This case study analyzes Starbucks operations, its inventory system, and issues such as shortages. Check it out if you need to write about Starbucks operations management.
Abstract
The key factors for any business growth and sustainability comprise management of operations, service reliability, and high product quality. Starbucks experience in operation management can be taken as a basis in which some of the operation management concepts can be applied or put into practice. This paper aims to offer a holistic study of the way inventory management as part of the overall operation management have resulted in the improved quality of the company products and services. This improved quality has also resulted in increased market share, productivity, and profitability.
The project approach provides insights into how the company has successfully managed its inventory and operations. The paper provides a brief introduction to Starbucks and current academic literature in regard to company inventory management. The research methodologies and analysis of the finding are included in the project. Recommendations aimed at improving the company operations and inventory management are also offered.
Introduction
Starbucks Corporation is recognized as a retailer and premier roaster of specialty coffee worldwide. It was founded in 1971 and is headquartered in Seattle, Washington. The company purchases, roasts, and sells high-quality bean coffees along with Italian-style espresso beverages, rich brewed coffee, cold blended beverages, selections of premier tea, and a variety of complementary food items. In addition, the company licenses its trademarks through its licensees, equity investees, and licensed retail stores. It operates in more than 50 countries, with much of its strong presence in the UK, Canada, Japan, China, Portugal, Poland, Kuwait, and Bulgaria.
The corporation has business fragments, including the U.S.A., CPG, and Intercontinental. Starbucks Corporation has increased its operating stores globally from seventeen stores that it had in fiscal 1987 to 16,635 retail stores it currently manages in over fifty countries. Most Starbucks operating retail stores are spread universally, with over 11,000 stores found in the United States and nearly 6,355 opened internationally.
Literature Review
One of the most important operation management in any given firm is inventory management. The reason is that inventory affects both the product processing as well as the delivery of finished products to the customers. The responsibilities for managing inventory need a large amount of capital knowledge and skills. According to Rastogi (2010, p.33), effective inventory management will have a positive effect on all business functions. In other words, inventory management will affect all areas of business units that comprise marketing, information systems, operations, finance, and accounting (Tempelmeier 2011, p.213). In the current business management practices, the application of basic tools like RFID (Ratio-frequency identification) and barcoding will improve the decisions regarding inventory management.
Inventories are totally different in all companies (Bragg, 2011). This means that even the way they are being managed also differs. Firms must consider the fact that customers have increasing prospects for the quality that is associated with the products that are being delivered (Berger 2011, p.168). Timely delivery of the finished products to the customer is an essential part of the quality that the customer needs. Failure to deliver the products on time raises customer concern and worsens the negative perception of the company (Heizer and Render 2010, p.313).
Secondly, companies must be cognizant of how they can manage the inventories that have high demand (Aswathappa, 2010). This means that such kind of inventories requires constant replenishment. On the contrary, those stocks that take a longer time to move out of stores have an increasing risk of obsolescence (Müller, 2011). Therefore, the type of inventory and the urgency with which they are needed by the customer or for processing will determine the management methodology and the type of tools used. The inventory control models should also consider the costs that are involved. In most cases, inventory control parameters are determined by demand forecasting (Gelinas et al. 2011, p.112).
The type of demand also determines the cost of inventories. For instance, intermittent demands are predominantly hard to envisage resulting in shortage which may be extremely costly. According to Kadre (2011, p.119), demand forecasting is extremely essential for stock-level planning. Even though demand forecasting is prone to errors, the knowledge of such errors enables the definition of the necessary safety stocks (Burtonshaw-Gunn, 2010).
Methodology
The choice of a research method depends on its strengths and weaknesses (Heine, 2010). For instance, the quantitative technique draws on the numerical value as it explains the research and solves the problem. The quantitative research method is basically important in the sense that it focuses on collecting data for numerical and statistical analysis (Baker 2010, p.5). A factor-like approach depicted in the inventory management and Starbucks operations can hardly be expounded on using a sequence of numerical analytical research assumptions.
According to Chu and Huang (2010, p.130), the qualitative technique is a multi-method, including interpretative and naturalistic research approaches. This implies that research that is qualitative in nature will study Starbucks operation and inventory management events within their natural sets. Since the study aims at exploring Starbucks operation and inventory management, it will focus on the motivating factors behind the adopted management strategies. Given that quite a number of Starbucks operation and inventory management tend to gauge the number of stores in operation, the supply chain, and inventory networks, the quantitative research technique was deemed to be more appropriate. A model such as Economic Order Quantity (EOQ) was used in analyzing inventory management.
Data collection
This particular research study will use secondary data. Relevant secondary information and data on Starbucks operation and inventory management were collected from books, articles, and journals. Previous research studies conducted on this topic were also obtained from databases such as EDGAR, ProQuest, and Emerald.
Findings, discussion and analysis
Divisional and Store Organizational Structure
The Starbucks organizational structure seems to be relatively flat but functional. This works well within the environs where Starbucks retail sales take place. From the Diagram below, every Starbucks store has both assistant and store managers (Starbucks Corporation 2010). Below the assistant managers are the shift supervisors, who are subordinated by several baristas.
Typical shift hierarchy for Starbucks Corporation
The corporation’s organization materializes to be comparatively elevated. The Division managers are placed above the store managers, and they control nearly 14 locations. The regional operational manager heads both the divisional as well as store managers. Corporate communications follow the hierarchical channel to reach Starbucks stores. Only a single person is deemed responsible for opening the store each morning. Most of the work preparations and cleaning are carried out at night. The number of work partners increases from two to three between 6 am and 7 am but decreases immediately after 10.30 am. The baristas are held accountable for cleaning seating areas, condiment areas, work areas, and counters so as to uphold Starbucks “Third Place” atmosphere, which the corporation aims to achieve (Quelch, 2006). The policies recommended by Starbucks necessitate that partners should switch errands nearly after thirty minutes.
Operations control systems
The strategic operations at Starbucks are geared towards serving customized products to clients in an efficient way and maintaining high profitability and quality levels. Starbucks employs various controls and systems to realize this goal, a majority of which are particularly dictated and designed by Seattle’s corporate office.
Irrespective of being widely known as a food and beverage retailer, a larger quantity of information technology (IT) is utilized by Starbucks in its operations. Every computer system within Starbucks stores is meant to perform a key role in the provision of vital info to run the operations of the store in a better way. All registers are linked electronically to the managerial office computers. Like in all chain stores where information technology is widely used to manage operations (Simchi-Levi et al. 2009, p.245), Starbucks uses computers with connections to satellite systems, which permit it to incessantly communicate with corporate headquarters and every individual in the stores. The Starbucks divisional and store managers obtain updated information from the computer systems, and they can access such info at nearly every moment. In fact, the computer systems permit Starbucks management to constantly examine inventory levels, expenses, costs, and sales, besides allocating the direct labor hours based on the prospective levels of sales.
Given that recent sales trends and historical sales levels are documented in Starbucks computer systems future sales can be estimated and demands analyzed for a particular time or period. Future sales expectations and past sales are used by Starbucks computer systems to establish the optimal labor hours’ allocation for a specific shift. The computer systems outputs are primarily used to determine the number of workers required for every shift. This can just be superseded by altering the prospective sales potential (Taylor, 2012). The labor allocation systems permit Starbucks stores to minimize the pricey overtime operating expenses by estimating the workers’ numbers that are required each time.
To preserve customer experience, atmospheric and appearance uniformity, the Seattle headquarters exercise numerous controls over sole retail stores, including the stores’ designs and layouts. The layouts for the stores are decided by the headquarters so as to uphold store uniformity. Every store receives a layout sheet wherever interior stores arrangements or new products are launched. Work partners in the stores thereafter work in reorganizing the retail stores founded on the novel layout for the stores. Moreover, the manner in which retail items, beverages, and pastries are organized in the exhibition areas is established by the company plan (Starbucks Corporation 2010). This is to warrant that whichever retail store a client gets into, the unique product selection, atmosphere, and layout for Starbucks are maintained.
A control technique dubbed TQM (total quality management) is used by Starbucks in building process quality. Starbucks has taken and gained a strategic directive in controlling the whole production channel. There is vertical integration at Starbucks whereby the company exercises immense control over the purchasing of the whole raw bean, grading, and roasting. Control by Starbucks is also observed in preparing the products, distributing coffee bean inventories, and the final end-user product delivery. Processing plants supply beans to all regional Starbucks stores. Most retail stores’ objects and stuff are dully supplied through centralized distributors and manufacturers.
Starbucks, being regarded as the largest buyer of products, namely bagels, pastries, and milk, has been capable of leveraging its purchasing power and position to secure from suppliers favorable terms. This guarantees that Starbucks stores are capable of accomplishing their needs with high-quality inputs and with vast scale performance continuity. Starbucks products are often ordered from the local vendor lists as tendered by the area administration. It is worth noting that regional managers are not supposed to bid out individual supply deals or even sustain such correlations. However, the managers are capable of supplementing the local establishments’ purchases to the suppliers when the need arises.
Product quality is further ensured via the procedure drawn on when maintaining pastry freshness and brewing coffee beverages. Whenever a coffee batch is brewed, there is an attachment of the sixty-minute timer. The unused coffee quantity is labeled immediately when a timer expires and consequently thrown out. Starbucks pastries are similarly swiveled during the day, and the breakfast pastries having shorter shelves lifespan are delineated and then discarded by latest 5 pm.
Their places are stuffed with dessert pastries and snacks. The latter pastries usually stay a bit longer, which could even be a few days. To maintain the Starbucks demanded quality level, any pastry whose shelf life has expired is discarded. Whereas sales opportunity costs and definite wastes materialize based on such resolutions, Starbucks Corporation prefers satisfying the clients instead of sacrificing product qualities with substandard products.
Starbucks inventory management
To adequately manage its store-level inventory, Starbucks draws on the EOQ system and the P-system. The schemes aid Starbucks in curtailing stock declines and redundant ravage. Programmed computers are used to track inventories at sales point registers. Most Starbucks inventory ordering and shipments assume two ways. P-system is used in the retinal stores. Behind 7-days the Starbucks orders are placed with an interim time to be received of approximately 3-days. A 15 % overstock is placed on the whole Starbucks inventory to warrant the clients’ demands are met. The Economic order quantity is placed daily with a lead tie of forty-eight hours.
The company’s operations strategies are aimed at providing customers with customized products in an efficient and effective way. The main objective is to maintain the highest level of quality and profitability. In order to achieve these objectives, the company applies various control tools and systems, with the majority designed specifically to control the flow of stocks that will ensure quality delivery of the services.
Even though the company is in the food and coffee retail business, it has incorporated, to a large extent, the application of new information technology in most of its operations (Reavis, 2004). Each of the company stores has a computerized system that plays a vital role in providing key information that is highly essential in the proper management of these stores. The system allows store managers to monitor, among other things, inventory levels, sales movements, costs, and expenses.
Starbucks is in the retail industry and therefore deals with both product and service inventories. In the retail business, quality services are essential for the growth of the business. Quality service is a vital requirement for customer loyalty. During normal retail business hours, the suppliers may come with deliveries (Quelch, 2006). In such cases, the retailers will temporarily not attend to the customers to handle the deliveries.
It is apparent that handling both the customer and deliveries at the same time would be difficult for the retailers. Starbucks is in the retail business and must devise ways through which such kind of inventory management can be sorted out. This explains why Starbucks has adopted new tools for inventory management, such as RFID. The retail chain of coffeehouses, Starbucks requires Radio-frequency identification technology to address the retail customer services and inventory control dilemmas.
As a business that is in both services and products, managing inventories is quite different from that of the manufacturing firm. In inventory management, calculating and analyzing the batch cycle time, work in progress, hourly capacity, and throughput rate will focus more than the time it takes to fill the customer order.
The order cycle time is determined by the number and the type of items ordered. The order cycle time depends on whether the order can quickly be filled or if the order will flow easily through the system. Naturally, tight orders normally take less time as compared to non-tight orders. In fact, the batch cycle is determined by the number of products that are ordered (See appendix for the tables).
The capacity of the system derived from the bottleneck cycle point of approximately thirty-two seconds (0.53 minutes) is nearly 115 drinks per hour. The average work in progress is seen to be 5 orders which lead to an output charge of 2.64 minutes. Under the period of observation, five minutes was the longest time for a batch cycle, while the batch cycle median period was 2.68 minutes. All computations are derived from a single employee who works the bottleneck. An addition of the second employee was added to a machine producing cappuccino, and there was an improvement in the cycle period to 0.29 minutes. The throughput scale was 1.45 minutes, and the system production capacity increased to 209 drinks in any given hour.
Recommendations
The company must improve its operations by widening its scope and pleading with numerous clientele. Most of the company’s customers are relatively highly affluent, highly educated, and technologically savvy and have interests in the arts. Therefore the global mass marketing strategies must focus on these target customers. The company stores must consider the various times when numerous activities are taking place. Therefore in times such as afternoon and during the cold seasons, stocks must always be maintained at the required levels so as to avoid chances of poor service delivery. Keeping the required stock levels during busy times will be essential in improving the quality, which in turn will attract more customers.
The other important operation management areas that the company needs to improve on include offering healthy pastries or sandwiches, different kinds of roasted coffee, and changing the overall appearance of the stores to provide free space for movement. Improving the operation management and excelling in the areas that have been mentioned will make the company increase its market share and improve its productivity and profitability.
Conclusion
The study indicates that operations and inventory management are key to improved quality of the company products. In fact, inventory management is central to the overall operation management in any given firm. There is also a clear indication that effective inventory management will have a positive effect on all business functions. In essence, proper inventory management will result in the generally improved quality of the firm’s products and will contribute to increased market share, improved productivity, and high profitability.
References
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Gelinas, U, Dull, R & Wheeler, P 2011, Accounting information systems, Cengage Learning, Farmington Hills, Michigan.
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Heizer, J & Render, B 2010, Principles of operations management, Prentice Hall, Upper Saddle River, NJ.
Müller, M 2011, Essentials of inventory management, AMACOM Division American Management Association, New York, NY.
Rastogi, K 2010, Production and operation management, Laxmi Publications, New Delhi, India.
Simchi-Levi, D, Kaminsky, P & Simchi-Levi, E 2009, Designing and managing the supply chain: Concepts, strategies & case studies, McGraw-Hill, India.
Taylor, BW 2012, Introduction to management science and student CD package, Prentice Hall, Upper Saddle River.
Tempelmeier, H 2011, Inventory management in supply networks, Books on Demand Publishers, Bloomington, Indiana.
Starbucks Corporation 2010, Annual report 2010, Web.
Quelch, YM 2006, Starbucks: delivering customer service, Harvard Business School, Boston.
Reavis, JE 2004, Starbucks and conservation international, Harvard Business School, Boston.
Appendix
The chart below approximately catalogues the drink cycle’s period for transactional sequence observed at Kuwait Store.
The above drinks are estimated as per the ordered drink derived from a single member of staff who works the bottleneck. The real batch-cycle period relies on the quantity of pastries and drinks ordered.