PL’s Forum Chicago Dispatch 3: Starbucks, Supply Continuity and Beyond

At Procurement Leaders' Chicago forum last week, Starbucks' Johnathon Baker, who serves as VP Global Procurement, raised a very common theme among fast-growing organizations regardless of industry -- the importance of getting past single supplier relationships to maintain continuity of supply. Baker suggested one of his main focuses is on identifying multiple suppliers for similar categories and items to reduce supply risk. Starbucks is also considering hedging for commodities where it makes sense, given their large commodities spend. Cases like Starbucks present a very useful study when looking at the potential role of procurement in high-growth organizations.

With revenue up nearly 10x since 2003, Starbucks is an organization that has had to manage through significant organic expansion and even occasionally inorganic (no pun intended!) deals, such as the Tazo tea acquisition. Tazo tea even presents a good supply management case in point. What was once a wretched product (at least by this tea snob's opinion) has become a more premium brew thanks to competitive market forces that have forced Starbucks to up their tea game. I suspect the Tazo situation and evolution would make a great case study about the need to leverage procurement to not just reduce costs after an acquisition, but to eventually improve product quality as well.

Aside from reading the spend tea leaves, there are other lessons in Starbucks' investment in procurement, given the high trajectory growth curve of the company. For one, cost (and cost control) is not everything. Prioritizing supplier management, supply risk management, product quality and overall continuity of supply (which includes logistics, import / export skill sets, etc.) must take priority over negotiating down unit prices. Moreover, as Baker pointed out, supporting innovation such as Starbucks Via (an instant coffee that is actually drinkable) or environmentally friendly cups requires keeping up with business and customer needs rather than simply driving cost out of the business -- which is just the ante to avoid charring the spend beans.

Jason Busch

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