Starbucks & Vertical Integration

Vertical integration is defined by the number of stages in a product's or service's value chain in which a firm engages. Starbucks, according to former CEO Howard Schultz, is what you would call "vertically integrated to the extreme." In other words, every single aspect of value-added business is managed from within, and Starbucks is constantly attempting to enhance and improve this model of doing business. By managing its economic exchanges through vertical integration, Starbucks has the ability to operate on an incredibly lean supply chain.

For example, Starbucks buys and roasts and sells all of its own coffee beans, rather than outsourcing anything in the process. This is an example of a highly vertically integrated process. Rather than buying the coffee already roasted and made, they do it themselves to keep costs low and the process within managed oversight.

The following is a link to a video conversation with Howard Schultz as he explains the history of Strabucks's growth pattern and the importance of vertical integration.


Interview with Howard Schultz

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