Coffee and Starbucks

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Starbucks Coffee Distribution Preethi Kasireddy
[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]

Network

Preethi Kasireddy

Esmeralda Ayala Ari Eryorulmaz

Billy Jung

[Company Address]

Table of Contents Abstract…………………………………………………………………………………………....2 Background and Problem Definition……………………………………………………...2 Current Situation………………………………………………………………………………..2-5 Demand………………………………………………………………………………....2-3 Supply Side Concerns…………………………………………………………………..3-4 Prices……………………………………………………………………………………4-5 Distribution Network………………………………………………………………………...…5-7 Phase 1: From Suppliers to Distribution Centers…………………………………….....5-6 Phase 2: From Distribution Centers to Regional Retailers……………………………...6-7 Recommendations…………………………………………………………………………………7 Starbucks’ Use of 3PL…………………………………………………………………………….8 References……………………………………………………………………………………..9-11 Appendix A………………………………………………………………………………………12 Appendix B………………………………………………………………………………………13 Appendix C………………………………………………………………………………………14 Appendix D………………………………………………………………………………………15 Appendix E………………………………………………………………………………………16 Appendix F………………………………………………………………………………………17 Appendix G………………………………………………………………………………………18 Appendix H………………………………………………………………………………………19 Appendix I……………………………………………………………………………………….20 Appendix J……………………………………………………………………………………….21 Appendix K………………………………………………………………………………………22 Appendix L………………………………………………………………………………………23 Appendix M……………………………………………………………………………………...24 Appendix N………………………………………………………………………………………25

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Abstract Background and Problem Definition Starbucks, founded in 1971, is the world’s #1 specialty coffee retailer with more than 18,850 coffee shops in 40 countries. It operates approximately 8,800 of its shops, while licenses and franchises operate the remaining stores. The company also owns Seattle’s Best Coffee and Torrefazione Italia coffee brands. Starbucks offers a variety of food items, as well as roasted beans, coffee accessories, and teas and also markets its coffee through grocery stores and branded food and beverage products. Due to the immense global network that Starbucks has built over the past 40 years, this report will focus strictly on the coffee bean supply chain network for Starbucks U.S. In particular, the report will analyze international coffee bean suppliers, Starbucks’ US distribution network, shipping and transportation costs, and regional distribution network. Because of the tight supply and growing demand, evident from strong revenue growth, of coffee beans, all of the demand is not being met. Thus, the goal of this project is to find an alternative method for 100% of the demand to be distributed and supplied. The Current Situation Demand Starbucks coffee, which maintains 4.5% of the US market share for coffee, is expected to see an increase in per capital coffee consumption. For the fiscal year ending September 2010, Starbucks reported $10.71B Sales, with a 1-Year Sales Growth of 9.54% and a 13.26% operating margin growth. They reported $946.60M in net income, which a 1-Year Net Income growth of 141.97%. For fiscal first quarter of 2011, EPS of $0.45 were reported and increased profits of 44% from year-ago period. This growth was driven by in-store sales growth of 8% in the U.S. The

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strength of Starbucks growth in comparison to the industry median growth of -0.35% for revenue and 10.04% growth in net income is a strong indicator of high demand for Starbucks from 20112016. Demand numbers were calculated based on 2009 imports. Risks that Starbucks faces include late delivery from supplier, slow replenishment lead time, damaged/unusable beans, random demand, unexpected increase in demand, and inaccurate demand forecasts. Therefore, to mitigate the risk of stock outs, a safety stock of 15% was applied. Coffee beans don’t spoil or expire and so additional costs due to safety stock only come from storage costs (see Demand Analysis...
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