Process Improvement - Starbucks - Sheena A+ Only

Starbucks is a leading coffee company in America that owns a chain of coffee houses. Its large size has led to an encounter with operational problems which the company attributes to their sales slide. This is because the rate of increase in sales was seen to reduce from 7% to 4% in 2002. The stock price of Starbucks has also stagnated at approximately $55 to $60 per share. This challenges can be attributed to an increase in the coffee bean prices which consequently leads to an increase in the prices of the coffee (Graban, 2016). To solve this problem, the management at Starbucks needs to implement operations improvement plans (OIPs). This is aimed at overcoming the problem and ensuring the smooth running of the company.

The company has always been relying on customer loyalty and the lack of elasticity among its customers to continually increase the prices of its products. This is as a result of increased employees hence an increase in the salaries and increased coffee bean prices. In the duration between 2014 and 2016, there were four price hikes on their products, and two of them occurred in 2016. The price increments is an operational strategy aimed at protecting the company’s operating margins. The price increases saw an increase in the operating margins to 21.5% and the earnings by 17% (Graban, 2016). This operating strategy has been efficient for Starbucks. However, it is not certain how far the customer’s loyalty can be stretched in terms of the price increments.

The customers are feeling the pinch of the increase in product prices. This leads to the least loyal customers moving to other coffee houses that produce quality coffee products at a lower price. It is also not certain how long the loyal customers are willing to stand by Starbucks with the continued price increments. The company can ensure continued customer loyalty by maintaining an inviting and premium atmosphere. This is a quality that not many coffee houses have mastered, and it has made Starbucks coffee houses ideal for casual and work-related meetings and even studying. The setting up of concept stores such as Reserve Roastery and Tasting Room stores has enabled it to capture and maintain specific market segments (Team, 2016. Despite a few customer losses due to the price increments, these operational strategies will ensure retention of the most loyal customers and acquisition of new customers as a result of the customization of stores.

Increases in product prices are also associated with increases in coffee prices. In 2016, this was as a result of drought in Brazil and Vietnam which are the largest coffee bean producers in the world. There has also been a supply shortage which is attributed to increased demand. The price increment in the raw material was projected to price increments on the cold beverages and bakery products (Neacşu, & ​​Bărbulescu, 2015). The reduced supply is detrimental to the company since its lack will mean that there are no final products to be offered to the consumer. A business has to offer products, and if they lack, it means that the business does not exist. The company should come up with operational strategies which will ensure that it has a constant supply of the raw materials at reasonable prices. The good supply and low prices will be translated to the prices of products and hence enhance customer retention (Paryani, 2011).

This problem can be overcome by developing successful partnerships with its coffee bean suppliers to gain a competitive advantage over its competitors. It develops relationships with the countries from which it gets its coffee beans. An example is a collaboration between Starbucks and a small town in Pasto. The company set up an operations strategy in the town where they set up an operation for the town to grow a particular variety of the Narino Supremo bean. As part of the collaboration, Starbucks was to purchase all of the coffee grown in the area. Through this, Starbucks got an exclusive supply of the Narino Supremo coffee which is believed to be among the best coffees in the world. This ensures that Starbucks has a constant supply of its coffee beans at a reasonable price due to the collaboration they have had with the locals (Neacşu & ​​Bărbulescu, 2015). Their commitment has ethical terms which improve the relationship. They have developed environmental, economic, social and coffee quality principles which allow for them and their suppliers to comply with the Coffee and Farmers Equity principles guidelines (Team, 2016).

Starbucks can also offset the loss in customers by an operational strategy aimed at expanding its market. This can be achieved through several channels such as licensing stores and also marketing to hospitals, supermarkets, hotels, shopping centers, airlines, office buildings and many more. This provides proximity of the product to the consumer, therefore, providing an incentive to purchase. The reduced distance also reduces the delivery costs leading to a reduction in the operational costs. This is especially beneficial after Starbucks announced the service to deliver coffee across the United States (Jargon, 2018). Licensing enables Starbucks to collaborate with local partners who are well conversant with the retail and restaurant experience and hence offer the customer good services. This operating strategy will help reduce the impact of lost customers as a result of new acquisitions (Garthwaite, Busse, Brown & Merkley, 2017).

Customers are vital for any business and without them, the business does not exist. The operational processes that require a change at Starbucks are those aimed at retaining old customers while acquiring new ones. In this strategy, the most involved parties are the external suppliers and the company itself. When the two parties work together, they ensure that the raw material is of good quality and an affordable price. This will be translated to the price offered to the customers for the final product. The company can also involve the clients through another strategy which involves the offering of incentives such as rewards to the customers after a draw. This helps to retain the customers as the reward are attractive, and the process of achieving the rewards should also be made to be intriguing.

The timeline for resolving the issue leading to the loss of customers is immediate. Getting back lost clients is difficult since they may have developed customer loyalty elsewhere. During the loss of customers, competitors are usually on alert, and they develop strategies aimed at attracting and retaining your lost customers. With the loss of clients, there may be a perception of customer negligence and reduced quality of your products. This makes it difficult not only to get back the lost customers but also to get new ones. It is therefore paramount that when an operational strategy leads to the loss of clients, it should be dealt with immediately. This way the operation will not have an irreversible negative effect on the operations of the business.

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