QUESTION ONE [35] Read the scenario below and answer the questions that follow: Starbucks Supply Chain Starbucks is pretty much a household name. But like many of the most successful worldwide brands, the coffee shop giant has been through its periods of supply chain pain. In fact, during 2007 and 2008, Starbucks leadership began to have serious doubts about the company's ability to supply its 16,700 outlets. As in most commercial sectors at that time, sales were falling. At the same time though, supply chain costs rose by more than $75 million. When the supply chain executive team began investigating the rising costs and supply chain performance issues, they found that service was indeed falling short of expectations. Findings included the following problems; fewer than 50% of outlet deliveries were arriving on time, a number of poor outsourcing decisions had led to excessive 3PL expenses, the supply chain had, (like those of many global organisations) evolved, rather than grown by design, and had hence become unnecessarily complex Starbucks' leadership had three main objectives in mind to achieve improved performance and supply chain cost reduction. These were to: reorganize the supply chain, reduce cost to serve, lay the groundwork for future capability in the supply chain. In order to meet these objectives, Starbucks divided all its supply chain functions into four key groups, known as "plan" "make" and "deliver". It also opened a new production facility, bringing the total number of U.S. plants to four. Next, the company set about terminating partnerships with all but its most effective 3PLs. The remaining partners were then managed via a weekly scorecard system, which was aligned with renewed service level agreements. Supply Chain Cost Management Results By the time Starbucks' supply chain transformation program was completed, the company had made savings of more than $500 million over the course of 2009 and 2010, of which a large proportion came out of the supply chain, according to Peter Gibbons, then Executive Vice President of Global Supply Chain Operations. Questions: 1.1 Briefly explain cost reduction challenge on Starbucks' supply chain