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Effects of VMI on Starbucks

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What is their primary business and its inventory management procedures (specific details) Does this company use VMI? Could it use VMI? What does it use to ensure it has the right inventory at the right time and control the costs?

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Starbucks inventories include raw materials, raw ingredients, processing equipment, and finished product (paper goods). The inventories are the materials used to meet consumer demands. Inventories must have an adequate space that is easy to access and allows for quick processing, for on demand requests by consumers. Inventory management involves the specification of layout and space used for storage (Team 1 Starbucks, 2010). However, inventory management goes beyond simply designing the space and layout for optimum storage. It involves knowing what (product) is being store and at what level (how much) at any given time. To accurately track what is available in any particular location, the organization must utilize some form of tracking system. Inventory management systems help reduce waste, reduce shrinkage from inventory, and help the organization plan for future needs.
Two inventory management systems are utilized by Starbucks. The P system is used for coffee bean orders and other items, like bottled water. The EOQ system is used for materials like coffee cups, milk, coffee cakes, and espresso. The P system orders supplies every seven days. The EOQ system is used daily to maintain adequate levels of stock. Starbucks' policy for inventory is to maintain 15% overstock, to ensure stores are always able to meet customer demand (Team 1 Starbucks, 2010). Inventory is replenished from point of sales data. The ordering system is also attached to the delivery company serving the stores, so that preparations for shipments can be made. This allows products to arrive at the stores when they are needed. The coffee roasting facilities use both the P and Q systems, with roasting schedules utilizing the Q system (Team 1 Starbucks, 2010). The total Inventory Management Systems (IMS) of Starbucks makes assumptions about consumer demand. The demand is believed to be fairly constant, with the exception of changing seasons and school breaks. Therefore, the system is able to keep up with demand fairly accurately, on a regular basis. However, if unexpected changes in demand, particularly increases, occur rapidly, the system may not be able to respond to those changes quickly. Though the inventory management system is thought to adequately support Starbucks' operations, many new technologies or systems have been suggested. The main reason for considering new systems are increased efficiency and decreased costs. In 2007, after implementing the point of sale inventory system, the organization was able to expand operations to over 1000 new stores, while reducing ...

Solution Summary

The discussion about inventory management analyzes Starbucks' current inventory system and suggests the potential benefits for the organization, if VMI is implemented.

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? Demand planning-Organizations in the 21st century are no longer focused on one specific entity within manufacturing, instead organizations embodied a paradigm shift that focuses on managing consumer demand. Qualitative and quantitative data is retrieved from primary and secondary sources that identifies current trends in consumer purchasing patterns, and product integration is evaluated to determine which products are in high demand and which products fall short. Demand planning is a strategy that requires forward thinking organizations to be mindful of consumer needs while simultaneously maintaining the effectiveness of daily operations. It is within the best interest of the company to anticipate the needs of consumers within the marketplace and to provide an innovative platform that realigns and reassesses organizational goals. Once the organization reviews the data collected from various sources the organization can further the developmental stages of facilitating a strategy that exceeds stakeholder perspectives.

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? International growth-New opportunities began to emerge for organizations seeking to maximize shareholder wealth, and generate significant revenue. Globalization is a customized strategy that enables organizations to conduct business transactions with foreign countries. "The right supply chain design is critical to managing the changes brought about by rapid globalization. A well thought-out supply chain network design can optimize the organizational infrastructure and the cycle of materials through the network" (Hitachi Consulting Corporation (2009)

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