ADMS 2320 Lecture Notes - Lecture 12: Espresso, Telus, Starbucks

Starbucks Value Chain From Bean to Cup to You.

The steaming cup of coffee placed in a customer’s hand at any Starbucks store location starts as coffee beans (berries) plucked from fields of coffee plants. From harvest to storage to roasting to retail to cup. Starbucks understands the important role each value chain participant plays.

Starbucks offers a selection of coffees from around the world, and its coffee buyers personally travel to the coffee ­growing regions of Latin America, Africa/Arabia, and Asia/Pacific to select and purchase the highest­ quality Arabica beans. Once the beans arrive at any one of its five roasting facilities (in Washington, Pennsylvania, Nevada, South Carolina, or Amsterdam), Starbucks’ master professional roasters do their “magic” in creating the company’s rich signature roast coffees. There are many potential challenges in “transforming” the raw material into the quality product and experience that customers expect at Starbucks - weather, shipping and logistics, technology, political instability, and so forth. All could potentially affect the company. Although those operations management challenges are significant, the most challenging issue facing Starbucks today is balancing its vision of the uniquely Starbucks’ coffee experience with the realities of selling a $4 latte in today’s world. Starbucks products have become an unaffordable luxury for many. As revenues and profits declined during the economic downturn, CEO Howard Schultz realized that “the company needed to change almost everything about how it operates.” Although it built its business as “the anti­- fast ­food joint,” the recession and growing competition forced Starbucks to become more streamlined. Under one new initiative put into effect at its U.S. stores, employee time wasters such as bending over to scoop coffee from below the counter, idly standing by waiting for expired coffee to drain, or dawdling at the pastry case were discouraged. Instead, employees were to keep busy doing something, such as helping customers or cleaning. At one of the first stores to implement the “lean” techniques, the store manager looked for ways for her employees to be more efficient with simple things like keeping items in the same place, moving drink toppings closer to where drinks are handed to customers, and altering the order of assembly. After two months under the new methods, her store experienced a 10 percent increase in transactions.

Another thing that Schultz did that was quite unprecedented was to close every one of its stores for three hours on one Tuesday evening to train ALL of their some 135,000 baristas (a barista is a person who prepares and serves espresso based coffee drinks. During that training, baristas were reminded that they played an important role in creating not only a fabulous product but a fabulous customer experience. Despite warnings that closing the stores would be a public relations nightmare and a financial mistake, the decision seemed to be a sound one. In the weeks following the retraining, quality scores for the company’s beverages went up and stayed there.

1. Would you describe production/operations technology in Starbucks retail stores as unit, mass, or process? Explain your choice. (Hint: You may need to review this material found in Chapter 6.) How does its production/operations technology approach affect the way products are produced?

2. What uncertainties does Starbucks face in its value chain? Can Starbucks manage those uncertainties? If so, how? If not, why not?

3. Go to the company’s Web site at www.starbucks.com and find the information on the company’s environmental activities from bean to cup. Select one of the steps in the chain (or your professor may assign one). Describe what environmental actions it’s taking. How might these affect the way Starbucks “produces” its products?

4. Research the concept of lean organizations. What benefits does “lean” offer? How might a business like Starbucks further utilize the concepts of being lean?

5. What lessons could other organizations learn from Starbucks’ actions?