Coffee giant grinds out costs

2 February 2010

2 February 2010 | Jake Kanter

The procurement team at coffee chain Starbucks is on course to smash its annual savings target of $204 million (£126 million), a senior buyer has revealed.

The department saved $135 million (£83 million) in the company’s first quarter (which began in October), 66 per cent of the target for the 2009-10 financial year and 26 per cent of the company’s overall 2010 savings target of around $520 million (£320 million).

Procurement also met its 2009 cost-reduction aim of $153 million (£94 million).

The cutbacks were credited with helping Starbucks more than triple annual profits to $241.5 million (£148.8 million), compared with $64.3 million (£39.6 million) a year earlier.

John Fogerty, director of purchasing for stores and IT, said Starbucks has held tough negotiations with the company’s top 200 suppliers, driving prices down to market rates.

“Vendors were making so much money out of us in the past that it was something of a rude awakening,” he told SM. “We were more on the offensive by thinking about our game, rather than being in the middle of a scrum and seeing what came out of it.”

Scrutinising market rates for every product has given Starbucks a greater understanding of its cost base. The Nasdaq-listed giant is also looking to cut vendor numbers by consolidating deals in categories such as temporary labour.

The efforts are winning the procurement department credibility internally, Fogerty said. “We’re getting a real amount of kudos right now and we’re getting involved in projects we haven’t been involved in historically.”

He said the department had helped source packers, manufacturers and Colombian coffee roasting companies for Starbucks’ new instant coffee range, Via. The team is also working to reduce the cost of launching three new store concepts in the US.

“We have been dragged into some really high-profile meetings with [CEO] Howard Schultz and the leadership. People used to see procurement walk in and go, ‘Oh god, it’s those guys again.’ Now it’s like, ‘What have you got this week, guys?’ ”

The company is refreshing its strategic sourcing programme to standardise processes and improve supplier communication. Fogerty also wants greater alignment between Starbucks’ global procurement teams.

“We have a long way to go. A lot of procurement teams tend to be reactionary, but we want to be on the front foot,” he said.

 

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