INTERNATIONAL
JOURNAL OF
ENGINEERING,
SCIENCE AND
TECHNOLOGY
International Journal of Engineering, Science and Technology
Vol. 3, No. 7, 2011, pp. 1-14
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Product quality, service reliability and management of operations at
Starbucks
Kioumars Paryani
Decision Sciences Group, College of Business, University of Detroit Mercy, Detroit, MI 48221-3038, USA
E-mail: paryanki@udmercy.edu
Abstract
High product quality, service reliability, and management of operations are key factors in business growth and sustainability.
Analyzing “The Starbucks Experience” is a pedagogical approach to reinforcing the concepts of control and management of
quality, service reliability, and efficient operations in action. The objective of this paper is to show how providing high-quality,
reliable products and service at Starbucks have influenced its market share, productivity, and profitability. In turn, Starbucks has
improved on these business measures by excelling in operations management. The approach taken was to research the early days
at Starbucks to gain insight on what made Starbucks so successful and then to use observational research to assess the customer
experience at a particular Starbucks store in a city in the state of Michigan, USA. Sitting in this Starbucks store in the cityrsquo;s little
downtown and observing its operations and customers contact offered the opportunity to observe customers waiting in line, the
baristas serving the customers, examining the storersquo;s layout, and listening to conversations that revealed what customers like and
dislike about “The Starbucks Experience.” Recommendations are made to improve operations. These areas fall under operations
management for a company that sells a product and provides a service. There are three reasons customers choose Starbucks: the
coffee, the people serving the coffee, and the experience in the stores. By excelling in these three areas and improving operations
management, Starbucks can regain its market share, and improve productivity and profitability.
Keywords: The Starbucks Experience, operations management, layout, observational research, market share, supply chain,
supply chain management.
DOI: http://dx.doi.org/10.4314/ijest.v3i7.1S
1.
Introduction
Established in 1971, Starbucks has grown from humble beginnings into the worldrsquo;s largest chain of coffee houses (Wikipedia I
and II); see Figure 1 and Table 1, for a growth progression, measured in terms of stores opened, and chronology of events leading
to the growth of Starbucks (Starbucks Company Timeline). The company was founded with the following mission (Starbucks
Company Timeline; Mission statement of company; and Wikipedia II):
Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising
principles as we grow. The following six guiding principles will help us measure the appropriateness of our decisions:
1.Provide a great work environment and treat each other with respect and dignity
2.Embrace diversity as an essential component in the way we do business
3.Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee
4.Develop enthusiastically satisfied customers all of the time
5.Contribute positively to our communities and our environment
6.Recognize that profitability is essential to our future success
Quality management was the competitive dimension used to create “The Starbucks Experience” since its beginning in 1971 at
Pike Place Market in Seattle, Washington. The company took great pride in dark roasting the best coffee beans, and selling them to
the public. Selling roasted coffee beans eventually turned into serving coffee and espresso drinks. Starbucks introduced espresso to
the U.S. at a time when this type of coffee was a niche market. The current CEO, Howard Schultz, who has returned to the day-to-
2
Paryani / International Journal of Engineering, Science and Technology, Vol. 3, No. 7, 2011, pp. 1-14
day operations, was the entrepreneur who convinced investors to join his dream of expanding Starbucks coffee across the U.S. and
the rest of the world. Howard Schultz is an American businessman, and entrepreneur best known as the chairman and CEO of
Starbucks and a former owner of the Seattle SuperSonics (Starbucks Company Timeline; Wikipedia II). Schultz co-founded
th
Maveron, an investment group, in 1998 with Dan Levittown. In 2006, Forbes Magazine ranked Schultz as the 354 richest person
in the United States, with a net worth of $1.1 billion dollars (Franchise business; Wikipedia I).
Starbucks Coffee Stores Growth
(from 1971 to 2009)
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
Years (1 = 1971 to 28 = 2009)
Figure 1. Starbucks Growth Progression
(Source of Data: Starbucks Company Timeline, www.starbucks.com)
Table 1: Chronology of Events Leading to the Growth of Starbuck Coffee
Total Number
of stores
Events
Dat
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Product quality, service reliability and management of operations at Starbucks
【U.S.A】Kioumars Paryani
International Journal of Engineering, Science and Technology
Vol. 3, No. 7, 2011, pp. 1-14
1. Starbucks Experience
Starbucksrsquo;s strategy in targeting its customers is to position itself as a “third” place in the lifestyles of its customers. That is to say, the prototypical Starbucks customer will spend their time at home, at work, and at Starbucks. To encourage this idea,Starbucks locations are furnished with comfortable seating, provide outlets for electronic equipment, and a blanket no-smoking policy ensures that all customers are comfortable in the environment, refer to Figure 2.
Figure 2. Starbucks Coffee Store Layout in a City in Michigan
Making customers more comfortable while spending time in the stores causes them to stay longer and, in doing so, indulge in more of what Starbucks has to offer. As customers linger, they are more likely to buy a second cup of coffee or a snack, to pay for
wi-fi internet access, to burn a CD, etc. In addition to diversify its product offerings, Starbucks is also looking to broaden itscustomer base beyond just young urban professionals and college students. Many of the more recent adjustments to howStarbucks conducts its business are aimed at accommodating the varied lifestyles of the not-so-traditional Starbucks customer.These include: (1) increased number of drive-thru locations – in locations with limited parking opportunities, a drive-thru opens up the potential market to include driving commuters; (2) increased presence in non-urban locations – the move to expand into these locations exposes Starbucks to “middle-America” and could eventually almost double the domestic market for their product; (3)increased penetration of licensed products; (4) Starbucks at home – with genuine Starbucks brand coffees now available at the local grocery store, even the cost-conscious consumer who does not want to necessarily spend $2 per day on coffee can become a Starbucks customer; and (5) Starbucks for business – contracting to supply businesses with products for their cafeteria services, Starbucks opened up yet another arena of possibilities.
The three main reasons for why customers choose Starbucks are: the coffee itself, the Starbucks people who serve the coffee andthe experience gained in the stores. The coffee product is dark roasted coffee made from high-quality gourmet coffee beans grownin developing countries.
Once the coffee is roasted, packaged, and shipped to the Starbucksrsquo;s retail stores, itrsquo;the baristas who bring the product to life.The baristas are trained employees, referred to as “partners”, who make a coffee drink and understand and explain the diversecoffee varieties. To reduce baristas turnover, Starbucks offers a wage higher than the industry average, health care benefits, andcompany stock to its partners.
As stated above, Starbucks has become a “third” place for its loyal customers.The “Starbucks Experience” begins when a customer walks into a store that has been designed with the ambiance and spirit of an Italian espresso bar. In an attempt to improve productivity two changes were made in the coffee-making process: the old style espresso machines were replaced with more
efficient ones and the baristas stopped grinding coffee before brewing. In an attempt to gain back market share, Howard Schultz,CEO, is bringing back the old style espresso machines so the customers can see their drinks while being made. As the baristas have already started grinding coffee, there is the pleasant aroma of fresh coffee in the stores as customers walk in.
2. The Coffee
2.1 Managing Operations Early On at Starbucks: Today, Starbucks is a publicly traded company, more than a retail store; itrsquo;s an importer, a manufacturer, a wholesaler, and a direct mail business organization. However, in the beginning, before going public in 1992, the roasting plant and headquarters were located next to each other in the city of Seattle, Washington. This close proximity allowed Howard Schultz, to be involved in the operational planning and control of this enterprise on a day-to-day basis (Schultz and Jones, 1997). The retail stores were located in the Seattle area. The company was making money, so measuring effectiveness and efficiency was not a major concern; however, the dream, or strategic plan, has always been to expand and educate new customers on the dark roast coffee product it so proudly sold.
more loyal they become, and the more willing they are to pay for a high quality cup of coffee.
2.2 Early Supply Chain: A supply chain (SC) is the network of activities that deliver a product or service to the customer. It is the sourcing of raw materials, assembly, warehousing, order entry, distribution, and delivery. In other words, a supply chain is the sequence of organizational facilities, functions, and activities that are all involved in the production and delivery of a quality product or service at an affordable and competitive price (Gates Gill, 2007; Wisner et al, 2005). By facilities we mean warehouses,
factories or plants, processing centers, distribution centers, retail outlets, and offices. By functions and activities we mean demand forecasting, purchasing, inventory management, information management, quality assurance, scheduling, production, delivery, and customer service (Russell and Taylor, 2011). It is no wonder that supply chains are also referred to as value chains, bec
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