What is the Issue Behind Starbucks' Supply Chain Struggles?

Over the course of five years, four CEOs have cited supply issues as the main reason behind its loss in sales across thousands of US stores.

Current CEO Brian Niccol has been working to address the shortages and reevaluate the coffee chain's strategy.

Despite this, AI glitches, poor inventory management and outdated systems are proving a costly impact on Starbucks' operations.

A need for modernisation

Shortages and low-supply chain capabilities have proven to be a major issue for many retailers over the last few years, as disruption has been making itself a permanent feature of global trade. Starbucks has been feeling the effect of this, with shortages becoming a deep-rooted concern for the coffee house. 

Despite Brian's attempts to fix what his predecessors have been unable to do, he has been facing outdated technology and a fragmented supplier base. For a global giant like Starbucks, it is imperative that it can tackle these issues and restore supply chain stability.

The company's share price has risen approximately 5% since Brian become CEO in September 2024, showing that there has been some improvement since he took over. Prior to its most recent earnings in October, Starbucks' sales had declined for six quarters. Its latest report offered flat US sales, so while there was no increase, this may be a sign of change.

"We've been transparent about the opportunities in our supply chain, and our transformation plans," Starbucks said in a statement.

"We’re modernising systems with AI‑ready platforms, strengthening demand forecasting, and making our distribution network more agile so the right products reach the right coffeehouses each day. This work is already improving reliability for our partners and customers."

A major part of supply chain integrity relies on the logistics industry, with delivery trucks needing to arrive on time with the correct stock. According to Douglas Kent, EVP of Association for Supply Chain Management, the goal for accurate and on-time delivery is 95%. 

In early 2024, however, less than 33% of truck deliveries to Starbucks' distribution centres were unloaded on time and offered the full amount of stock, according to two former employees. Failure to build strong relationships with suppliers and inability to maintain transparency could be a core reason for these ongoing errors.

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Poor technological adoption

Supply chain errors can arise at any point of the operations, with inaccurate predictions resulting in overstocking and understocking. Warehouses can be overfull while shelves in-store can be empty, due to inability to maintain order accuracy to meet demand.

Brian has adopted a range of technological changes in order to improve the company's operations, alongside allowing store managers to order supplies from distribution centres. This allows for more order accuracy, as opposed to an automatic system, as the managers have a more accurate insight into the best performing products in each individual store.

The Starbucks mobile app was edited to allow customers to gain insights into the stock of individual stores, showing where shortages had been reported by baristas. This allowed customers to opt for a different store or find an alternative product before arriving, only to be disappointed. 

In September, Starbucks introduced the 'automated counting' tool, an AI-powered app which was intended to make product counting more accurate and faster. Staff would hold a tablet up to the shelves, for the app to scan with LIDAR and camera data. However, the app has proven to frequently miscount or mislabel items.

The app's provider, Nomad Go, says "what NomadGo set out to do is modernise inventory counting to make it faster and less burdensome while providing timely, actionable data on product availability," claiming that it is 99% accurate.

Though Starbucks has said the app has improved product availability in stores, it has not stated how much by.

Fragmentation across the chain

Some employees have stated the issues Starbucks is facing are end-to-end issues, often due to its supplier contracts. Many of tis food products are supplied by small, regional vendors which are unable to meet with demand spikes. Scattered sourcing also proves an issue – in 2023, executives reported that Starbucks has 1,500 cup-and-lid pairings from different vendors.

There is an inability to automate store-level inventory counts as a result, as suppliers do not have standardised packaging. Moreover, Starbucks is currently using outdated IBM hardware to processes inventories and orders. Though the company is working to modernise systems in order to improve efficiency and consistency, doing so will be costly and momentarily disruptive – though is sure to have long-term benefits.

Due to an inability for accurate demand forecasting and poor storage capabilities for Starbucks cafes, the increase in its food capabilities has also resulted in an increase in food waste. Many Starbucks stores lack the infrastructure to properly store food products, as they were originally designed to prioritise beverages. Following a growth in food product introductions, too many food items were ordered and ultimately wasted when consumers did not meet the hype. 

Much of Starbuck's losses have been a result of poor planning, inaccurate ordering and outdated structural issues. Though Brian is hoping to tackle these supply struggles, it may be more difficult than he imagined.