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HOW DOES STARBUCKS IMPLEMENT THE BLOCKCHAIN

SYSTEM IN SUPPLY CHAIN MANAGEMENT TO MAINTAIN ITS
PRODUCT QUALITY?

Valida Nur Shanti Ginting, Kees Tesselhof

Departemen Akuntansi Fakultas Ekonomika dan Bisnis Universitas Diponegoro

School of Finance and Accounting, Saxion University of Applied Sciences

ABSTRACT
In many different industries, including finance, healthcare, government, manufacturing, and
distribution, the blockchain itself has taken on a life of its own and permeated a wide variety of
applications. The optimal fusion of efficiency and transparency can be achieved by combining
Supply Chain Management and Blockchain technology. In order to set itself apart from other coffee
shops, Starbucks' quality control procedure is quite tight when choosing the raw materials used to
produce its coffee products. Starbucks is able to uphold high product standards in any nation or city
by using locally obtained ingredients and suppliers to preserve the quality of its products. This
research also analyzed how blockchain positively impacts Starbuck's supply chain management to
preserve product quality. This research uses the qualitative approach that collects primary data and
secondary data. The coffee beans that Starbucks buys from its suppliers, however, must be roasted
in the closest Starbucks roastery in the nation before being turned into beverages. Unfortunately, the
majority of Starbucks locations in Asia are still lagging in the adoption of cutting-edge technologies
like blockchain to support their supply chain management operations. One such location is Starbucks
Indonesia. The conclusion is that incorporating a blockchain system into Starbucks's supply chain
management could result in a multitude of positive outcomes for the company. The following
recommendations for Starbucks Indonesia to consider when exploring the implementation of
blockchain technology in its supply chain management Pilot Testing and Proof of Concept,
Collaborate with suppliers and partners, Training and Education, and Continuous evaluation and
improvement.

Keywords: Blockchain, Supply Chain, Supply Chain Management, Starbucks, Starbucks Indonesia

BACKGROUND
Blockchain is a distributed digital data storage system composed of numerous servers
(multiserver) (Nugraha, 2022). Blockchain technology allows the data or digital assets to be
transferred directly between users, without the need for a third party (Ahmed & Afif, 2019). All
committed transactions are stored in a chain of blocks in a blockchain, which could be regarded as a
public ledger. This chain expands continuously as new blocks are added. Blockchain technology has
key characteristics such as decentralization (Wang et al., 2018b). Blockchain can be utilized in a
variety of industries, including the recording of the transaction process, documentation, and even
voting (Nugraha, 2022). Blockchain can also be used to improve Supply Chain Management. This is
because every stage of the supply chain records all data. The lifecycle of a product can be tracked at
each step, and it is easy to pinpoint where in the supply chain a nonconformity (such as a product
defect or a missing product quantity) has occurred.
Supply Chain Management is the process of moving and storing raw materials, work-in-
process inventory, and finished goods from point of origin to point of consumption (Oliver and
Webber,1982). The objective of supply chain management is to synchronize the needs of the
customer with the flow of materials from suppliers in order to achieve a balance between goals that
are frequently viewed as competing: high customer service, low inventory management, and low unit

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cost (Stevens, 1989). Combining Supply Chain Management and Blockchain technology can be the
ideal combination of efficiency and transparency. Blockchain technology enables businesses to
monitor all categories of transactions more securely and transparently. Businesses can trace the
history of a product from its origin to its current location using Blockchain. Each time a product
changes hands, the transaction is securely recorded, creating a permanent record from manufacture
to sale. Blockchain increases the efficiency of global supply chains by enabling companies to conduct
transactions directly and without third parties. Because of the many benefits that can be gained from
adopting blockchain technology into a company's supply chain management, the usage of blockchain
technology in the management of a company's supply chain has been increasingly widespread in
recent years.
Starbucks is a coffee shop that was founded in 1971 by Jerry Baldwin, Zev Siegl, and Gordon
Bowker and now has approximately 15,000 stores worldwide. Starbucks is able to access the local
partners’ knowledge easily and share development costs and risks besides being politically
acceptable (Speiser, 2003). Starbucks is a company that introduces the sensation of a more diverse
coffee-drinking experience and its coffee is known for its delicious and quality coffee which is one
of the factors that makes Starbucks successful in becoming a big player in the coffee trade. Starbucks'
quality control process is very strict in selecting the raw materials used to make its coffee products
to become a separate standard that is different from other coffee shops. The Starbucks team travels
to coffee-growing countries and builds good relationships that enable the company to purchase high-
quality beans. They do extensive quality checks throughout the process. And they roast, taste, and
evaluate samples that they received. Then how does Starbucks maintain the quality of its products?
Starbucks maintains the quality of its product by purchasing locally sourced ingredients and supplies,
Therefore Starbucks is able to maintain high product standards in any country or city. So, this is what
underlies the author to make an analysis of how Starbucks maintains product quality and quality
control systems by attaching the research questions below.

THEORITICAL FRAMEWORK
Blockchain System
The most recent advancement in information technology is blockchain, which is currently
seeing widespread use across a wide range of industries. This technology was developed in order to
support the era of information disruption, which offers alternative options to a centralized
technological architecture. Data in the blockchain is permanently stored in data records that will be
communicated peer-to-peer in the internal network and collaborate actively (Ade Chandra, 2020). A
blockchain is fundamentally a distributed digital ledger of transactions across the entire blockchain
network of computer systems.But, it is essential to be aware that there is no clear definition of a
blockchain because the blockchain is characterized as permissionless, permissioned, or both (so it
depends on what type of blockchain). Permissionless blockchain allows any user to join the
blockchain network anonymously and does not limit the rights of the nodes, while permissioned
blockchain limit certain nodes' access to the network and may also limit their rights on that network.
Permissionless blockchains are more secure than permission blockchains since there are numerous
nodes to validate transactions, and it would be challenging for malicious actors to cooperate on the
network. On the other hand, permissioned blockchains are more efficient because network access is
limited, and there are fewer nodes on the blockchain, resulting in faster transaction processing.
Therefore, there are 4 types of blockchains: 1) Public blockchain: In nature, Public blockchain is
permissionless and decentralized. 2) Private blockchain: In nature, Private blockchain is
permissioned and controlled by a single organization. 3) Consortium blockchain: Consortium
blockchain is controlled by a group of the organization not only one entity, and the character of this
blockchain is permissioned. 4) Hybrid blockchain: The hybrid blockchain combines elements from
the private and public blockchain.
According to its name, blockchain is composed of two words: block and chain. The "blocks"
of the blockchain can be thought of as a file containing information (the data) and blocks linked one
after another will become a “chain”. Each block contains data, hash, and hash of the previous block.
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Hash is a unique code in the form of a string of numbers or letters. The hash code identifies the block
and everything it contains, and the hash is always unique, like a fingerprint. So any changes that
occur within the block will cause the hash to change. In addition, the blockchain also has a validator
called a node or we can also call it a "blockchain producer" or validators, block producers play an
important role in validating the transactions. The following are the steps on how the blockchain
works: 1) The new data is entered into a blockchain. 2) The block is sent to every block producer in
the network. 3) Block producers on the network will check for the validity of the transaction. 4) And
after the transaction is validated by the block producers.5) A block is added to the existing
blockchain, permanently.

Blockchain system in Supply Chain Management

Supply chain management is one of the greatest challenges global businesses face today.
Globalization, diverse regulatory policies, and diverse cultural and human behavior in supply chain
networks make it nearly impossible to evaluate and manage risk in this complex network (Sarpong
2014; Ivanov, Dolgui, and Sokolov 2018). Many companies are looking into blockchain as a
technology that has the ability to revolutionize the supply chain, experts believe that blockchain
technology has the potential to enhance the current supply chain model by enhancing supply chain
trust, efficiency, and transparency. According to Dawson B. (2007: 8), the use of technology in
companies will support company activities, namely: 1) reducing costs, 2) increasing productivity, 3)
increasing product quality, 4) reducing dependence on skilled labor, 5) so that can compete with
competitors. Blockchain has the ability to address many of the difficulties affecting supply chain
management in an efficient manner. Since a transaction is validated by the network of participants,
supply chain transparency and the actual accuracy of transactional data are enhanced. It is well known
that blockchain has tremendous potential to transform the entire supply chain, from the acquisition
of raw materials to the delivery of goods to customers. (Babich & Hilary, 2020). In contrast to
traditional supply chains, blockchain-based supply chains would immediately update data transaction
records whenever there is a change, thereby enhancing the overall traceability of the supply chain
network.
When a company is developing a blockchain solution to meet its supply chain needs, it has
to decide what kind of blockchain to use. There are four major entities that play significant roles in
blockchain-based supply chains, Registrars, who provide actors with unique identifiers for the
network. Standardization organizations define standardization schemes, such as Fairtrade for
sustainable supply chains or the policies and technological requirements for blockchain. Certifiers
who provide certifications to actors for supply chain network participation. Actors, including
manufacturers, retailers, and customers, must be certified by a registered auditor or certifier to
maintain the system's trust (Steiner and Baker 2015).

How Starbucks Supply Chain Management Works

The key to Starbucks' success is its ability to create a “customer experience”. Over the years,
they were able to leverage the supply chain not only to support but also to increase customer
satisfaction. As a component of its overall supply chain strategy, Starbucks controls a substantial
portion of the purchasing, roasting, packaging, and global distribution of coffee used in its operations.
This is done to assist in ensuring that Starbucks' stringent coffee requirements are met. Effective
operations rely heavily on Supply Chain Management (SCM), SCM can be applied to customer
satisfaction and company success (Risya Syafira, 2021). Starbucks has a supply chain that is
vertically integrated, which involves the company in every step of the supply chain process, from the
coffee bean to the cup of coffee that is sold to the consumer. Starbucks' supply chain management
consists of two activities: primary activities and support activities.
In Starbuck's primary activities, there are 5 activities, namely: 1) Sourcing, In this activity
involves the procurement of raw materials from suppliers, the raw material is the coffee beans. 2)
Operations: After receiving coffee beans from suppliers, Starbucks company will process the coffee
beans to become quality coffee beans. 3) Inbound & Outbound logistics: Inbound logistics is when
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entering raw materials such as the coffee beans that have been roasted by the roastery into the
Starbucks inventory warehouse. 4) Sales & Marketing: In making sales, Starbucks frequently
collaborates with a variety of parties for product sales and promotion. 5) Services: Starbucks always
tries to provide the best service to its customers.

RESEARCH METHODOLOGY
The purpose of this research is to determine how Starbucks implements the blockchain
system in supply chain management and logistics to maintain its product quality. this research will
use the qualitative approach that collects primary data and secondary data. The research collects data
method will be used in this research case study research, interviews, focus groups, record keeping,
and qualitative observation. this collects data method is used for the purpose of gaining a deeper
understanding of certain concepts or experiences.

RESULTS AND DISCUSSION

Supply chain management is a chain of approaches that integrate the supplier, manufacturer,
distributor, warehouse, logistics and end customers with the right quantity, the right time, the right
place, and the right cost. Every company has its own way to manage its supply chain so is Starbucks.
Starbucks' supply chain management consists of 5 stages:
1. Sourcing: Starbucks searches for raw materials and capital products, such as the machines
it will use. Starbucks separates it into five sections: Supplier’s Supplie, Supplier, Sustainability,
Compliance, Governance
2. Integrated enterprises: Demand & Supply forecasting (Starbucks performs forecasting of
market demand planning & also the company's needs in order to meet market demand); Supply
Planning (Starbucks engages in supply planning to optimize the goods and achieve a balance between
supply and demand); Procurement (Starbucks purchases goods from its suppliers); Warehouse
(Entering goods into the company Warehouse); Production & Quality Assurance/Quality Control
(After the goods have been placed in the warehouse, they will be inspected to ensure that the goods
Starbucks receives from its suppliers match the ordered quality and quantity)
3. Logistics: Inventory Management (Determine which items will be distributed first); Fleet
& Route Design (Starbucks makes plans regarding the grouping of goods to be placed in trucks
whose areas or destinations are the same so that logistics are efficient and the quality of the goods in
the truck does not degrade by the time the truck arrives at the Starbucks branch store); Direct & Cross
Docking (Direct; shipment of products from the central Starbucks warehouse to Starbucks branch
locations); War Room (a kind of GPS that can track the location of the goods trucks); SLA (service
level agreement) & Return Management (an agreement regarding logistics services. Such as how
long and how many products will be delivered from the center to Starbucks branch stores).
4. Store operations: Revenue Channel, Operation Management, Service Management
5. End customers: Customers’ Customers; Satisfactory Level, Customers Perception,
Customers Engagement
After successfully determining suppliers, the next step is for Starbucks to purchase raw
materials from its suppliers, such as the coffee beans it purchases from Latin America, Indonesia &
Japan. Starbucks uses the same composition of coffee beans for each cup of coffee. The composition
of Starbucks coffee beans is called espresso hall bean, which consists of several variants of coffee
beans and then combined into one precise composition and that is the coffee that will be used by
Starbucks. Before being processed into beverages, however, the coffee beans that Starbucks
purchases from its suppliers must undergo a roasting process at the nearest Starbucks roastery in the
country. Example: Starbucks Indonesia roasts its coffee beans at Starbucks' roastery facility in
Malaysia. After the coffee beans have been roasted, the roastery will ship them to Starbucks
Indonesia, where they will be stored in the Starbucks Indonesia Inventory warehouse.
Logistics stores or delivers products to the customer, regardless of whether the customer is
a manufacturer, distributor, or consumer. Starbucks has its own logistics distribution plan, such as
the Starbucks Indonesia logistics distribution plan. Starbucks Indonesia has two warehouses located
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in Surabaya and Jakarta. . The Jakarta-based Starbucks Indonesia inventory facility will supply the
Starbucks Indonesia locations in the west. Meanwhile, the yellow warehouse is a Surabaya-based
inventory warehouse that will service Starbucks Indonesia's eastern branch.
Starbucks in the United States and Starbucks in other countries have similar supply chain
management, but it cannot be denied that there are still some distinctions between how Starbucks
America and Starbucks in Asia manage their supply chains. For instance, the use of the blockchain
system in the Starbucks supply chain. Unfortunately, the majority of Starbucks located in Asia have
not yet implemented a blockchain system for their supply chain management; they are still lagging
behind in adopting advanced technologies such as blockchain to support their supply chain
management operations, example: Starbucks Indonesia. Despite the fact that supply chain activities
can be made more efficient by using blockchain. Experts and studies have demonstrated that
blockchain technology has the potential to address numerous problems inherent to the supply chain
and to facilitate the achievement of crucial strategic objectives for supply chain management, such
as cost, quality, speed, and dependability. Blockchain has a positive impact on supply chain
management because the blockchain system is secure, transparent, and immutable which helps
Starbucks have a transparent and traceable supply chain. Participants of the Starbucks supply chain,
such as farmers, distributors, warehouses, roasting facilities, coffee shops, and customers, are the
validators of the blockchain system. Blockchain will process data entered into the system accurately
& in real-time, data that has been entered into the system will not be changed and can be viewed &
maintained by all participants within the Starbuck supply chain. Adopting blockchain technologies
will facilitate the verification of the origins, production time, and production location of raw
materials for quality management purposes. However, the use of blockchain must be adjusted
according to goals and needs. If blockchain wants to be used for supply chain operations, Starbucks
should use a blockchain that is not centralized but also not decentralized, namely a hybrid blockchain.
Because only Starbucks supply chain participants are permitted to access the data, as the information
is confidential and cannot be shared with the public.

CONCLUSION
Through interviews conducted with Starbucks supply chain employees and blockchain
experts, valuable insights were obtained regarding the company profile, Starbuck supply chain
management, the blockchain system, and its potential impact on Starbucks' operations. The analysis
revealed that Starbucks, with its global presence and commitment to sustainability Through
initiatives like C.A.F.E practices, Starbucks ensures the ethical sourcing of its coffee beans and
promotes sustainable agricultural practices. The company's commitment to quality, transparency, and
environmental responsibility is evident in its mission to inspire and nurture the soul of every human
being, cup of coffee, and the environment.
Starbucks follows a well-defined business process known as "The Journey of Starbucks" to
achieve its goals. This process includes activities such as portfolio and category management, market
insight and sales forecasting, product development, supplier management, logistics management,
demand and supply planning, operation management, and target and strategy revisiting. These
activities are crucial for Starbucks to maintain its position as a global coffee shop and ensure the
quality and consistency of its products. Starbucks has a clear-cut and structured supply chain
management process, consisting of sourcing, integrated enterprises, logistics, store operations, and
end customers. Each stage plays a crucial role in ensuring the right quantity, time, place, and cost of
products, from sourcing raw materials to delivering them to end customers. It also focuses on
ensuring a reliable and consistent supply of raw materials, efficient production, and quality control
processes, effective logistics and distribution, and ultimately, customer satisfaction. Starbucks places
importance on sustainability, compliance, and governance in its supply chain practices, as
demonstrated through partnerships and initiatives to support ethical sourcing and environmental
conservation.

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Blockchain technology is a distributed ledger system that cryptographically links data blocks
to create an immutable and transparent record of transactions. Blockchains can vary in terms of
centralization, permissions, and privacy levels. They can be centralized, decentralized, or hybrid in
nature. Public blockchains are fully decentralized and can be accessed and maintained by anyone,
while private blockchains are controlled by a single entity. Hybrid blockchains involve multiple
parties collaborating to maintain the system. Blockchain offers several advantages such as
immutability, transparency, traceability, and security. Immutability ensures that data entered into the
blockchain cannot be altered, while transparency and traceability allow for increased accountability.
It has the potential to revolutionize supply chain management by eliminating intermediaries, reducing
costs, and automating processes through the use of smart contracts. The implementation of
blockchain can enhance accountability, ensure data integrity, and facilitate secure transactions.
Although Starbucks has not yet fully implemented the blockchain system in its supply chain
management, particularly in most Asian locations, the findings indicate great potential for its
adoption. A blockchain system could enhance transparency, traceability, and trust in the supply chain
by recording every transaction and ensuring the accuracy of data. It can ensure the quality and
consistency of raw materials, streamline logistics operations, and improve customer satisfaction.
Implementation of a blockchain system could further align with Starbucks' commitment to
sustainability, ethical sourcing, and maintaining its product quality to stay up to the standard. By
embracing blockchain, Starbucks can further enhance its sustainability efforts, strengthen supplier
partnerships, and provide a seamless and transparent experience for its customers. The integration of
blockchain technology aligns with Starbucks' mission to inspire and nurture the soul of every
individual, cup of coffee, and the environment. However, it is important to consider the level of
decentralization and control in implementing blockchain systems.
In conclusion, the findings underscore the significance of supply chain management in
Starbucks' operations and the potential benefits of implementing blockchain technology for supply
chain management. By leveraging blockchain's advantages, Starbucks could enhance transparency,
traceability, and efficiency in its supply chain. Exploring the potential of blockchain and its different
types could align with Starbucks' sustainability goals and commitment to quality, while also
providing benefits such as cost reduction and process automation. that incorporating a blockchain
system into Starbucks's supply chain management could result in a multitude of positive outcomes
for the company.

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