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Effects of VMI on Starbucks

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.