When its original logistics and procurement model threatened to constrain its rapid growth, the U.K.-based coffee retailer went all-in: new leadership, new supply chain strategy, new logistics provider, and new software. Here's how it all paid off.
Costa Express was created to serve this need in 2011 when the Whitbread Group, the largest hospitality company in the United Kingdom and owner of Costa Coffee, acquired Coffee Nation, a provider of self-service coffee concessions. The new company, Costa Express, partners on a revenue-sharing basis with retailers that service public places like airports, railway stations, hospitals, universities, convenience stores, gas stations, and offices, enabling them to profit from the growing consumer demand for premium coffee "on the go" as well as the strong Costa brand. (Costa Coffee is the largest coffee retailer in the U.K.) Costa Express provides its partners with up-to-date, self-service coffee machines and regularly restocks the coffee and supplies, so very little investment is required to get the business up and running.
After achieving early success in its first year, Costa Express set ambitious plans to increase the number of machines in operation—what it refers to as its "estate" —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.
It became clear to me that in order to deliver sustained growth, we would have to transform our supply chain and redefine roles within the wider business ... and quickly!
A fresh start
During my first month (April 2012), it was clear that I needed to make some changes without delay. These initial changes would lay the foundation for the rest of the strategic changes that would be necessary. I therefore immediately moved responsibility for partner replenishment from finance to the new supply chain team. This change would ensure that partner replenishment would receive the right amount of attention during the transformation. I next undertook a review of providers of replenishment and demand planning software, which included looking at how we could tap into our valuable telemetry data and use this to maintain the inventories at partner sites.
In June 2012, I initiated a tender process designed to seek out a new logistics partner. This process included reviewing relationships with suppliers and assessing whether Costa Express should start to purchase ingredients directly from suppliers.
By November 2012, my team and I had come up with both a new replenishment planning tool and a new logistics provider, Howard Tenens, and planned to have them both up and running by January 2013. As part of this plan, we had decided to start purchasing ingredients directly. By doing so, we would be able to negotiate and control our costs more effectively as our volumes grew.
Howard Tenens collects stock from suppliers (including coffee beans, flavored syrups, cups, lids, stirrers, and napkins), stores it in a central warehouse, and delivers stock as needed to Costa Express partners. Besides enabling us to purchase ingredients directly, having a new logistics partner has simplified our logistics model. Our previous model was more distributed, with one central warehouse and nine regional ones. Now that we hold everything in one central location, we are able to make more next-day deliveries. Another advantage is that Howard Tenens runs most of its fleet on either dual fuel (combined gas and diesel) or biomethane fuel. This means we are on track to save approximately 73 metric tons of carbon emissions in our first year working together. We have also started working with another division of Howard Tenens to support our coffee machine-installation logistics.
Despite initial reservations within the business, I was adamant it would be best to implement these changes all at once instead of sequentially, challenging the conventional wisdom. This meant that by January 2013 we were in the midst of three major supply chain changes: a new IT system, a new logistics provider, and a new purchasing process.
As part of the new IT system, we chose a software application from ToolsGroup called SO99+ that manages key supply chain planning processes, including demand planning, demand sensing, and inventory optimization. We chose it because it could help us improve forecast accuracy while at the same time maintaining high customer service levels with less inventory. This went live in January 2013 as planned and was fundamental to the enabling of other changes involving both people and processes.
Before implementing that application, Costa Express had used the spreadsheet system to estimate how much inventory to supply to each site, using a calculation based on current stock holding and average cup sales. The new system allows us to compare the actual sales data to the levels of stock on hand at the sites, a feature that gives far better visibility and control. The system uses sales data (produced every four minutes) collected from each of the 3,000 machines to identify trends and forecast future demand. It then calculates how the demand is likely to vary, and therefore how much backup stock must be kept at each site. Finally, the system creates a schedule for resupplying the right amount of inventory to each site in order to maximize availability without overstocking. All of this is done automatically and in the cloud.
The new system allowed the business to make an important fourth change: redefining the role of the Brand Guardians. Because the software was so much faster, more accurate, and easier to use than the old spreadsheet system, these people were able to take on the new role of Brand Excellence Advisors, whose main responsibility today is helping partners sell more effectively and deliver a great customer experience. With this new role, the Advisors help to increase sales, improve service quality, troubleshoot if necessary, and, in general, enhance the overall Costa Express experience for the customer.
Savings in six months
Just six months after going live with the new IT system, new third-party logistics provider, and new purchasing processes, we measured some very significant operational savings, including:
20-percent reduction in field stock being held at partner sites
50-percent fewer delivery refusals by our partners
Centralized stock-holding locations reduced from nine to one
Developed direct purchasing relationships with 15 suppliers providing 50+ stock-keeping units (SKUs)
Negotiated new product prices and pack sizes, leading to a reduction in the purchase price of some items
30-percent reduction in annual logistics operating costs, and associated annual carbon dioxide (CO2) savings of 70 metric tons
Costa Express has been able to significantly reduce the quantity and value of inventory at each partner site. Previously, the average site was expected to stock well over 20 cases of various items. This has now been reduced to approximately 12 cases, just one case of each item. (Although we have approximately 50 SKUs, individual sites typically use 15 or fewer. For example, there are three different types of stirrers, but a site will use only one.)
Costa Express also needs to make managing stock as simple as possible, employees can focus on serving customers and increasing sales. This new system has given our partners the confidence that their stock will be replenished efficiently and in a timely manner, so that they can get on with running their businesses.
Along with the changes to the Brand Excellence Advisor role, statistics show that our Net Promoter Score, a popular customer-loyalty metric, grew by more than 10 percent in a six-month period. Furthermore, overall satisfaction and reuse scores (the likelihood of a customer using our services again) grew by 5 percentage points, and recommendation levels (the likelihood of a customer recommending our services) were up 6 percentage points.
A foundation for sustainable growth
When Whitbread acquired Coffee Nation, the target was to have 3,000 machines in place by 2016. The changes made in Costa Express's supply chain, including the implementation of the new software, has enabled it to achieve this target in 2013, a full three years ahead of schedule. With the help of our new systems, processes, and roles, we are confident that we can grow internationally while maintaining confidence in the brand with top quality and great service. Already, I have been part of a team that has helped Costa Express to install new machines in Poland, under the "Coffee Heaven" brand, and we will soon introduce Costa Express to Ireland.
The company is also about to embark on two important new projects. Firstly, Costa Express is now part of a new business-to-business division called Costa Enterprises. I will be responsible for managing an enlarged supply chain for Costa Enterprises, which comprises more than 7,000 locations worldwide and dispenses more than 100 million cups of coffee a year.
Secondly, in January we launched our new CEM-200 "intelligent" coffee station concession, based on advanced technology from Intel, Microsoft, and Bsquare. These multimedia machines will be placed in high-end properties, starting in Dubai. I will be responsible for the supply chain elements of bringing this multimillion-pound innovation to the U.K. and international markets. Along with those projects, we are also reviewing ToolsGroup's software with an eye toward using it to manage Costa Express's spare-parts supply chain, which utilizes three different coffee machine manufacturers, each at different stages of the product lifecycle.
Quite simply, without the changes implemented throughout the Costa Express supply chain, the U.K. business would have struggled to grow at the pace it has. Costa Express's supply chain systems are now firmly situated to sustain both U.K. and international growth. We have turned supplier and customer relationships into true team efforts. Partners at both ends of the Costa Express supply chain are engaged. Suppliers understand Costa Express's requirements, and we work together to mutual advantage. Partners who maintain the machines and sell the coffee are experiencing the kind of efficient, worry-free service levels that allow them to focus on running their businesses. With this foundation in place, I believe we are solidly positioned to sustain our growth while maintaining a trusted and highly respected premium coffee brand.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
That hiring surge marks a significant jump in relation to the company’s nearly 17,000 current employees across North America, adding 21% more workers.
That increase is necessary because U.S. holiday sales in 2023 increased 3.9% year-over-year as consumer spending grew even amidst uncertain economic times and trends like inflation and consumer price sensitivity. Looking at the coming peak, a similar pattern is projected for this year, with shoppers forecasted to drive a 4.8% increase in holiday retail sales for 2024, Geodis said, citing data from Emarketer.
To attract the extra workforce, Geodis says it will offer competitive wages, peak premium pay incentives, peak and referral bonuses, an expedited payment option, and flexible schedules. And it’s using an AI-powered chatbot named Sophie to serve as a virtual recruiting assistant.
“We acknowledge the immense responsibility we have to our customers to deliver exceptional service every day, and this is especially true during peak season,” Anthony Jordan, GEODIS in Americas Executive Vice President and Chief Operating Officer, said in a release. “Because peak season is the most business-critical sales period of the year for many of our retail clients, expanding our workforce is vital to ensure we have a flexible, dynamic team that can handle anticipated surges in demand.”
With the economy slowing but still growing, and inflation down as the Federal Reserve prepares to lower interest rates, the United States appears to have dodged a recession, according to the National Retail Federation (NRF).
“The U.S. economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024,” NRF Chief Economist Jack Kleinhenz said in a release. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”
Despite an “eventful August” with initial reports of rising unemployment and a slowdown in manufacturing, more recent data has “calmed fears of a deteriorating U.S. economy,” Kleinhenz said. “Concerns are now focused on the direction of the labor market and the possibility of a job market slowdown, but a recession is far less likely.”
That analysis is based on data in the NRF’s Monthly Economic Review, which said annualized gross domestic product growth for the second quarter has been revised upward to 3% from the original report of 2.8%. And consumer spending, the largest component of GDP, was revised up to 2.9% growth for the quarter from 2.3%.
Compared to its recent high point of 9.1% in July of 2022, inflation is nearly back to normal. Year-over-year growth in the Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation – was at 2.5% in July, unchanged from June and only half a percentage point above the Fed’s target of 2%.
The labor market “is not terribly weak” but “is showing signs of tottering,” Kleinhenz said. Only 114,000 jobs were added in July, lower than expected, and the unemployment rate rose to 4.3% from 4.1% in June. Despite the increase, the unemployment rate is still within the normal range, Kleinhenz said.
“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said. “While lowering interest rates would be good news, it takes time for rate reductions to work their way through the various credit channels and the economy as a whole. Consequently, a reduction is not expected to provide an immediate uplift to the economy but would stabilize current conditions.”
Going forward, Kleinhenz said lower rates should benefit households under pressure from loans used to meet daily needs. Lower rates will also make it more affordable to borrow through mortgages, home improvement loans, car loans, and credit cards, encouraging spending and increasing demand for goods and services. Small businesses would also benefit, since lower intertest rates could lower their financing costs on existing loans or allow them to take out new loans to invest in equipment and plants or to hire more workers.
The Port of Los Angeles plans to build a $52 million on-dock rail expansion at its Fenix Marine Terminal, saying the project will expand capacity and cargo efficiency while providing environmental benefits.
The investment follows several similar moves to expand rail access at other U.S. ports, including an $83 million project at the Port of Virginia, a $73 million rail expansion project on Pier 400 at the Port of Los Angeles, and ongoing work on a $127 million rail cargo facility at the Georgia Ports Authority.
Users of the port facilities cheered the expansion, which is planning to begin construction next year. “This investment ensures that there is adequate on-dock intermodal capacity to accommodate future volume growth, enabling POLA and FMS to further compete for discretionary cargo in an environmentally and community responsible way,” George Goldman, President & CEO of CMA CGM (America), said in a release.
Specifically, the project will add five loading/unloading tracks in the intermodal yard at the port’s Pier 300 terminal. The improvement will increase on-dock railyard capacity, enabling more cargo to be loaded directly onto trains via the on-dock railyard within the terminal. That shifts freight volume off of trucks, since rail is the most energy and fuel-efficient means of long-haul freight movement within the continental U.S., port leaders said.