Client: StarbucksSolution: Vertex® Indirect Tax O Series®

Starbucks implements a centralizedtax system to support global growth.Company ProfileFrom its beginning in 1971 as a single storefront in Seattle’s historic Pike Place Market,Starbucks has grown into the premier roaster and retailer of specialty coffee in theworld – and a staple in the daily routines of millions of people. Today, the companyoperates over 16,000 stores in 51 countries, as well as numerous business-to-businesstransactions and e-commerce operations around the world generating more than$11 billion in annual sales.

The ChallengeWhile Starbucks is undeniably a large presence in the retail arena, its business modelis considerably more complex. To deliver a cup of coffee to a customer in a retail store,the coffee beans must go through purchase, manufacturing (roasting), distribution,and sales – and each step has specific tax consequences.

• Green coffee beans are purchased from growers and transported via boat to green coffee warehouses in the U.S., Singapore and Europe.

• The green coffee is then shipped to company-owned roasting facilities and contractco-manufacturers and packers who work on specialty products.

• Roasted beans are shipped to distribution centers around the world.

• Beans are delivered to retail stores and other locations globally.

Starbucks sells coffee and other products to 50 million customers worldwide eachweek. From a purchase standpoint, the company buys production materials, cups and lids, merchandise, office supplies, services, and more, from a global network of suppliers and service providers both externally and internally (among Starbuckslegal entities).

All of this global purchasing, transportation, manufacturing and distribution makesthe accurate assessment, calculation, and capture of tax at every step an epic challenge.

Growth & Complexity Spur Need for Automation

With no centralized tax system to manage its diverse business transactions, Starbuckshad employed multiple approaches to processing tax.

• The company used Vertex® Sales Tax Q Series® for business-to-business invoice sales.

• They used multiple Excel schedules to manually accrue the use tax on purchases, as well as inventory transfers to retail stores.

• On the international front, there was no tax system in place and many manual processes.

SummaryCompany

Retailer, roaster, and provider of specialty coffee, teas, and bottled drinks

Sells whole bean coffees through salesgroup, direct response, supermarkets, and online

Operates 16,000+ retail stores in 51 countries

Serves 50 million customers each week

$11 billion+ in annual sales

Vertex Solution

Vertex® Indirect Tax O Series®

Vertex® Consulting Services

Results

Centralized tax system for all invoice sales, purchases and inventory transfer transactions

Scalable business platform where tax is an integrated component for any transaction or process

Ability to pull detailed transaction data for analysis

Automation of consumer use tax on purchase and inventory transactions

Increased time for analysis and planningdue to automation of manual processes

Ongoing partnership with Vertex to maximize company growth

CASE STUDY

“We see Vertex as our business partner.”– Paula Borhauer, Director Global Indirect Taxes

Starbucks

The Challenge (continued)Given the scale, complexity, and global nature of the business,Starbucks realized that the manual processes put accuracyat risk, increased tax exposure and audit risk. For example,use tax processes were completed by a non-tax professionalwith guidelines provided by the tax team – creating morepossibilities for human error.

Starbucks’ processes also lacked the flexibility and scalabilityto support current or future business growth. It requiredthe ability to set up and evaluate receipt settlements withsuppliers. Due to system constraints, the company also neededthe ability to pull detailed transaction data. Use tax accrualon inventory transfers typically required three days to performdue to manual input and the use of spreadsheets.

These and other situations spurred the demand for anautomated solution for indirect tax.

Integrating Tax into the ERP UpgradeTo address the increasing scale and complexity of its globaloperations, the company was embarking on an Oracle ERPupgrade, which presented an opportunity to integrate,centralize and standardize the accounts payable, accountsreceivable and inventory processes across all regions of itsoperations. While Vertex® Sales Tax Q Series® had previouslyprovided business-to-business transactional-level taxmanagement for Starbucks in the U.S., the company wouldintegrate Vertex® Indirect Tax O Series® into the Oracle ERPupgrade to enable them to get to transactional level consumeruse and inventory tax evaluation, which had previously beenimpossible with the older systems, according to SherylBennett-Holland, Systems Analyst Lead at Starbucks.

“Our goal was to create a scalable business platform toaccommodate business growth and change where tax was anintegrated component for any transaction or process – notan afterthought,” said Bennett-Holland.

The first area to go live was the Starbucks’ Europe-MiddleEast-Africa (EMEA) region. The intentional deployment in asmaller region provided the Starbucks team an opportunityto learn the Vertex solution, and the tax link technology.

“We faced a lot of challenges in this upgrade – doing boththe ERP and Vertex implementation at the same time,” recallsBennett-Holland. “Upgrading both together presented acontinuously changing target, as other teams changed theirdesigns to meet their business needs in their space.”

Mapping the Data Flows

Given the scope of the project, with such a large number ofdepartments and tax laws, the development and testing teamswere challenged with multiple design changes to anticipateall the possible processing scenarios that the Vertex systemmight have to handle.

The sheer volume of data passing through the systems poseda reporting challenge. To better visualize the flow of datafor troubleshooting during deployment, the Starbucks teamlaid out a flow diagram with pictures of the data pointsthat would be passed to the Vertex system, and where theyoriginated from in Oracle for all invoice types and loads.

Starbucks went live with Vertex O Series for value added tax(VAT) in November 2008 and with Vertex O Series for salesand consumer use tax in April 2011.

Transforming & Elevating the Role of TaxWith the two-pronged deployment completed, all of Starbucksinvoice sales, purchases and inventory transfer transactionsare now processed through a centralized tax system. Theadvent of this visibility, coupled with automation of manymanual processes, has fundamentally changed the company’stax function.

“As a tax professional, I’m very excited that we have the abilityto see all transactions,” said Ryan Meas, Manager of Sales andUse Tax at Starbucks. “We’re able to trace all transactions, andreport on all transactions related to accounts receivable,accounts payable, and inventory transactions.”

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Starbucks implements a centralized tax system to support global growth.

Paving the Way for Future GrowthThe integration of the Vertex and Oracle platformshas provided a framework the company can leveragefor future initiatives. For example, the companyrecently implemented an Oracle iStore module in theERP, and an online ordering system for its foodservices and licensed store groups. Because iStoreintegrates with the existing ERP system using thecomponents built to link with Vertex, Starbucksexpects that the tax evaluations through Vertex willbe done on every transaction – without requiringany “one-off” processes.

“Our goal was to create a scalable business platformto accommodate business growth and change wheretax was an integrated component for any transactionor process – not an afterthought.”

– Sheryl Bennett-HollandSystem Analyst LeadStarbucks

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Transforming & Elevating the Role of Tax(continued)

Prior to the Vertex implementation, the Starbucks tax teamspent an inordinate amount of time performing calculationson tax data. “Now we spend time analyzing transactionaldata instead of performing manual tax calculations, whichallows us to be more proactive than reactive in addressingtax issues,” said Meas. “This adds value to our company, andalso enhances our partners’ skill sets.”

He continues, “One of the biggest transformational changeswith this project is the use of tax automation on all purchasesand inventory transactions. Before this project, all purchaseswere handled by a non-tax professional, and the inventory usetax accrual process was done manually using spreadsheets.”

The Vertex implementation mitigated potential human errorand reduced the inventory tax processing time from threedays to one and a half days. The Tax department can now bemore proactive when working with business units to identifythe business and tax impact of current and future initiatives.

“In addition,” add Meas, “The centralized, automated taxsolution allows us to be more flexible and scalable goingforward, without adding new resources each time there arenew business ventures.”

Looking AheadThe Vertex implementation enabled a strategic makeover of the Starbucks’ tax department, and the company soonidentified additional areas for improvement with subsequentimplementations.

The next initiative involves upgrading both the EMEA andNorth American regions to the Vertex® Indirect Tax O Series®6.0 version. This standardization will simplify support for thecompany’s IT organization, which will only need to supportone version of the solution, and apply uniform treatmentsacross all regions when future changes are required. Inaddition to keeping up with releases and fixes, the companyplans to take advantage of Vertex platform integrations, suchas the exemption certificate manager and reporting analytics.

“Overall, this sets a foundation for easier business expansion,”said Bennett-Holland.

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Starbucks implements a centralized tax system to support global growth.

“The centralized, automated tax solution allowsus to be more flexible and scalable without addingnew resources each time there are new businessventures.” – Ryan Meas, Manager of Sales & Use Tax

Starbucks

The Ideal Implementation TeamStarbucks decided to combine the Vertex tax system upgradewith their Oracle ERP upgrade. As with any enterprise-levelsoftware update, the tandem upgrades presented a numberof technical and country-specific obstacles. One of the mostchallenging issues was the inherent cross-functional knowledgegaps between the software vendor (Vertex), the Starbucks ITfunction, and the Starbucks tax department.

Cross-Functional Knowledge Needs

“Vertex people know their product, our IT people know ourunique infrastructure, and the tax department knows howto navigate global tax regulations,” notes Brian Ugai, VicePresident, Tax & Customs at Starbucks. “Connecting thosedots and bridging the enormous knowledge gaps is extremelychallenging, and requires cross-functional knowledge acrossall areas – and very talented people.”

As Starbucks embarked on the project, the team knewproject-level and ongoing service would be an important keyto success. One option was to use the implementation serviceprovided through the software providers or employ a thirdparty. A third-party service provider was already engaged forthe ERP implementation, and the prospect of enlisting anotheroutside firm and bringing them up to speed on the business,the IT landscape – and Vertex – presented new challenges.Ultimately, Starbucks engaged Vertex Consulting to providesupport around the tax system implementation.

“Vertex knows its product the best,” noted Ugai, “and what’sin store for it going forward. Additionally, we needed someonewho had the inside knowledge of Vertex – someone who couldnot only apply their knowledge of our business and ITsituations and challenges, but could identify problems andrally the appropriate Vertex resources to solve them.”

Working with their Vertex Technical Account Manager, or TAM,prior to the implementation proved fortuitous. The Vertexprofessional staff was already familiar with Starbucks IT andtax departments and was ready to address the knowledge gapsand issues encountered along the way.

Critical Support During Cutover

In preparing for implementation of Oracle and Vertex O Series,Starbucks IT had strict support requirements for the cutoverperiod to prevent system failures and business interruption.Vertex sent two support team members to Starbucks prior toimplementation for knowledge transfer on the Starbucksspecific tax link extensions supporting multiple Oraclemodules and countries. For the cutover period, Vertex supportand service teams worked with Starbucks tax and IT staff totailor the support hours and provide direct access to advancedsupport team members. This flexibility to provide customizedservice was critical for the cross-functional team managingthe implementation.

An Ongoing Partnership

The need to partner with a proven service provider –particularly on the tax front – is especially important toStarbucks. The partnership between the Starbucks and Vertexteams goes far beyond the initial stages of implementation,and empowers the Starbucks IT and tax teams to focus theirefforts on initiatives to drive the business as the companygrows and adds lines of business and products.

Looking Ahead (continued)A Valuable Partnership

Paula Borhauer, Director Global Indirect Taxes at Starbucks,emphasizes the value of the partnership between Vertexand Starbucks. “With Vertex, it’s not a situation where thesoftware is installed and then people involved in theinstallation go away and you never see or talk to them again,”explains Borhauer. “But, from my experience, that seems tobe the model with a lot of software installations. With tax,you just can’t do that. You need a partner. Tax requirementsare constantly changing outside of our control. We’reworking with Vertex month after month, because there areconstant changes.”

“We see Vertex as our business partner,” says Borhauer. “Wewent through this major ERP implementation, but now we’regoing through different upgrades and resolving new problemsthat arise because we continue to adjust our IT infrastructureor our business requirements change. Our business is verydynamic – we’re growing and adding lines of business andnew products. So we need to adjust the Vertex system alongthe way to meet those changes. This requires a team within-depth knowledge of the Vertex products and resources,as well the Starbucks IT landscape and business model.”

Supporting Business GrowthBennett-Holland Summarizes, “This is exactly the type offoundational benefit we were hoping to get from theimplementation of Oracle and the Vertex O Series. And thecontinuous upgrades will really position us to support newgrowth and future business changes within Starbucks withoutsacrificing tax accuracy and/or tax resources to do it.

About VertexWith more than 30 years of experience, Vertex Inc. is theleading provider of corporate enterprise tax solutions andprocess management services worldwide.

Vertex solutions help companies streamline and integrate taxprovision and compliance processes, and leverage informationto discover new strategic tax savings across every major lineof business tax, including income, sales, consumer use, valueadded, communications, and payroll. To serve its customers,Vertex works in partnership with the world’s leading providersof ERP software and related services.

Starbucks implements a centralized tax system to support global growth.

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About VertexFounded in 1978, Vertex Inc. is the leading provider of corporate tax software and services to automate, integrate, streamline or outsource tax processes for companies of all sizes, from small to medium-sized businesses to global multinationals. Vertex provides solutions for all tax types with industry-specific solutions for retail, communications, hospitality and leasing industries.

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