Case Study †Starbucks - Business Improvement Portfolio

Question: Describe about business improvement portfolio - a case of starbucks? Answer: Introduction Starbucks Coffee is the leading American beverage supplier originally based in Seattle, USA. It is ranked as the largest coffee supplier specializing in supplying fine quality coffee in an economically sustainable environment. Starbucks dominates the industry with a market share of around 36.7% followed by Dunkin Brands Inc with around 24.6% market share and 38.7% occupied by other brands together like Costa Coffee, Tim Hortons and McDonalds. According to Biviji (2010) a particular organization adopts business improvement initiatives in order to increase the productivity in a cost effective manner. According to the British Quality Foundation, the most effective approaches that the organizations adopt are Lean six- sigma, business process reengineering and Benchmarking. From 2001 to 2008, Starbucks experienced a slowdown in the sales rate, a decline in the customer loyalty levels and customer footfalls and problems related to overstocking of products. To improve the conditions, to manage inventory costs and to devise customer-focused strategies, Starbucks decided to adopt lean six-sigma model within their working procedure. The management at Starbucks focused on the fact that use of lean six-sigma will effectively help Starbucks to create a customer service consistency and help increasing the brand value of the products (Kalnins and Stroock, 2011). Theory analysis According to Caudwell (2011) Lean six-sigma is a collaborative model used by the organizations to improve performance by removal of unnecessary human wastes, reduce unnecessary time limits and control the resources flow. Augusto Cauchick Miguel and Marcos Andrietta (2010) suggested that adoption of lean technologies enables the organization in creation of high quality, defect free, and value added and cost effective products. Lean techniques are generally used by the automotive industries like Toyota for production of 100% error free products. The concept of Sis Sigma was developed by Motorola in 1986 to structure a highly disciplined program that will effectively deliver a perfect product. The six-sigma process is based on the following principles Continuous focus on the critical and quality requirements of Customers and stakeholders Understanding of the process requirements that will be able to deliver critical and quality requirements to the customers Extensive use of facts and statistical data to understand the problems Developing a flexible and detailed process Focus on continuous improvement of the process in a systematic way Figure1: Lean Six-sigma Process (Source: Zhang, 2011, pp105) The method is adopted by around 600 organizations all around the world. Brati (2011) suggested that following are the major benefits that provoke the organizations to adopt lean six- sigma. Reduction of defects: The use of lean six-sigma approach has helped the organizations to produce defect free products. For instance, Motorola in its six-sigma initiative have successfully reduced production defects by over 300 fold that has helped the company to save up to $11 billion as manufacturing costs (Clarkson and Eckert, 2005). Reduction of process time: Lean six-sigma aims to manage the time wastage in the production process for successfully reducing the lead-time. For instance, LG electronics a UK based company used lean six-sigma process in effectively reducing the lead-time from initial 56 days to 41 days. Further, the company improved the inventory control process by reducing inbound led time from 8 to 5 days. This helped LG to save interest charges and freights charges (Antony, 2007). Effective employee development: The process involves the employees in the improvement process that makes the employees responsible and accountable thereby building a sense of trust and transparency within the organization. With the help of six-sigma approach the project managers at Microsoft were able to attain six-sigma green belt certification which stated that the mangers at Microsoft were ready to face any challenging situation (Adebanjo, and Mann, 2008). Reduction in costs: Hu and Tian (2011) opined that reduction of lead time and reduction of waste in respect of human labor and production materials contributes to the cost savings of the organizations. The following table shows the annual savings that different companies have been able to make by using lean six-sigma. Name of the company Annual savings (approximate figures) General electric $ 2 billion JP Morgan Chase $ 1.5 billion Honeywell $ 650 million Texas Instruments $ 590 million Johnson and Johnson $ 500 million Improvement in customer value: The use of lean six-sigma by the automotive industries have helped the companies like Toyota, General Motors etc to successfully produce vehicles in accordance to the critical requirements of the customers, reduction of manufacturing defects at each stage of production and improving the safety factors within the finished vehicles (Krajewski, Ritzman and Malhotra, 2010). However apart from the following benefits, the process also encounters certain controversies that may contribute to the negative aspects of the process. Difficulty in implementation: Chua and Banerjee (2013) suggested that the mere concept of application of six-sigma in controlling all departments within an organization is a complex process hence large organizations like Tesco find it difficult to effectively manage all the divisions with the help of six-sigma strategies. Home Depot, a retail company, noticed negative atmosphere affecting the employee morale and customer sentiment due to stringent application of six-sigma in all departments. Although the implementation made the company profitable, however the company noticed reduction in the stock price (Basu, 2004). Financial constraint: The organization implementing six-sigma requires employees who are effectively trained from certified six sigma institutes. Hence, small or medium sized organizations are incapable of implementing six -sigma due to high employee cost. Not suitable for all companies: The application of lean six-sigma should be made based on the type of industry in which the company is operating. A drastic failure was noticed in 3M after the introduction of lean six-sigma (Dahm, 2011). Before the introduction of the process, the employees at 3M were given the opportunity to use 15% of the total working hour as personal research hours. This strategy was adopted to allow generation of innovative ideas among the employees that contributed in the productivity of the company. However, the introduction of rigid total quality management process created a stiff situation that restricted the growth of creative ideas within the organization (Vemic- Djurkovic and Maric, 2010). Case application Initial investments of Starbucks concerned investment in store infrastructure and launching of new products. According to Forbes analysis these investments and fast shop openings contributed to the superficial growth of Starbucks. The company however did not pay attention to the customer initiatives and maintenance of inventory and operating costs. Following are the major issues that the management at Starbucks required to solve in order to gain back the loyalty and save costs (Lagrosen, Chebl and Rios Tuesta, 2011). Improvements in employee productivity: Part time working students are the major employees of Starbucks so it becomes difficult for the company to provide quality services. Thus, Starbucks requires providing training tools for the increment in the productivity of the employees. Improvements in products and stores: Starbucks also need to improve their product line by introducing significant products that will match the critical demands of the customers. Moreover, the company needs to improve the store design so that the customers are more attracted and devise strategies for enhancements of Starbucks experience (George, 2010). Development of customer focused initiatives: The Company to increase the customer footfall needs to employ customer-focused initiatives like introduction of Starbucks loyalty card. Regenerating the brand value : The Company will have to restore the brand value by regaining the emotions of the customers concerning the brand (Cole, 2008). Considering the above issues that Starbucks need to resolve it can be suggested that adoption of lean will be effective. Use of lean will improve the productivity by providing better training tools to the inexperienced employees of Starbucks. The use of the Queuing theory approach within the store will help Starbucks to improve the store design and customer flow. The use of six-sigma approach will help Starbucks to reduce the lead time on the production of coffee and this will help Starbucks to spend more time in connecting with customers. Hence, the usage of the lean six sigma will help Starbucks to effectively reduce the defects rates and also eliminate the waste from the manufacturing process (Furst, 2010). The lean six- sigma process is implemented using five stages namely defining the process that needs to be improved, measure the current process performance, analyze the data ascertained from the measurement, improve the errors within the process and determine control methods in order to improve the process (Antony and Banuelas, 2002). Application of lean six-sigma in Starbucks Starbucks prices products that are costlier than other coffee brands however; the customer loyalty of Starbucks is a result of the high customer satisfaction and pleasurable experience that Starbucks offers (Marksberry, 2011). Define In this phase, the management at Starbucks will define the major issue that needs to be addressed. Here the major issue of Starbucks is to maintain a consistency in the customer experience. With the help of voice of the customer and critical to quality tools, the following elements of customer satisfaction may be identified. Voice of the customer Critical to quality High coffee quality Fast table service Friendly and congenial environment Variety of coffee flavors Avoidance of store smell Avoidance of kitchen noise Soothing store interior colors Comfortable seating arrangements with corner shacks Measure The main objective of this stage in lean six-sigma is to set guidelines for the improvement of the production process. In Starbucks, the measurable factor is customer experience and the organization needs to set guidelines for improvement of the customer experience. Following are the measures that should be taken by the organization (Snee, 2010). Line queuing: The cost of waiting in a line is reduced with the help of effective line queuing methods (Dumitru, 2011). There are four types of waiting line models and Starbucks uses the multi line method for fast and reliable service and thereby can reduce the waiting time of the customer and increase the customer experience. Starbucks has increased the customer ordering process with the help of queuing method. Figure 2 : Proposed Customer ordering process in Starbucks (Source: Tata and Jones, 2011, pp-92) Product quality: The various measurable factors of product quality of Starbucks are namely the product temperature, freshness and consistency in the taste and quality. In case of hot and cold coffee Starbucks can effectively use lean six-sigma to set the temperature level to acceptable upper and lower limits as determined by the Health and Safety regulations in order to provide satisfying customer experience (Martinez and Gitlow, 2011). The product freshness of the coffee and the other food products of Starbucks should be measured by a focus group survey. The freshness of a product depends on the storage life of the product. Starbucks uses an aseptic bottling process where they sanitize the bottle and frees from bacteria so that the coffee products can be stored for a longer period along with taste, smell, texture and flavor. The use of this bottling process has helped Starbucks in gaining customer satisfaction and increase the carry to home service. For maintaining product consistency Starbucks has to maintain coffee texture, consistent preparation method for coffee, coffee flavor mixture, serving temperature and coffee presentation. Shop atmosphere: Comfortable and creative shop atmosphere will also contribute to increase the customer experience in Starbucks. Lena six-sigma identifies the major desirable atmospheric factors namely soothing interior colors, Dim lighting, corner seats, kiosks, room temperature air conditioners and light music. With the help of customer psychological studies and focus group interviews Starbucks will be able to ascertain the factors that needs to be improved to improve the customer experience (Nicoletti, 2013). The psychological study conducted by Starbucks has revealed that adoption of green color in the logo of the company generates a positive sign in the customer experience. The customers perceive the sign as environmental sustainability and the color revive them of stress. Analysis The main purpose of this stage is to determine the major causes of the problems and eliminate the causes to improve the process. By using the lean six-sigma, Starbucks tried to determine the standard product quality elements and standard atmospheric elements that needs to be improved in order to improve the customer experience. Product quality factors Atmosphere quality factors 20 minutes time duration in order line queuing resulting in high waiting time and wastage of time in line queuing 50 watt lighting generates reading problems for customers Slow order completion process Average service time per customer is 25 minutes Use of bulb lighting creates loud environment Hot Coffee served remains hot for only 1 minute suggesting low temperature levels Use of wooden chairs and no sofa or couch available Changes to be made in flavors of Frappucino and Mocha (Paryani, 2012) Brown color in the logo suggests strength and conventionality and prevents uniqueness and connectivity Improve This stage evolves solutions to the problems. The focus is on the most innovative, easy and improved solution. By using the lean six-sigma process Starbucks has implemented the following improvements in order to enhance customer experience. Adoption of multiple line method to decrease the waiting time from 20 minutes to 5 minutes (Eroglu and Hofer, 2011) The coffee served is preserved at an average temperature of around 190F +/- 10F to ensure hotness of the coffee for around 15 to 20 minutes after it has been served The other eatable products should be packaged with a storage life of maximum 3 days to maintain the freshness of the products Starbucks should use florescent tubes of 500 watts in order to create a soothing internal atmosphere (Salah, Rahim and Carretero, 2010). Store interiors should be decorated with couches and sofas, inclusion of wifis, readable lamps on the top of corner seats and should use light shades for the interior colors Control This stage will devise monitoring steps in order to control the success of the implemented steps. Starbucks implemented the following control methods in order to control the customer experience process. Opening of more counters and employee more kitchen staffs in order to reduce waiting time (Ray and Das, 2010) The use of Bunn coffee machine to keep the coffee hot at the time of serving Using First in first out method to clear stock inventory of eatables like Blueberry muffin, Grilled cheese, egg salad sandwich so that freshness can be maintained Use of diagonal and aesthetic store layout and design evaluated by the retail store quality management team Constant upgrading of the color, interiors and store settings and size (Pezziardi, 2010) Conclusions and recommendations The assignment shows the application of the lean six-sigma methodology by Starbucks to increase the customer experience. However, the customers are of the opinion that although lean six-sigma has been successfully reduced the waiting time however, the staffs at Starbucks are in hurry to complete the order and hence are giving less time on customer service. 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