OPERATIONS TERM PROJECT

THE CAFESTA COFFEE HOUSE

Submitted by Group-09, Section A

Major Issues:
1. Cafesta had 1 small warehouses (Gujarat) and 2 distribution centres. The main challenge was
to integrate all these into one global logistics system
2. 8,000 deliveries were to be made per week which accounted for huge expenses
3. The major cost was incurred in outsourcing, especially in the area of transportation, third
party logistics and contract manufacturing
4. As there was a need of expansion, outsourcing was necessary to meet the demands of the
new stores that were being opened around the world, leading to increase in operational
costs
5. Less than half of the store deliveries were arriving on time because of inadequate
replenishment of the stock
6. 30% of employees time was used up in motion which was needed to be minimized
7. Dissatisfaction among the store managers and employees at Starbucks

Solutions:
The main solution to the above problems can be a supply chain transformation which had 3 main
steps-

 Reorganizing the supply chain

 Reducing the cost to serve stores
 Improving execution, and building supply chain capabilities

Reorganizing the supply chain:

The complex supply chain can be simplified into 4 major groups- Plan, source, make and deliver.
Employees should be grouped in the following manner-
1. Plan- People involved in planning of new products, suppliers, production, replenishment,
etc.
2. Source- those involved in sourcing products- can be grouped into coffee and non-coffee
categories where non-coffee included the dairy products, baked goods, paper cups,
furniture, etc.
3. Make- those involved in manufacturing related functions, both in house and outsourcing
4. Deliver- those involved in transportation, distribution, customer service, etc.

Reducing cost and improving execution:

 ‘Source’ group can identify the major cost drivers that were increasing the price
 Re-examining the contracts with the existing suppliers, price being paid, transportation and
shipping costs, etc.
 Better planning of the procurement, processing and delivery
 A better model of delivering coffee beans to the roasting plants can be introduced such as
starting another plant so as to reduce delivery time
 Training the existing staff and ensuring the best talent occupied the leadership positions
Changes inside the Store:
The main objective was to improve the experience of customers and reduce the waiting time.

 The unnecessary time used up in motion and preparing the beverage was due to the way the
ingredients were placed inside the store. Syrups of different flavours and pitchers of milk
and coffee were not placed close together.
 Hence, the syrup flavours, coffee pitchers, toppings for the drink, cream, chocolate sauce,
etc. should be placed at the drink station from where the drinks would be served
 The coffee bins were stored in bins under the counters, which required bending to pick them
up. To make this task easier, the bins should be placed on top of the counter, so that they
would be handy
 All the bins should be colour coded so that the roast can be differentiated without looking at
the label
 Different pitchers of milk (for different types) can be colour coded to create differentiation
 To improve the customer experience, text message notifications can be introduced to inform
them when their order is ready

Expansion of stores:
 We have considered 3 cities- Delhi, Mumbai and Bangalore for opening new café
 We have taken into account the initial investment, efficiency of workers, shipping cost from
warehouses and hourly wages

Available data:
Calculations:

 On calculating various costs based on above tables, we get the following results
 Labour hours required = No. of customers/ worker efficiency
 Labour cost = Daily wage rate * No. of labour hours required
 Variable cost = Labour cost + Shipping cost
 Total cost = fixed cost + variable cost

 We can see that the Total cost for 3 years is the least for Mumbai, followed by Bangalore
and New Delhi
Hence, we have chosen Mumbai for opening up of new Cafesta Café House.