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The success of a business depends on effective operation management.

To
optimize enterprise resources, operations management plans, coordinates, and
monitors manufacturing, production, and service delivery.
Starbucks employs operation management to assist businesses in achieving
success. This study will elucidate the operations and supply chain effectiveness of
Starbucks. Overproduction and inventory management issues at Starbucks will also be
investigated.
Part 1: Company review
1. About Starbucks
Starbucks, founded by Jerry Baldwwin in Seattle on March 30, 1971, is today a
global coffee brand with millions of customers in 76 markets. Starbucks employs
151,000 people worldwide and owns 34,000 (Statista,n.d, 2022). Starbucks is proud of
its great, ethically sourced coffee. Starbucks sells smoothies, teas, pastries, mugs,
accessories, bagged coffee, and over 30 premium coffees. (Chang, 2020)
2. Vision, mission, values
Starbucks' aim is "to establish Starbucks as the premier purveyor of the world's
finest coffee while maintaining our unwavering principles as we grow." The
company's goals and this vision help it grow forward.According to their website,
Starbucks' aim is "to inspire and nurture the human spirit - one person, one cup, and
one neighborhood at a time." This statement shows how the corporation maintains the
vision through conducting the business. Starbucks' core principles ensure that the
corporation follows its goal and vision (Starbucks Coffee corporation, n.d.).
Starbucks' success has helped it communicate its vision, mission, and values.
3. Product
Starbucks emphasizes coffee drinks including Americano, Espresso, Machiato,
instant coffee, and roughly 15 more. Starbucks also sells juices, cakes, sandwiches,
etc. Starbucks cups, vases, towels, and other goods also generate significant revenue.
4. Transformation process
Starbucks buys beans from roughly 30,000 coffee plantations worldwide. Starbucks
carefully selects suppliers using CAFE and CSG standards (Starbucks Coffee
corporation, n.d.). Raw beans are roasted at a storage facility, ensuring uniform
roasting standards across countries. Starbucks distributes roasted and packaged beans
to large, regional, and small warehouses. Starbucks regulates operations and roasts
and packages all coffee beans the same due to limited storage (Croom, 2017).
Starbucks' supply chain engagement guarantees that distribution centers obtain the
supplies they need to complete requests and deliveries. The certificate is subsequently
sent to Starbucks' distribution center and retail outlets (Starbucks Coffee Company,
n.d.). According to Croom (2017), Starbucks also produces fresh food, tea, cocoa,
coffee mugs, accessories, books, presents, and coffee and tea making supplies. The
business has developed a distinct brand identity.

Figure 1: The transformation process of Starbucks


Part 2: The role and effectiveness of opperations management and supply chain
1. Opperations management
1.1. Definition
Render, Heizer, and Munson (2014) define operations management (OM) as
the set of activities that create value by transforming inputs into outputs in the form of
products and services. Every enterprise engages in activities that result in the
production of products and services.
1.2. The role of Opperations Management
According to Heizer (2014), OM is essential to operations, finance, marketing, and
human resources (HR), hence it plays a significant role in enterprises. When working
with Marketing and Finance, OM performs a particularly significant role. The aim of
OM is to create products and services that are resource-efficient. Additionally, value-
added goods and services need to place the needs of the client first (Heizer, 2014).
Starbucks caters to a wide range of needs; their target market is young people, and
OM's actions have helped the company reach its objectives while also meeting
customer wants for a variety of goods and services. Mr. Kevin Johnson – Cheif
Operating Officer of Starbucks said that “Starbucks aims at growth strategies that
must be suitable with current capital sources and target market of the business”
(Paryani, 2018). For example, the "drive-through" service (quick drink while using the
vehicle) is both quick and convenient for customers and saves costs for the company.
Organization management has helped the Company succeed in pushing the product
value higher in the eyes of customers (Paryani, 2018). Discuss the contribution of
effective supply chains to the organization.

2. Supply chain and contribution


2.1. Definition of supply chain
A supply chain is a network consisting of all the individuals, businesses, resources,
tasks, activities, and technological advancements engaged in the production and
distribution of a product (Stadtler, 2015). The supply chain encompasses the entire
process, from the transfer of raw materials from the provider to the manufacturer to
the ultimate delivery to the end user.

2.2 Starbuck’s supply chain

Figure 2: Starbucks's Supply chain

2.2.1. Suppliers
Starbucks sources its beans directly from John Parry of Hawaii, Lintong of
Sumatra, Yirgacheffe of Ethiopia and Baumann of Mexico. Each Starbucks supplier
needs to meet rigorous standards and requirements. The business maintains a very
good relationship with its suppliers, Starbucks continuously works with suppliers, the
business ensures that each coffee bean meets the requirements (Akcam, 2022).
This is the first stage in the supply chain – External suppliers. The influence a
supplier has over a product's pricing and exclusivity is known as supplier power. By
establishing a sourcing team as part of its supply chain approach, Starbucks has come
to terms with this. Starbucks is a highly well-run company with a big network of
coffee bean suppliers. This has reduced the chance that suppliers, who are known for
producing high-quality products, may abuse their influence.

2.2.2. Manufacturers
The company has six central storage facilities that streamline logistics across
25,000 stores in 69 countries. The coffee processing steps at Kent-Washington's
largest factory are as follows: roasting, mixing, brewing, packing, and then being
shipped to Starbucks distribution centers and then to major warehouses and final
destinations. Retail store. In addition, there is a Bay Bread Bakery-California plant to
prepare, test and develop new products (Starbucks, 2022).
This is the second stage – Internal function – Starbucks coffee tastes the same
everywhere its products are sold thanks to the company's strict control over the
roasting process. This time frame gave rise to a distinctive and uncommon flavor for
Starbucks. Because of Starbucks' active participation in the Manufacturers chain,
distribution centers obtain the supplies they require to fulfill orders and make the
70,000 weekly deliveries that are scheduled on time.

2.2.3. Distributors
First off, Starbucks sells its goods directly to customers inside the establishments
it owns. They import, prepare, and sell coffee through their own network of coffee
shops under their own brand names. Because they are frequently the first locations
where customers can access the company's goods and services, Starbucks outlets play
a significant role in their marketing strategy. According to reports, Starbucks has a
very extensive distribution network and very clever product and marketing
methods.This is the final stage – External distributors. Starbucks because the company
ships a lot of different products around the world. However, Starbucks always ensures
that goods are delivered to the right place and on time thanks to a strict management
system. With as few errors as possible, stores almost always receive enough
ingredients to serve customers. It can be said that the distribution stage is not the most
important stage, but it is crucial.

2.2.4. Customers
Starbucks' Italian-style coffee may taste different (Starbucks, 2022). Young
people are the only clients who can readily change and adapt. Starbucks targets high-
earners, notably college-educated young adults, in Vietnam and worldwide.
To sum up, Supply chain efficiency is assessed in different ways. A good supply
chain still requires internal system activities. You can offer the lowest pricing with a
strong supply network. Improving manufacturing processes will also take into account
company-supply chain interaction Koberg (2019). Starbucks' supply chain improved.
Starbucks lowered supply chain expenses by $500 million in each of the two years
after the shift approach. Starbucks forecasts $27,500 million global revenue in 2021
and 375,000 employees (Starbucks, 2022).

3. 10 OM decision to achieve tatical and strategic objectives


3.1. Strategic objectives
According to Starbucks, the strategic objective they prioritize is the customer
experience. Starbucks Executive Chairman Howard Schultz once said, “The Starbucks
experience: our purpose and reason for being” (Ziliani, 2019). In each stage,
Starbucks strives to bring the most complete and perfect experience to customers, so
that they feel more received than a cup of coffee. That is reflected in 5 main aspects:
product, employees, space, technology and social responsibility (Gurski, 2014).
Starbucks believes that its customers want more than just a good cup of coffee when
they come to the store, it's a quiet, cozy space, a sophisticated and environmentally
friendly interior, and a whole lot more. This shows the importance and value of the
intangible elements of the Starbucks Coffee brand. The company's customer
experience goals mean that stores become the "third place" in customers' minds after
homes and offices. Starbucks' goal is that Customer Retention will be directly
proportional to the store's revenue, which means that the business expects repeat
customers to return again and again. And Starbucks has set several goals to get there.
3.2. Tactical objectives
Starbucks' short-term goal is to improve each element that makes up the full
customer experience, and product and space are the two factors they focus on most.
Starbucks is constantly innovating and highlighting their specialty - fresh coffee.
Consumer preferences change from time to time, and Starbucks strives to be as
responsive as possible. With Starbucks, they built a separate lab to create and test new
ideas before they hit the market. The Cascara Latte and Nitro Cold Brew were
launched in limited editions at the Reserve Roastery in Seattle before going on sale
worldwide. To create standard products, Starbucks has many training sessions on
“The Art of Espresso Mixing” that took place within 3 hours, for Starbucks employees
and managers. The purpose of the training sessions is to improve beverage quality –
one of the most important elements of the “Starbucks Experience”. For the space
experience, Starbucks pays attention to and improves the smallest details. In order to
design and interior stores to create the most familiar and comfortable feeling for
customers, Starbucks has a design team that travels around the world to contact and
better understand the cities in which they have stores. Malczewski, 2011). With the
mission statement, Starbucks broke it down into clear, distinct, specific goals and
created plans that involved lower levels of the company to help the company achieve
the success it wanted.
In conclusion, Starbucks chooses Differentiation Strategy.
The 6 outstanding decisions out of ten Oms decision I analyze below will support the
company's implementation of this strategy:

1. Design of goods and service


Starbucks' success relies on its high-quality product design. Product
differentiation drives a company's premium ethos. The group also develops items with
manufacturers, such the Starbucks mug. Starbucks cups became famous since
consumers recognized the company's emblem. Starbucks cups show their premium
brand image and product quality. Similar to paper cups but effective in spreading
environmental awareness. Starbucks creates goodwill and a unique consumer
experience with only those product designs. Starbucks items are luxurious and pricey
worldwide.

2. Quality management
Starbucks strives for quality throughout product development to give customers
a good experience. Each geography and altitude produces distinct coffee flavors, such
as Asian coffee trees, which are robust (Starbucks, n.d.). Even at selection, beans must
be ripe (Starbucks, n.d.). Starbucks tests over 1000 cups of coffee a day to meet
customer expectations (Starbucks, n.d.). To assure customers' favorite Starbucks
coffee, each batch is tested at least three times before approval.

3. Process and capacity design


Starbucks maximizes capacity and energy by adapting procedures to client needs
during rush hours. Starbucks adjusts capacity to meet coffee and food demand
(Starbucks, n.d.). Corporate restaurants can adapt workforce to peak-hour demand
(Dunbar, 2016). Starbucks strategic planning maximizes productivity and cost-
effectiveness through process and workflow efficiency, especially on-time resolution,
in this crucial area of operations management. Respond quickly to consumer requests.

4. Layout design and strategy


Layout design and strategy towards convenience for both customers and
employees in the store. Starbucks pays more attention to providing customers with a
private and comfortable space, convenient for meeting friends or working. This layout
strategy maximizes the space utilization of the Starbucks coffee shop, emphasizing the
premium customer experience (Mi, 2021). Besides, the Layout design and strategy for
Starbucks coffee shop effectively addresses the workflow, these decisions focus on
productivity and high efficiency in moving information and resources, including
human resources, For example, bartenders can easily communicate with cashiers
about special orders. In this decisive area of operations management, the company
uses customer experience and premium brands to guide layout design and strategy.

5. Job design and human resources


Human Resources and Job Design aims to keep a constant workforce for
Starbucks' operations. The positions in the store (bartender, waiter, etc.) and office
(project managers, HR managers, etc.) are clearly divided and work together. The
corporation prioritizes functional tasks like HRM and inventory management to
maximize staff productivity and organizational culture. Starbucks' jobs meet job
criteria and reflect the company's culture (Law, 2017). Therefore, Starbucks personnel
is pleased by professionalism, limiting faults and garnering consumer sympathies.

6. Supply chain management


Starbucks aims to manage its supply chain in a manner that is consistent with the
tendencies of the market and the demands of its customers. Additionally, the company
utilizes the Coffee and Farmer Equity (C.A.F.E.) program to choose and rank
suppliers according to ethical business practices, environmental friendliness, and
positive effects on the local community. As a consequence of this, Starbucks
collaborates with a wide range of suppliers to guarantee a consistent supply of coffee
beans sourced from growers located in a variety of nations. (Starbucks, n.d.) To
ensure that the final products sold to customers are of the greatest possible quality,
Starbucks carefully monitors and selects each stage of the production process. The
choices that are taken in this aspect of operations management not only shape the
experience of consuming coffee, but also achieve a state of equilibrium between the
coffee firm and the bargaining power of its suppliers, ensuring that all involved parties
come out on top.
4. The difference between Starbucks and Phuc Long in 10 OM decision to
achieve goal

STARBUCKS Phuc Long


(Starbucks, 2022). (Phuc Long, 2022).
Strategy Differentiation Differentiation
Strategic Bringing a unique and special experience Create pure, pure Vietnamese products
objective to customers
Tactical Thorough investment in the quality of Quality coffee and tea, unadulterated
objective fresh roasted coffee beans and suitable for consumers' taste
Strategic Create a third place for customers, help See customers like you
partnership customers remember their own terms and
have a professional service team including
remembering customers' names
Customer Office workers, high-income customers Middle-class, stable income
Segmentation

Both use Differentiation and focus on coffee. Their strategic and tactical goals differ.
Two businesses succeed with 10 OM decisions. Starbucks and Phuc Long have
always prioritized product design, location strategy, layout design, and strategy. The
10 OM decisions enable two businesses maximize profitability despite having
conflicting short-term and long-term aims.
For example, deciding on Supply chain management, Starbucks aims to create
the best and most perfect product possible, so Starbucks' suppliers are all over the
world, so the price of the product is often high. Unlike Starbucks, Phuc Long's
products are aimed at the local standard, so the coffee beans and tea leaves are taken
from the highlands of Vietnam, so the price is 50% cheaper than Starbucks.
Regarding Layout design and strategy, instead of choosing luxurious and high-
class furniture like Starbucks, Phuc Long focuses on the number of chairs and tables
to accommodate as many customers as possible. The interior and design of Starbucks
are relatively expensive and promote inside decoration, but Phuc Long aims for an
open environment, most of the tables and chairs are placed outdoors, in order to easily
attract the attention of office workers and student. This happens because they have
different client files
Regarding Job design and human resources, in order to join Starbucks,
employees undergo many specialized training courses and the jobs are clearly divided.
In Phuc Long, they give priority to those who have creative thinking and are easy to
adapt to the young environment. For employees at the store, the staff can flexibly
change roles, for example, the bartender can serve as a waiter, to promptly respond to
customer needs.

5. Evaluate the Starbucks operation management to assist organization reach


their objectives.
At the present time, there is a great deal of competition in the markets for
beverages in general and coffee in particular. After the COVID-19 epidemic broke
out, corporations in the beverage sector engaged in a "battle" to assert their position
(Bukat, 2021). Establishing operating procedures and rules for each task segment is
necessary for the management of operations at Starbucks. Such procedures and
policies are designed to aid businesses in functioning efficiently, maintaining control
over all activities, and appropriately monitoring and evaluating the performance of
their employees. Throughout the COVID-19 era, Starbucks has been able to keep its
position because to the success of this strategy. Additionally, Starbucks is
continuously integrating new software and technologies, which enables administrators
to regulate operations more effectively, save time, and be more precise. Starbucks'
manufacturing process will be sped up as a result of the use of these operational
techniques, which will in turn strengthen the company's competitive edge over its
rivals in the industry (Sinha, 2021).

5.1. Problems and recommendations


However, Starbucks has faced many other problems since the Covid pandemic,
especially supply chain problems. The biggest problem in business operations is
controlling the supply chain is a difficult challenge for the supply chain team, the
supply chain cannot keep up with the expansion of stores.

I recommend the Kanban method for the production process. Kanban is a


production management method implemented by communication boards, contact
sheets between stages. In terms of applications in production, Kanban is an effective
tool to help closely control the production line, which can specify different materials
and stages through the colors shown (Junior, 2010). For Starbucks, businesses can use
Kanban as an order voucher at the work station and then a delivery voucher at the next
station. Most importantly, each Kanban ticket must display a link to the previous work
flow, stating what materials, parts, and quantities will be received from the previous
station. The Kanban method will bring Starbucks outstanding benefits such as
maximum saving of raw materials and supplies in the production line, optimizing the
proportion of labor so that the product life cycle rotates quickly, contributing to the
formation of a modern, efficient and highly disciplined enterprise culture. These
benefits will solve the problem Starbucks is facing.
PART 3: STARBUCKS PROBLEM AND HOW TO SOLVE
1. Identify problem
As a giant coffee brand, Starbucks is required to prepare a variety of ingredients
and ingredients, especially when customers here have a habit of ordering drinks
outside the menu, so the store needs to be fully prepared. to apply them. This leads to
a surplus of unused raw materials. At the same time, when consumer demand is less
than supply, goods purchased for storage are sometimes not used. Thus, an inventory
management system reduces waste, reduces inventory loss, and helps a company plan
for future needs. Inventory management is not simply about designing the space and
layout for optimal storage, it also involves knowing what (product) is being stored and
at what level (how much) at any given time. any time. EOQ, P-System, and the ABC
model are some of the methods Starbucks can use to improve its inventory
management.
2. Solution
 EOQ (Economic Order Quantity) - The Economic Order Quantity (EOQ)
model is a quantitative model used to determine the optimal level of inventory that
yields the most profit while still meeting a company's sales needs (Senthilnathan,
2019). This methodology is based on purchasing and inventory expenses. Storage
costs rise when materials/commodities rise and products fall (Ziukov, S., 2016).

 P- System (Periodic Review System) - is a method that does not regularly and
continuously monitor the movement of raw materials, goods and products, but
only reflects the inventory value at the beginning or the end of the period through
actual counting (De Jonge, 2020). .
 ABC analysis Models (ABC) - The ABC inventory management approach is
often used to value inventories. The Pareto principle underpins this strategy: 20%
of products sell 80%. Goods should be divided into three groups: Group A -
companies with the highest annual value (70-80%), Group B - stocks with an
average annual value (15-25%), and Group C - stocks with a low annual value
(5%). (2016) (Ziukov).

3. Pros and Cons of models


Model Advantages Disadvantages
EOQ (Economic This is a simple model, easy to The model is computationally
Order Quantity) apply widely in all workshops. difficult. Assume that
In addition, thanks to this model, purchasing and storage costs
businesses can strictly control remain constant, making it
costs such as ordering or difficult to calculate inventory
inventory. Thereby improving in a volatile business
the efficiency of inventory environment.
management in the enterprise
P- System The system for periodic The P-system may be
(Periodic Review inventory is straightforward and inaccurate for business
System) requires few steps. Businesses inventory. The periodic
require fewer employees and inventory system can only be
have more time to complete updated at certain intervals,
other tasks. In addition, this making it difficult to track fast-
system does not necessitate high moving commodities.
costs, surely not more than Businesses can respond faster
operating an advanced computer to market demand with a faster
system for inventory tracking. inventory system.

ABC( ABC Simple to find out which items Lack of flexibility -. Without
analysis Models ) in stock are the most important ongoing analysis, a company's
current ABC classification can
• Determine safety stock levels
quickly become obsolete.
to maintain

• Identify appropriate levels of


inventory management

ABC analysis Models are not suitable for Starbucks because the claim model is
constantly updated and product sales can be erratic, items can go from C to A very
quickly. Constantly re-evaluating and reclassifying between the three groups can be
very time-consuming for a business. This will ultimately lead to effects in the general
interest of the company.

To fully manage their store-level inventory, Starbucks uses an EOQ system and
a P system. Businesses divide their inventory into two categories, long lifespans (like
spoons, cups, paper, etc.) and short shelf life like milk, sugar, etc) uses P – system and
EOQ. The first part of the business is dedicated to selling P-system products to
customers. This order is placed once a week with a three-day lead time before it is
fulfilled. Throughout the entirety of the store, variable pars have been designated for
each stock-keeping unit (SKU). To ensure that there is sufficient retail for clients, the
overstock level for the entire inventory is set at 15%. The daily processing of the
second order is performed by EOQ. The delay period for this order is currently two
days. This order contains all of the necessary components, such as milk, espresso, and
cups, for preparing beverages and pastries with a short shelf life. These items have a
limited ability to be stored. The demand for Starbucks' products follows a pattern that
is steady throughout the weekdays. The demand shifts slightly but only sometimes.
This occurs at the same time as the change in seasons as well as school breaks.
The amount of money made by Starbucks is not dependent on the day of the week,
however demand does fluctuate occasionally. This occurs about the same time as the
transition between seasons, holidays, and school vacations.
Using a combination of the two systems described below, Starbucks is able to
efficiently manage a vast selection of inventory at all of its stores around the globe,
ensuring that customers have the same experience at any Starbucks location.
4. Recommendation
Starbucks can use JIT (just-in-time) technology in addition to EOQ to solve
business problems. Since Starbucks' problem was a problem of excess inventory, the
technology was chosen because it aligns with Starbucks' workflow. It is also in line
with the company's goal of leading the trend of the coffee industry, while always
being receptive and creative to rise up. JIT, being a key element in Lean
Manufacturing, which is a production management system that plans the movements
of raw materials, items, and products during manufacturing and distribution in detail
so the next process can begin immediately. Thus, no production item sits idle,
awaiting processing, and no workers or equipment wait for input.
Strenghths Weaknesses
 Minimize inventory, capital  High risk
stagnation. A supplier having problems and not
 Reduce warehouse space. being able to supply the materials a
 Increase product quality. company needs can disrupt or stop the
 Reduce scrap, defective products. entire production process. In addition,

 Increase productivity by reducing customer product orders may exceed the

waiting times. company's expected capacity, which

 Flexibility in changing production may delay shipping of finished products

processes, changing product for some customers.

designs.  Asking for principles

 Workers are deeply involved in Workers must take their work seriously

improving and improving


productivity and product quality.

This system is proven to be highly effective because many large companies are
applying it, such as McDonald's - a rival of Starbucks. Thanks to the JIT model,
McDonalds' inventory, waiting time and overhead are almost zero (Setiawan, 2023).
Theoretically, if an item is sold, the market will pull the replacement item into the
system. "This triggers an order for the plant's production line, after which a worker
pulls another piece of equipment from the upstream station in the stream to replace the
picked equipment" (Aquilano et al. 2004). For this pull to go more smoothly, JIT
needs high quality in every process, a close relationship with the supplier, and very
clear requirements for the end product.

Another proposal that can be considered is Radio Frequency Identification


(RFID). It is radio wave object recognition technology. With such technological
advantages, the security and safety of devices applying RFID technology is very high.
One of the most popular and widespread applications of RFID is inventory.
Strenghths Weaknesses
 Increase operational efficiency  High cost

 Eliminate human errors  Scanning problems may occur

 Reduce cost of capital  Security and privacy capabilities

 Real-time data tracking

 Provide insights for better decision-


making

 Improve data accuracy and


availability.

The quick, regular and accurate inventory of goods allows Starbucks to


understand the situation of its warehouse, thereby having a plan to add goods to empty
shelves, detect the difference in goods in the warehouse and find the cause. quickly.
With RFID readers at key locations, businesses will know exactly what items have
been shipped, which items have been delivered to the sales floor, and which items
need replacement.
CONCLUSION
This paper examines the supply chain and operational effectiveness of
Starbucks. Starbucks has also made business decisions with a strategic focus. The
research addresses Starbucks' inventory problem and suggests implementing digital
warehouse management technologies. Starbucks must constantly evolve in order to
meet customer needs and accomplish business objectives.
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