Process and Change Management: Starbucks SCCOs - Essay Example

Process and Change Management: Starbucks’ SCCO’s Purchasing Workflow Purchasing operational flow, organizational structure and operational strategies are among the important factors that will enable Starbucks’ SCCO increase the company’s ability to effectively manage the planning, purchasing, distribution, and transportation of its inventory. Pure centralization of Starbucks’ purchasing system could lead to inventory inefficiencies. Therefore, Starbucks should also decentralize some parts of its purchasing practices. To maximize the efficiency of SCCO’s workflow, the company should make use of combined centralization and decentralization practices depending on the given situation aside from taking advantage of more sequential dependency in SCCO’s workflow. Introduction Founded back in 1971, Starbucks Coffee Company opened its first store in Seattle’s Pike Place Market (Starbucks, 2010 c). After going through a lot of trials and failure during its first few years in the business, Starbucks managed to survive when Howard Schultz was introduced to the company during the early 1980s (Ostdick, 2010). Having a good vision about the company, Schultz purchased Starbucks with the support of local investors in 1987. Through diversification of products and services, intensive expansion all over the world, and joint-ventures with Earvin “Magic” Johnson’s Johnson Development Corp. (1998) known as the Urban Coffee Opportunities, LLC (UCO), etc. (Benzaken et al., 2010) Today, Starbucks is considered as the world’s leading retailer, roaster and a well-known brand serving close to 44 million customers per week throughout North America, Europe, Middle East, Latin America and the Pacific Rim (Duffie, 2010). Given the size of Starbucks’ operations around the world, this study will focus on analyzing the inventory process of Starbucks. After describing the current operation of Starbucks in terms of information, inventory, transportation, and location, this report will discuss the operation capabilities of Starbucks in relation to its current organizational structure. Eventually, the operational strengths and weaknesses of Starbucks’ inventory process will be identified ub relation to the gaps or misalignment between the operational structure, strategy, processes, culture, tasks and people. Upon analyzing the case of Starbucks’ inventory process, recommendations for redesign based on analysis will be provided using applications of logical frameworks and theories. Strategic ways on how the recommended redesign will be implemented will also be included in this report. Current Operation of Starbucks in terms of Information, Location, Inventory, and Transportation As the global leader in roasting coffee, Starbucks organized itself into a functional structure including the Chairman and CEO Howard Schultz. It is Schultz who maintains a tight management control from the top – top-down management (Starbucks, 2010). The company is using both centralized and decentralized form of authority. In line with this, decision making power is highly centralized and concentrated on Schultz in terms of handling all major decisions like the allocation of resources, controlling how and where money is spent, and the development and implementation of managerial policies necessary to improve the overall organizational performance. Starbucks Location After opening the first Starbucks store in Pike Place Market near Downtown Seattle Washington (Seattle.gov, 2010), the company opened 6,010 stores in United States and 17,830 store outlets in more than 50 countries around the world (Google Maps, 2010; Starbucks, 2010 c). (See Appendix I – Map Indicating the 17,830 Starbucks’ Store Outlets around the World on page 17) Inventory Management Inventory management is searching for strategic ways on how to effective plan and control the available inventory (Toomey, 2000, p. 1). Starbucks’ inventory is being managed by the Supply Chain and Coffee Operations (SCCO) department. The SCCO is responsible not only in the worldwide sourcing and purchasing of raw materials but also in the management of raw materials distribution, planning, and transportation through the use of the internet technology and computer software (Busines Wire, 2004). (See Appendix II – Organizational Chart: Top-Down Management on page 18) To enable the company effectively manage its inventory system, Starbucks’ employees in SCCO department are responsible in determining the available and non-available supplies in each of the regional store outlets by maintaining a regular coordination with the regional managers. Likewise, it is the regional managers who are responsible in coordinating with the store managers regarding the remaining stocks through the use of telephone and the company website. (See Appendix III – Inventory Management of Starbucks & Information Technology on Starbucks’ Inventory Management on page 19) With the use of information technology, Starbucks’ SCCO department could gather information regarding the real-time inventory, order requirements, and transfers. In case inventory of raw materials is not sufficient for the SCCO department to sustain the raw materials requirements in each regional store outlets, the SCCO department will purchase the needed materials from its authorized suppliers a few weeks before the stock inventory will run out together with the go signal coming from Schultz. Using the same information technology, SCCO personnel will submit their purchase order to its authorized suppliers. This particular operational strategy is somehow causing operational delays and business opportunity loss due to inadequate stocks of raw materials. (See Appendix IV – AS IS Workflow / Dependency Diagram on page 20) Transportation The shorter the distance Starbucks has to transport the coffee products, the lesser the transportation costs it will be for the company. Aside from enabling the company benefits from a lesser transportation cost, having many suppliers of coffee beans and other raw materials around the world could somehow increase the company’s operational efficiency (Sutherland & Canwell, 2008, p. 229). To enable Starbucks to be free from a long list of transportation-related problems, the company is currently hiring transportation services to deliver the ordered raw materials to its respective regional store outlets. With regards to international transport of goods, Starbucks is maintaining its business relationship with several authorized cargo companies that will move the raw materials requirements by air cargo (Gibbons, 2010; McWilliams & Javor, 2010). Hiring the services of authorized domestic and international land and air transportation companies will make Starbucks deliver the goods without the need to think about the maintenance and repairing of trucks in case the engine breaks down. Given that demand for Starbucks’ coffee goes down, the company will free itself from having to pay a fixed operational cost as a consequence of maintaining its own transportation equipments. Inventory Operations of Starbucks in Relation to its Current Organizational Structure The functional structure of Starbucks divides the controlling power among the executives in the top management team. Specifically the SCCO department of Starbucks is under the supervision of Schultz as the CEO of the company. As a way of gathering real-time ordering and inventory information from each of the store outlets around the world, SCCO department is regularly coordinating with the regional managers in each country. With regards to sensitive decision-making and business transaction that could significantly affect the overall business performance and profitability of Starbucks, Schultz’s approval is necessary before SCCO’s manager and staff could officially consider a newly accredited domestic or international supplier. Given that the secret behind a good quality Starbucks’ coffee heavily relies on the quality of coffee roasted beans and milk, sensitive decision-making and business transaction includes the approval of qualified coffee bean or milk suppliers around the world. (See Appendix II – Organizational Chart: Top-Down Management on page 18) As the leader of Starbucks, Schultz personally handles the decision-making when searching for its potential coffee beans suppliers. Between 2007 and 2008, Starbucks was able to successfully establish a center that will guide the local farmers in Costa Rica, Rwanda, and Ethiopia on how to produce good quality coffee products (Hitimana, 2009). With regards to the inventory of Starbucks’ roasted premium Arabica coffee beans supplies, Schultz exerted an effort to meet up with President Kagame – the head of the Coffee Development Board of coffee planters and exporters in Africa to ensure that the company will be able to maintain a good business relationship with these people as the company aims to empower the local African farmers to produce good quality roasted coffee beans which will be transported to Starbucks’ Coffee outlets worldwide (Hitimana, 2009). Considering that Starbucks operates on a functional basis, it is common for new executives to be hired or promoted as needed whenever a new store outlet has been launched in domestic or international markets. The same applies in situations whereby a new product line requires the need of a separate management team. To enhance the efficiency of Starbucks’ daily operational performance, the company uses strategic grouping by activity within the top management and store level. Strengths and Weaknesses of Starbucks’ Inventory Operations Strengths One of the strengths behind Starbucks’ inventory operational procedure is that the company’s organizational structure strongly supports Schultz’s decision to be able to closely monitor that purchasing behavior and practices of the SCCO staffs. Since Starbucks’ worldwide sourcing and purchasing of raw materials, raw materials distribution, planning, and transportation is left in the sole responsibility of the SCCO department through the use of internet technology and computer software, it is wise on the part of Schultz to make his presence felt to avoid corruption and unethical business practices within the business organization. Starbucks’ organization follows top-down management and centralized control within the top management level and decentralized control within the regional store level (Starbucks, 2010). By maintaining a regular coordination with the regional managers, SCCO department can accurately determine the available and non-available supplies in each of the regional store outlets. Gathering information regarding the inventory and order report directly from each of Starbucks’ domestic and international store outlets information can be very time consuming on the part of the SCCO staffs. Starbucks has a total of 16,000 store outlets that are currently operational within the domestic market and 50 other countries around the world (Berfield, 2009). To lessen the work and time requirement in gathering these data, it is a good decision on the part of the top management to make the regional managers responsible in coordinating with each of the store managers in terms of recording the remaining stocks of all items either through the use of telephone or the company website. This particular operational strategy could reduce the bottle-neck in the purchasing process of Starbucks. On the other hand, decentralizing the authoritative power among the Regional and Store Managers is also effective in terms of enhancing the daily operations of each Starbucks’ store outlet (Starbucks Coffee, 2010 b). With regards to Schultz’s intervention in the purchasing practices of the SCCO department, Schultz’s ideas and ability to foresee the outcome of his plans is one of the strengths behind the company’s successful purchasing operational system. Based on the theory of supply and demand, inadequate supply of coffee products as compared to its demand will significantly increase the market price of coffee beans. As the CEO of Starbucks, Schultz exerts effort to establish several coffee suppliers around the world as a way of protecting the company from uncontrollable increase in the market prices of coffee products caused by external uncertainties such as flood, volcanic eruption and other forms of natural calamity that can destroy the flow of coffee supply (Yahoo Finance, 2010). Given that the demand for coffee products is lesser than the supply of coffee products, Starbucks will be able to purchase its required coffee products at a relatively lower price (Baumol & Blinder 2009, p. 66). This concept clearly explains the rationale why Schultz is investing a large sum of money to teach the farmers from developing countries the secret behind planting and harvesting good quality coffee. Starbucks operates within the domestic and international markets. For this reason, the company formed its centralized purchasing department (SCCO Department) to enable the company enjoy the benefits of economies of scale (Sutherland & Canwell, 2008, p. 229). To avoid delays in the purchasing of required items, the company designed its online purchasing system based on the classification of goods as perishable or non-perishable items. In line with this, non-perishable items includes: coffee beans, coffee mugs and accessories, music, books, gift items, and printed cups is large, the company outsource these products from highly qualified manufacturers and farmers around the world whereas perishable food products include pastries, pasta, sandwiches, salad, and milk (Starbucks, 2010 c). In terms of purchasing of non-perishable goods, SCCO manager together with Schultz will decide on which company Starbucks would award the purchase order based on the suppliers’ selling price, quality of its products and services, import and export taxes and the cost of transportation. Taking these factors into consideration, Starbucks will be able to make good financial decision on where to avail its non-perishable raw materials. To prevent food items from spoilage, the company would order perishable food items by bulk within the regional level. Based on the theory of economies of scale, ordering these food items by bulk will enable Starbucks to enjoy a better bargaining power over its accredited suppliers (Sutherland & Canwell, 2008, p. 229; Besanko, Dranove, & Shanley, 2007, p. 86). For this reason, Starbucks is able to purchase its perishable food items at a relatively low price as compared to its small-scale domestic competitors. With regards to the transport of raw materials, it is a good decision on the part of the top management to simply hire the transport services of its accredited transportation and freight companies. To protect the company from sudden increase in the market prices of roasted coffee beans, Schultz’s decided to invest large sum of money in teaching farmers from third world countries how to effectively plant good quality roasted coffee beans is another strength. Weaknesses Part of Starbucks’ purchasing operation’s weaknesses is related to the company’s purchasing process. In line with this, allowing Schultz to directly interfere in all the decision-making process of the SCCO manager can somehow impedes the possible development and improvements in Starbucks’ purchasing behavior. In reality, Schultz is responsible in monitoring the work performance of each major departments including: the North America Retail, International Retail, Legal and Corporate Affairs, Finance, Worldwide Public Affairs, and SCCO among others. Instead of allowing the SCCO manager to develop useful purchasing strategies, the need to wait for Schultz’s approval can be time consuming because of the limited time availability of Schultz. As the CEO of Starbucks, Schultz’s responsibility to foresee the overall business management of the company strongly requires long hours of critical thinking especially in developing ways on how the company could maximize the company’s annual profitability and international market share within the coffee industry. Considering the fact that purchasing is a crucial part behind the success of Starbucks, Schultz should have limited intervention on Starbucks’ purchasing practices not only to hasten the process of the company’s purchasing system but also to ensure that CSSO’s manager and staff will not engage in corruption. Another weakness in the company’s purchasing process includes the fact that there is repetitive dependency in the purchasing workflow. This can be noted when the regional manager has to further communicate with the store manager after accepting the inventory and order report from the store manager. Specifically the repetitive dependency is a waste of time which could trigger possible delays in the purchasing process of SCCO workflow. Recommendations for Starbucks’ Purchasing Operation Redesign To improve the company’s existing purchasing operational process, there is a strong need to limit Schultz’s intervention in the flow of Starbucks’ purchasing process. Since a sequential dependency on Schultz’s intervention could cause serious delays in the SCCO’s entire purchasing process, redesigning Starbucks’s AS IS Workflow is a must. It is undeniable that Schultz’s intervention in Starbucks’ purchasing decision making is useful in terms of the long-term business benefits of his plan. Taking Schultz’s decision to invest a large sum of money to teach the farmers in developing countries the secret behind planting and harvesting good quality coffee into consideration could protect Starbucks from the need to face the business consequences of high market price of roasted coffee beans as a result of limited supply from its existing accredited coffee bean suppliers. Since Schultz’s intervention in Starbucks’ purchasing decisions is crucial to the overall success of the business, it is necessary to change Schultz’s intervention from sequential dependency to optional dependency. Selection from a list of potential worldwide suppliers may tempt the SCCO’s manager and staff to accept unethical gifts or money from other businesses. To avoid promoting corrupt business practices when selecting highly qualified global suppliers, allowing Schultz to intervene in the decision making can be a good option. In case Schultz’s opinion is not necessary in the daily workflow of SCCO, the SCCO manager and staff can directly deal with the regional managers regarding the real-time inventory and order report coming from each of Starbucks’ store manager. This particular alternative workflow option could avoid unnecessary delay in Starbucks’ SCCO’s work process. As a common rule, the workflow of purchasing operation should have only sequential dependency in order to save unnecessary time used on redundant work. Since Starbucks’ AS IS workflow shows sign of repetitive dependency, it is highly recommended to introduce a redesigned workflow which is free from repetitive dependency. In line with this, the newly redesigned workflow revealed that the act of removing repetitive purchasing tasks could save a lot of time and effort spent on gathering the real-time inventory and order requirements coming from each of the store manager. (See Appendix IV – Redesigned Workflow / Dependency Diagram on page ) Upon analyzing SCCO’s purchasing workflow in Starbucks, it is crucial on the part of regional manager and store manager to develop and implement a new workflow process that is more efficient in terms of gathering accurate data report. This can be done by educating the store manager and regional manager about the importance of just-in-time (JIT) in operations. Conclusion A typical purchasing workflow should make use of only sequential dependency in order to avoid unnecessary delay in the planning, ordering, and transport of goods to each of Starbucks’ store outlets. Being the global leader in roasting coffee, realigning Starbucks’ SCCO workflow is crucial to the business success and profitability of the company. In relation to SCCO’s AS IS workflow, it is very important to avoid the presence of repetitive dependency. This will shorten the planning, ordering, and distribution of raw material requirements in each of Starbucks’ store outlets worldwide. A direct intervention coming from the CEO could lessen the chances wherein corrupt culture can be prevented in the purchasing practices of Starbucks. For this reason, it is necessary to make use of optional dependency whenever SCCO is making sensitive decision making particularly with regards to selecting a qualified supplier worldwide. Appendix I – Map Indicating the 17,830 Starbucks’ Store Outlets around the World Source: Google Maps, (2010) Appendix II – Organizational Chart: Top-Down Management Appendix III – Inventory Management of Starbucks & Information Technology on Starbucks’ Inventory Management Appendix IV – AS IS Workflow / Dependency Diagram Activity Store Manager Regional Manager SCCO Department Schultz Real-time Inventory & Order Report Accept Inventory & Order Report from Store Manager Analyze & Verify Inventory & Order Report to Store Manager Relay Inventory & Order Report to SCCO Department Determine Actual Raw Material Requirements Get Approval from Schultz Approved by Schultz Allocate Resources from Qualified Suppliers Transport Ordered Materials to Regional Managers Transport Ordered Materials to Respective Store Outlets Appendix V – Redesigned Workflow / Dependency Diagram Activity Store Manager Regional Manager SCCO Department Schultz Real-time Inventory & Order Report Accept Inventory & Order Report from Store Manager Relay Inventory & Order Report to SCCO Department Determine Actual Raw Material Requirements Get Approval from Schultz Approved by Schultz Allocate Resources from Qualified Suppliers Transport Ordered Materials to Regional Managers Transport Ordered Materials to Respective Store Outlets Table of Contents Executive Summary …………………………………………………….. 2 Table of Contents ……………………………………………………….. 3 I. Introduction ……………………………………………………….. 4 II. Current Operation of Starbucks in terms of Information, Location, Inventory, and Transportation ………………………. 5 a. Starbucks’ Location ……………………………………. 5 b. Inventory Management ………………………………… 5 c. Transportation ………………………………………….. 7 III. Inventory Operations of Starbucks in Relation to its Current Organizational Structure ………………………………. 8 IV. Starbucks’ Operational Strengths and Weaknesses ..….. 9 a. Strengths ………………………………………………. 9 b. Weaknesses …………………………………………… 12 V. Recommendations for Starbucks’ Purchasing Operation Redesign ………………………………. 13 VI. Conclusion ………………………………..…………………….. 15 Appendix I – Map Indicating the 17,830 Starbucks’ Store Outlets Around the World ………………………………………. 17 Appendix II – Organizational Chart: Top-Down Management …….. 18 Appendix III – Inventory Management of Starbucks & Information Technology on Starbucks’ Inventory Management …. 19 Appendix IV – AS IS Workflow / Dependency Diagram ……………. 20 Appendix V – Redesigned Workflow / Dependency Diagram …….. 21 References …………………………………………………………….…… 22 - 24 References Baumol, W., & Blinder, A. (2009). Microeconomics: Principles and Policy. South-Western Cengage Learning. Benzaken, S., Jackson, R., Barahona, W., & Pazderka, C. (2010). CSCC. Retrieved November 9, 2010, from STARBUCKS’ RESPONSIBLE SOURCING: SOCIAL GUIDELINES FROM THE FARM TO THE COFFEESHOP: http://www.unglobalcompact.org/docs/issues_doc/human_rights/Business_Practices/Starbucks%20complete_EHRBP%20II.pdf Berfield, S. (2009, August 10). MSNBC.com. 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Company to Implement Targeted Price Adjustments;: http://finance.yahoo.com/news/Starbucks-Responds-to-Surging-bw-398571942.html?x=0&.v=1 Read More