Understanding Operations Activities of Starbucks

This study explores the core operations activities of Starbucks, including logistics operations, order cycle, and inventory management. Recommendations are provided to improve efficiency.

Running head: STARBUCKS
Assessment 2: Individual Assignment
[Starbucks]
Name of the student:
Name of the university:
Author note:

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Executive summary
This is basically an operation based study that helps to understand the core operations activities
of Starbucks. It does so in various ways. First of all, this project establishes an understanding that
the logistics operations of the company are in an intersection with its core operations activities
like Marketing, Sales and Service. Secondly, it explains the order cycle as being followed in
Starbucks. Moreover, it also recommends a piece of strategy to further the execution of the order
cycle. Lastly, this project does an assessment of inventory management at Starbucks. Based on
the assessment few points of recommendations are being given to help the company further its
efficiency in inventory management.

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Table of Contents
1. Introduction..................................................................................................................................3
2. The Interfaces..............................................................................................................................4
3. Order Cycle..................................................................................................................................6
4. Inventory Management................................................................................................................9
5. Conclusion.................................................................................................................................11
References......................................................................................................................................12

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1. Introduction
The background and purpose:
This project is on Starbucks, which is being chosen as the selected manufacturer for this
project. An efficient order cycle handling and effective inventory management are key to
effectively manage the logistics operations for food-specific companies like Starbucks
(Fredendall & Hill, 2016). It, therefore, forms a background to this study.
The main purpose of this study is to discuss and analyse the efficiency of logistics
operations in Starbucks. Moreover, it discusses and analyses the effectiveness of the logistics
operations in Starbucks. The intention is to analyse the current logistics operations at Starbucks
and offer a few points of recommendations to the company.
Key information about Starbucks:
Headquartered at Washington, the United States, Starbucks Corporation is a widely
popular chain of the coffeehouse. The company started its operations in 1971. Currently, the
company operates in more than 30,000 locations worldwide. Starbucks is widely considered as
the main representative of the “second wave coffee”. This helped the company to create a
distinct image in the coffee industry under three different factors like quality, taste and customer
experience. From the year 2000, the “third wave coffee” started to pick in popularity
(Starbucks.ca, 2019). The third wave coffee is more targeted on the product quality rather than
core functional areas of operations like marketing and finance. To be able to leverage the
opportunity rising in the form of the third wave coffee, Starbucks started using automated
espresso machines. This was adopted to enhance efficiency and for safety reasons. The company
serves a variety of items to its customers like hot and cold drinks, espresso, whole-bean coffee,

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caffe latte, leaf teas like Teavana tea products, Frappuccino, evolution fresh juices, beverages,
snacks such as chips and crackers, and La Boulange pastries. There are many stores that sell pre-
packaged foods, drinkware, and sandwiches both hot and cold. The company has close to
300,000 employees (Starbucks.ca, 2019).
2. The Interfaces
Figure 1: The Logistics and Marketing Interface
(Source: Copley, 2018)
The above figure clearly demonstrates an intersection between logistics and marketing
operations. According to the four P’s of marketing, a company is required to determine its offers
from four distinct perspectives like the product, price, place and promotion (Todorova, 2015).
This means the pricing for a product is inclusive of costs incurred on different interrelated

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activities. These activities as depicted in the diagram are inventory carrying costs, administrative
costs, warehousing costs, order processing and fulfillment costs and transportation costs both for
inbound and outbound logistics. Similarly, determining the place is an important part of a
marketing plan. The place does not just include the areas where products will be sold to
customers. It is also about determining places to keep the inventory items. Inclusion of new
products in the product portfolio will also affect the inventory carrying costs (Federgruen &
Wang, 2015). In return, this will also affect product cost. Similarly, costs incurred in doing
promotional campaigns will also include administrative costs. It shows that core operations
activities intersect logistics operations at some point during the entire journey of the product
reaching to the target market. On a similar note, other core operations also intersect the logistics
operations. This can be understood from the diagram as depicted below:
Figure 2: Intersection between the Logistics, Sales, Production and Finance

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(Source: Lin, Pekkarinen & Ma, 2015)
The above diagram shows an intersection between the logistics and other core functional
areas like Sales, Finance and Production. There are many channels followed to sell a product. A
product can be sold through retailers, wholesalers, dealers, etc. Products are delivered to
retailers, wholesalers and dealers through the outbound logistics. This means sales intersects the
logistics at a point when it needs to deliver the product to customers.
In the context of Starbucks, an intersection between its core functions and the logistics
can be found. Starbucks does not give much of an importance to marketing. The company rather
gives more emphasis to quality coffee. However, it does conduct on a regular basis the need-
based marketing activities. For example, Starbucks does allow testing the sampling of a new
product launch at places close to its stores (Starbucks.ca, 2019). The sampling will reach the
place by means of outbound logistics. This is the point where there is an intersection between the
marketing and outbound logistics operation of Starbucks. The company does it to ensure that the
product is up to the taste demand of the target consumer segment. From this perspective, the
promotional campaign intersects with the Service requirement of the company. The outbound
logistics of Starbucks does not have any intermediaries. It shows their high concern to the level
of customer service. Owning logistics operations is much better than relying on intermediaries
(Hugos, 2018). In this regard, there is an intersection between the outbound logistics and the
service level of Starbucks. By having their own outbound logistics operations Starbucks was able
to identify factors that could have an impact on their level of customer service.
3. Order Cycle

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Figure 3: Order Cycle
(Source: Lai & Cheng, 2016)
The above figure shows the order cycle as followed in Starbucks. It is divided into five
distinct areas. These are (van der Laan et al., 2016):
1. Order planning-connected to sales forecasting
2. Order transmittal
3. Order processing
4. Order picking and assembly
5. Order delivery
Order planning in Starbucks is done based on information received from sales forecasting.
Order planning and sales forecasting in Starbucks are both inter-related. Order planning helps
Starbucks understand market demand. This is how it effectively reduces the inventory carrying
costs. Moreover, their order planning capability and the business model they follow provides
Starbucks advantages into many areas. These areas are store setting, beverage, service and

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culture (van der Laan et al., 2016). Few companies in some parts of the world tried copying the
excellence of Starbucks in these four areas. However, they largely fail to create a similar impact
as created by Starbucks. For example, McDonald’s replicated the Starbucks’ espresso beverage
menu to offer McCafe. Others like Caffe Bene in New York City and Costa Café in London
copied the third concept of Starbucks (Forbes.com, 2019). However, none of these organisations
were able to create similar impacts with their coffee as did by Starbucks.
Order Transmittal includes transferring the order request from where it originates to a
department where it is targeted to or can be handled appropriately (Christopher, 2016). In the
case of Starbucks, order transmittal happens in its stores. It happens when customers arrive at the
store and make an order to a person who is attending him or her. Once the order is generated it is
then sent to the concerned department, which are the different people preparing the types of
beverages, snacks, etc. This is how to order transmittal happens in Starbucks.
Order Processing means processing the orders being placed by customers. For example,
if a customer orders a cup of coffee then preparing a cup of coffee for the customer is actually
the order processing (Tucker, 2017). Similarly, there can be orders for different kinds of meals
and snacks that are available in the store. These all are the part of order processing.
Order picking and assembly is a process where a person picks up an order from the
customer and sent to the concerned department for getting it ready to be served. During the order
picking the attendant is needed to listen to the customer carefully, so as to avoid missing any
important points (Higdon, 2016). In Starbucks, people who attend the customers they take a note
of it and reconfirm things they have noted from the customers. This is how things smoothly
happen inside a Starbuck store. Staffs are well trained on activities they have to take care of on a

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daily basis. The assembly section of the order cycle also includes picking, sorting and giving a
beautiful makeover to the orders once they are ready to be delivered.
Order delivery in the context of Starbucks is delivering snacks, beverages and other
foodstuffs on the table where they have collected the orders from (Susanty & Kenny, 2015). This
is the final stage of the order cycle, which is followed in Starbucks. At the order delivery stage,
the orders are delivered to respective tables. Once, the customers are done with their foods and
beverages they are handed over the bills they have to pay.
To offer a better customer experience, Starbucks should constantly look for improving its
service quality. In this regards, a few points of recommendations can be helpful. Starbucks
should get its coffee stores equipped with advanced technologies and should also focus on
designing its outlets. By equipping a dedicated zone for kids such as a Wi-Fi zone or play zone
with the stores should be a handful move in attracting the families.
4. Inventory Management
There are constant annual demands for “Classic Coffee Cake”. However, in case of an
unexpected fall in the demand level, 30 pastries approximately on a weekly basis go unsold. The
current model enables delivering the orders in less time. The model has helped to improve the
flexibility level in order handling capability. However, the model is less cost-effective as
compared to the EOQ model. Different layouts are generally followed in stores. They follow the
line flow system where customers are needed to be in queues till the moment their number
comes. This layout system helps to receive the highest footfalls. In some stores, Starbucks lacks
an adequate freezer storage space (Wu, 2017).

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There are a few points of recommendations for Starbucks. They should decrease the
packaging size from 6 to 4. This will avoid overstocking of items. Moreover, this will prevent
unnecessary expenses made over to stock more than the actual demand. Starbucks should also
work on to increase the storage space in a few stores. This will allow keeping more items.
Moreover, this will also help to stock more volume of the top-selling items. They can add more
attraction to increase footfalls. For example, they could have items for kids like ice-creams. If
this could happen the families would have reasons to come to the stores. In addition to all these
changes, Starbucks should also give importance to equipping more number of stores with the
espresso machine. This is essential to enhance the quality level of the product and to maintain the
brad reputation. Moreover, this will also positively impact the service level offered to customers.
On implementing the recommended strategies Starbucks would see the difference in their
overall performance. The overall difference could be as mentioned below:
 Reduced Annual Costs: The overall annual cost will considerably decrease. The stores
implementing these recommendations could be able to experiment with pricing to attract
more new customers. Increased Capacity: The capacity to meet the market demands will improve as there will
be increased storage capacity to store an increased number of inventory items. Increased Storage Space: This will keeping more inventory items. Moreover, they can
also target those who are not yet being touched like the kids. Some of the spaces can be
dedicated to desserts, which kids love the most like a variety of juices and ice-creams. Increased Revenues: All these changes will eventually influence revenue. These changes
will positively result in increased revenue. Nevertheless, increased revenue is needed for
a healthy cash-flow and thereby, investing in more new and innovative projects.

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5. Conclusion
On a concluding note, it can be said that Starbucks is a renowned name in the worldwide
coffee business. There is no other coffee brand in this world that understands the diverse culture
more effectively than Starbucks does. This project helped to know that the logistics operations in
Starbucks intersect some of its core operations like Operations, Marketing, Sales and Service.
Starbucks is being to have a capable system to manage its order cycle. However, there are a few
areas of improvement as found in this study. These are the development of technologically
advanced infrastructure in a few stores and inclusion of a separate kids’ corner. Inventory
management in Starbucks has few issues like storage capacity and capability to meet the market
demands. Few recommendations as given in this study should sufficiently help Starbucks in
overcoming these issues.

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References
Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
Copley, P. (2018). The experiential learning process on the small enterprise marketing/logistics
and supply chain management interface–a conceptual model for the practical classroom.
Federgruen, A., & Wang, M. (2015). Inventory models with shelf-age and delay-dependent
inventory costs. Operations Research, 63(3), 701-715.
Forbes.com. (2019). Starbucks' Problems At Home And Abroad. Retrieved from
https://www.forbes.com/sites/panosmourdoukoutas/2018/06/27/starbucks-problems-at-
home-and-abroad/#5d79013a64b5
Fredendall, L. D., & Hill, E. (2016). Basics of supply chain management. CRC Press.
Higdon, B. (2016). Strategies independent coffee shop owners require to survive beyond five
years.
Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons.
Lai, K. H., & Cheng, T. E. (2016). Just-in-time logistics. Routledge.
Lin, Y., Pekkarinen, S., & Ma, S. (2015). Service-dominant logic for managing the logistics-
manufacturing interface: A case study. The International Journal of Logistics
Management, 26(1), 195-214.
Starbucks.ca. (2019). Starbucks Canada | Coffee and Tea. Retrieved from
https://www.starbucks.ca/

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Susanty, A., & Kenny, E. (2015). The relationship between brand equity, customer satisfaction,
and brand loyalty on coffee shop: Study of Excelso and Starbucks. ASEAN Marketing
Journal, 14-27.
Todorova, G. (2015). Marketing communication mix. Trakia Journal of Sciences, 13(1), 368-
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Tucker, C. M. (2017). Coffee culture: Local experiences, global connections. Routledge.
van der Laan, E., van Dalen, J., Rohrmoser, M., & Simpson, R. (2016). Demand forecasting and
order planning for humanitarian logistics: An empirical assessment. Journal of
Operations Management, 45, 114-122.
Wu, H. C. (2017). What drives experiential loyalty? A case study of Starbucks coffee chain in
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