Coffee and Starbucks

2882 Words12 Pages
Starbucks Coffee Distribution Preethi Kasireddy
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Network

Preethi Kasireddy

Esmeralda Ayala Ari Eryorulmaz

Billy Jung

[Company Address]

Table of Contents Abstract…………………………………………………………………………………………....2 Background and Problem Definition……………………………………………………...2 Current Situation………………………………………………………………………………..2-5 Demand………………………………………………………………………………....2-3 Supply Side Concerns…………………………………………………………………..3-4 Prices……………………………………………………………………………………4-5 Distribution Network………………………………………………………………………...…5-7 Phase 1: From Suppliers to Distribution Centers…………………………………….....5-6 Phase 2: From Distribution Centers to
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Prices Coffee bean prices in 2011 are on average 90% higher than 2010 due to the La Nina weather patterns plaguing Central America and South America, significant coffee plant damage in Columbia due to fungus on coffee crops, bad weather in Vietnam, and concentrated supply. Another contributing factor to the 2010 severe rice in coffee prices is the declining of the U.S dollar. This decline results in higher coffee commodity prices for Starbucks. In addition, low interest rates maintained by the Federal Reserve, due to the financial crisis of 2008 and 2009, has led to investors to increase investment in commodities, including coffee, which is another driver for higher coffee prices for Starbucks. The price per pound in January, February, and March 2011 were $2.35, $2.47, and $3.56, respectively. Derived from Treasury inflation protected securities and survey-based estimates, the Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.82 percent. Expected prices for 2011-2016 were calculated based on inflation rates, an existing contract Starbucks has with its suppliers for 2011, the assumption based on research

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that prices will begin to decrease in 2012-2013 due to improving crops, and the assumption that prices will remain steady from 2014-2016 (see Appendices I - J for price chart and graphs). Distribution Network The team’s

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