Operations Management Plan for an Artisan Coffee Roaster

Introduction and Market Overview

Fiyeli Coffee is an artisan coffee roaster based in a mid-sized city. The company operates on a wholesale-only business model, allowing it to focus on the high-end restaurant and hotel trade across the state, alongside a mail-order retail business. Fiyeli also sells to select coffee shops, but the majority of its market lies on the restaurant and hotel side.

In the United States, the retail coffee market is worth an estimated $12.8 billion and has seen a growth rate of 7.9% (Mordor Intelligence, 2017). The market is highly competitive and highly stratified, but this growth provides opportunities for companies to expand and to find specialized niche markets.

Fiyeli faces a long-term challenge in ensuring a stable supply chain of high-quality coffee beans. Rising consumption has increased demand, while climate change is threatening supply — the combined result being a spike in price (Mersie, 2019) and a decline in the availability of high-quality beans (Garza & Hoffman, 2019). Failure to resolve this challenge will make it more difficult to maintain the brand's strong reputation and could also impede the company's ability to sustain growth going forward.

Coffee is one of the most widely consumed beverages in the United States, with 64% of Americans drinking at least one cup per day (Sherman, 2018). The survey participants referenced in the literature were adults; children are not part of the target demographic. Most of Fiyeli's customers are on the B2B side. They are typically men, middle-aged, and white, and may or may not have a formal education — some came up through the ranks starting in kitchens. Younger buyers often have some college background. Because Fiyeli targets upscale hotels and restaurants, its end users tend to be middle-aged, with household incomes over $100,000, college-educated, and skewing more white than the general population.

Supply Chain Design and Materials Resource Planning

Khan and Creazza (2005) make the case that product design is integral to the supply chain management process. Their research suggests that products are typically designed to meet identified market needs, with the supply chain then built around the product. They argue, however, that if product design is also taken into account during supply chain planning, supply chain management can be simplified. For example, a part that is difficult to source might have a functional equivalent that is far easier to obtain; opting for the easier part means building supply chain thinking directly into product design. For Fiyeli, the key consideration is that super-premium coffees are central to the business model, which means that a consistent, reliable supply chain is of utmost importance.

It is also worth noting that super-premium coffees are relatively stable in their green (pre-roasted) state, which means the supply chain should be designed around quality rather than speed. Speed is not critical, as the beans can be warehoused for a year or more. Low cost is similarly not a primary concern, because the target consumer is not particularly price-sensitive. For these reasons, a quality-oriented supply chain is the optimal choice for Fiyeli.

Materials Resource Planning (MRP)

A materials resource planning (MRP) system is one tool for helping to manage the supply chain. An MRP system can provide dashboards and metrics for evaluating supply chain performance, and should include features for tracking items as they move through the chain (Shebab et al., 2004). The MRP system should be tied to overall company goals and metrics, while also adding value by working in conjunction with the company's demand forecasting system to ensure that a sufficient supply of coffee is available for roasting. For a coffee roasting business, the MRP system should incorporate harvest times from different regions around the world, demand forecasts, and a comprehensive vendor list.

Key Suppliers

The key suppliers for Fiyeli are, in effect, the farmers themselves. A farmer-direct sourcing model is common among very high-end coffee companies. Although wholesalers can fulfill this function, it is often more effective for the company to work directly with farmers who produce high-quality beans to ensure sufficient supply. With a supply chain designed for quality, Fiyeli can invest the resources needed to source the very best product — typically by visiting growing regions and establishing personal connections with individual coffee farmers. Paying a premium price can foster a stronger supplier relationship. Fiyeli should focus on building relationships in key producing countries — including Ethiopia, Guatemala, Kenya, Rwanda, Costa Rica, Peru, Bolivia, and others — in order to gain access to a diverse range of beans. Depending on contract size, between 20 and 100 farmers or cooperatives should be contracted to produce for Fiyeli.

Supplier Relationship Management

Overview

The basic philosophy underpinning Fiyeli's supplier relationship management strategy is that producers of super-premium coffee beans are a finite and highly sought-after group. They possess both the right land and the skills to maximize its potential. Competition for the best beans is intensifying, and therefore having a sophisticated supplier relationship management (SRM) system is essential. Key elements of an effective SRM include purchasing strategy, supplier selection and development, and active collaboration with suppliers (Park et al., 2010).

SRM Strategy

The purchasing strategy is to buy at harvest time in each target country, ideally in person. Beans can then be shipped directly and stored at the company's roasting facility. Many suppliers value buyers who visit them locally; this gives the buyer the opportunity to build a strong relationship with the farmer or cooperative leader — which is, in many supplier nations, the preferred way of conducting business. Furthermore, these strong personal relationships can give Fiyeli preferential access to beans from the best farmers in subsequent years, a dynamic that could serve as a genuine source of competitive advantage. Developing these supplier relationships is also essential for the company's long-term scaling plans, as Fiyeli will build a positive reputation in the areas where it maintains existing ties. Because farmers in many producing countries are strongly motivated by family and community values, Fiyeli's in-person presence in critical regions can help to cultivate rich, contextual relationships that yield benefits in numerous ways over time.