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Role of supply chain in enabling new business models

Harnessing the Internet of Things (IoT) to enable a data driven approach, has enabled Costa Express to increase customer satisfaction, improve delivery performance whilst growing their business 6-fold in 5 years.

Costa Express was formed in 2011, with a mission to provide high quality coffee on the go. Coffee of such high quality that consumers would think that there was actually a barista inside and the self-service coffee bars to be ‘The Magical Coffee Machine’. Costa Express now has over 5,500 machines around the world, and has ambitious plans for further growth.

In the video Martin Woodward (Managing Director, ToolsGroup UK) provides an explanation of the data driven business model that has underpinned the success of Costa Express. At the heart of the business model was a SIM card, something that we can all relate to through our mobile phones. This SIM card enabled the machines to send 60 telematic data points to Costa HQ every 15 minutes. This enabled Costa Express to be at the forefront of machine to machine communications and bring the Internet of Things (IoT) to life.

More importantly it enabled Costa Express to align their commercial proposition with their supply chain strategy. Critical to their revenue sharing business model was the ability to know exactly what had been sold. To their partners they offered a high revenue/m2 proposition that required very little work from the partner. The machines, maintenance and ingredients were all managed centrally by Costa Express. The machines are so sophisticated they can even send out alerts if ingredients are running low, and trigger reminder phone calls if alerts are ignored.

The technology has enabled Costa Express in conjunction with ToolsGroup to successfully implement a Vendor Managed Inventory (VMI) solution. A solution whereby Costa Express take responsibility for the automatic replenishment of ingredients to their partner’s retail outlets. The ToolsGroup cloud based software enables an accurate forecast of future demand to be generated based on a wide range of factors (e.g. seasonality, proximity to holiday route, proximity to sporting event) rather than on historic demand. From this is a demand driven way, materials can be sent to outlet as required. The planners at Costa HQ also have full supply chain visibility. VMI can be notoriously difficult to implement as points of sale may not wish to relinquish control to the centre. This was never a problem for Costa Express as it was part of the business model from the outset.

This truly is an exemplar of what can be achieved, when a business model is developed that aligns the commercial proposition with the supply chain strategy. Critical to this development was the use of technology to enable a data driven approach.

Talking Point

Can you think of any other:

  • Successful data driven business models?
  • Businesses that could augment their standard offering (e.g. Costa Coffee shops) with a new data driven business (e.g. Costa Express)?
  • Business models that are at threat from new data driven substitutes?

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This video is from the free online course:

Supply Chains in Practice: How Things Get to You

The University of Warwick