Over the years since it was established in 1987, Starbucks has been able to set itself up as a formidable force in the production, marketing and supply of specially formulated coffee all over the world. With well over 18,000 chain stores in about 65 countries around the world, Starbucks boasts a global image (Haskova, 2015). The revenues of the company had been soaring at a rate that was constantly high up until 2008 when the global economic crisis halted the projected revenue growth. The global event saw Starbucks resort to closing down more than 800 stores in the United States alone. 100 mores stores were also closed in other countries where the company has set up operations. The global expansion strategy that was about to take effect was halted and an estimated 8,000 employees were send packing in a bid to cut down on operational costs (Haskova, 2015). Despite these challenges, the current CEO Howard Schultz has still managed to keep the company not only profitable but also a force to reckon with in the market. This paper will draw its focus on the operational challengesfaced by Starbucks and recommend concepts to solve them.
Description, Products, Services and Processes
The company was founded in 1987. The original location was in Seattle Washington. Both the company name and the mermaid logo were fashioned as an inspiration from the love of the ocean. It started as a single shop before it later expanded in to a chain with the subsequent establishment in more than 60 countries around the world. The current CEO of the company is Howard Schultz. It boasts a global image and a superior brand with more than 18,000 stores under its name (Haskova, 2015). The company has specialized in roasting and selling of specially formulated coffee. Through Tazo Tea Company, a company owned by Starbucks, it sells premium tea. There is also a chain of suppliers contracted by Starbucks to distribute coffee in supermarkets. A mobile application has been developed by the company to give their clients the option of buying coffee online. Fresh foods, music, books and films are also among the portfolio products of the company. Again, Starbucks produces premium ice cream coffee that is sold in all its stores.
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Operational Management Challenges
Despite the growing success of the company, it is faced with several operational challenges that need to be addressed for it to maintain profitability. Key among them is competition and the threat of new entrants in the market. Competitors such as MacDonald’s and Dunkin’ Donuts have reduced the market share for Starbucks (Haskova, 2015). Competition means that there are numerous other available substitutes that are offered at probably lower prices than that offered by Starbucks. Also with the increasing prices of unroasted coffee and market quotas imposed in countries where Starbucks gets their supply from, the company has had to adjust its product prices sometimes extending the cost to the final consumer. This has made some of their products expensive.
The company has cannibalized the United States market. More than 1000 of its stores are located in the U.S (Taylor, 2011). In times of economic crisis such as the one witnessed in 2008, the company has experienced non-performance in some of these stores and in most cases, it has resorted to closing them down. The tastes and preferences of its customers are also constantly changing and the company needs to diversify their products constantly in order to keep up with the changes among its customers.
Operational Management Concepts to Resolve the Challenges
One of the concepts that can be utilized to solve the challenge of competition is quality management. Starbucks can invest in producing high quality products that will inspire loyalty among consumers of its products and services. Production management is also another concept ( Operational risk management , 2013). Through this concept, Starbucks can take advantage of its size and global presence to produce its products at low economies of scale. This will make their products cheap and of good quality. Quality is critical in retaining customers. Thus by upholding quality the business’ customers will not have to turn to substitutes because of exorbitant prices. New product development can be used to address the challenge of the changing tastes and preferences among consumers (Franzetti, 2011). This strategy will differentiate the current products and ensure consumers have a variety to choose from.
Reason for the Choice of Concepts
The above concepts were chosen because they address the specific challenges that Starbucks now faces. In the face of competition, it is only quality that can give one player a competitive edge over the other players (Haskova, 2015). Quality improvement will set Starbucks apart from its competitors and ensure it continues to flourish. New product development is necessary to address a problem of changing needs. Production management is important for the reason that it can influence economies of scale.
Additional Operations Management Concepts for the Company
Market expansion is another concept which can be used to overcome the challenges of the company. Starbucks needs to leverage its superior brand to expand to newer markets. Expansion in to newer niches will increase the market share of the company and guarantee its profitability. Starbucks has to invest in advertising and stop relying on the word of mouth in its publicity strategy.
Price control is a tool that needs to be utilized by Starbucks to ensure that costs are not passed on to their consumers ( Operational risk management , 2013). The price of unroasted coffee in the international market is subject to the forces of supply and demand. Where supply is low and demand high, the cost goes up. The vice versa is also true. To avoid passing the costs to the consumers where the price of unroasted coffee is high, the company can turn to the option of lowering the cost of production. This will maintain their prices at decent levels and ensure that their loyal consumers do not see substitutes as viable options.
To this end, Starbucks is a profitable company but there are growing challenges that are apparent and will likely affect its operations in the future. One of the challenge is competition from other players in the market such as MacDonalds. Competitors have the effect of reducing the market share of Starbucks. Changing needs and preferences among consumers is also another challenge. This paper has suggested the operational management concepts that Starbucks can put in to effect to overcome some of these challenges. If the stated challenges can be overcome, Starbucks will maintain its dominance in the market as a premier producer and supplier of specially formulated coffee.
Franzetti, C. (2011). Operational risk modelling and management . Boca Raton: CRC Press.
Haskova, K. (2015). Starbucks Marketing Analysis. CRIS - Bulletin of The Centre for Research and Interdisciplinary Study , 2015 (1). 11-29. http://dx.doi.org/10.1515/cris-2015-0002
Taylor, S. (2011). Starbucks Spreads the Spirit of Giving with CARE. Advertising & Society Review , 9 (1). http://dx.doi.org/10.1353/asr.2008.0004
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