Starbucks operations management strategy

Carmen Hendrickson

Southern New Hampshire University

06/26/2019 ( Revision)

Introduction

Operations management has evolved from a period when it was regarded as industrial/factory management to a modern era where new techniques such as JIT gained momentum (Filippini, 1997). In the traditional approach, the aim of operations management was to maximize the productivity of labor. On the other hand, the modern era brought with it technology which necessitated changes in process design. The following paper analyses the forces that have shaped the operations management in Starbucks coffee in the recent history by focusing on; significant forces, key obstacles and important trends.

Starbucks’ Operations management, significant forces and impact

Operations management in Starbucks has evolved over the years. For example, the company introduced the Coffee and Farmer Equity (CAFE) program 20 years ago to enhance sustainability and establish an ethical framework for the selection and prioritization of suppliers (SCS Global Services, n.d.). There are several other areas where changes were experienced. These areas include; the design of goods and services, the location strategy and the process design (Gregory, 2017). The changes in operations management are associated with significant forces that arise from the internal and the external environment.

The internal forces that have shaped Starbucks’ operations management include; organization structure and organization culture and the employees of the company. On the other hand, external factors include; economic policies, competition, government laws and regulations, natural disasters, suppliers and customers.

Internally, employees affect the implementation of operations management since they are tasked with executing the day-to-day operations. By the end of September last year (2018), the company had about 291,000 people employed. Out of these, about 100,000 employees worked in support facilities warehousing and distribution operations. Additionally, approximately 183,000 worked in company-operated stores. The relationships with these employees have affected the operations of Starbucks. As a result, the company resulted to a strategy which regards all employees as partners who share in the success of the company.

When it comes to the organizational culture and management structure, Starbucks HR department found the need to integrate the elements of organizational culture to all the aspects of business. Generally, the company’s culture is entrenched on an employees’ -first attitude which makes sure that the interests of employees are prioritized (Gregory, 2017). The management structure also follows the Starbucks organizational structure with both work teams and functional roles. While Baristas operate in work teams, HR and inventory positions are based on a functional framework. One area of the management structure that seems to cause problems in the future is the overdependence on the Americas operating segment. The financial results of 2018 indicated that more than 68% of revenue was drawn from the Americas segment.

Economic forces have the capability to affect the amount of sales that Starbucks can record in a given year. The dependence of the restaurant industry on the consumers’ discretionary spending implies a high price sensitivity. Economic forces such as increases in interest rates or high taxation limit discretionary spending by customers

Starbucks is not a market leader in all the channels and markets where it operates. The high competition in the restaurant industry has also motivated a number of responses. For example, Starbucks’ resulted to using the layout strategy as a source of competitive advantage. To focus on the premium customer, Starbuck’s layout strategy was designed to prioritize premium customer experience over space utilization (Gregory, 2017). Similarly, Starbucks, cafes were located on urban centers to target the middle class, the upper middle class and the upper class.

Government laws and regulations affect the operations of Starbucks in a number of ways. For example, the implementation of a minimum wage increased the labor costs incurred by Starbucks. Such changes have significant repercussions given that the retail business is usually associated with high labor costs. Secondly, food and safety regulations have the capability to halt the operations of Starbucks. In order to ensure that the company adheres to food quality standards, Starbucks’ management decided to source coffee beans from a defined group of farmers who meet the Starbucks quality standards.

Natural disasters, political instability and terrorism can lead to avoidance of public spaces where Starbucks’ cafes are located. The management has limited control over such abrupt events. However, the location of Starbucks’ cafes considers the security and history of natural disasters to avoid future disasters.

Key Obstacles

For Starbucks, a number of obstacles have faced the company management during the evolution of operations management into the modern era. These obstacles are related to; inventory management, maintenance, scheduling, customer relationship management, employee satisfaction, and privacy and web security. The problems emanate from technological implications, cost implications and the wider restaurant market.

For inventory management, the process of enhancing comprehensive Innovation in Starbucks supply hubs was quite expensive. Similarly, the use of lean processes was difficult to implement due to the company’s goal of enhancing supply adequacy. The need to maintain friendly relations with coffee farmers meant that Starbucks had to purchase the Coffee beans when they were ready regardless of the need to maintain minimal inventories. This means that the cost implications of inventory management in the modern era and the implementation of lean operations were key obstacles in Starbucks’ evolution of OM.

In the context of scheduling, the modern era of OM has compelled Starbucks to streamline processes and enhance flexibility among different management processes. This approach to scheduling has its measure of technological and cost implications. On a similar note, the transformation of maintenance function had its share of obstacles. The company’s human capacity training programs that are aimed at maintain competent employees at every level are very expensive (Gregory, 2017). Once trained, the employees are also guaranteed of a higher compensation.

The use of IT databases and other tools of technology in the modern era has created privacy and web security concerns. This problem has affected both employees and customers. The high prevalence of hacking activities in the modern era threatens customer’s data that’s stored in the company’s database. Similarly, interruptions or failure of technology that supports modern OM are key obstacles. They affect a number of functions that include but not limited to; the use of Starbucks Cards, mobile payments, online delivery services and a couple of other interdependent functions (Starbucks Inc, 2018).