Starbucks experienced a temporary cup shortage in its retail outlets which started in November. This was due to the pandemic; the cups shipped by boat were stranded at sea because vessels had to wait for long periods to dock and unload.
Climate change
Starbucks’ supply chain is definitely one example of a company that will be affected by climate change. Coffee bean, the primary ingredient of this company, is limited by warmer temperatures, and changing rainfall patterns. Due to climate change, coffee farmers are suffering from increased pests and diseases as well as decreased quality and yields.
For example, wet and warmer climatic conditions create a conducive environment for coffee leaf rust disease to thrive. This is one of the diseases that is affecting the productivity of the thousands of coffee farmers that supply Starbucks with its raw material.
A recent study published in the PLOS journal (Expected global suitability of coffee, cashew, and avocado due to climate change) shows how the growing conditions for coffee will change. The study foresees an overall decrease by 2050 in the global area suitable for coffee growing. This finding is a big threat to Starbucks’ supply chain process.
Nonetheless, Starbucks, as one of the largest roasters and retailers of specialty coffee in the world, is fully aware of the adverse effect of climate change on its global supply chain. In response to this problem, the company is proactively implementing adaptation initiatives to help coffee farmers adapt to climate change in order to ensure the continuous supply of coffee in decades to come.
An example of an implemented Starbucks supply chain management approach to curb the challenges of climate change is the conversion of the company’s 240-hectare farm in Costa Rica into a global agronomy research and development center for developing Arabica coffee varietals with increased disease resistance and productivity and testing CAFE practices.
Climate change is no doubt one of the direst Starbucks supply chain issues and as such, the company is not taking chances. In order to secure the supply chain of high-quality coffee, the company launched and operates ten farmer support centers in key coffee-producing countries around the world like Indonesia, Costa Rica, Mexico, China, Guatemala, Rwanda, etc.
At these centers, coffee farmers are trained by agronomists and sustainability experts in topics like advanced soil management techniques and new varietals of disease-resistant trees. These farmer support centers help to promote best practices in coffee production in order to improve coffee quality and yields. It also offers agronomy support to address climate change and other impacts.
Inflation and price hike
The rising cost of coffee, ingredients, and other commodities due to inflation is one of Starbucks’ supply chain issues. The company is confronting the same inflationary pressure and supply chain issues that other companies like McDonald’s are facing.
For instance, in 2022, the price of Starbucks’ primary ingredient (coffee beans) sharply increased. For most of 2022, the price of coffee beans was as high as $2 per pound and above. The price nearly doubled in February 2022, due to rising demand, poor weather conditions in Brazil, and global supply chain turmoil.
Dealing with Inflationary pressures has been one of Starbucks’ supply chain issues since the pandemic because the company has had to resort to certain pricing actions just to mitigate cost pressures.
Due to inflation, increased demand, and the Covid-10 pandemic, Starbucks increased its menu prices in October 2021 and since then, customers have experienced several price hikes from the company in subsequent months.
The increase in Starbucks menu prices varies from location to location and has come to stay because it’s hard to predict when inflationary pressures will subside. The company itself expects heightened costs of commodities, logistics, and labor and therefore, has additional pricing actions planned.
However, even with the price hike, consumer demand is still up. But even at that, consumers can be very unpredictable and this is why Starbucks tries as much as possible to not raise its prices too high. If the company does, it may no longer be competitive, as customers may start cutting down on their coffee intake to save costs or just look for other cheaper coffee brands to patronize.
Staffing shortage
In recent times, one of Starbucks’ supply chain issues has been the staffing shortage. This issue affects the company’s hours of operation, causing several nationwide stores to open for a shorter period of time during the day.
On January 14, 2022, the company had to send emails to customers, to inform them that there will be service disruption in weeks to come. Hence, customers are to expect shorter store hours and spottier availability of mobile ordering.
Due to staffing shortages, the company’s retail stores have been shutting down and cutting hours for months. This has had a tremendous effect on the value chain of Starbucks as customer complaints keep piling up. Hence, this staffing issue has significantly affected the company’s customer service experience.
The company faces a staffing shortage due to two major factors, the unionization efforts among workers and the surge in the Omicron variant cases.
In the United States, Starbucks, over a period of a few months, fired more than 85 workers that were involved in organizing worker unions against unfair labor practices.
According to Starbucks, the emergence of the Omicron variant caused more worker absences than they had been expecting during the pandemic as most of its staff kept calling in sick.
Starbucks’ shortage of base ingredients and items
The shortages of ingredients and menu items have also been one of Starbucks’ supply chain problems for much of 2021 and 2022. At various locations across the country, there have been complaints from customers and employees about shortages of base ingredients for popular drinks, and items like cups, lids, and, even straws.
The company had confirmed shortages of some products which varied from store to store. Starbucks’ shortage of ingredients means the unavailability of ingredients to make popular drinks and this is never good news to consumers.
As of June 4, 2021, Starbucks had to put orders for at least 25 menu items on temporary hold. Some of these items included hazelnut syrup, chai tea bags, toffee nut syrup, green iced tea, etc. Some stores had to even display signs that read:
“We are currently experiencing temporary outages of some of our food and beverage items….”
Here are a few prominent examples of some of Starbucks’ supply chain challenges on shortages:
Coffee shortage, as one of Starbucks’ supply chain issues in 2021
Starbucks experienced a coffee shortage during the fiscal year 2021. The coffee chain struggled to keep up with demand as its inventory of coffee beans was running low.
Starbucks’ coffee shortage led to shortages of some of the company’s most popular coffee drinks. This was one of Starbucks’ supply chain issues in 2021, as the coffee chain was forced to ration its supplies.
This coffee shortage was worsened by the drought in Brazil. Brazil is one of the world’s largest coffee-producing countries and so, the drought in this country led to a decrease in the supply of coffee beans. It also affected the price of coffee and caused the price of coffee to rise sharply.
Apart from drought, many regions in Brazil were severely affected with the most severe frost to ever hit coffee farms in years. More than 200,000 hectares of land cultivated with coffee in Brazil were hit with major damage in 2021 (between the end of June and July) by four rounds of frost.
The level of damage from the frost and drought was the most severe problem that has been seen in Brazil’s coffee sector for years and up-to-date coffee farms and growers are struggling to recover. This affected Starbucks’ supply chain process severely, as the price of coffee skyrocketed.
As a result of the coffee crisis, Starbucks and other coffee giants like Lavazza and Costa had no option but to absorb the price hikes and pass them on to their customers.
Starbucks bottled frappuccino shortage in 2021
One of Starbucks’ supply chain issues in 2021 was the frappuccino shortage. Customers, toward the end of 2021 complained about shortages of the frappuccino mix. There were several reports from customers and staff about the lack of the base ingredients used to make the Frappuccinos.
The main reason for Starbucks’ bottled frappuccino shortage in 2021 was as a result of the coffee house lacking the base ingredients. This was due to the missed deliveries of ingredients like oat milk, syrup base, and other ingredients that give the frappuccino drinks their creamy texture.
Depending on the location, many Starbucks stores were unable to make Frappuccinos for periods ranging from several days to more than a week. Only the stores that had been lucky to store the base ingredients managed to keep on making the drink for a short period before they faced the same shortage.
The missed deliveries of base ingredients were beyond the Starbucks supply chain process. The international supply chains were experiencing bottlenecks, and as a result, Starbucks and other businesses were unable to procure the necessary items needed for their businesses to run smoothly.
Due to the shortage issues, there were suggestions of customers ordering their drinks as skinny, without coffee, oat milk, or cream. This was a huge problem for Starbucks because customers were dissatisfied and wondered what the Frappuccino will be left with if they remove all its ingredients.
Starbucks mocha shortage in 2022
In 2022, there was a temporary shortage of white mocha flavoring. Even though Starbucks did not come forward with an official statement, regular customers were reporting the mocha shortage in their local stores on social media platforms like TikTok, Twitter, and Reddit.
Starbucks mocha shortage meant no access to one of the country’s favorite drinks of the season and customers were highly disappointed.
The white mocha is a seasonal flavor that is usually available during the holiday months. Hence, the shortage could have been a result of heightened demand due to the flavor’s availability and subsequent push for orders. This example, therefore, goes to show how the overdemand of a product can be one of Starbucks’ supply chain issues.
Shortage of coffee cups as one of Starbucks’ supply chain issues in 2022
The shortage of coffee cups is a typical example of one of Starbucks’ supply chain issues in 2022. America was facing a coffee cup shortage and this was a serious challenge for major chains like Starbucks.
The pandemic caused shipping delays which caused supply chain issues. As a result of these delays, imported cups were stuck in ports, causing a shortage. Apart from this, weather-related resin production delays in Texas and labor shortages in domestic paper mills were also contributing factors to the shortage of coffee cups.
This was a challenge for Starbucks because it was happening at a time when the pandemic has made demand for takeout packaging like disposable cups a usual thing. Even when the cups are available, the prices of the cups were higher, due to the shortage issues.
A Starbucks spokesman at the time confirmed that some customers may receive their beverage in an unbranded cup as the company will be working quickly and closely with its supply chain vendors to ensure items are restocked as soon as possible.
Starbucks’ supply chain problems caused by an economic downturn
Economic downturns are some of the prominent issues of the supply chain of Starbucks. A recession can bring about slow growth and a reduction in sales.
During an economic downturn, consumers may spend less, opt for rather cheaper products, or even skip the store altogether. This results in low patronage and sales which in turn affects the revenue of the company.
In such critical situations, the company has to implement certain strategies to navigate through the economic downturn. It needs a supply chain strategy that will help mitigate costs and brand the company in such a way that customers will still make Starbucks coffee an integral part of their lives.
For instance, during the 2008-2009 financial crisis in the U.S., Starbucks saw a rise in the costs of essential and nonessential ingredients as well as a reduction in its global store count. Patronage was low and the company’s shares and stocks lost roughly half their value at the low point of the recession.
In order to address these Starbucks supply chain issues, the company diversified and renegotiated its contracts with suppliers. It had to work with its suppliers to find sustainable ways to cut down on costs without compromising the quality of its products.
This Starbucks supply chain strategy helped to reduce the piling cost on the company’s supply chain. Hence, by the time the recession ended, Starbucks was able to recover all its losses.
Mobile app order issues
The introduction of its Starbucks mobile app is one of the forward vertical integration strategies used by the brand to control the sale of its product to the public. This AI technology has been beneficial to Starbucks’ supply chain process as it has helped to make the ordering process more efficient and reduces service times which improves the overall customer experience.
Nonetheless, one of Starbucks’ supply chain issues is the issue arising from Mobile ordering. There have been some instances where mobile orders cause chaos for employees and customers.
For example, the Mobile app allows too many orders to come through at once, causing a certain level of congestion in understaffed cafes that employees can’t possibly handle in a timely manner.
Also, the app sometimes is glitchy and doesn’t accurately reflect the availability of ingredients at most Starbucks stores. This unfortunately leads to poor order fulfillment where key ingredients are either missing or substituted with undesired alternatives.
This is one of the common issues Starbucks’ supply chain encounters from mobile ordering when there is a shortage of ingredients and other products at the store.
Natural and public health hazards
Natural disasters and public health hazards are some of the issues that can affect Starbucks’ supply chain. Natural disasters like flooding, drought, earthquake, tsunami, etc can affect the procurement process of Starbucks’ raw materials, its manufacturing process, and even the transportation and distribution of its products. This can cause severe losses for the company.
In recent times, it can be seen how every business faced severe supply chain issues due to a public health hazard. During and after the 2020 pandemic, Starbucks had supply chain issues; the company acknowledged temporary supply shortages of some of its products during this period. Just like other retailers and businesses, the company struggled to meet demand, partly because of constrained supplies.
The company’s supply chain was disrupted by the pandemic. Due to the pandemic, many customers’ purchasing patterns changed. Hence, forecasting demand during the pandemic was one of the problems Starbucks’ supply chain faced.
Omicron virus as one of Starbucks’ supply chain issues in 2022
The omicron virus was one of the supply chain issues of Starbucks in 2022. In January 2022, the coffeehouse had to inform customers about the closure of some stores and shortened hours due to the surging coronavirus cases.
Staffing shortages and inflationary costs were one impact of covid-19 on Starbucks’ supply chain process.
According to Starbucks, the Omicron variant amplified inflationary pressures and caused many staff to call in sick. Kevin Johnson, on Tuesday’s earnings call, stated that three primary factors such as COVID-19 sick pay and isolation pay for staff, high inflation, as well as training and onboarding of new partners impacted the company’s profitability.
Amid the spread of the Omicron variant, there had been a great increase in the number of coronavirus cases among Starbucks staff. The CEO said that the spread of the Omicron variant had led to the company paying significantly higher COVID-related benefits than expected.
Also, due to Omicron-related staffing shortages, transportation and distribution providers had to scale back some of their operations and this caused a rapid increase in Starbucks supply-chain costs. The CEO said the company had to use alternative delivery solutions and relied on getting supplies from the much more expensive spot market.
Implementation of local authority’s policies
A company must be aware of local laws and regulations when operating globally and must also look out for any updates on changes to these laws. As far as supply chain management is concerned, there are several laws and regulations that come into play such as minimum wages law, taxes, the minimum base price for commodities, employment laws, labor welfare laws, laws regarding land use, etc.
One of Starbucks’ supply chain issues is the challenge of having to adhere to certain local authority’s laws and policies that are either unfavorable or detrimental to the business growth.
For example, California law (Proposition 65) requires that businesses must provide warning labels to consumers about significant exposures to chemicals that cause birth defects, cancer, or other reproductive law.
The Council for Education and Research on Toxics (CERT) sued Starbucks and other coffee retailers on the grounds that they were violating this California law. In regard to this lawsuit, a California judge ruled in March 2018, that Starbucks and other coffee retailers violated California law and must provide warning labels on all coffee products warning consumers of chemicals like acrylamide that may cause cancer.
Acrylamide is a carcinogen byproduct of roasted coffee beans that is found in high levels all over brewed coffee. Thus, exposing Starbucks and the other defendants to civil proceeding penalties of fines.
As a coffee retailer, such laws are unfavorable to Starbucks as they can cause a huge reduction in sales. The company refused to comment and rather referred to a statement by the National Coffee Association that claims that it would be misleading to put cancer warnings on products.
Another example of how certain government policies are some of Starbucks’ supply chain issues is a case in the UK where local authorities have accused the company of opening several stores in retail premises, without the planning permission for a change of use to a restaurant.
Starbucks in its defense has argued that there is no official classification of coffee shops under current planning law. In some instances, coffee shops operate as A1, some under A3 permission, and some as mixed-use A1/A3. Hence, the company is faced with a difficult scenario whereby local authorities interpret the instruction in different ways.
Starbucks’ supply chain challenges due to overexpansion
There were some Starbucks supply chain issues that resulted from overexpansion. The company began facing an overexpansion problem as it grew well and was rapidly opening new stores. Its’s growth strategy was not sustainable as it led to oversaturation in certain markets.
The rapid growth was initially commended as a success for the company, but later resulted in stagnated sales and caused a strain on Starbucks’ supply chain process.
Nevertheless, over 600 underperforming stores in the United States were closed by the company to address Starbucks’ supply chain problems of oversaturation. This action helped the company to streamline its operations and focus on its most profitable stores. Thus, allowing the supply chain of Starbucks to function much better.
How the company manages the challenges and issues that arise in its supply chain has made it successful and has been helping it to maintain its success and continuous growth.
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Last Updated on November 2, 2023 by Nansel Nanzip Bongdap
Obotu has 2+years of professional experience in the business and finance sector. Her expertise lies in marketing, economics, finance, biology, and literature. She enjoys writing in these fields to educate and share her wealth of knowledge and experience.
