DC Velocity - IdeaBook 2015

from 900 to 3,000 by 2016, and at the same time to expand internationally.

For months after the 2011 launch, the business was pushed to the limit as the existing machine estate was rebranded from Coffee Nation to Costa Express, and new partners signed on. Because it was necessary to justify Whitbread’s UK £60-million investment, the business was feeling the pressure to grow rapidly.

In April 2012, the company realized that in order to deal with all the expected growth, it would need to make some changes to the way it managed its supply chain. That was when I joined Costa Express, specifically to fill the newly created position of supply chain manager and to join a strengthened operational leadership team. Prior to that time, there had been no dedicated supply chain function in the company. Instead, traditional purchasing and logistics activities were split between the finance and engineering teams.

One of my first tasks was to identify three fundamental supply chain functions that were driving the business. These were:

• Managing and replenishing coffee-making ingredients to partner sites

• Procuring and maintaining spare-parts inventory

• Effectively managing the process of procuring
new Costa Express machines and preparing them to
be installed at customer sites
For the purposes of this article, I will describe how
we managed the first and most critical of these three
functions: managing the ingredients supply chain.

DRAWBACKS OF THE OLD MODEL

Costa Express’s distinctive model involves pushing coffee-making supplies out to our partner sites free of charge, and then sharing the revenue collected. When I joined the company, the finance team carried out this replenishment activity with support from trained employees known as “Brand Guardians,” who work in the field. The Brand Guardians’ job was to train partners, replenish stock for them, and give them advice on how to maximize sales and improve the coffee experience for the customer.

In order to sustain this unique model during a phase of significant growth, Costa Express would need tight control over and visibility into its supply chain. Central to this would be an awareness of exactly when and how much stock needs to be replenished at each partner site, so that money would not be wasted on excess inventory or unnecessary logistics activities. That meant Costa Express would need to understand not just aggregated order information, but also the size and frequency of the individual orders.

To support this need for order-line-level detail, Costa Express’s self-service coffee bars were equipped with integrated telemetry that provided real-time reporting on machine performance and beverage sales. These systems had a twofold purpose: to prevent waste and theft, and to improve service by ensuring that the bars were always being stocked to meet demand.

The system that informed replenishment decisions comprised thousands of linked spreadsheets that contained detailed information for each site and product. Based on the size of our partner network, the system had multiplied to host more than 50,000 replenishment combinations and was edging toward 100,000 as new sites were added. One thing that greatly concerned me: Despite having invested in coffee machines with built-in programs designed to provide real-time sales data, Costa Express could not take advantage of this capability because our spreadsheet system could not extract, consolidate, and present up-to-the-minute data.

The next area I examined within the ingredients supply chain was logistics. Our current logistics provider was furnishing a full service: purchasing all of our ingredients, managing direct relationships with the suppliers, and invoicing for the full product value and logistics costs at point of delivery. Although this setup might have worked well in the beginning, it meant we had very few direct relationships with ingredients suppliers, making it difficult to negotiate and communicate changes we wanted to make as our business grew.