Starbucks Risk management
Achievement of worldwide competitive advantage is what every business aims at, however there are risks associated with it. Starbuck enjoys global flexibility that enables it to manage her risks particularly risks associated with global supply project. The global supply has really complicated the supply chain especially due to the current economic condition. This has led to high coffee prices although the increase in prices has not largely affected the demand for coffee because the industry enjoys large consumer base. This writing analyses some of the risks, and risk management strategies employed by Starbuck due to adoption of global supply by Starbuck.
Starbucks have always considered the nature of demand of their coffee thus using this as the base of selecting the best suppliers as a way of minimizing global supply risk. As much it may be hard to engage international supply because of many risks associated with the transaction, Starbuck went ahead and realized that risk and return are allied and therefore the more risky the business is, the higher the returns (Katrinli, Gunay & Biresselioglu, 2011). Starbuck is committed in her strong values of ensuring equal treatment of individuals both with respect and high degree of dignity as well as conservation of the environment and this applies to their supply chain. Supplier Code of conduct created by the company was driven by the need for their suppliers to embrace Starbuck’s values. This helps in reducing a lot of risks associated with global supply. Unless a global supplier adopts and strictly follows the Starbuck’s Coffee Sourcing Guidelines, they may not qualify as the preferred suppliers for the company (Berman, Christner & Bell, 2010).
Starbuck normally communicates to her suppliers and letting them know about their Supplier Code of Conduct. a supplier must always show commitment to the welfare, economic sustainability, measuring, reporting and verify compliance to the Supplier code of conduct. Also, suppliers must adhere to the local laws and international labor and human rights standard as well as good businesses strategies that enhance environmental protection. The company may carry out an independent audit or just random audit to verify supplier’s compliance (Trent & Llewellyn, 2010). Relationship between Starbuck and her global suppliers of green coffee is so much established in such a manner that the risk of non-delivery on purchases is minimal. As a way of ensuring continuous production of high quality green coffee and leadership sustainability Starbucks empowers her international coffee producers. Furthermore, Starbuck purchases coffee either through the fixed price or price to be fixed purchase commitments dependent on the market conditions (Katrinli, Gunay & Biresselioglu, 2011).
Global supply chain is exposed to risks compared to local supply chains because they are longer and complex. In that regard, there is probability of experiencing more uncertainties and challenges thus making information technology very relevant and useful for Starbuck. Information regarding risks such as legal setbacks, custom fees, taxes, political conflicts and cultural differences may be gotten from the newspapers, the internet and other media or through whistleblowing. Thorough coordination and understanding of suppliers’ information is very useful. Such kind of information sources may reflect political turmoil and perhaps currency depreciation and other activities showing that the company is not doing very well (Trent & Llewellyn, 2010).
Financial statements of a particular supplier may also be used by Starbucks to assess the level of risk associated with dealing with the company in question. Also, Starbuck may hear from the public opinion or media various serious allegations such as poor environmental dealings and unfriendly labor laws practiced by their suppliers. This is enough information to reflect the activities and the supplier’s attributes. Furthermore, Starbuck may engage auditors to verify level of risk associated with supplier and the supplier’s compliance to the supplier’s code of conduct (Berman, Christner & Bell, 2010).
Management should always prepare a document that may help in foreseeing risks, approximating the consequences and defining the best responses to issues. Because of the inherent nature of risk with almost any project, it remains important for the Starbuck to continually assess the global supply risks and further create plans to curb them. Risk management plan serves well in documenting a specific risk of a project (Berman, Christner & Bell, 2010).
Risk register is nicely applicable in documenting the risks and primarily used in reporting to the Starbuck management. Also, there are project management professionals and event chain methodologies that may be applied in risk management documentation. Event chain methodology concentrates in identifying and management of issues that affect global supply chain project in Starbuck. It is suitable because global supply chain may be affected by external events and is only applicable when the supplies occur. The Starbuck may also decide to use Risk Management professional in documenting risks that may occur during the global supply chain. RMP tends to identify distinctive skill, competency and focusses mostly on opportunities (Katrinli, Gunay & Biresselioglu, 2011).
Risk management is very important in project planning process because it eliminates or rather minimizes dangers that may accrue in the project’s future. It will also help in preparedness for the risk thus providing the best alternatives for approaching the risk. Risk management minimizes sudden shocks and undesirable surprises, efficiency in resource utilization, decreased waste and fraud as well as efficiency in project accomplishment. Moreover, risk management reduces management time and improves better management of contingent and other activities (Katrinli, Gunay & Biresselioglu, 2011).
Starbuck faces several risks both domestically and globally. For instance, domestically, the company is faced with market saturation due to the rapid rise of their outlets. The company is also experiencing risk of losing customers due to minimal alternatives offered and another uncertainty that arises with global expansion. There are several political and economic conditions affecting Starbuck in her international operations. Furthermore, there are personnel risks which actually possess as one of the most potential crisis area (Trent & Llewellyn, 2010). There are several vulnerability in the personnel that include workplace violence, health safety, employee fraud, hiring practices, labor disputes and sexual harassment. Starbuck also experiences potential crisis in competitor and consumer where issues such as biasness, customer satisfaction, regulatory, ethics, facility management and product pricing makes the company very much vulnerable (Trent & Llewellyn, 2010).
Additionally, there are issues of supplies and marketing that challenge smooth operation of Starbuck. Starbucks’ supply chain is faced by numerous risks including environmental, defects and recalls, government interventions, outsourcing, supplier relations and boycott. Operating with local partners in the international markets greatly decreases Starbucks share of profit which lowers the profit margin (Katrinli, Gunay & Biresselioglu, 2011). There are also cultural differences experienced in the international markets which saw Starbucks closing down its outlet in Beijing’s Forbidden City. A project risk which includes management, political and relationship between customers and suppliers is the most risky are in Starbuck. Risk breakdown structure outlining the organizational risk categories for Starbuck is as follows.
RBS Level 0 RBS Level 1 RBS Level 2
Project Risk 1.Project management/ Organizational Risks 1.1.Management
1.2. Contract relationships with customers and suppliers
1.5 Cost Estimates
1.6 Schedule estimates
2. Technical risks/ Production risks
3. Support risks
4. External risks
5. Material availability/ lead times/ Quality 2.1 Technical processes
2.4 Manufacturing Concerns
3.5 Test and acceptance
4.3 Exchange rates
4.4 Site/facilities and environment
4.6 pressure groups
The Risk Breakdown Structure has actually identified and assessed risks in an order that can be managed efficiently. The risks have been characterized by their probability of manifestation as well as the consequences on the objectives. Risks with higher probability of occurring include organizational risk, technical risks, support risks, external risks and eventually risks associated with procurement.
Berman, S. J., Christner, R., & Bell, R. (2010). Actions to implement three potent post-crisis strategies. Strategy & Leadership, 38(5), 26-32. doi:http://dx.doi.org/10.1108/10878571011072057
Katrinli, A., Gunay, G., & Biresselioglu, M. E. (2011). The convergence of corporate social responsibility and corporate sustainability: Starbucks corporation’s practises. The Business Review, Cambridge, 17(1), 164-171. Retrieved from http://search.proquest.com/docview/871194102?accountid=45049
Trent, R. J., & Llewellyn, R. (2010). Managing global supply and risk: Best practices, concepts, and strategies. Fort Lauderdale, FL: J. Ross Pub.