Managing Business Operations: Crisis of Starbucks from Perspective of Operation Principles

CRISIS OF STARBUCKS FROM PERSPECTIVE OF OPERATION PRINCIPLES
Operations management is the process of planning, organizing and supervising which
will ensure higher profitability and improvement of efficiencies within the organization. This
helps business in shaping their raw material to finished goods. There are various principles of
operations management which acts as the foundation for an organization, some of the
principles are- reality, organization, success, humility, causality, accountability, variance,
fundamentals, managed passion and change. According to the case study, the crisis which
have been faced by Starbucks in accordance to operation principles are discussed below:
Starbucks started investing in business expansion and launched various stores in
different locations rapidly which was a challenge for the company as this has been affected
conversely due to poor supply chain management. It can be seen that Starbucks made
investment in business expansion time growth which was giving low returns on their business
investments. Such factors lead to incline in cost and decline in quality which has been factor
which created a negative impact on the accountability of business products. As Starbucks
focused on meeting customer demands and scarified quality of the products, the company
also increased the cost of their products offered which created a negative impact on the
success of the organization and made business face downfall in their revenues and profit
margin.
The operating principles which ate focused by Starbucks are- quality, knowledge,
innovation, and simplicity and services (volume, visibility, variety and variation). The
company focuses son offering products of utmost quality and ensures that all products are
passed through quality standards. Starbucks focuses on driving innovation in business which
will help the organization in attracting customers and in meeting customer demands. While
delivering the products, the company ensures that all services offered by the company are of
utmost quality and the products are services with right quantity and volume.
Starbucks faced various issues which has helped the organization in shaping success
as initially the company used to offer only coffee beans and ground coffee where they later
started offering prepared coffee and other items. Despite his success, Schultz was met with
skepticism from investors. When attempting to acquire $1.25 million to support his growth,
Schultz was rejected by 217 of the 242 possible investors he approached, with many
expressing reservations. Concerns that he didn't have a patent on his dark roast and that he
didn't have unique access to coffee beans. There's no way to stop someone else from copying

his idea. As in 1996, Starbucks focused on these initiatives, which are- selling products
through mass distribution and on creating a retail footprint by massive business expansion. In
order to sell products through mass distribution channel, Starbucks collaborated with Pepsi in
which Pepsi look hold on supply and demand and give control four development and sale of
products to Starbucks.
In addition to making use of mass distribution channels, Starbucks expanded it’s
product distribution through licensing agreements. Since 1996 the company started with
thousand stores, the company announced to open 40,000 stores worldwide bear 20,000 stores
will be launched in US specifically. Such massive business expansion made with made
Starbucks faced challenges in maintaining their revenues and profitability. As the company
was engaged in massive expansion this led to more interest of media and made business face
various criticism. There were various operational challenges which were faced by Starbucks
in their business expansion plan. As the company was operating globally the issues such as
measuring and grinding beans for every pot of coffee which was a time-consuming process
which created an impact on the ability of Starbucks to meet their service objectives which
further created an impact on the success of business.
Expansion at massive level and poor supply chain management has affected the
ability of organization to meet consumer demand which can define the gap in reality and
performance standards planned by the company. As Starbucks was operating globally, the
poor organizational skills of the company affected the inventory management and this led to
new stock available at stores.
The company also faced crisis due to information technology. The advancement in
technology and Internet connectivity were they helpful sources of performing business
activities and connecting with people at large scale. Such variations were responsible to
create immense impact on business entry and sustainability of business in the industry or
selected marketplace. Other crisis such as incline in competition has also been phased by
Starbucks as the consumption interest towards coffee and other beverages has been increased
after Starbucks which created an opportunity for other business and such practices can bring
thread to the profitability and scope of Starbucks within the industry. The company also faced
criticism with where the brand was labelled as heartless corporate predator where they face
humility from the consumers within the industry.

DISCUSSION ON HOW STARBUCKS WAS TURNED AROUND BY USING
PRINCIPLES OF 4DS AND THE 5 PERFORMANCE OBJECTIVES
As Starbucks focused on business expansion where their objective was to launch their
stores in all countries, the company faced various challenges. While opening the stores this
made Starbucks make high investments and in order to lower store opening cost, Starbucks
limited their stores to standardized design templates through which they will make limited
variation in materials and details. In order to meet service demand in timely manner,
Starbucks shared their pre-grounded beans through which they can maintain the flavors and
freshness of beans for a year which was helpful for the brand in meeting their three minutes
service targets.
As Starbucks struggles in meeting their supply chain objectives and this made the
company face incline in operational cost while decline in sale of products and services. While
focusing on business growth and expansion, the company was not able to focus on their
procurement activities which lead to incline in operating cost and cost for running supply
chain management. Starbucks would have to make major modifications to its operations to
keep costs under control and maintain a balance between cost and performance. Starbucks'
supply chain operating costs were linked to outsourcing agreements for transportation, third-
party logistics, and contract manufacturing, according to a cost study. "Transport, third-party
logistics, and contract manufacturing outsourcing agreements accounted for 65 to 70 percent
of Starbucks' supply chain operating expenditures." Outsourcing aided the supply chain's
rapid expansion in order to keep up with new shop openings, albeit at a significant cost.
The business could establish the foundation for enhanced supply chain capacity in the
future once these supply chain fundamentals were firmly under control. Starbucks has
launched an initiative to recruit top supply chain school graduates in order to maintain
momentum and assure a consistent flow of talent into the firm in the future. Along with
hiring new staff, the firm intends to give continuing training to current employees to assist
them improve their supply chain knowledge and abilities. Starbucks will be able to maintain
its market leadership with the help of such methods.
The 4D’s are- deliver, design, direct and develop. In case of Starbucks the company
focuses on delivery, design and development. Starbucks focus on delivering their products to
customers in timely manner which helps in meeting their satisfaction level. The company