Report on Production and Operation Management of Starbucks

Introduction of Production and Operation Management of Starbucks America

The first Starbucks store was founded in 1971 at Pike Place Market in Seattle. At the time of its launch in 1992, the company had 140 branches and expanded rapidly. The number of branches increased from 40 to 60% per year. While former CEO Jim Donald said "we don't want to dominate the world," Starbucks opened at least one store per day in the 1990s and early 2000s on average (Palmer, 2008). In 2008, seven stores opened daily worldwide. Not surprisingly, Starbucks is now the world's largest coffee chain operator, with more than 15,000 stores in 44 countries, representing 39% of total sales of coffee specialties in the world in 2007 (Euromonitor, 2008a ). North America only serves 50 million people per week and today is an indelible part of the urban landscape.

But how did Starbucks become such a phenomenon? First, it has made the Americanization of European coffee successful, something that no other coffee has done. Before Starbucks, coffee in its current form (coffee with milk, frappucino, mocha, etc.) was curious for most American consumers. Second, Starbucks not only sold coffee but also an experiment. Founding CEO Howard Schultz said: "We are not involved in the coffee industry serving people, but in the coffee industry" (Schultz and Yang, 1997). This includes a focus on customer service, such as eye contact, greeting each customer in 5 seconds, immediately clearing the tables and remembering the names of permanent customers. From the beginning, Starbucks' objective has been to reinvent a product that has a sense of romance, atmosphere, sophistication and a sense of community (Schultz and Yang, 1997). Subsequently, Starbucks created the "third place" in people's lives, somewhere between home and work, where they can sit and relax. This was a novelty in the United States, where coffee culture in many small towns consisted of a coffee filter on a hot plate. In this way, Starbucks not only wants to sell coffee but also to provide an experience. It was designed as a coffee for modern life. The establishment of the cafeteria as a social center with comfortable chairs and music was also an important part of the Starbucks brand.

All this came with an excellent price. While people knew that Starbucks was more expensive than many other café stores, they still visited outlets where one could "to see and being seen." In this way, the brand has become widely recognized and has become a status symbol, and everyone must complement it on their way to work. Therefore, Starbucks not only revolutionized the way Americans drank coffee but also revolutionized people's willingness to pay.

Expansion of Production and Operation Management of Starbucks America

By 2008, consumer confidence in Starbucks in Australia was 90% (Shoebridge, 2008), with each outlet selling on average twice as much coffee (270 per day) as other coffee shops in Australia (Lindhe, 2008). Half of Starbucks' global business in the next decade will be in Asia (Euromonitor, 2006, Browning, 2008). In fact, Starbucks has performed well in international markets that traditionally lacked a coffee-drinking culture such as Japan, Thailand, Indonesia, and China. In fact, it was responsible for the development of the categories in these markets.

The first Starbucks stores opened in Tokyo in 1996 outside the United States. Since then, Japanese Starbucks stores are more profitable than US stores. Not surprisingly, Japan is the best foreign market for Starbucks outside of North America. Each year, more than 100 new stores open in Japan, and coffee is more popular in terms of size and value than tea (Lee, 2003, see also Uncles, 2008). Unlike its entry into the Australian market, Starbucks has slightly changed its recipe for the Japanese market, for example, by inventing Frappucino green tea, which offers smaller drinks and pastries.

Starbucks entered the market of Saudi Arabia in 2000. The Middle East customers’ evolving characteristics which have been moving toward empathy for the affordable upmarket has been cleverly identified by Starbucks. Thus, the company has made astonishing popularity in the Middle East region with its capability of grasping a blend of both low and high tastes, triggering the average customers who have not familiar with Starbucks to experience the brand’s connection and elevation. Starbucks kept on expanding its business to enter the market of Scotland, Austria, Wales, and also Switzerland in the year of 2001.

Despite the fact that the unit expansion has supported Starbucks in increasing its sales, the company has acquired positive same-store sales development ever since 2010. Starbucks has also cannibalized its own sales with above than 14,000 sites spread out only in the United States. In brief, from only a normal coffee bean store in Seattle, Starbucks has succeeded to establish 30,000 international coffee supremacy houses across the globe (Whitten, 2019). The figure below presents the detail number of Starbucks stores from 1987 to 2017.

Source: https://www.cnbc.com/2019/01/07/starbucks-cafes-coffee-business.html

SWOT Analysis of Starbucks of Production and Operation Management of Starbucks America

Strengths of Starbucks

·         Starbucks has gained a big reputation as the market leader in the coffee industry

·         Starbucks has been delivering the finest quality of products to satisfy its customers across the world

·         Starbucks has acquired with its high brand equity

·         Starbucks has employed roughly around 13 thousands of employees across the globe to support its business worldwide

Weaknesses of Starbucks

·         Starbucks has been implementing higher prices for its products if compared with other competitors in the coffee market industry

·         There is a quite high operating cost

·         Starbucks has been gaining its profits which mainly rely on its coffee products

Opportunities of Starbucks

·         Starbucks has a great opportunity to expand its business in the Asian market

·         Starbucks has an opportunity to get co-branding with some other famous food manufacturers to provide a wider product range for its customers

·         The market infiltration in the international market industries

Threats of Starbucks

·         There is an increasing number of competitors for Starbucks derived such as Gloria Jean’s coffee or Barista

·         The variation in the price of coffee which differs in some developing countries in the world

·         Society in these modern days has turned out to become further health-conscious, and thus, will definitely influence coffee consumptions

·         There is some resistance for Starbucks to enter some international countries due to both political and also cultural issues

Inputs and Outputs of Starbucks Operation Management

The Input Used in the Production Process

Inventory Management

Process Strategy

Quality Strategy

Layout Strategy

 Operation Management of Starbucks

 

 

The Global Strategy of Starbucks

Starbucks has been transforming its business strategy from local to a global one which gives the company bigger return in the context of its investment. This has approved by the fact that has appeared in the year of 1995, where there was an overload in the market places of the United States, and this has triggered Starbucks to start its business expansion overseas. In the year of 2001, Starbucks has acquired above than 150 stores the company has been enduring to achieve more. Following this, Starbucks has started to enter the platform of joint venture along with the local business players. The company has made a strong expansion campaign, in addition to its opened foreign markets in the year of 2001. This strategic plan has established the launching of more than 600 stores which scattered out of the United States, its home country. Up till now, there are above than 200 store units located in many countries around the world included Japan, China, Kuwait, Singapore, Thailand, South Korea, and many more.

The Competitive Strategy of Starbucks

The competitive strategy that has been performed by Starbucks to maintain its reputation are such as (Forbes.com, 2016):

·         Product Innovation

Starbucks has been frequently maintaining its competitive advantage by being a leader in the context of product innovation. For instance, the ‘Pumpkin spice latte’ which is one of the seasonal innovation products launched by the company has lead Starbucks to increase the number of visits from 150,000 customers.

·         Capitalizing on the changing preferences of customers

Starbucks has also been maintaining its popularity over the time by being a flexible company. This simply means that Starbucks has been always adjusting its business strategy and operation with the changing customer preferences and tastes. This flexibility has lead the company to achieve a huge success in China.

·         Focus on food

The revenue of food sales gained by Starbucks has contributed for 20% of its total revenue. In order to completely leverage this popularity, Starbucks has been working to create a business partnership and launching food as one of its main drivers for its future development.

·         Changing its expansion strategy

The store system of Starbucks has been evolving by how the company has been opening express stores which fundamentally function as the walk-thru in Seattle, Boston, and also New York.  This competitive strategy is conducted by Starbucks with a purpose to increase its store penetration, while at the same time, also avoiding cannibalization as well.

·         Never perform any franchising in this franchisee world

Starbucks has remained to stay in its principle which refusing any franchise to its stores. The reason was appeared to be the strategy performed by Starbucks which believes that the value and culture of the company are the ones that consistently drive the company.

The Quality Strategy of Starbucks

In the context of quality strategy, Starbucks has been using various quality systems with a purpose to deliver adequate service to its loyal customers such as mentioned below:

·         Random check-in from the district managers, in which those managers will control the baristas, approach the customers to ask their feedback, and also check out all the beverages to make sure the quality of its entire products.

·         Starbucks has been also utilizing the EcoSure, with a purpose to perform checks of all the required qualifications for every six months intended for its entire stores to make sure that they all also maintaining the quality standards as well.

·         Starbucks has been considering to empower all of its employees with the reason to make them as a quality system by mobilizing the employees to turn out as the brand evangelists, and also providing them with the appropriate benefits.

Due to these quality systems included in the quality strategy performed by Starbucks, the company has been attaining a number of awards presented as a recognition for the company to become “No. 1 Best Coffee.” (Janellesantos.wordpress.com, 2013)

The Process Strategy of Starbucks of Starbucks

The process strategy performed by Starbucks is presented by:

·         Components combined intended for various output alternatives such as various types of cups combined with the same type of cap

·         Specialized equipment to support the process strategy of Starbucks such as coffee machines, customized blenders, and others

·         Tiresome operations

·         Well-trained and qualified staff

The Layout Strategy of Starbucks

The concept behind the stores' layouts designed in Starbucks’ stores was actually created to rebuild the customer experience in the Italian espresso bars.

The reason is due to in the United States, the customers of Starbucks have requested for a take-out service along with a place to sit for a while inside the store and have their beverages.

As a consequence, Starbucks has turned out to become the most favorite place for people to relaxing their minds from their hectic daily activities.

The Inventory Strategy of Starbucks

The inventory strategy that has been conducting by Starbucks relies on inbound logistics and outbound logistics.

Inbound Logistics of Starbucks

Starbucks has been conducting a formal procedure which designed for both strategic and also operation plan, which assures that the company is capable to link its processes of manufacturing, procurement, along with the logistics toward the business requirements. The Starbucks’ material flow, starts right from the purchasing process of its coffee, the shipping harbor, to unloading the entire containers at their end destination. Also included as well the processes of roasting and packaging the coffee, preparing them and then serving the coffee products to its billions of customers across the world.

For this reason, Starbucks has been implementing some practices, with a purpose to establish a well-organized and effective logistics systems, such as mentioned below:

·         The Modernized Information Systems which make sure that the flow of information would be efficient, while Starbucks also could return to the manual procedures in case if required. Thus, the manager of Information Technology in every single of its stores should control the distribution of the products via the database which will improve the efficacy of Starbucks’ inventory. Due to this, Starbucks has been combining the manual procedures with a purpose to teach the staff how to make arrangements option in case if there will be any emergency situation.

·         The distribution centers which implemented to make sure effective inventory management so that the company will be capable to fill the requirements better from every single global store from a convenient position.  

Outbound Logistics of Starbucks

On the other hand, in the context of outbound logistics, Starbucks has been more flexible in terms of its distribution channels if compared with other competitors. The distribution channel of Starbucks has divided into two categories which are the company-operated store, and also the non-company-oriented channels. Even though the non-company-oriented channel has only distributed a relatively small amount of its sales, but this channel integrates the Starbucks’ partnerships with various fundamental distributors, which has enabled the company to reach further customers via expanded channels such as:

·         Direct sales: online mail orders

·         Partnership: Draft Foods, Albertson, and Safeway

·         Joint Venture: Pepsi, Dreyer, and Hyatt Hotel

The Human Resource Management Practices by Starbucks

Starbucks has been viewing its employees as the main component of viewing the company itself, with the fact that the company is a business serving designed for society. For this reason, Starbucks has been practicing open communication for its entire employees. This method has succeeded to maintain the employees to be frequently informed by how the company has been always answering all the questions and queries come from its employees. The reason behind this is due to Starbucks believes that it is highly fundamental to employ the employees not only for the capability to be trained in the business activities performed by a café, or customer satisfaction. Instead, also the employees who have an ability related to the social awareness.

Starbucks has been providing a variety of training programs to fill the entire employees with adequate knowledge regarding the values of the company, and how they should foster those values among the customers. In addition to this, Starbucks has also acquired a solid legacy of tolerant and responsible employment. 

This is approved by how the company has presented that the role of Starbucks is to support its employees in achieving their life goals. For this reason, the company has been providing benefits and also some additions for the employees who work for 20 hours or more in a week with compensations of:

·         Healthcare coverage

·         The Starbucks College Achievement Plan which provides a debt-free college degree

·         Fairness in the context of Starbucks stock

Furthermore, in the context of scheduling, Starbucks has been using both manual and automated scheduling methods designed for its several business activities. In addition to this, the company has also applied the flexible schedules meant for its management personnel. This is aligned with the company’s objective of streamlining procedures, while at the same time, also allowing some amount of flexibility among the management positions in the company (Starbucks.com, 2016).

The Supply Chain Management of Starbucks

The supply chain of Starbucks is global, even though almost all of its coffee beans come from the farmers located in some developing countries. The Starbucks’ strategy designed for its supply chain has been involving the variations of its suppliers, with a purpose to make sure for the stability of its supply. In addition to this, Starbucks has also been using its Coffee and Farmer Equity or more known as the CAFÉ program, in order to choose and line up its suppliers. This CAFÉ program applies ethical business practices, as well as a huge emphasis on the context of sustainability. Hence, Starbucks has been integrating both ethics and also Corporate Social Responsibility or CSR, altogether with the supply chain efficacy in the context of its operation management.

The Quality Management of Starbucks

Starbucks has also been utilizing the premium feature regarding its quality management. For example, the company has been carefully sourcing its coffee beans which come from the coffee farmers who fulfill the quality standards required by Starbucks. In addition to this, the company also only prefers to purchase coffee from the farmers who are certified under the Starbucks CAFÉ program. Thus, the premium quality service has also made sure over the retainer leadership along with a friendly culture performed by the company (GREGORY, 2017 ).

Conclusion of Production and Operation Management of Starbucks America

The entire explanation regarding the production and operation management performed by Starbucks can be concluded that Starbucks has been doing big efforts to become widely recognized and has become a status symbol. This can be seen in how the company manages the entire operation management from its Quality Strategy, Competitive Strategy, Global Strategy, Process Strategy, Layout Strategy, and also its Inventory Management. In addition to this, Human Resource Management, Supply Chain Management, along with the Quality Management practices performed by the company have also lead Starbucks to achieve its huge success in the coffee market industry across the world. The main important thing to be noted from this report is how Starbucks has been doing effort to present the premium quality service only to make sure for the retainer leadership along with a friendly culture would be performed by the company Hence, it is fair to say that, Starbucks not only revolutionized the way Americans drank coffee, but also revolutionized people's willingness to pay.

References of Production and Operation Management of Starbucks America