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

This case study discusses the crisis faced by Starbucks due to poor supply chain management and business expansion. It also explores how Starbucks turned around using the principles of 4Ds and 5 performance objectives. The rationale for supply chain objectives for Starbucks is also discussed.

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

engages in development through which they can develop new products and strategies which
will be helpful in maximizing business profitability.
The 5-performance objective are- quality, speed, dependability, cost and flexibility.
These performance objectives are focused by Starbucks while delivering their products to
customers from initial to final delivery of their products. The company focuses on using
quality products through which they can offer quality product and services in timely manner.
The cost of the products set by Starbucks is little high which is another benefit for the
company and this ensures customers that the quality of range of products offered by the
company of premium quality standards.
RATIONALE FOR SUPPLY CHAIN OBJECTIVES FOR STARBUCKS
In 2008, Starbucks had no idea if its supply chain was meeting that goal. Even while
revenues were declining, the company's operational expenses were increasing, indicating that
something wasn't quite right. To alter its supply chain, the coffee retailer outlined three major
goals:
 Restructure the company's supply chain.
 Reduce the cost of serving merchants while improving the execution quality
 Ensure the supply chain's future success by laying the foundation.
The first part of Starbucks' transformation strategy, which began in late 2008, was
reorganizing the supply chain. According to Gibbons, this included eliminating a complicated
structure and streamlining it so that each action fit into one of four fundamental supply chain
functions: plan, purchase, manufacture, and deliver. The planning group was made up of
everyone involved in planning, whether it was for manufacturing, restocking, or new product
introductions. Coffee and "non-coffee" procurement attempts were divided into two groups.
The "make" functional unit was allocated to all manufacturing, whether done in-house or by
contract manufacturers. Finally, all transportation, distribution, and customer service staff
were allocated to the "deliver" group.
Several departments concentrated on the supply chain transformation's second aim,
cost reduction and efficiency enhancement, after the reorganization of supply chain activities.
As part of this project, the sourcing team worked to identify the cost factors that were driving
up costs. The company developed more efficient cost models that included comparisons of
ingredients and processes, indicating its ability to negotiate lower prices. A manufacturing

company created a more effective way of getting coffee beans to its processing facilities in
order to manufacture in the market where the product is sold. Using this method, Starbucks
was able to reduce transportation costs and lead times. Starbucks' massive supply chain
necessitates the creation of a single worldwide logistics system. The stores are serviced by
either big regional DCs or smaller warehouses known as core distribution centers, depending
on their location (CDCs).
It can be stated that the supply chain management of Starbucks has faced various
issues and thus, this has created situation for not meeting consumer demands on timely
manner for the selected brand. Therefore, in order to ensure strong and effective supply chain
management and to ensure that all outlets of the company have adequate resources and can
meet business objectives are regularly monitored through which the low of work should not
be disturbed. Therefore, the objective of Starbucks focused on working on the quality of
products and service offered by the company while offering them at reasonable and right
cost. With the help of transformation in supply chain management, the company will focus in
offering quality products and service which have been sacrificed due to the inability of
business in managing inventories, managing stock and due to poor supply chain management.
Starbucks began a supply chain transformation effort that has resulted in cost
reductions all across the world without compromising service quality. According to the firm,
the Starbucks reorganization effort was a success. Due to supply chain transformation, the
company was able to make 70,000 deliveries each week, get new goods to market and handle
product transitions, new product releases, and promotions every day. One person, one cup,
and one neighborhood at a time, their goal has always been and will continue to be to inspire
and nurture the human spirit.
Earlier Starbucks followed lean supply chain management which made business face
various issues in meeting customer demand. Therefore, to manage such issues, Starbucks
managed to use agile supply chain management where the company focused on their
responsiveness, competency, flexibility and this helps Starbucks in meeting the customer
demands in timely manner. Supply chain management faces various issues while business
expansion and after agile supply chain management, such concerns have been sorted by the
company.
AT ONE STARBUCKS CAFÉ IN SWANSEA, CARS ARRIVE AT THE DRIVE-
THRU AT A RATE OF 25 PER HOUR AND ONLY ONE DRIVE-THRU TILL IS

OPEN. THE AVERAGE TIME IT TAKES FOR AN ORDER AND COLLECTION IS
5 MINUTES. ASSUMING THAT THE INTER ARRIVAL TIME AND THE SERVICE
TIME ARE BOTH EXPONENTIALLY DISTRIBUTED. CALCULATE THE
AVERAGE NUMBER OF CUSTOMERS ARRIVING AT THE TILL AND THE
AVERAGE TIME THEY MUST WAIT BEFORE EXITING STARBUCKS DRIVE-
THRU. YOU ARE ENCOURAGED TO USE CALCULATIONS TO PROVE ANY
CHALLENGES IF THERE IS ANY AND SUGGEST ANY SOLUTIONS, BASED ON
THE CALCULATIONS.
When cars enter at Starbuck's Drive-Thru at a pace of 25 miles per hour but only one
ticket office is available for travelling, the basis of the created exponential increase will be
comparable to the projected service frequency of one automobile. It takes 5 minutes on
average to submit and receive an order, meaning that 12 cars are served per hour.
Y = (25 / 12) x
The typical number of clients at the check is then two.
They have to travel an average of 4.3 minutes to depart Starbuck's Drive-Thru.