Starbucks in India: Creating Sourcing, Quality and Pricing Synergies

Starbucks is finally coming to India. The world's largest premium coffee retail chain announced in January that it has entered into an agreement with Tata Coffee for a strategic alliance.

Headquartered in Seattle, Washington, Starbucks operates in more than 50 countries. It has been sourcing coffee beans from India for the last seven years.

Tata Coffee is Asia’s largest coffee plantation company and the third-largest exporter of instant coffee in the country. It produces more than 10,000 million tonne of shade grown Arabica and Robusta coffees at its 19 estates in south India. Its two instant coffee manufacturing facilities have a combined installed capacity of 6,000 tonne.

Under a non-binding memorandum of understanding (MoU), Starbucks will explore setting up stores in the Tata group's retail outlets and hotels, besides sourcing and roasting coffee beans at Tata Coffee's Kodagu facility.

Tata Coffee, one of the biggest suppliers of Arabica coffee beans, has shipped coffee beans to Starbucks in the past and is now building a structure for a long-term relationship, a joint release from the Tata group and Starbucks.

Retail growth outside the US is now central to the company's strategy. In an investor presentation, Starbucks International President John Culver said the company hopes to operate at least 1,500 stores in mainland China by 2015. He also said that the company sees exciting growth prospects in other emerging countries such as India and Brazil.

According to the MoU, the two companies will collaborate on providing training to local farmers, technicians and agronomists to improve coffee-growing and milling skills. The two companies will also explore social projects in the coffee-growing regions Tata Coffee operates.

“This MoU is the first step in our entry to India. We are focused on exploring local sourcing and roasting opportunities with the thousands of coffee farmers within the Tata ecosystem. We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations,’’ said Howard Schultz, chairman, president & CEO, Starbucks Coffee Company.

In the areas of sourcing and roasting, Starbucks will explore procuring green coffee from Tata Coffee estates and roasting at the Indian company’s existing facilities. At a later phase, Tata Coffee and Starbucks will consider jointly investing in additional facilities and roasting green coffee for export, the release said. 

This is a good strategy for Starbucks to have sourcing and roasting operations in the market which it aims at entering. This integration will help Starbucks to maintain the high quality of its products, customize them to the taste of the Indian palette and achieve pricing synergies. The entire operations of Starbucks India will be streamlined and hence Quality maintenance will not be a problem.

Vishwajit Vyas has done his B.Tech. in Electronics Engineering from Wayne State University, Detroit,  Michigan and can be reached at vishwajitvyas @ gmail . com.

The Pepsi Challenge

Pepsi Pennsauken is easing distribution flow by outfitting its sales representatives with handheld computers that instantly send data back to the distribution centers over a wireless network. Sales and delivery capacity have increased at lower costs than before.

A bottleneck at one of Pepsi's biggest bottlers was choking distribution and costing thousands of dollars in overtime pay and lost sales. Pepsi Pennsauken, which serves the Philadelphia and southern New Jersey region, was servicing a booming cola market with an aging, outmoded infrastructure--a common dilemma across the soft drink industry. For the nation's number-two cola brand, though, it was a hard problem to swallow.

The difficulty was, sales reps couldn't get their orders from the field back to the loading docks quickly enough. Workers in the distribution centers would spend their afternoons sitting on their signals. The backlog of weekday orders stacked up so that they ended up delivering 30,000 to 40,000 cases on Saturday--and paying time-and-a-half plus commission to do it. Then the orders would start backing up on Monday, and would go through the whole vicious cycle again.

The scenario was leaving a bad taste in the mouths of Pepsi Pennsauken's customers, too. The solution appeared in 1994, when Pepsi Pennsauken outfitted its sales reps with handheld computers that instantly send data back to the distribution centers over a wireless network. Reps no longer had to waste precious selling time listening to busy signals, and workers in the distribution centers received orders as soon as they were taken. When drivers made it back to the loading dock, their orders were waiting for them, instead of them for their orders. Pepsi had a fifteen percent improvement in labor efficiency in the first months the program was in operation.

Wireless was perfectly suited to the demands of the soft-drink industry. Generally, bottlers sell soft drinks to retailers in one of two ways: on a route sales basis, where drivers take orders and pull cases right off the truck; or pre sell, where reps take orders in advance for later delivery. With the explosive growth of the ultra competitive soft-drink business--fueled by the introduction of New Age teas, juices, and waters—pre selling for next-day delivery was critical to bottlers' strategic planning.

Beginning in May 1994, each of the company's 15 route-sales drivers were given wireless equipped handheld computers. Reps now carry the devices with them as they check inventory at each of the client retail outlets. Soft-drink orders are punched directly into the device as reps stand in front of the counters and tally the inventory. The order is then immediately sent over wireless network to large antennas that forward the order via a landline connection back to the distribution center.

The real-time element of wireless data transfer meant that the warehouse could receive an order almost as soon as the rep could write it. A rep could transmit the order from a radio modem in his car without jammed phone lines forcing him to transmit all the orders at the end of the day. It used to be that one salesperson handled three stores; now one salesperson covers four or five. It helped in increased sales and delivery capacity, and at lower costs than before.

Aniket Choudhary is a PGP student of Indian Institute of Management, Raipur. He has done his B.E. in Mechanical Engineering from College of Technology and Engineering, Udaipur. Aniket can be reached at aniketchoudhary87 at gmail . com 

Mc Donald's Fast Food Restaurant JIT

At Mc Donald’s Fast Food Restaurant, strategy of Just in time has been applied and has brought many benefits to the organization and added value to the organization. This just in time system has helped in reducing the costs by drastically cutting down on inventory levels and wastages.

Previously at Mc Donald's Fast Food Restaurant the strategy was to pre cook all the burgers and place them under the lamps to keep them hot. As long as possible they were kept and the unsold went as waste. Special orders were expensive and time taking. Later on it transitioned itself totally to Just in Time approach. For this, extensive staff had to be hired to quickly prepare the burgers and training had to be given. It looked expensive in the short term but it reduced the wastages drastically and helped Mc Donald's excel at customer satisfaction in the long terms.

                                          A lot of advantages were brought in by this JIT method:

1.      Improved Quality – The burgers are prepared freshly and hence the quality has improved.

2.      Customer service – As the burger is made only after the order is placed, making special orders is not an issue.

3.      Cost Reduction – Due to significant reduction in wastage as uncooked material has a higher shelf life.

This strategy was first attempt to bring JIT manufacturing techniques to service industry. It was the ‘Made for You’ strategy and also helped Mcdonalds in setting up demonstrative kitchen techniques which is a unique aspect and is its USP.

References : http://www.highbeam.com/doc/1G1-20486956.html

The writer of this article, Naman Jain is a PGP student of Indian Institute of Management, Raipur . He has done his B.Tech in Computer Science & Engineering from Vellore Institute of Technology, Vellore and can be reached at namanvit @ gmail . com

Improving the quality and efficiency of fast food restaurants

Fast food restaurants are unique operational systems designed to provide customers with efficient and responsive services. Such systems consist of three interdependent subsystems: input, processing and output. The success of the operational system of a fast food restaurant is directly related to the degree of co-operation and co-ordination among these three subsystems. Any attempt to improve the efficiency, quality and responsiveness of the operational system must focus on these subsystems and their interactions.

The fast food service industry is becoming increasingly multifaceted and extremely competitive. In such an environment, restaurant owners and managers are finding themselves hard to face a two faced problem. On one hand, sales are slowing down and operating costs are increasing. On the other hand, customers are becoming more demanding and increasingly selective of the types of services they receive. These two factors combined with others are presenting restaurant managers with a special challenge, how to maintain profitability in a shrinking market while providing the sophisticated customers with high quality and efficient services. In achieving this seemingly impossible objective, fast food restaurants can pursue two strategic avenues. First, they can focus on means to improve operational efficiency of the system. Second, they can take actions to enhance the operational quality of the operational system.

Specific tactics geared to the first strategic option include improving inventory systems to reduce the cost of materials handling and waste, measures to reduce food service costs through better menu management, and ways to increase labor efficiency by cutting labor costs through better scheduling.

The second strategic option that stresses means to enhance the operational quality of the input, processing and output subsystems includes use of quality control measures to monitor the quality of incoming material, work-in-progress and the output. It also underscores the importance of understanding the needs and attitudes of customers and the adoption of technological and marketing innovations to provide customers with high quality services.

These two strategic orientations are not mutually exclusive. However, in the fast food industry there is a misconception that high quality compromises efficiency and that, from a bottom-line point of view, a quality orientation cannot be justified. This misconception can be attributed to a lack of understanding of the interdependency among the three subsystems of the operational system in relation to operational efficiency and quality. This lack of understanding coupled with the myth that quality costs money impede measures to enhance quality and efficiency of the operational systems of fast food restaurants.

Aniket Choudhary is a PGP student of Indian Institute of Management, Raipur. He has done his B.E. in Mechanical Engineering from College of Technology and Engineering, Udaipur. Aniket can be reached at aniketchoudhary87 at gmail . com

Domino’s India Logistic management

In 1960, two brothers who were students of the University of Michigan - Thomas S. Monaghan (Thomas) and James S. Monaghan (James) - bought the store for US$900. In 1961, James sold his share of business to Thomas. The pizza business did well and by 1965, Thomas was able to open two more stores in the town - Pizza King and Pizza from the Prop. Within a year, Varti opened a pizza store in a neighborhood town with the same name, DomiNick's Pizza. Thomas decided to change the name of his first store, DomiNick's Pizza, and one of his employees suggested the name Domino's Pizza (Domino's). In 1982, Domino's Pizza established Domino's Pizza International (DPI) that was made responsible for opening Domino's stores internationally. The first store was opened in Winnipeg, Canada. Within a year, DPI spread to more than 50 countries and in 1983, it inaugurated its 1000th store.

When Domino's entered India, the concept of home delivery was still in its nascent stages. It existed only in some major cities and was restricted to delivery by the friendly neighborhood fast food outlets. Eating out at 'branded' restaurants was more common. To penetrate the Indian market, Domino's introduced an integrated home delivery system from a network of company outlets within 30 minutes of the order. Goutham Advani (Advani), Chief of Marketing, Domino's Pizza India, said, "What really worked its way into the Indian mind set was the promised 30-minute delivery." Domino's also offered compensation: Rs.30/- off the price tag if there was a delay in delivery. For the first 4 years in India, Domino's concentrated on its 'Delivery' strategy.

The CEO of Domino’s Pizza India is a man in hurry. Ever since he took over as the CEO of Domino’s in November 1999, he had been frantically reworking the pizza chain’s strategy. In late 1999, Indocean Chase, the private equity fund bought a 25% stake in Domino's operations in India from the Delhi-based industrial family, the Bhartias, who held Domino's franchise in India. Domino's told investment bankers at the fund that it planned to go in for an initial public offering (IPO) in the next two years. Indocean Chase advised Domino's to go beyond its 16 outlets in Delhi to exploit the potential in the pizza delivery business. Unless a well-thought-out expansion plan was put into place, the IPO was unlikely to find too many takers. As part of its expansion plans Domino's revamped its entire supply chain operations, from sourcing raw materials to shipping them for processing at a central location to delivering it to the customer's.

Initially, Domino's had a simple model. It had three self-contained commissaries in New Delhi, Mumbai and Bangalore which bought their own wheat, tomatoes and other ingredients, processed them, and then delivered them in refrigerated trucks to each outlet. However, volumes were expected to increase when Domino's planned to open new outlets. Therefore, the existing model had to be revamped. Bhatia said, "It's crucial for us to build a low-cost supply chain operation which takes costs out of the system and in turn gives us greater pricing flexibility in the marketplace."

The logistics model adopted by Domino's offered some obvious benefits including lower transportation costs, cheaper procurement and economies of scale. Domino's had already cut out the duplication in procurement and processing of raw materials across each of the three commissaries. The old model of self-contained commissaries had another disadvantage: adding new outlets did not translate into greater economies of scale. Domino's also identified specialty crops in each region. The commissary in that region was entrusted with the task of processing that specialty crop. For instance, the commissary for the eastern region in Kolkata was responsible for buying tomatoes, processing them and then sending them to all the other commissaries. Similarly, the northern commissary had to deliver pizza bases. This way, Domino's minimized duplication as well as the dangers of perish ability.

Domino's hoped to lower its prices by saving from the logistics model and third-party transportation. In April 2000, Domino's announced a cut in pizza prices to Rs 49. Domino's was also targeting large corporate offices, railway stations, cinema halls and university campuses for faster growth. It had already established an outlet at Infosys corporate office in Bangalore and at three cinema halls - PVR in Delhi, Rex in Bangalore and New Empire in Kolkata and growing at a faster rate. Domino's also classified its outlets into Super stores, Express stores and Regular stores. Super stores were those, which generated high traffic and therefore had more counters than the regular outlets (the outlet in Churchgate, Mumbai). Express stores were those where people were expected to walk in and order rather than ask for home delivery (university campuses, offices or cinema halls).

References :  http://www.icmrindia.org/free%20resources/casestudies/Domino-Logistics20Management.htm

Shashi Bharti has done his B.Tech. in Electronics and Communication Engineering from NIT, Hamirpur and has worked in Tata Consultancy Services for 24 months