Electronic commerce fundamentals and applications

Electronic Commerce

Starbuck's Corporation

The global initiatives and strategies that Starbucks Corporation continues to pursue give the company significant competitive advantages in the coffee retailing industry. Chief among these are the development and continued investment in ethical supply chain practices that also encompass their Corporate Social Responsibility (CSR) initiatives. Cause-related marketing's effectiveness continues to be shown in the strategic plans and results attained by companies who combine ethics and CSR initiatives together (Berglind, Nakata, 2005). In addition to Starbucks', the performance of HP on their strategic sustainability initiatives is considered best practices in the high technology industry (Lee, 2008). Both of these companies have successfully integrated a broader vision of strategic purpose or intent to enrich their suppliers, the environment and customers by being more cognizant of how their processes impact others. In the case of Starbucks their most significant accomplishment in terms of CSR initiatives is the development in 2004 of the Coffee and Farming Equity (CAFE) initiative (Argenti, 2004). When this program first started approximately 25% of the company's coffee came from this program, growing significantly by 2007 to over 50%. The intent of this analysis is to evaluate how Starbucks progressed their ethics and SNR initiatives with first the Preferred Provider Program and late the CAFE Initiative (Argenti, 2004).

Ethics Stabilize Supply Chains and Global Corporations

The coffee industry is known for rapid consolidation of suppliers due to price cutting and the tendency of the global leaders in this industry enforcing price cuts to gain competitive advantage (Deutsche Bank 2006). Starbucks' senior management had initially participated in these practices and soon found how counterproductive it was to both their long-term profitability and the cycle of continually having to recruit new suppliers. Starbucks however is credited as the first global coffee retailer to seek out equitable pay to growers, distributors and members of the distribution channel so they could stay in business for the long-term (Argenti, 2004). As anticipated, this significantly reduced the industry's supplier development, procurement and supply chain management, and supplier quality costs, leading to increases in saved resources as well (Lee, 2008).

Over time Starbucks has begun to measure the performance of the CAFE program and its many processes and found a correlation between ethical payment of their suppliers and their own profitability (Witkowski, 2005). As attention within the popular media also shifted to the unethical practices of other coffee retailers and chains, the fair trade practices of Starbucks and development of the CAFE initiative gave Starbucks' a strongly differentiated identity (Berglind, Nakata, 2005). This identity has become a central part of their corporate brand, and in conjunction with their "green" or sustainability initiatives the company has created, the Starbucks branding initiatives are now considered best practices in CSR planning and execution (Lee, 2008). The rapid maturation of these programs within Starbucks shows how critical it is to see ethics and CSR initiatives from a collaborative standpoint first, not as an expense. Starbucks has been able to monetize these strategies not from deliberate attempts but from the benefits of strengthening its suppliers so they could also experience profitability and reinvest in their businesses.

Integrating to the Starbucks Supply Chain Management System

Starbucks moved beyond using their ethics and CSR initiatives to just support their supply chains and integrated them into their main supply chain systems as well (Witkowski, 2005). Starbucks has successfully defined the corporate value of their CSR programs as a result.

The CAFE program, when tracked as part of the broader Starbucks supply chains, showed that despite the higher costs associated with coffee and ancillary products, the company's quality costs were consistent and predictable due to a stable supplier base (Deutsche Bank 2006). The pricing models of Starbucks are specifically created to take into account high levels of commodity fluctuations including diary, sugar and paper. The company has traditionally managed this risk through the use of hedging and futures-based purchases to alleviate wide swings in pricing (Deutsche Bank 2006). The company has learned over time that the greater the level of stability in their supply chains, the more consistent the level of pricing behavior over time. The supply chain for Starbucks is shown in Figure 1, highlighting the tight integration with estates, small farms and cooperatives. These were the pilot areas of the CAFE program which has since expanded throughout the entire Starbucks value chain (Deutsche Bank 2006). Starbucks relies on a global product development process that seeks to introduce new drinks in varying hemispheres for test marketing by season. The stability of their supply chains through the reliance on the CAFE program has significantly reduced sourcing, supply chain and quality management costs as a result (Deutsche Bank 2006).