The Problem: Successful coffee retailing in space-constrained Britain requires creative resource utilization; the Starbucks “coffeehouse-on-every-corner” model is impractical. Costa Express, a unit of the Whitbread Group retail chain, has prospered by partnering with retailers to sell gourmet coffee from self-serve machines at airports, railway stations, hospitals, and other locations.

Like many caffeinated growth companies, however, Costa faced the challenge of aligning its supply chain with a surge in business and the limits of its IT network. Since its 2011 acquisition by Whitbread, Britain’s hospitality chain, Costa had increased its machines footprint to 3,000 from 900. It also planned to expand beyond the U.K. But struggles with product replenishment threatened to derail its efforts. Though Costa’s machines came with programs that supplied real-time sales data, its spreadsheet-based platform made it impossible to extract, consolidate, and present the data in a timely manner. Its replenishment-planning team was often left with the difficult task of estimating how much supply each site would need. They weren’t always successful. As a result, many partners were overstocked, and inventory was lost to waste and spoilage that Costa couldn’t reconcile. Costa realized the problem would only get worse as it continued to grow and the number of replenishment combinations multiplied.

The Solution: In early 2013, Costa purchased a cloud-based software application, called SO99+, designed by ToolsGroup, a Boston-based IT solutions provider. The system took the guesswork out of replenishment. The system automatically collected data every four minutes from all 3,000 machines to spot sales and order trends and to forecast demand. It calculated the variances in demand and how much buffer stock would be needed at each site. It then created schedules for resupplying the precise amount of inventory at each site.

Costa could now match actual sales data with the levels of
stock on hand at each site. By improving the accuracy of its
forecasts, Costa enhanced a customer’s coffee-buying expe-
rience and did it with less inventory. The company’s replen-
ishment team, freed from micromanaging supply, could
focus on helping partners increase sales, improve service
quality, and troubleshoot non-inventory-related problems.
The software’s accuracy and user-friendliness gave Costa
the confidence to enter into
direct sales and service rela-
tionships with ingredients sup-
pliers instead of going through
its existing third-party logistics
service provider (3PL). This
improved Costa’s negotiating
outcomes and made it easier
to communicate changes to its
vendors as its business grew.
Along with the new replenish-
ment software, Costa brought
in a new 3PL and significantly
flattened its distribution net-
work. The company went from
having one central warehouse
and nine regional locations to
just one facility.
The technological and phys-
ical changes, combined with
the ability to purchase supplies
directly, paid huge dividends
for Costa. After six months,
its logistics costs had dropped
by 30 percent. Its carbon foot-
print was cut by 70 metric tons,
and there was a 20-percent
reduction in field stock held at
partner sites. Costa developed
direct purchasing relationships
with 15 suppliers covering
more than 50 stock-keeping units (SKUs) and negotiated
changes in product prices and pack sizes that led to a cut in
the cost of some items.
As for expansion, Costa in January launched an “intel-
ligent coffee station concession” to be placed in high-end
properties, starting with locations in Dubai. ToolsGroup
software will link up to these machines in the same way it
does with Costa’s standard equipment. Costa also plans to
use the software to manage its spare parts supply chain.
By the way, the new concession is equipped with a feature
that releases coffee smells to create what is being labeled an
“immersive coffeehouse experience.” If Starbucks’ color
weren’t already green, it might be turning green with envy.
problemsolved

Problem: Bringing order to a chaotic
inventory replenishment system
BY DC VELOCITY STAFF

THE PLAYERS CUSTOMER Costa Express, a unit of the Whitbread Group retail chain Primary business: Selling gourmet coffee from self-serve machines at airports, railway stations, hospitals, universities, offices, and gas stations