VNU UNVIVERSITY OF ECONOMICS & BUSINESS

INSTITUTE OF BUSINESS ADMINISTRATION

*****

GROUP ASSIGNMENT
STRATEGIC MANAGEMENT
GROUP 9

Ha Noi, 2022
 VNU UNVIVERSITY OF ECONOMICS & BUSINESS
INSTITUTE OF BUSINESS ADMINISTRATION
*****

TOPIC: FUNCTIONAL LEVEL STRATEGY

OF STARBUCKS

Lecturer : Dr. Pham Vu Thang

Group :2
Students : Nguyễn Thị Thảo Như - 20050334
: Đặng Thanh Thảo - 20050159
: Nguyễn An Khánh - 20050280
: Ngô Vinh Quang - 20050152
Course : Strategic Management
Course ID : BSA 2004-E*

Ha Noi, 2022
 TABLE OF CONTENTS

1. External analysis ....................................................................................................... 5

1.1. Pestle .................................................................................................................... 5

1.1.1. Political: ......................................................................................................... 5

1.1.2. Economic ....................................................................................................... 5

1.1.3. Social ............................................................................................................. 6

1.1.4. Technology .................................................................................................... 7

1.1.5. Legal .............................................................................................................. 7

1.1.6. Environment................................................................................................... 8

1.2. 5 forces................................................................................................................. 8

1.2.1 Industry rivalry - HIGH .................................................................................. 8

1.2.2. Threat of New entrants - MEDIUM .............................................................. 9

1.2.3. Bargaining power of buyers - HIGH ........................................................... 10

1.2.4. Bargaining power of suppliers - LOW ........................................................ 10

1.2.5. Threat of substitutes ..................................................................................... 11

2. Vrio .......................................................................................................................... 12

3. Functional level strategy ........................................................................................ 13

3.1. Efficiency ........................................................................................................... 13

3.1.1. Flexible Manufacturing and Mass Customization ....................................... 13

3.1.2. Marketing mix (4P) ...................................................................................... 16

3.1.3. J.I.T inventory .............................................................................................. 19

3.1.4. Human resources strategy ............................................................................ 20

3.1.5. Materials Management and Supply Chain ................................................... 20

3.1.6. Information System...................................................................................... 21

3.2. Quality ............................................................................................................... 22

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 3.2.1. Total quality management ........................................................................... 22

3.2.2. Quality caffeinated beverages ...................................................................... 23

3.2.3. Selling an “experience” - fulfilling the need for a comfortable atmosphere

and service ............................................................................................................. 23

3.3. Innovation ......................................................................................................... 24

3.3.1. Custom drink................................................................................................ 24

3.3.2. Limited-Time Products ................................................................................ 24

3.3.3. “Secret” rules ............................................................................................... 24

3.4. Customer responsiveness ................................................................................. 25

3.4.1. Excellent customer experience .................................................................... 25

3.4.2. Getting a Free Drink at Starbucks ............................................................... 25

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 CONTENTS

1. External analysis
1.1. Pestle
1.1.1. Political:
- Political Relations For Raw Material
+ Starbucks imports coffee beans from different countries and each of these
countries has its own tariff and customs regulations. In addition, any political
upheavals in the countries where Starbucks imports its coffee beans would
greatly interfere with the company’s operations.
- The regulatory pressures within the home market in the US are also a factor.
Multinationals based in the US are now subject to greater scrutiny of the business
processes. The company must monitor political stability within the country as
well.

1.1.2. Economic
- Labor and operational costs
+ The company has to deal with rising labor and operational costs. The inflationary
environment and falling profitability is causing a lot of stress.
- Changes in the cost of raw materials:
+ Starbucks uses only Arabica coffee beans and accordingly the price of coffee
beverages offered by Seattle-based international coffee chains is directly
impacted by the changes in Arabica coffee beans prices.
- Market Consumption Rate
+ There’s a very subtle relationship between price and demand. When the price of
coffee increases, its demand decreases resultantly. As we know that Starbucks
has high prices of its products competitively. The company should keep in mind
the market consumption rate of coffee, cold drinks like juices and shakes, and
the income level of consumers. If prices of substitute products like juices
increase, then people would turn in toward coffee when people have increasing
income.

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 - Inflation/Import/Exchange Rates
+ Starbucks is a multinational brand; and it has got hundreds of suppliers
worldwide. Imports taxes on supplies of raw material and the exchange rate of
different countries are a real headache to the company. Because a small increase
in the exchange rate could cost the brand millions of dollars. An increase in the
inflation rate drops the buying power of consumers. As a result, the demand for
coffee declines.

1.1.3. Social
- Changing Customer’s Preferences
+ Customer preferences and buying trends keep on changing every year, and it
impacts the growth and profitability of the company. For instance, the consumer
market has shifted towards organic food and a healthier diet in recent years.
Nowadays fast food companies are also tailoring their products according to the
market requirement.
- Changing Demographic
+ The coffee consumer generation is retiring everywhere. Generation X and
millennials are increasing. It means the company should have to adopt new
marketing strategies by targeting the younger generations. It requires studying
their interests, habits, lifestyle, and what kind of things they’re into.
- Fair trade
Another prominent socio-cultural trend is fair trade. Fair trade is an international
movement that seeks to better compensate the farmers behind produce, instead
of the many middlemen that have historically reaped huge profits. Importantly,
the coffee industry is one of the main targets for the fair trade movement. As
consumers show greater demand for fair trade coffee products, farmers will earn
more and middlemen will earn less. However, fair trade should not affect the
overall size of the industry, unless fair trade coffee prices (which are higher than
regular coffee prices) drive away consumers.

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1.1.4. Technology
- Genetic engineering
+ One of the most important Technological trends across all food and drink
industries is that of genetic engineering. Genetic engineering involves modifying
produce at the genetic level to improve yield, taste, shelf-life, and more.
Genetically engineered coffee (which carries the “GMO” label) is quickly
growing in popularity within the industry. On the whole, genetic engineering
should help to grow the coffee industry, as it allows producers to generate larger
profits. However, some consumers prefer not to consume genetically engineered
products due to a number of purported side effects.
- Coffee machines
+ Another big change in the coffee industry is the advent of new, coffee-specific
appliances. Coffee grinders, drip machines, and espresso makers are now
available at every electronics store. These appliances make it easier than ever to
consume coffee, thereby encouraging consumers to take up brewing at home.
This shouldn’t affect the overall size of the coffee industry, but may result in
more consumers making and drinking coffee at home, with fewer consumers
drinking coffee outside of the house in cafes and coffee chains.

1.1.5. Legal
- Environmental Laws
+ Governments and people have become very cautious about pollution, global
warming, and other environmental issues. The purpose of these movements is to
reduce waste. The best way to reduce waste is to use recyclable material because
you can’t clean up tons of waste around the world.
- Health & Safe Laws
+ Governments of different countries have implemented health and safety laws to
regulate companies so that they follow hygienic and healthy protocols. As a
product designed for consumption, coffee falls under food and drink regulations
in nearly all of the world’s jurisdictions. This means it’s subject to a wide range
of laws on how it should be stored, transported, and brewed. Further to this,

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 coffee contains large amounts of caffeine, so it’s subject to caffeine standards in
some parts of the world. These standards are only becoming tighter with time,
but safe coffee handling is so easy to get right that it shouldn’t be a problem for
the industry.
- Trade Laws
+ Trade laws and import taxes are very important to the company. The brand has
to maintain good relationships with local politicians so that they make suitable
laws for the company. It also makes it easier for the company to get the license
and trade permission.

1.1.6. Environment
- Climate change
+ After the Paris summit on climate change, countries like Australia have become
very strict about inappropriate business ways that can affect the environment.
Coffee shops should use a recycling strategy because it not only helps businesses
reduce waste, but also helps reduce operating costs. There are many cafes that
have started using green energy or solar panels to meet their additional energy
needs which this company should also use. Finally, the business will also have
to develop a new waste management plan to ensure that waste is disposed of
properly.
- Fuel-Efficient Equipment
+ According to a study, 81% of the greenhouse is from the electric stores and 18%
is from roasting the coffee. So the company should use fuel-efficient tools to
reduce greenhouse gas emissions.

1.2. 5 forces
1.2.1 Industry rivalry - HIGH
Competitive rivalry is an external factor that has a huge impact on a business's
overall well being and its existence in the market.
First of all, there are numerous companies that compete with Starbucks. Offering
coffee, other drinks and food items, Starbucks faces competition from the brewery,

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foodservice and coffeehouse industries (chèn thêm ảnh brewery - foodservice vs coffee
house industry). The company's competitors can be coffee producers such as Nescafe
and Lavazza. They can also be small local coffee shops and large coffeehouse chains
such as Pret A Manger and Costa Coffee. Additionally, they can also be restaurants and
bakeries such as McDonald's Cafe and Greggs. Therefore, the large number of
competitors makes competitive rivalry a high force.
However, it must be noted that the. Most of the businesses that compete with
Starbucks offer very similar products and consequently, do not distinguish themselves.
They all offer americanos, lattes and other types of standard coffee drinks. Moreover,
they typically serve very similar food items. For this reason, Starbucks has an
opportunity to launch a different product like another flavor of coffee or another style
of coffee drink in an attempt to beat the competition.
Lastly, competitive rivalry also increases because of low switching costs . Since
there are many coffee providers available, consumers can easily switch their providers
by simply going to a different coffee shop in the morning.
To sum up, a large number of competitors, moderate variety and low switching
costs make Starbucks' competitive rivalry a strong force, meaning that
competitive/industry rivalry is high.

1.2.2. Threat of New entrants - MEDIUM

New entrants to the market is an external factor that can threaten a company's sales
volume and market share.
To begin with, the costs of establishing a business similar to Starbucks are
moderate. Here, the costs can vary since it depends on whether it is a small cafe or a
large coffee shop chain the new business is trying to set up. Smaller cafes have much
lower supply, labor and facility costs compared to large coffee shop chains. That is why
it is easier for newly established smaller cafes to compete against Starbucks. However,
since Starbucks has over 32 thousand locations in 80 countries, even though one small
local coffee chain could drive one or two Starbucks stores out of business, there are still
numerous Starbucks coffee shops that would remain profitable.

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 Nevertheless, if someone aimed to open up a larger coffee house chain, they would
face high brand development costs. Not only would they have to pay for supply, labor
and facilities, but they would also have to spend a lot of money on developing a strategy
that would make it more successful than a global coffee shop chain like Starbucks.
To conclude, moderate costs of establishing a business similar to Starbucks and
high brand development costs make new entrants a moderate force for Starbucks,
meaning that the threat of new entrants is moderate.

1.2.3. Bargaining power of buyers - HIGH

The power of buyers is the ability of customers to drive prices lower or higher.
First of all, Starbucks' customers can switch providers easily and cheaply. As we
have already mentioned, there are many coffee providers available, so consumers can
easily switch their providers by simply going to a different coffee shop in the morning.
Especially in bigger cities, there are numerous different coffee shops on almost every
street which enables customers to switch between them with no problems.
Moreover, there are many substitutes available that make consumers able to try
out different types of coffee providers and choose the one which works best for them
based on availability and taste preferences. They can, for example, go to a vending
machine or buy a coffee machine to make coffee themselves at home.
Finally, the order size of an individual buyer is relatively small. That being said,
if even ten or twenty Starbucks customers drop out, it will not have a large impact on
the company. This is because there are millions of customers making small daily orders
in different Starbucks stores throughout the world.
To summarize, customers' ability to switch providers easily and cheaply, high
availability of substitutes and relatively small order size of an individual buyer make
the power of buyers a strong factor for Starbucks, meaning that the bargaining power
of buyers is high.

1.2.4. Bargaining power of suppliers - LOW

Power of suppliers is an ability that suppliers have to drive up the cost of inputs.

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 First, the moderate size of individual suppliers results in moderate bargaining
power. If a supplier is not particularly big, it means that they supply relatively few
businesses and consequently, they do not have that many customers. Therefore, they do
not have the freedom to suddenly impose higher prices because they could simply lose
their customers.
Additionally, since there is a high variety of suppliers available, Starbucks and
other coffee shops are the ones who have the power, not the suppliers. Starbucks can
choose from various suppliers and go for the one which is the most convenient.
Lastly, because of the large overall supply of coffee and tea all around the world,
the power of suppliers is further weakened.
Overall, due to the moderate size of individual suppliers, their high variety and
large overall supply, the power of suppliers is a weak force for Starbucks, that the
bargaining power of suppliers is low.

1.2.5. Threat of substitutes

Most products can be substituted for other offerings, not necessarily in the same
category. This also applies to products offered by Starbucks.
To start with, as already mentioned by the power of buyers, there are a high
number of substitutes that customers can choose.
Additionally, as we now know, the costs of switching to a different coffee provider
are very low.
Finally, it seems like substitutes are highly affordable. It is obvious that buying a
coffee from a vending machine or making it at home is cheaper than getting one from
Starbucks. Moreover, compared to other coffee shops, Starbucks is relatively expensive
which can additionally put customers off.
All in all, a high number of substitutes, low costs of switching a coffee provider
and high affordability of substitutes make the threat of substitutes a very strong factor
for the company, meaning that the threat of substitutes is high.
In conclusion, for Starbucks, competitive rivalry, power of buyers and threat of
substitutes seem to be the strongest forces out of Porter's Five Forces whereas new
entrants and the bargaining power of suppliers seem to be the weakest ones. Despite the

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 risks, Starbucks Coffee Company seems to deal with these factors effectively as since
1971 it has been constantly growing.

2. Vrio

RESOURCES/CAPABILITIES V R I O RESULT

Prime and Strategic Locations x x x

● In high-traffic, high-visibility locations near a
variety of settings, including downtown and
suburban retail centers, office buildings, Temporary
university campuses, and in select rural and off-
Competitive
highway locations across the world.
● Tap into customers convince factor Advantage

Leveraging Technology and Mobile Outlets x x x

● Starbucks Apps on iOS and Android
● Investment in Technology
Good Corporate Social Responsibility Image x x x
● Their stores are community friendly, focused on
recycling and reducing waste.
● They build goodwill among communities they
operate in
● Strong Social Responsibility Initiatives
undertaken

Customer Loyalty and Cult Status x x x

● They have a cult following status among
consumers
● Loyalty-based programs like Starbucks Rewards
and Starbucks Card drive loyalty
● Starbucks Card is a value card program that
provides convenience, support gifting, and
increases the frequency of store visits by
cardholders

Global Brand Recognition & Equity x x x x

● The most recognized brand in the coffeehouse
segment and is ranked 91" in the best global
brands of 2013
● Effectively leverages its rich brand equity by
Competitive
merchandising products, licensing its brand.

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Aesthetic Appeal and Concepts of its Stores x x x x Advantage
● Their stores are visually appealing and have a
'cool' factor attached to them.
● Provide free wifi, great music, great service,
warm atmosphere and provide an environment of
community meeting spot, which forms a wider
part of the 'Starbucks Experience'.
● Concept of the stores as being a 'third place'
besides home and
● work
● Designed to reflect the unique character of the
neighborhood they serve in and environmentally
friendly.

Large Size and Strong Global Presence x x x x

● Operation in 60 countries and largest coffee/snack
retailer
● Economies of scale through superior distribution
channels and supplier relationships
● Lower input costs

Human Resource Management and Company x x x x

Culture
● Employees provided great benefits like stock
option, retirement accounts and well taken care of
● Knowledge based employees creating a healthy
corporate culture
● Ranked 91st in the 100 best places to work for by
Fortune
● Magazine
● Great human capital management couple with
great corporate culture translates into supreme
customer service

3. Functional level strategy

3.1. Efficiency
3.1.1. Flexible Manufacturing and Mass Customization
a. Process flexibility
Processors need the flexibility to make recipe changes and alter batch sizes so they
can keep production running smoothly as they try to capture a greater market share.

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 Flexible processing system—Starbucks’ custom-designed plant uses one flexible
processing system, which consolidates the processing work of three separate plants.
Proprietary designs and programming allow flexibility for future variations.
Capacity for future expansion—Due to its flexible design, the facility can be
expanded to process and package an additional 2,000 metric tons per year.
Optional processing paths—By incorporating additional valves and piping,
various processes aren’t limited to one path. Starbucks can skip step B, for example,
and go directly to step C. It doesn’t require the path to go in chronological order.
Additionally, parameters such as temperature, pressure and cycle times can be easily
modified and tailored to the specific product.

b. High-quality flavor
A flavorful powder product is something the coffee market has been lacking, even
with the advent of freeze-dried coffee. Starbucks sought to change that by building a
custom-designed plant that uses innovative processes and state-of-the-art equipment.
Efficient extraction—Starbucks designed a proprietary extraction system that uses
high pressures and temperatures to extract more solids out of the beans. This way, they
get only the very best from the bean.
Temperature control—Glycol pumped throughout the plant allows the product to
be cooled to a constant temperature after extraction to preserve flavor.
Precise concentration methods—Starbucks uses both freeze and thermal
concentration to remove water from the product to create a thick liqueur and preserve
the most flavor possible in the product.

c. Food safety
While there is no governing body dedicated to the soluble coffee sector for food
safety guidelines, Starbucks voluntarily adheres to one of the world’s most rigorous
food safety and quality certification programs: the British Retail Consortium’s (BRC)
Food Safety Standard.
Automation—One thing is noticeably absent to the eye when inside the facility—
coffee beans. Once the beans are unloaded in the green bean receiving area, they are

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never touched again by human hands. A facility-wide network that connects virtually
everything in the plant provides accurate, real-time information to all personnel,
ensuring there is minimal human intervention in the flow of raw beans through the
facility.
Separation of raw and cooked product—Starbucks designed the plant to prevent
cross-contamination from ever occurring. The raw (green bean) side is completely
separated from the finished product side so that traffic patterns and waste streams never
overlap, ensuring that pathogens from the raw side never cross paths with the cooked
side.
Sanitary receiving area—The green-bean receiving area was designed specifically
with food safety in mind. Typical coffee plants have pits in the floor where beans are
stored. This plant instead places the receiving silos on platforms up off the floor,
eliminating the risk of contaminated particles being swept into the bins.

d. Packaging changes
More and more, consumers are demanding smaller quantities, and vendors are
requesting private label products, which aren’t effectively supported by traditional
packaging machines. Coffee processors must be able to accommodate a variety of
packaging sizes and shapes, as well as printing capabilities, while also maintaining the
quality of their product.
Four packaging lines—The Starbucks plant features four separate packaging lines:
one for its Refreshers line (a lightly caffeinated fruit juice beverage), a second for VIA
Ready Brew, a third for pouches and a fourth for bulk packaging.
Continuous operation—The highly automated packaging system is a continuous
operation rather than a batch operation, so Starbucks can package its products quickly
and hygienically without the need for lengthy storage. Starbucks’ coffee is entered into
the packaging process within 12 hours of production. This ensures the product is fresh
and reduces warehouse space at the same time.

e. Sustainability

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 Eco-friendly, energy-saving equipment and processes are tools most processors
strive to implement in their facility. Starbucks’ Augusta plant was designed to achieve
Leadership in Energy and Environmental Design (LEED) Gold certification.
Spent grounds put to good use—Rather than burn spent grounds or send them to
a landfill, Starbucks reached a deal with Augusta Renewable Energy, transporting its
spent grounds to their nearby anaerobic digestion facility. The grounds are the facility’s
primary renewable energy resource, used to generate heat, biogas and combustible
material.
Multiple cooling media—Some cooling media are better than others for various
processes in terms of efficiency and product quality control. Thus, Starbucks invested
in multiple cooling media (ammonia, ammonia to glycol and water tower) as opposed
to just one.
For example, the facility uses tower water for the condensing process, using air
rather than ammonia compressors to cool water. This achieves greater energy efficiency
and improves worker safety by reducing the amount of ammonia throughout the facility.
Green roasting technology—The plant’s roasting process features regenerative
thermal oxidizers, which burn exhaust and recover heat to reuse in other processes.
Water is also recovered between processes to be reused throughout the plant.
3.1.2. Marketing mix (4P)
a. Products
This component of the marketing mix focuses on what the coffee business offers to
customers. Starbucks Corporation innovates its product mix (and its 4Ps) to capture
more of the market. The company modifies food and beverage product lines with the
aim of expanding its market reach and growing its market share. The following are the
main categories in Starbucks’s product mix:

1. Coffee
2. Tea
3. Baked goods
4. Frappuccino
5. Smoothies

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 6. Other foods and beverages
7. Merchandise (mugs, instant coffee, etc.)
Starbucks Coffee Company’s product mix is a result of years of business innovation
and strategic changes in the marketing mix. For example, the company added the
Frappuccino line after acquiring The Coffee Connection in 1994. The business
continues its product innovation in order to offer new foods and beverages that attract
and keep more customers. The resulting marketing mix, together with Starbucks
Corporation’s generic strategy for competitive advantage and intensive growth
strategies, ensures that products match consumer preferences in a diverse international
market. Thus, this part of the 4Ps involves beverages, foods, and merchandise that are
carefully selected or designed to satisfy the needs and preferences of target consumers
worldwide.
b. Price
Starbucks uses a premium pricing strategy. This strategy involves relatively high
price points and price ranges for products that the coffeehouse business presents as
superior-quality or high-end (“premium prices” for “premium products”). In the
marketing mix context, Starbucks’s pricing strategy takes advantage of the behavioral
tendency of consumers to purchase expensive products based on the perception that
high prices mean high quality, high value, and high status. This part of the 4Ps also
helps strengthen the premium brand against competitors like McDonald’s Premium
Roast. Starbucks’s operations management optimizes quality and costs to support the
pricing strategy in this marketing mix.

c. Place
This marketing mix component determines the venues where customers access the
company’s foods, beverages, and merchandise. Starbucks offers most of its products at
cafés or coffeehouses. However, other places or channels of distribution are included in
this 4P component. This marketing case shows that Starbucks Corporation distributes
its products through the following venues or places to reach target consumers:
1. Coffeehouses/Cafés
2. Retailers

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 3. Website and mobile apps
Coffeehouses or cafés are the most noticeable distribution venues in Starbucks’s
marketing mix. These places are strategically located in areas that have high pedestrian
traffic, such as malls and commercial centers. Starbucks Corporation’s organizational
structure facilitates the management of franchising and licensing operations for these
locations. Retailers are also included in the coffeehouse company’s 4Ps, as channels for
maximizing distribution and market reach. These places enable the company to
distribute coffee products, such as VIA Ready Brew instant coffee, and other
merchandise. In addition, online venues are in Starbucks’s marketing mix. The
company’s website and mobile apps provide easy access for customers who want to
check available products or place their orders for pickup or for delivery through third-
party service providers.

d. Promotions
In the marketing mix, promotions, also known as the marketing communications
mix, refer to communication strategies and tactics for the goal of improving Starbucks’s
brand, revenues, and market share. For example, promotional activities can focus on
persuading consumers to buy the company’s tea and instant coffee products.
Starbucks’s marketing mix includes the following promotional mix:
1. Word-of-mouth marketing
2. Advertising
3. Sales promotions
4. Public relations
Word-of-mouth marketing is the most significant promotional strategy in
Starbucks’s marketing mix. The company focuses on high-quality customer experience
to encourage people to spread positive reviews that promote the coffeehouse business.
Howard Schultz’s emphasis on high quality through Starbucks Corporation’s
organizational culture helps create such good experiences for customers. In addition,
advertising is an integral part of the coffee company’s 4Ps. For example, the company’s
coffee and tea ads reach target customers through the Internet and print media.
Moreover, the marketing mix involves sales promotions as a communications strategy

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to persuade consumers to buy more of the company’s foods and beverages. For
example, the Starbucks Rewards program provides freebies for customers. In this
approach, consumers buy more of the company’s products while expecting freebies,
such as free coffee. Furthermore, the company uses public relations to promote its brand
and coffee products. In the 4P context, the Starbucks Foundation functions as a part of
a public relations strategy. The Foundation provides assistance to organizations and
communities while promoting the coffeehouse company in the process. Starbucks’s
stakeholder management and corporate social responsibility strategy relate to public
relations in this marketing mix.

3.1.3. J.I.T inventory

Starbucks also uses a just-in-time inventory system to keep products fresh and cut
down on product storage. For the Europe, Middle East and Africa region, Starbucks
has 2,000 stores (including more than 700 in the UK), which it serves with more
than 1,200 stock keeping units. The material flow is made up not only of coffee
beans, but also store supplies (including cups, mugs, napkins, etc), food, tea and
merchandise.
The coffee beans are sourced from South America, Africa and Indonesia, while
Starbucks imports a portion of its supplies for Europe from the US, and most of the
merchandise from the Far East. The company has a plant near Amsterdam where all
of its coffee beans are roasted. All of the coffee therefore comes into Europe by sea
freight to the Netherlands, and is then fed through Starbucks distribution network,
which includes two main distribution centres and several crossdocks. Other supplies
and merchandise can be imported directly to other ports and enter the network as
appropriate.
Starbucks has a disciplined and fast-turning order management process. Most
of the stores in the core markets order supplies everyday, which they then receive
within a few days. They have a much lower than industry average of inventory turnover
at just 5.36 days. Fast inventory turnover allows for quick return on product cost.

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3.1.4. Human resources strategy
Starbucks has been having a good human resource strategy to enhance its
operations. As a matter of fact, the company has a recruitment department that ensures
that it attracts the best talent in the market. Starbuck has a coffee master course that is
supposed to be taken by all employees. All employees who have undergone this course
wear black aprons. The company has also come up with a good mentoring program to
ensure that senior and more experienced employees are able to mentor their juniors.
Starbucks also uses Human Resource Planning (HRP) to attract, develop and
retain quality employees. The organization employs talented employees through a
selection process. The selection process consists of certain steps. For Starbucks, the
most essential part of evaluating a candidate is through an interview. The aspects that
employers look for within the employees are characteristic, personality, confidentiality,
expectation of the interviewer, knowledge of the company history in the coffee shop
industry, work ethic and so on. With this interview, employers are able to understand
more or know the sets of skills of each individual candidate. With this Human Resource
Planning (HRP), it aids the company to prepare ahead of time for vacancies rather than
solving in a complicated manner when an employee decides to resign unexpectedly.
This prepares Starbucks for future opportunities such as business growth and expansion.
Another pro of Human Resource Planning (HRP) is having career-development.
Identifying potential capable company leaders will help them to grow. For an instance,
Starbucks has a program called “New Partner Orientation and Immersion”. What it does
is give an extensive program to increase the quality of Starbucks core values; build
knowledge of business and retail operations; create awareness about Starbucks benefits
programs and introduce partners to their key internal stakeholders.

3.1.5. Materials Management and Supply Chain

Starbucks’ supply chain spans across nineteen different countries; they get the best
products from the best sources. This allows them to have quality raw materials, which
are then shipped to one of six roasting, manufacturing, and packaging plants. This
centralized system allows Starbucks to run a very effective supply chain and have direct
input on their products while making sure they are all prepared the same way. On top

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of closely monitoring their products, Starbucks supply chain has recently incorporated
an enterprise risk management (ERM) program so they can track and identify trends
that might upset their supply chain.
The supply chain also focuses on maintaining a sustainable operations
management. Their company profile states that they, “take a holistic approach to
ethically sourcing the highest quality coffee” which includes, “responsible purchasing
practices, supporting farmer loans and forest conservation programs”. Furthermore,
they have taken a strong stance on running their supply chain in a way that does the
least amount of harm to our planet and that they are “working to significantly reduce
our environmental footprint through energy and water conservation, recycling and green
construction”. One major way that Starbucks is currently working to reduce their
“environmental footprint” is by taking steps to make all of their cups recyclable. To
further that, all of the recycled cups will be made into the paper napkins they use in their
stores. To put it lightly, this process is making their supply chain all the more
complicated, but they believe that it is very much worth the effort to make sure this
planet is just as beautiful for future generations as it currently is for us today.

3.1.6. Information System

Decision Support System is used to analyze business data. DSS is the auxiliary
decision makers through the data, models and knowledge, human-computer interaction
way for semi-structured or unstructured decision-making computer application systems.
Starbucks used Online Analytical Processing (OLAP) to do the large-scale data analysis
and statistical analysis that serves as references to manage for decision making.
Other information systems of Starbucks:
- ESS (Executive Support System) provides communication that serves the
organization’s strategic level. Management Information system serves mainly
Middle Managers.
- Transaction Processing system- (TPS) collects transactions that are done by the
business. IBM TPS is used in every order of Starbucks.
- The POS records all customer transactions in each store; the functions relate to
customer service, sales, refunds, voids and discounts. An example of one POS

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 Starbucks uses is in the Drive-thru; there are two POS monitors in which one
inputs the customer's order and the other takes the transaction. Also, has data on
time of customer transactions, the quantity of food and drinks sold, and quantity
of wasted and leftover inventory.
- Manager WorkStation (MWS) - MWS stores the data from the POS systems,
analyzes it, and produces useful reports, charts, graphs, and diagrams. The MWS
can be accessed through Starbucks's intranet and it has different security levels
for different levels of employees.
- IRIS is also used for electronic ordering of food, stationery, and packaging. Also,
it helps managers identify customer needs through accurate reports, helps with
implementing sales by demand and marketing strategies, and helps with making
production plans based on actual demand.

3.2. Quality
3.2.1. Total quality management
Starbucks also uses several quality systems to provide adequate service to the
customers. The company uses random check-ins from district managers wherein they
check the baristas, talk to the customers to acquire feedback, and check drinks to ensure
quality.
TQM is considered a customer-focused process and aims for continual
improvement of business operations. It strives to ensure all associated employees work
toward the common goals of improving product or service quality, as well as improving
the procedures that are in place for production.
Total quality management has been important for Starbucks, its employees, and
overall customer experience. As Schultz said “we are selling an experience not just a
cup of coffee." Starbucks is fulfilling not only customers' needs for quality caffeinated
beverages; they are also fulfilling the need for a comfortable atmosphere with friendly
service. Because of this employees receive extensive training to ensure consistent
products and service.
Starbucks uses a company called ECOSURE to perform checks on all the stores
to ensure all quality standards are met every six months. The stores have a copy of the

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required qualifications that it must meet to prepare for these checks as well as maintain
these standards.

3.2.2. Quality caffeinated beverages

When it comes to coffee, Starbucks is one of the most popular places to go. They
offer a huge variety of coffee drinks that will give you the caffeine fix you need. Coffee
Drinks come in so many delicious forms, and Starbucks has become the mecca of the
caffeinated world.
How you choose to customize your favorite beverage will ultimately decide how
much caffeine you’ll consume. It’s kind of complex, even though it shouldn’t be. Based
on the amount of caffeine on the standard Starbucks menu and the caffeine values
associated with them, the strongest hot drink you can order is the Venti Blonde Roast
filter coffee which contains 475 mg of caffeine and the strongest cold drink is a Trenta
Cold Brew containing 360 mg of caffeine.

3.2.3. Selling an “experience” - fulfilling the need for a comfortable atmosphere

and service
❖ Have a clear vision and make sure that everyone in your company is aware
of it
Starbucks embraces changes and is always changing to improve the consumer
experience incrementally. Starbucks offers much more than coffee; it sells a sense of
community, a warm and welcoming interior design, happy staff all day long, appropriate
coffee quality, and excellent customer service experience.
Starbucks' vision statement for customer service is as follows: “We create inspired
moments in each customer’s day. ANTICIPATE - CONNECT - PERSONALIZE -
OWN.” They also put it on the inside of their aprons to remind their staff every day.
❖ Good service staff attitudes
Employees at Starbucks learn how to understand and respond to the needs and
desires of customers in a good manner. In tense situations, they employ the "latte
method": "We listen to the customer's complaint, acknowledge it, act by correcting the
problem, thank them, and then explain why the problem happened."

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 Starbucks staff handle challenging circumstances effectively, which is something
that most customer service agents struggle with. Customers have a pleasant experience
because of those well-trained staff.
Starbucks employs self-managing teams to train employees to handle customer
problems on their own, without needing the help of managers. To do this, employees
undergo extensive training and empowerment lessons. The goal is for employees to
satisfy customers' needs quickly and easily, confident that they handled the situation
correctly. This cuts down on service time and keeps customers happy.
3.3. Innovation
3.3.1. Custom drink
Starbucks has a large drink selection that can be customized in countless ways,
allowing customers to create a drink that perfectly meets their taste and needs. With
more than 170,000 ways to customize beverages, customers can create a favorite drink
that fits their lifestyle.

3.3.2. Limited-Time Products

Starbucks releases limited edition products regularly to bank on customer’s FOMO
– or the Fear of Missing Out. By releasing special drinks for certain occasions, as well
as limited-edition merchandise, Starbucks effectively convinces people to buy their
products as soon as possible before they are gone for good.

For example, Starbucks has released red holiday cups as a staple of their seasonal
marketing since 1997. No holiday cup is ever the same, and it’s only available for a
limited time. Or making Pumpkin Spice Latte as a “only Autumn” drink.

3.3.3. “Secret” rules

Starbucks has a secret menu of underground orders and rules for their customers to

discover. For example, they have a Puppuccino that you can order if you bring your dog

with you, they also give their customers the option to bring their own tumblers and save

money with each drink order.

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3.4. Customer responsiveness
3.4.1. Excellent customer experience
Every time you go to Starbucks, the barista welcomes you, asks for your name,
and puts your name on your order. Starbucks understands well that people like to be
assisted individually rather than being treated as a number in any sector.
This is a small detail that you might not notice, but it has a big impact. That is
extremely unusual, especially for a company like Starbucks, which serves over 100
million people each week.
Apart from being incredibly useful when there are a lot of people in line waiting
for their coffee, it also gives you the impression of being served in a personal manner.
The coffee has been carefully prepared for you.

3.4.2. Getting a Free Drink at Starbucks

Birthday reward: If you’re a Rewards member, you can get nearly any Starbucks
menu item for free on your birthday, including food, standard-sized handcrafted
beverages, and bottled drinks.
Another Way of Getting a Free Drink at Starbucks: If you don’t want to wait
until your birthday, you can enjoy a free Starbucks coffee on National Coffee Day,
September 29. Starbucks celebrates its own birthday each year by giving free brewed
coffee to anyone who brings in a clean, reusable coffee cup on National Coffee Day.
You can also earn Stars through the Starbucks Rewards program and redeem them for
a free drink.

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