Cartel Coffee Lab

Team 6 Matthew Thomas, Erik Sandstrom, Dylan Baxter, Chenghan Kuo, Wangpiaoxue Shi

Company Profile

Cartel Coffee first opened in 2008 in Tempe, Arizona Grown from owner-operator to small business in 5

years
Stores in Tempe, Phoenix, Scottsdale, Sky Harbor,

Tucson

 12 Full-time and 25 part-time employees $2.4 million revenue, after-tax profit of $500,000 in

2012 Serves specialty coffee beverages, pastries, coffee beans

Coffee Beans
2nd most-traded good in the world
Fluctuating prices Seasonal goods

Only cultivated in certain regions near

the equator Increasing demand Bean quality continuously improving

Coffee Industry
Large and growing
20,000 stores, $11 billion revenue in US
11 million employees 150 million Americans drink coffee daily

Competitive
20,000 coffee shops in the US

Future trends
Innovation Brand Sustainability

Competitors
Top 50 companies generate 70% of sales

Cartel competes with local coffee shops

Gold Bar Espresso Xtreme Bean Coffee Co. Steves Espresso

As well as national brands

Starbucks Dunkin Donuts

Sourcing Process Overview

Jason (founder) and Paul (roaster) meet monthly to

discuss purchase requirements 90% of green coffee beans purchased from Green Room, 3rd party vendor in Washington
Yields lower-quality beans at a higher price

10% purchased directly from farmers in Mexico and

Guatemala
Profit margins are minimal, many small suppliers come

and go annually Difficult to find new suppliers

Sourcing Process Overview

Jason visits farms annually Currently only have two criteria for sourcing
Value
Assurance of supply

Beans are the basic ingredient of nearly all products

Output of sourcing process is ultimately consumed

by customer Cartel has not considered all sourcing options and opportunities

Process Description
Coffee is ordered as needed, usually monthly

Jason and Paul involved in procurement

Paul is an experienced roaster and specifies quality

requirements Jason makes ultimate purchasing decision

Jason revisits suppliers annually and finds other

suitable suppliers

Process Description- Direct from Suppliers

Identify potential suppliers from governmentissued resources

RFI
Farms tours and evaluation Create shortlist of suppliers
Evaluate value and supply capability

Create contract with suppliers Maintain relationship with suppliers

Sourcing Impact- Quantitative Information

52,000 lb. demand/yr.

Current annual spend: $203,275

$3.50/lb. from Green Room $35/order $22/60 lbs. for transportation

Market price: $1.45/lb. 132 lb. bags

Stored in 5 stores

Annual travel costs: $12,750

Process Improvement 1- Create Sourcing Team/Work with Provision

Identify potential suppliers

Farms tours and evaluations

Create a sourcing team/Provision Work with Provision Coffee to source green beans
Provision Coffee is a faith-based, specialty coffee company that

maintains direct relationships with farmers in developing countries in an effort to benefit their communities.
Create a sourcing team composed of a roaster, a member of

Provision, and a purchasing manager

Roaster responsible for recognizing and specifying quality of beans Purchasing manager and member of Provision to gather information

about suppliers, benchmarking, negotiations

Process Improvement 1- Create Sourcing Team/Work with Provision

Sourcing team will increase value

Must coordinate with Provision and hire

sourcing manager Hire buyers as need Expensive- $60,000 annually High startup cost and time

Process Improvement 2- Source from Other Countries using Fair Trade

Identify potential suppliers Maintain relationship with suppliers
Fair Trade
Pay 10% premium Additional 5-10 cents above fair market price Used for community development

Sourcing options
China Africa South America

Process Improvement 2- Source from Other Countries using Fair Trade

Region Country Mexico Sep Oct Nov Best Dec Best Jan Best Best Best Best Feb Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Mar Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Best Apr May Jun Jul Aug

Costa Rica

North South America El Salvador

Guatemala

Colombia

Africa

Rwanda

Asia

China

Best Best

Harvesting Period Best Harvesting Period Shipping Period Best Shipping Period

Process Improvement 2- Source from Other Countries using Fair Trade

Freshest product

Approximately cost of Green Room

High travel costs- $50,000 annually Difficulty in maintaining relationships Slight increase in cost over market price

Process Improvement 3- Balanced Supplier Scorecard

Evaluate value and supply capability

Current supplier criteria

Assurance of supply Value

Easier to identify suitable suppliers Low cost but must spend more time with suppliers Some criteria subjective

Table 3

Category

Weight

Performance Indicator
Quality assurance: Awards and certifications. Value creation processes: Agricultural practices and transparency of the growing methods; Effectiveness of converting techniques (coffee fruits cherry green beans); Sustainability. Quality consistency: Rate of defective beans that are not acceptable for roasting; Quality improvement actions.

Points
8 4 4 5 6 3

Quality

30%

Delivery

20%

1. 1. 1.

Lead time: Harvesting period length and consistency. Reliability: Order fulfillment accuracy; Quality of delivery process (% beans damaged during transportation); On-time deliver. Flexibility: Minimum volume; Transportation modes.

3 4 5 4 2 2

Relationships

20%

Auspicious conditions for strategic alliance creation: Willingness to collaborate; Supplier responsiveness; Communication infrastructure of a farm; Logistics infrastructure of a region; Historical data: Past sourcing experiences; Business customs and practices; Government and economic stability of a region; Product price: Green bean price per pound; Following trends of the commodity market; Total cost of ownership: Transportation costs; Farm supervision costs; Safety stock requirements; Other expenses: Set up of communication and transportation infrastructure; Farm development. Ability to anticipate demand: Capacity; Land utilization; Actual farm output; Efficiency of growing methods. Potential of a farm: Ability to increase capacity; Continuous improvement;

5 3 2 2 4 2 2

Price

18%

3 2 2 1 4 3 3

Capability

12%

2 2 2 2 2 2

Total:

100%

100

Executive Summary
Green Room has significantly increased prices in

past 6 months We aim to decrease dependency, increase quality, reduce risk Implementation of suggestions will improve direct sourcing process Locating new suppliers Maintaining Relationships Improved quality and lower cost

Executive Summary
Implement all three solutions in stages
Balanced scorecard to standardize supplier evaluation

- immediate Source from other countries using Fair Trade Agreements 1 year Create purchasing team to better source product 3 years
Decrease dependency on Green Room to 35% of

supplies

Sources
http://provisioncoffee.com/pages/about-us

http://www.sweetmarias.com/coffee.prod.timetabl

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