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Value Added Proposition

Discuss about the Case study that Starbucks should outsource its packaging & IT service as it will not hurt the position of Starbucks?

In 1971, Starbucks entered the coffee market. Offering high quality beverages (coffee & tea) & other supplementary eatables like pastries, cakes, etc., is its forte (GLOVER, 2015). Thus, the core competency of Starbucks lies in providing various coffee variances to the consumers. Its product is standardized by the following:

Transparency in providing the goods or services.

Automating dealings to accomplish its standards.

Doing away with extraneous methods (Heizer and Render, 2013).

Doing away with product or service processes that are unnecessary.

Eliminating ambiguity in its production process.

It is to be noted that when the above four conditions are fulfilled, Starbucks can outsource its services or products.

When the consumers of Starbucks get both psychological satiety & monetary justice, it is called value added proposition. Value added pertains to some added enhancements that any large or small organizations offer to its consumers. Presently, the goods provided by organizations are homogeneous and identical (Heizer and Render, 2013). In some homogenous products, there is differentiation. It means the consumers have the power to choices homogenous product of various organization. Therefore, value added scheme can hike a product's value, or it can hike the products prices. For example if Starbucks provides a sandwich with Arabica coffee, it is a value added scheme for a customer.  

Value added:

Cost saving is rendered by outsourcing. Many circumstances foster outsourcing. These circumstances are given below.

Because it becomes necessary for an organization to outsource.

To earn profitability (Krajewski, Ritzman and Malhotra, 2013).

Non-feasibility to produce good internally.

Starbucks can attain ‘competitive advantage' over its competitors like Dunkin' Donuts and Krispy Kreme by outsourcing.

Mainly for two reasons an organization does outsourcing. The reasons are as below.

The annual selling rate declines by outsourcing. Costs incurred is less (Reid and Sanders, 2013).

Outsourcing can do customer retention. An example can be cited of SITEL. SITEL and many other organizations have opted to collaborate for retaining their customer. Many agents represented them. They offer incentives for the customers and thus, keep them onboard.

Internal and external operational performances of organizations are needed to be measured from time to time. How well the organizations perform is measured by dint of operational performances (Reid and Sanders, 2013). For determining the operational performances of Starbucks, some factors are needed to be taken into consideration. These factors are given below:

Outsourcing

The decision to outsource by Starbucks.

Starbucks' sales performances for all months of the year.

Starbucks' policy terminations and

Starbucks' expense ratio.

Firstly, the factors like "feasibility" and "profitability" needs to be taken into consideration by Starbucks' operations manager before outsourcing its products. Secondly, the operations manager of Starbucks needs to see that their operational performance does not drop due to outsourcing.  If the operational performance is high but outsourcing is strategically unessential, outsourcing is never feasible for Starbucks (Nordmeyer, 2015). The decision to outsource Starbucks’ goods or services relies on many factors. These factors are as follows:

The economy of the geographical territory, where Starbucks will outsource its products, is needed to be analyzed.

The price set by other competitors needs to be analyzed.

The demand schedule for the products to be outsourced is needed to be analyzed.

The demographic ingredients like age, gender, community needs to be analyzed. More precisely, which age group prefers what kind of coffee is needed to be analyzed (Nordmeyer, 2015).

The demand conditions are needed to be analyzed by the operations manager of Starbucks. It means to see how much of the Starbuck product is demanded in a particular area by its inhabitants (Stevenson, 2012).

The Decision logic matrix for outsourcing

Quadrant one: High Process Complexity + Dynamics with low strategic importance:

Here Starbucks should outsource although its elementary business objective isn’t supportive.

This task is highly demanding.

This task can be justified by manual interventions (Harmon, 2011).

Higher capitals is required if Starbucks adopts automation. Because immediate and spontaneous changes of Starbucks’ products and services needs capital.

Starbucks has to provide training to its workers if different types of coffee are kept in house (Investopedia, 2007). In this grouping, lower costs are incurred. This is because of three reasons; products or services to be outsourced shall not impact business objectives of Starbucks; instant and or immediate changes are not required; expertise is not indispensable in this stage.

If there happens to be problems of space, then outsourcing is required to be done (Jiwani, 2015).

Outsourcing is definitely necessitated if investments are not present.

This combination is crucial for Starbucks to be successful.

At this stage, off cost is incurred. These costs in turn induce fewer costs which is minor in nature.

Automation needs to be opted when volume of coffee is huge for Starbucks. To attain economies of scale, Starbucks is required to do so. Here, lower prices are tagged to various products of coffee (Nordmeyer, 2015).

Rationale for Outsourcing

Packaging plus branding processes could be outsourced if resources aren’t dearer.

Decisions here lie at the nub of businesses.

In house workers perform jobs as guided by the operations manager of Starbucks. Training as well as motivation is the two balusters which are needed for in house employees. In this quadrant, product changes.

The five performance objectives influencing the outsourcing or keeping products in-house are as follows:

Speed (Graeme, 2010).

Flexibility and

The Five Performance Objectives:

In-house & Quality:

If coffee is outsourced by Starbucks, its quality may be compromised. Thus, keeping coffee in-house is the best option for Starbucks (Stevenson, 2012).

Outsource & Quality:

If coffee is kept in-house, Starbucks can enhance it even more as brewing coffee is its core competency.

Internal dependability:

Keeping their values intact, when the workers of Starbucks can deliver their products or services "on-time", it refers to internal dependability. Timely delivery of goods saves the costs. Thus, internal dependability alludes to dependability upon the workers of Starbucks (Stevenson, 2012).

External dependability:

Consumers shall depend upon Starbucks if Starbucks keeps its promise regarding its products. It creates an external dependability by the customers. Thus, consumer retention is external dependability's criterion.

In-house & Dependability:

If Starbucks outsources coffee, it needs to depend upon the third party outsourcer. As such there will be a time lag if any consumer wants coffee at a stipulated time. This will mean time lag in internal dependability (Stevenson, 2012). Time is undesirable by customers. Thus, customer retention may be problematic from after. So, coffee needs to be kept in-house by Starbucks.

Outsource & Dependability:

As there is external dependability of the customers, coffee should be kept in-house.

Speed in turn refers to two aspects, internal & external. From the external perspective, speed is pivotal because the quick response to consumer demand can be done. The consumers view speed as a positive criterion. Customers shall return & induce more business if Starbucks' speed is high. If the speed of Starbucks' delivery is more than its rivals, it can charge a hiked price from the consumers. The other angle of speed is its internal aspect (Stevenson, 2012). Reduction of costs is connected with the internal aspect of speed. A speed induces lesser costs in two manners; by risks reduction & by inventories reduction. This aspect of speed applies to the service operations. A fast throughput of information and consumers means that the costs are abridged. When materials, consumers and information in the system hang around for much time, there is a slower throughput of speed. Thus, the above can get lost or be damaged. It affects the dependability performance of Starbucks. The knowledge about speed is specialized on a part of Starbucks. The operational performance of speed is superior. Thus, improvements may not be needed.

Operational Performance

In-house & Speed:

When the operations manager of Starbucks keeps the most important process of Starbucks in-house, its delivery speed is controllable.

Outsourcing & Speed:

If Starbucks' workers engage themselves in another task rather than their discrete tasks, the delivery speed shall be hampered. If they get engaged in packaging or IT job of Starbucks, speed will get hampered (Stevenson, 2012). It will be a diversion from Starbucks' core competency that is brewing quality coffee.

Starbucks' workers engage themselves in another task

From the external viewpoint, varied flexibility allows operations to produce a wider gamut of goods for Starbucks. Thus, NPD (new products development) is done by flexibility (Stevenson, 2012). From the internal point of view, flexibility is connected with the performance objectives. Flexibility is speeded up by responses of the workers. Thus, time gets saved, therefore, costs. Flexibility helps in maintaining the dependability performance (Stevenson, 2012).

Starbucks is flexible in its approach. The operational performance is fine. Thus, no improvement is required.

In-house & Flexibility:

NPD shall not be feasible if the core products are outsourced by the operations manager of Starbucks. Thus, the in-house workers cannot develop the products further. Thus, Starbucks will lose its position in the market (Stevenson, 2012).

Outsourcing & Flexibility:

The NPD creations as per the consumers' preference are called flexibility. Creating variances from coffee (input) is important for Starbucks. But if coffee is outsourced, the variances can be created as per consumers' preference. Thus, keeping coffee in-house is feasible for Starbucks.

In-house & Cost:

From a strategic viewpoint, coffee is Starbucks' core competency. It does not matter what costs are incurred. Thus, coffee is required to be kept in-house by the operations manager of Starbucks.

Outsourcing & Cost:

If the packaging & IT services is outsourced, it will cost less for Starbucks. On the hind side, maintaining the equated service for IT by the ‘in-house' workers will meet great difficulties. It is because Starbucks' forte is quality coffee. If all tasks are performed by Starbucks like R&D, distribution, procurement, IT service and marketing, it will lose its core competencies. Hence, the costs incurred will be more (Stevenson, 2012). In turn, Starbucks will need to pass these extra costs to the customers. As such, the finished products or services of Starbucks will cost more. Thus, consumers will leave Starbucks for some other cheap F&B organizations. Thus, if IT and packaging is outsourced, the fixed costs will get converted to the variable costs.

The Decision Logic Matrix for Outsourcing

Outsourcing & Cost:

STARBUCKS could carve a niche for itself in the F&B sector. High yield coffee is the forte of Starbucks. It has a large consumer base that consumes coffee and tea. Thus, the five performance objectives are justified on the part of the consumers (Hill and Hill, 2012). If Starbucks outsources tea & coffee, it will avert from its core competencies. The third party may not justify the five performance objectives on behalf of Starbucks. Thus, tea & coffee should be kept in-house.

Keeping Products In-House Benefits

STARBUCKS is not an adept packaging manufacturing or IT service provider. So, the finest IT service could be provided by the business house that is proficient in the IT industry. Thus, the five performances objective of the IT Company cannot be harmonized by Starbucks. For example, qualified IT organizations, say, Unisys could assist a great deal in outsourcing Starbucks' IT service. Thus, the Starbucks human resources can focus on their core competencies i.e. coffee. Thus, Starbucks should outsource its IT service & packaging (Hill and Hill, 2012).

An operations manager's process of decision making involves some risks. The manner in which decisions are made may not be appropriate or accurate (Blunden, 2015). It is because decisions may be favorable or unfavorable. Decisions are favorable when customers are retained, the profit margin rises, the business expands and there are hikes in sales. Decisions are unfavorable when the demand for products drops, there is consumer attrition, and when losses are incurred (Gaudenzi and Borghesi, 2012). Strategic planning can minimize the risks. The strategic planning may means setting goals or objectives and gathering information.

Firstly, identifying the risks.

Secondly, understanding the risks. It will help in risk minimization (Hopkin, 2012).

Thirdly, specifying methods to identify risks.

Fourthly, systemizing the specific methods. It will help to analyze the risks (Steve, 2015).

Starbucks is required to evaluate the quality of the operations manager. It is because if tasks are judiciously not monitored by him, then mistakes may evolve. Thus, mistakes give rise to risks. Thus, risks can be minimized by him (Urbanik, 2015).

To transfer some part of Starbucks facilities to the third-party suppliers rather than doing tasks manually.

Unless it hurts Starbucks' core competencies, IT & packaging can be outsourced.

Conclusion:

The operations manager of Starbucks is important personnel. The decision to outsource depends on him. We can infer from the study that Starbucks should outsource its packaging & IT service as it will not hurt the position of Starbucks.

References:

Blunden, T. (2015). Operational Risk (3): Risk & Control Assessments - Chase Cooper. [online] Chasecooper.com. Available at: https://www.chasecooper.com/press-release/published/102-operational-risk-3-risk-a-control-assessments.html [Accessed 22 Jul. 2015].

Gaudenzi, B. and Borghesi, A. (2012). Risk management. Milan: Springer.

GLOVER, K. (2015). Starbucks, Dunkin' Donuts, McDonald's: Coffee Rivals Fight Breakfast War. [online] Cbsnews.com. Available at: https://www.cbsnews.com/news/starbucks-dunkin-donuts-mcdonalds-coffee-rivals-fight-breakfast-war/ [Accessed 7 Aug. 2015].

Graeme, L. (2010). Big Five. [online] Aesthetica Technica. Available at: https://graelaws.wordpress.com/today-is-tomorrows-yesterday-so-do-not-delay-just-do-it-now/energising/empowerment/operations-and-process/operations-performance-objectives-the-big-5/ [Accessed 22 Jul. 2015].

Harmon, P. (2011). Process/Strategy Matrix for Outsourcing Decisions in Business Management | Highn's Journal. [online] Highn.me. Available at: https://highn.me/processstrategy-matrix-for-outsourcing-decisions-in-business-management/ [Accessed 22 Jul. 2015].

Heizer, J. and Render, B. (2013). Operations management. Boston: Pearson Education Ltd.

Hill, A. and Hill, T. (2012). Operations management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Hopkin, P. (2012). Fundamentals of risk management. London: Kogan Page.

Jiwani, A. (2015). 5 Performance Objectives. [online] prezi.com. Available at: https://prezi.com/e9boy6oyvgvs/5-performance-objectives/ [Accessed 22 Jul. 2015].

Klijn, F., Schweckendiek, T., Klijn, F. and Schweckendiek, T. (2013). Comprehensive flood risk management. Boca Raton, FL: CRC Press.

Krajewski, L., Ritzman, L. and Malhotra, M. (2013). Operations management. Upper Saddle River, N.J.: Pearson.

Nordmeyer, B. (2015). Objectives of Operational Performance. [online] Small Business - Chron.com. Available at: https://smallbusiness.chron.com/objectives-operational-performance-77937.html [Accessed 22 Jul. 2015].

North, G. (2011). The Logic of Outsourcing :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website. [online] Marketoracle.co.uk. Available at: https://www.marketoracle.co.uk/Article26415.html [Accessed 22 Jul. 2015].

Reducing risks., (2015). [online] Available at: https://www.hse.gov.uk/risk/theory/r2p2.pdf [Accessed 22 Jul. 2015].

Reid, R. and Sanders, N. (2013). Operations management. Hoboken, NJ: John Wiley & Sons.

Steve, W. (2015). Risk Mitigation Applied to Decision Making. [online] Available at: https://www.bpa.gov/power/pg/NW-HydroOperators-Forum/2012/Applying_Risk_Mitigation_to_Decision_Making_Session_6-Steve_Wenke.pdf [Accessed 22 Jul. 2015].

Stevenson, W. (2012). Operations management. New York: McGraw-Hill/Irwin.

Urbanik, S. (2015). Risk Reduction Decision Making. [online] Available at: https://www.cresp.org/RASDMU/Presentations/09_Urbanik_CRESP-DuPont-SAU.pdf [Accessed 22 Jul. 2015].

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