Starbucks’ Schultz stresses the need for supply chain to have a seat at the table

While coffee is one of the first things on the minds of many people early in the morning, it was especially prevalent this week, when Starbucks Chairman and CEO Howard Schultz gave the keynote address at this week’s Council of Supply Chain Management Professionals (CSCMP) Annual Conference in San Diego.

Shortly into his wide-ranging Q&A with Kevin Smith, president of Sustainable Supply Chain Consulting and Chair Elect of CSCMP’s Board of Directors, it became clear that Schultz really could deliver the goods, coffee included.

With such a large turnout of shippers and carriers in attendance at the morning session, Schultz quipped: “Who is shipping and distributing goods in America today? Everyone is here.”

But he then got serious about the importance of supply chains, which was great, as I think that is what people were really interested in hearing about from him.

That became even more evident when Smith listed off the company’s incredible scale, including: 10,000 retail and sales locations, more than 22,000 stores, more than 18,000 suppliers, and 7,000 unique SKUs, 20,000 deliveries per day from 150 shipping locations in 67 countries.

This data led to the question posed to Schultz by Smith of how important is the supply chain to an enterprise like Starbucks?

Schultz explained that a classic mistake made by most companies is that two areas often left behind by companies are HR and supply chain.

“For whatever reason, companies spend a lot of money and resources focusing on other disciplines within the company and all of the sudden you get to a situation where you have scale,” he said. “And scale produces a crisis because you cannot catch up on recruiting the talent you need. And the other issue is the supply chain, with distribution and manufacturing, which are vital. I would say unequivocally that you cannot scale a company of any kind without having the expertise and skill base of a world class supply chain organization. Given the fact that the Internet as we know it today is literally the death of distance, and that distance is getting narrower and narrower in terms of the last ten feet, which is what every company is looking at to create incrementality…that is now being linked to delivery, specifically short-term delivery that could be in an hour or 30 minutes. With all these things going on, it won’t be status quo as we know it today in all aspects of business, especially the supply chain if it is going to be embraced as a standard operating principle most companies are not going to succeed.”

With most companies looking for new ways of growth, Schultz stressed that growth is directly linked to technology and innovation and is geared towards the foundational needs of the supply chain. Taking it another step further, he said not to the functions of HR and supply chain last, but, instead, look at it first, adding that any company that is consumer facing like Starbucks has a primary focus on creating new growth innovation incrementalities based on short-term delivery, and that delivery obviously is what we do every single day to meet the needs of consumers and directed towards the forces of short-term deliveries

“Something that every consumer-facing company in the world is going to have to recognize is that speed and service is not yesterday, it is now and we are in a very stiff competitive environment in terms of how a customers expect to receive their goods,” said Schultz. “The status quo is yesterday, embracing it is a collision course with time. The Internet is the death of distance, and it is getting narrower. The supply chain needs to be at the forefront of every enterprise in the world, especially the ones that are consumer-facing.”

In summing up Schultz’s comments, Smith spoke for the session’s attendees by simply stating: “Finally, a CEO who gets it,” with the ‘it” being the importance of the supply chain, which was well-received in the form of heavy applause.

While Schultz made it clear that the importance of the supply chain needs to be elevated, that was not always the case for Starbucks. Back in 2008, during the recession, he said that supply chain was not a strategic part of the company’s business.

But the “sea change” from 2008 to today is that supply chain has become a strategic part of the business both domestically and globally inside the company, coupled with recognizing there was a huge opportunity in leveraging technology inside Starbucks’ business.

“On a quarterly conference call three years ago, I made an announcement that got the market nervous by saying that the result of mobile platforms and the Web could result in a significant downturn in traffic both on Main Street and the malls, because people are not shopping as much,” he explained. “As a result of that, bricks and mortars retailers are going to be challenged dramatically as they will not have the same level of traffic. We have seen that in spades and it is going to get a lot worse. I would not want to be a mall operator five or ten years from now in the classic sense. What we have done, and it goes back to supply chain in many different ways, is that the technology that we integrated into the company as the mobile platform of Starbucks has become the driving force in innovation and incrementality across 11 million mobile transactions a week at Starbucks stores. There is not a company in the world doing more than that.”

The supply chain and technology relevance of that, he said, is recognizing the global nature of Starbucks business. Even though up to 80 percent of Starbucks revenues are driven by North America, Schultz said it can’t look at the world with the lens of a U.S. business, stating it needs to act as a global business.

“The success we have had around elevating supply chain in the U.S. must be mirrored around the world through best practices and how we learn from others,” he said. “Supply chain not only has a seat at the table, it is a primary co-author of the strategy of our business.”