Starbucks UK’s Operations and Process Management Report

Starbucks is a well-established international brand that was founded in 1971. At present, the company is based in Seattle, Washington and is involved in selling coffee and other beverages, coffee beans (purchased from coffee provinces all around the world), and some bakery products. Starbucks also owns Starbucks Entertainment and Hear Music, which means that the company can sell books, movies, and music. Starbucks stores are usually situated in visible places with high traffic (Brooks 2012).

As far as the operating environment is concerned, the United Kingdom can be referred to the countries where the number of coffee houses has already exceeded the level of saturation despite the fact that the industry previously demonstrated a constant tendency for growth. The company operates both nationally and globally. Whereas the domestic market is overwhelmed, the international market continues to expand (though not in the UK). Owing to scarce technological and financial demands, the coffee market environment has become highly competitive. Nevertheless, Starbucks currently owns more than 35% of the market share and has over 40,000 stores situated in 49 counties (Bussing-Burks 2009).

The pressure that the coffee industry sector faces comes from the following risks (Koehn, Besharov & Miller 2008):

• increasing prices for gas, food, and housing may result in cutting spending on meals and drinks anywhere except home;
• profitability may reduce with the growing prices for dairy products and coffee beans;
• exchange rates in foreign markets can cause the loss of income.

The company is known for selling premium coffee, which is classified as a luxury product. Thus, the global economic recession that causes unemployment, reduced access to credit, lower salaries, etc. can have a negative effect on the spending capacity of Starbucks’ customers. It may also attract them to cheaper alternatives such as McDonalds (Koehn, Besharov & Miller 2008).

The Analysis of the Operations of Starbucks

Transformation Process

Since 1987, the company has undergone a lot of changes. The major transformations took place in the period between 2007 and 2014. In 2007, Howard Schultz sent a notorious letter to the company claiming that it had lost its initial purpose and values. When he became CEO in 2008, he introduced a comprehensive transformation agenda consisting of seven steps (Jones & Robinson 2012):

• become an unquestionable authority in the coffee market;
• give more inspiration to partners;
• ensure loyalty of the company’s customers;
• increase the number of coffee shops across the world;
• become environmentally-conscious;
• invest into innovative growth platforms;
• develop an effective economic model.

The major objective was to involve and inspire the company’s “partners”, i.e. employees. The corporate culture had to be reformed in order to increase job satisfaction and ensure commitment. More than $30 million were spent on conferences and trainings. As a result, all the employees working over 20 hours a week received additional health benefits. New technologies were introduced for facilitating the work of baristas. Other transformations included: investment into the social media, production restructuring, supply chain improvements, global expansion, etc. All these changes made the company’s share price increase tenfold by 2016. At present, Starbucks is entering the world of tea in cooperation with Teavana. The business plan for the years to come also features some innovations including the improvement and expansion of digital payment systems that already allow customers to pay with their smartphones. The company is planning to win new markets and introduce new incentives for its employees (Loeb 2013).

The Impact of ‘4Vs’

• Volume: The high levels of products volume in Starbucks in general and in the one situated in the UK in particular result in high repeatability of the procedures, narrow specialization of the staff, systemization, and lower unit costs (Schultz 2011).
• Variety: High variety of Starbuck’s coffee blends, pastries, and coffee-related accessories makes the procedure more flexible and complex, which allows meeting all the customer’s needs (Susanty & Kenny 2015).
• Variation: Though the demand for Starbucks coffee in the UK is inelastic when the prices are stable, it immediately falls with their increase. Thus, high levels of variation improve anticipation for consumers’ needs and make the product range more flexible (Talpau & Boscor 2011).
• Visibility: Since the visibility is low (the process is not exposed to the customer), there is a waiting time before the consumption, the procedure is standardized, and centralized. Communication with the customer does not require any special skills (Sweet 2008).

Performance Objectives and Current Performance

The current performance of Starbucks UK is rather successful as the profits increased by £32m despite falling sales. The leap of pre-tax profits is gigantic in comparison to £1.9m in 2014 (Bergin 2012). However, with the closure of 17 loss-making shops and 74 cafes that were handed over to partners, the sales fell by £3.1m. The company presently has 397 shops and still has quite a big number of non-profitable cafes (Campbell & Helleloid 2016).

The major performance objectives include (Behar 2007):

• increasing the speed of service as it affects both profitability and the quality of food and drinks;
• improving the quality, which is important to stay competitive; introducing quality assessments and customer surveys;
• achieving consistence as the business in the UK is highly unstable;
• providing higher flexibility in menu;
• minimizing costs by reducing supplier expenses and wastes.

The Types of Operating Process

Starbucks operating process falls into several value-adding procedures (Hill & Hill 2012):

• inbound logistics (special operations are required for selecting coffee beans);
• preparation of coffee beans (beans are roasted and tested for color on Agrton blood cell analyzer);
• marketing operations (the company in the UK does not rely on mass media as much as on word of mouth and passport promotion) (Gallaugher & Ransbotham 2010);
• service-related operations (including education of customers about coffee);
• technological operations (the website provides information about the menu and locations);
• human resources operations (training, developing, benefits and incentives);
• administration (the company lacks hierarchy and the staff needs constant coordination).

The Service Concept

The service system is designed so as it can (Frei 2006):

• ensure feedback through a virtual platform designed for making suggestions that could help improve the quality of goods and services as well and introduce add-ons;
• meet customers’ needs both in cafés and stores, which are also used as platforms for interviews and recruitment;
• provide free access to Wi-Fi as well as music that makes the coffee experience more relaxing and enjoyable;
• maintaining customer-friendly environment by applying “say yes” strategy in relation to customers.

Location and Layout

Location strategy of the company in the UK is targeted at city centers (especially the areas located in close proximity to historical centers) as they are the most densely populated and have a lot of tourists. Clustering strategy is also successfully applied: several stores or cafés are opened in one area in order to get rid of competitors. Since most of the products are premium-priced, Starbucks targets parts of the city where middle and upper class population prevails (Aiello & Dickinson 2014).

The layout strategy is aimed to increase the efficiency of the workflow as well to provide a pleasant atmosphere for authentic coffee-drinking experience. The corporate culture presupposes that a café should be comfortable enough for talking, relaxing, and meeting friends. Therefore, the space is not meant to be used up to the maximum: paying a higher price, customers secure leg space, which means that the company prioritizes their experience over practical purposes (Michelli 2006). As far as stores are concerned, there are four major layout types. Each template corresponds to a stage of coffee-making symbolized by different colors, lighting, and materials used in design. Minor elements (such as decorations, color combinations, etc.) are usually adapted to fit the size of the building and its surroundings (different designs are applied for city centers, university campuses, office blocks, etc.). Starbucks also had a particular layout design for a store-within-store as well as a droppio (a movable shop) (Aiello & Dickinson 2014).

Capacity Management

Capacity is connected with the limits of an operating unit (in case of Starbucks, cafés and stores) determining the loads that it can manage. Capacity management is crucial for Starbucks as it involves fundamental decisions that affect the future of the company. Capacity limits predetermine initial expenses of setting a new store, operational costs, distribution of resources, and future demands for the company’s services and products. Thus, it has an undisputable impact on competitiveness (Kleinbard 2013).

Starbucks practices both short- and long-term capacity management. The former refers to temporal variations that can influence capacity (irregular demand fluctuations, seasonal problems, etc.) whereas the latter deals with the general capacity level of the company that is not affected by temporal changes (Brooks 2012).

Starbucks does not resort to outsourcing due to potential risks for quality. However, the company still faces certain challenges caused by: 1) the necessity to be located near its potential consumers; 2) the inability to store its services; 3) the random character of demand fluctuations (Brooks 2012).

Starbucks connects capacity with location and time. Shops are situated in the most convenient areas for customers. Moreover, capacity management is oriented at time-saving: since services cannot be stored and delivered later, the speed and the waiting time become significant (Ruzich 2008).

The Scheduling and Control of Resources

The working shift lasts for eight hours (the first shift begins at 8 a.m. and the packaging process starts immediately). Over the recent years, some scheduling improvements have been introduced (Holt 2007):

• a new employee can indicate the schedule that is preferable for him/her;
• all the employees are informed in advance about the number of hours they will have to work;
• schedules have been made stable;
• there is no on-call scheduling;
• schedules are known two weeks in advance.

The company controls all its resources including coffee beans, human and informational resources. The strategic control is meant to reveal if the performance of the strategy corresponds to the plan and does not go beyond the company’s resource capacity. The control system in Starbucks is comprised of five steps (Brooks 2012):

• determining the resource to control;
• setting standards;
• measuring quality;
• identifying the reasons for deviations from the standard;
• taking correcting measures or finding substitutes for the resource.

Supply Chain Management

Starbucks UK supply chain is controlled through the centralized system of logistics located in the USA. There is also a standard system of its efficiency assessment, which is based on four major principles: 1) security of operations: 2) delivery without delays; 3) end-to-end costs; 4) organisational savings (Cooke 2010).

The company uses digital technology to increase the efficiency of the chain by monitoring the process of supply. This makes the supply chain flexible to changes in case of fluctuating demand. It also allows receiving updates on inventory, storage, transport, and other aspects (MacDonald 2007).

For facilitating the management process, the company strives to establish long-term relationships with suppliers. All of them have to follow strict vetting guidelines to answer Starbucks’ requirements (MacDonald 2007):

• committing to the welfare of future customers and people involved in the supply process;
• obeying both international and local laws;
• respecting the environment;
• respecting social responsibility rules and standards (i.e. never employing teenagers under 14).

Quality Assurance

Despite the accusations connected with high prices, Starbucks provides the unique quality when it comes to coffee. The secret is that coffee beans are not simply roasted but placed in high altitude in order to create density that gives intense flavor. Besides, all beans are carefully sorted and grated. However, the company uses not only one product quality system – all the stages of delivery are controlled. First, baristas on the point of sale have to control the drinks that they receive from baristas making them to ensure that they are prepared correctly. Another system is random check-ins performed by district managers who come to watch baristas. Moreover, Starbucks resorts to the services of ECOSURE company to perform regular quality checks (once in six months). There is a copy of all the requirements available in each store (Chua & Banerjee 2013).

Starbucks also provides high quality of design, availability, and conformance, which means that the company ensures a great variety of choices (design quality), and all customers preferences can be satisfied (conformance quality) as coffee machines are running smoothly (availability) (Chua & Banerjee 2013).

Human Resources

Starbucks had to encounter certain challenges connected with human resources, which were caused by its rapid expansion policy. High costs of human resources made the company increase its prices (Farnsworth & Fooks 2015). Besides, in order to preserve competitive advantage, it had to lower workers’ wages. However, in recent years, Starbucks has realized the significance of employees’ contribution to the proper operations functioning. People are now considered the most valuable asset of the organization. The staff is trained to create the so-called Starbucks experience, which implies the best possible service. The company invests a lot of money into skill development and other training needs. Due to this high organisational effectiveness is achieved. Besides customer’s satisfaction, it creates positive psychological climate and fosters behaviours that lead to the increase of motivation and productiveness. HR administration must ensure that the right employees are hired to align with the company’s strategy (Behar 2007).

Information Technology

The company’s intention to integrate technologies into the core of the brand has increased its revenues in the UK by 18% by the end of the year. Mobile transactions now account for more than 20% of all the payments in cafes and coffee shops. Mobile & Pay feature has been launched in 150 UK stores (Fitzgerald 2013). It now frees customers from the necessity to stand in lines. The digital platform is to be further developed. The company is going to add delivery features and music to its smartphone applictation. Starbucks continues offering Wi-Fi services to its clients and engage social media for promoting its products (e.g. “tweet a coffee” gift cards) (Christian, Mainelli & Pay 2014). Moreover, it offers advanced home products such as a small coffee machine, which is a novelty for the UK market. However, the complexity of IT innovations still presents risks for Starbucks as the high price for the new technology may not work well.

Lean Principles

Following the experience of the USA, Starbucks UK has already started to implement lean principles. One of the major innovations was the integration of lean pull system into service. Now, when the payment is collected, the order is not passed to coffee making staff. Instead of this, a signal (andon) of an empty cup is put at the most visible place for the next staff member to pick. This lean technique helps avoid overburden, which rates among the top three reasons of organisational dysfunction within the lean framework. The process in Starbucks was optimized for a short throughput time through the introduction of parallel processing. This system was aimed not at the improving the resource consumption but rather at increasing efficiency of the working flow, which is also one of the basic lean principles. Another example of lean is to view the value from the customer’s perspective. Preparing coffee in advance is now an established practice in Starbucks. The company is also planning to limit work in progress to ensure faster delivery (Jargon 2009).

Strengths and Weaknesses of the Operation

As it is evident from the chart, the achieved performance does not fully correspond to the required performance as there are still a lot of problems unresolved. Moreover, Starbucks UK has to deal with the growing number of new competitors and resolve its tax difficulties (Miller 2010). However, the results obtained at present fully support the business strategy of the organisation that presupposes increasing competitive advantage through high-quality service and goods, uninterrupted supplies, and global recognition (Quenqua 2010).

Recommendations

• Starbucks should be more careful about its strategies of further expansion as numerous stores across the UK have already been closed;
• It should not rely on social media for promotion and develop its own communication channels instead (Chua & Banerjee 2013);
• The company should reconsider its marketing strategies for being more appealing to low-income customers;
• It should increase the seating capacity of cafés for being able to serve more customers;
• The orders must be more customized as now stores are frequently out of inventory to meet all customers’ requirements;
• The company should provide Wi-Fi ports in all stores as now many of them do not offer this facility.

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