The study of this assignment is to identify the component activities for Starbucks Coffee Shop organization and to evaluate the performance objectives used by Starbucks Coffee Shop. The five points discussed in this assignment is Quality, Flexibility, Dependability, Speed, Cost structure of Starbucks Coffee Shop.
Background of the company: Starbucks
Starbucks Corporation is a global coffee company. They are doing a business of coffee house chain. The company is mainly based in Seattle, Washington. Since, the year 1971 Starbucks Corporation is running their business in United Kingdom. Starbucks is one of the largest coffee house companies in the world. Starbucks rival company is Costa Coffee. Starbucks mainly serves hot and cold beverages, whole – bean coffee, micro ground instant coffee, full leaf teas, pastries and snacks.
Five performance objectives:
1. Ethical consumerism at Starbucks:
Starbucks always focuses on the quality of products selling to their customers. This is because Starbucks Company always thinks about the customer’s health and safety, which are one of the significant for Starbucks Company success in their business. Starbuck Company always ensures that the company is very much clean and hygienic including good service and facilities in the coffee shop. Starbucks Company ensures that they will never sacrifice with their quality of the product (Bowersox, Closs and Cooper, 2007). Their product price is little more comparing with the other brands selling coffee in the western company but Starbucks Company always thinks about their customer’s health and safety.
2. Corporate social responsibility at Starbucks:
Corporate Social Responsibilities also known as CSR is used by the Starbucks Company as a tool. CSR helps Starbucks to build competitive advantage over the rival companies of Starbuck Company. By taking CSR in the Company’s account, Starbucks Company belongs with the law to run the business smoothly. And secondly, CSR increased the sales volume of the company and improve financial conditions of the Starbucks Company as well.
1. Environmental Impact
In the year 1999 Starbucks started making their business environmental friendly. Starbucks started reducing the paper napkin size and store garbage bags. Starbucks also reduces their daily water consumption for rinsing utensils in a sink which wastes lot of water in rinsing the daily utensils in each store of Starbucks. Once the newspaper reported globally about the wastes of 23.4 million liters of water daily in the stores of Starbucks, Starbucks took the initiative to minimize the daily consumption of water for rinsing utensils. Starbucks replaced dipper well with push button system for rinsing their daily utensils. This strategy of Starbuck of minimizing water consumption saves almost 570 liters of water per day for rinsing their utensils (Mangan, Lalwani and Butcher, 2008).
After minimizing the daily water consumption, Starbucks started serving the coffee in a plastic cups. This plastic cups is one time use. And the material used in manufacturing the cup can be recycled. Suddenly, Starbucks announced that the material of the cup is not very much environment friendly that is why the company will give 15% discount on their product if the customer carries their own cups (Mangan, Lalwani and Butcher, 2008). Once the coffee shop announced the news, the customers of the Starbucks appreciate the decision and started carrying their own cups.
1. A Plan For Reorganization:
When the management of the Starbucks Corporation planned for reorganization of the Supply Chain of the Company, the management of Starbucks put Gibson in the higher post and tried to sort out the problem faced by the company (Schultz and Gordon, 2011). The first two things that Gibson did after getting the new position is, he found the main problem arises in the supply chain of the company and secondly how to cut the price of the product without compromising the product to the customers.
Gibbson tried to focus mainly on the supply chain of their company. A result from cost analysis shows a higher outflow for outsourcing. Moreover, the outsourcing has been employed so that higher value can be generated from supply chain and they can attain success for developing store.
Gibbson found an innovative idea and submitted its plan to the company’s director. Gibbson plan was outlined to classify supply chain of the firm. Further, structure has been abridged and then Starbucks has to concentrate on the declining the cost related to stores and serve the consumer well.
Simplifying the Complex
According to Peter D. Gibbson, the Supply Chain structure is quite complex mode of model and that is why Peter D. Gibbson tried to make it much easier so that each task or operation can be executed effectively and the function relating to supply chain can be fulfilled even if any person is involved in any kind of activity such as production planning (Bowersox, Closs and Cooper, 2007). If new product launches in the market by Starbucks then the product will be categorized under planning section. Furthermore, procurement of coffee and non-coffee were considered as major source activities.
After the supply chain functions were reorganized, each and every department turned their attention to the second supply chain transformation: reducing cost and improving efficiencies. After this effort, the sourcing group worked on identifying the cost driver which was trying to pushing up the prices of the product of the Starbucks.
Meanwhile, the manufacturing group of the Starbucks Company developed a better idea for delivering the coffee beans. They planned to expand the coffee plant of Starbucks so that the transportation cost can be cut down. This will give the Starbucks a new height of profit. Starbucks possesses three different coffee plants in the region of United States of America. The Starbucks Company added the fourth coffee plant in their account in Columbia, South Carolina. In addition to four coffee plants owns by the Starbucks Company in United States Of America, The Starbucks also added coffee plants in Amsterdam, the Netherland into their account. The Starbucks Company also owned Tazo tea subsidiary in Portland, Oregon. This idea creates another problem (Bowersox, Closs and Cooper, 2007). This makes another system comes into the role under Starbucks Company. The system is known as Logistic System.
1. Operation Management at Starbucks:
Starbucks Coffee has turned out to be a well known brand globally. The company has got an amazing supply chain all over the nineteen nations. Starbucks Company collects their Coco beans from one country and collect milk for the making of their coffee from another country. Starbucks Company collects sugar from another country and paper comes from another country. This shows that Starbucks Company did not compromise with their products. They collect best quality product for their customers. This global resources span is a great way for Starbucks to expand company and reach more countries than ever before. Not only that, Starbucks Coffee is able to supply the best ingredients to their customers at a lower price.
All the raw materials collected by the Starbucks Company go through various processes. The processes are when all the raw materials are collected by the Starbucks sent to a roasting process then manufacturing process and finally into packaging plant. Starbucks has six roasting centers across the world where Coco beans are prepared (Waters, 2010). This centralized system is very effective. These roasting centers verify that each and every Coco beans are roasted and then manufactured and then ready for packaging. Once the Coco beans are prepared, Starbucks starts the delivering process. The amount of coffee being deliver each day is hundred thousands of pounds, but with over seventy thousand deliveries daily. Starbucks is able to supply each store with adequate amounts of coffee.
But, now days the operational cost rising high due to that sales has shown a declining point, the company has enforced a three steps strategy to enhance their supply chain performance, cut the cost and be ready for the future. Before problem arises, Starbucks Corporation serves approx 50 million end users in 51 different nations every week from 16,700 retail stores. But in the year 2008, Starbucks understood that its supply chain was not meeting its goal. During the year 2007 to 2008, Starbucks management realized that in United States of America the sales of Starbucks Coffee shop has gone down to almost 10 percent. After this point, Starbucks management realized that the company was commencing the new stores across the globe to their best level. Moreover, the supply chain of the organization concentrated on gaining higher benefit from the proposed expansion plan. It has been understood that the company was highly involved in expanding their stores that they did not majorly focused on their supply chain and due to that supply chain resulted to higher cost which further increased the expenses of the company. Therefore, the growth of the company slightly declined. The management of the Starbucks realized that they had to attain equilibrium among the performance and rising cost carried by the company. To transform the supply chain of the Starbucks, the management of the company focused three major factors:
1. Realigning the supply chain for higher benefit from operation
2. Declining the cost to minimum level to generate higher income from stores and effective running of the stores.
3. Planning effective strategy to organize the supply chain to produce quality product.
2. Logistics System
Starbucks Company collects their raw coffee beans from Latin America, Africa, and Asia to the United States Of America and Europe. From the port all the raw coffee beans are sending to six storage sites at a roasting plant. When the raw coffee beans were roasted in the roasting plant, it was sent into their distribution centers in USA (Waters, 2010). The Starbucks Company owns two regional distributions and three distributions are operated by the third party logistics companies. It also has two distributions centers in Europe and two in Asia, all of which is operated by the third party logistic companies. Depending on their locations, the stores are supplied by the large regional distribution centers or by small warehouses called central distribution centers. Starbucks use 33 central distribution centers in United States Of America, seven in the Asia region, five in Canada, and three in Europe (Waters, 2010). This causes delivery costs and execution are intertwined. After all this, Peter D. Gibbson and his team analyzed that the Starbuck Company is improving in both the sector.
The Company reduces $ 1 per bag on its coffee beans. As per the recent article the firm earns almost $ 380 million by selling coffee in their coffee shop at a margin of 25.5 %. The firm was gaining almost $ 2.55 per kg. As the company reduces $ 1 per bag on its coffee, they had to sell almost 65 % more bags of Coffee beans to make same profit by selling the company’s product.
The object of this thesis was to investigate how Starbucks Company succeeds in running their business in profit. As the Starbucks Company was running almost 20 % to 30 % less profit. Keeping this in mind the Starbucks Company management and Peter D. Gibbson identifies the problem that why the company was running in low profit. After identifying the problem the management and Peter D. Gibbson reorganized some plan and implemented all new plans to make the Starbucks Company back into its own track of profit. The management of the Starbucks took three decisions to back into the track of profit are:
1. Organized the Company’s supply chain.
2. Cost is reduced by the company and execution is also increased.
1. Recycling and reducing waste: All the wastes that are throwing out by the Starbucks should be recycled else it will hamper the environment. Enormous cups are used daily by the customers of the company which are affecting the environment. These wastes should be take care by the firm so that the environment does not get hamper with these wastes.
2. Building stores in energy saving mode: The firm should build their stores by using energy saving mode. As the firm is consuming plenty of energy and using plenty of water. They should take care of this point. The firm should use LED lights so that the company can consume less electricity. This will cut their electricity bill and the firm can gain more profit from it.
3. Starbucks provides premium coffee to their customers which cause high prices of the coffee comparing with the other brands in the western countries. Starbucks Company showed a good environmental concern but other brands provides their coffee to their customers at a very cheap price. So, Starbuck should think about their price strategy to attract more customers. They should provide a good quality product to their customers with cheaper price. Starbucks may provide some price promotions to motivate the customers. Not only the Starbucks customer but it will also motivate the customers of the rival companies of Starbucks Company. This is an aspect that Starbuck can improve upon.