Starbucks Sign Displays Their Supply Chain

I stopped in at my local Starbucks on Sunday morning to get some coffee beans and saw an interesting sign. The signed advertised that the Pike Place Roast beans had been roasted on April 13, in Carson Valley, Nevada.

I'm a bit of a coffee snob and I thought, for a place that has been hyping "fresh roasted" coffee, beans that are almost a month old aren't exactly "fresh." Most coffee experts say that beans are beyond their peak freshness after about 10 or 14 days.

Would Starbucks so openly display their slow supply chain if more customers knew that April 13 isn't exactly "fresh roasted?" The bag was proudly labeled as "Freshly Scooped on May 10, by Chad." Scooping isn't exactly the "value added" step in that value stream. I guess if "freshly scooped" is all you have, then that's what you brag about.

I posted a question about this on the "Starbucks Gossip" blog. I got a couple of responses from (I suppose) Starbucks employees.

We're guaranteed to get the fresh-roasted beans within 14 days of roasting. As my store is 10 miles away from the Kent, WA roasting plant, it takes us 1 or 2. If they have April 13 beans -- about a month old -- then they haven't got their order pars sorted out yet.

By "order pars," the commenter means their inventory re-stocking levels. If the inventory levels were set too high, they'd have inventory sitting in the store longer than the 14 day window. But another employee disagreed:

I too thought that there was a promise of Pike Place being brewed within 14 days of roasting. I sent an email to the coffee department asking about this, because we were receiving coffee that wasn't going to fall within those guidelines and I wondered what to do with the coffee. His answer was simply "we never promised the 14 day freshness, but it is a goal we are striving to reach." I thought his answer was interesting. I am still receiving Pike Place that isn't within the 14 days and I have, in fact, set very accurate pars. It isn't the stores problem, it falls back to the roasting plant.

I wonder what the root cause of the supply chain problem would be? I wonder if the Starbucks associates are frustrated that corporate isn't meeting their guidelines?

Coffee roasting is a fairly simple production process (although I'm sure their volumes are a challenge). If it takes a week between roasting and shipping, that means the store needs to use a certain supply of beans within 7 days. It's not that coffee beans "go bad" or would strictly need to be disposed of after 14 days (it's not like spoiled milk), but I wonder how their supply chain perform if they had a rule of "must throw out beans after 14 days." I'm pretty sure my old local coffee chain in Phoenix had a similar policy (and I remember them displaying that their beans, roasted on site (in something like this), were roasted 3 to 5 days ago pretty consistently). Different supply chain, different performance.

Starbucks has a small number of huge roasting plants (the largest is 700,000 sq ft in York, PA). They're definitely going for "economies of scale," don't you think?

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Gaming the System at Starbucks

Starbucks Gossip: Howard Schultz apparently hasn't put the brakes on warm sandwiches

Following up on last week's post on Starbucks operations, I found an example of "gaming the numbers" in a different post.

"Gaming the numbers" is a common phenomenon when people are pressured to hit certain numbers (a dynamic that Deming preached against, this idea of "management by objectives" being dysfunctional). I'm often reminded of the three things that can happen when people are pressured to hit numbers (credit to Brian Joiner):

1. They can distort the numbers,
2. They can distort the system, or
   
3. They can improve the system.

#1 and #2 are usually much easier to do. Click on the "Gaming the Numbers" link at the bottom of the post to see more examples.

Apparently, Starbucks has a staffing/labor formula that's based on workload and volumes. Some stores have new warming equipment (for the breakfast sandwiches some stores are selling) that can also be used for warming muffins or other pastries. At least one employee found a way to distort the system:

It also helps, though it's cheating a little, to press the warming button for EVERY pastry, even when you don't warm them. We ear 1 hour of labor for every ten times we push it per hour during peak. And believe me, that adds up.

Ah ha, they've found a way to get more labor allocated or budgeted.

Another employee posted a warning:

Adrienne, just to warn you...The P&AP dept will be looking for that trend in stores and it will be treated as time theft. Please learn a different way to increase labour without "cheating" you could get into trouble!

The original poster wrote back and said it was her District Manager who had shared the idea!!

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A Peek, Of Sorts, Into Starbucks' Operations

Starbucks Gossip Blog - Open Thread

Starbucks Replaces CEO with Chairman

I've posted about Starbucks before - I believe they have people at headquarters learning about and starting with Lean, but I don't know any details (any Starbucks employees reading this, feel free to chime in). This WSJ article from 2005 is still pretty fascinating, on their attempts at operational improvement that seemed very expert driven (not the Lean approach that would rely more on the associates).

I'm a pretty frequent Starbucks (SBUX) customer (grande drip) and I'm always sort of curious about the opportunities for Standardized Work and kaizen (continuous improvement) for a company with 15,000 points of customer contact. The traditional McDonald's approach to standard processes has been consistency and "dumbing it down." I've read about Starbucks complaining about their operations being similarly "dumbed down" (such as the automated espresso machines that were put in a few years back).

It always seemed that Starbucks had an opportunity to engage its associates in real kaizen... if one associate in one store has a great idea, are there mechanisms for sharing that idea across the other 14,999 stores? Does all communication go up through Seattle and then back out? It's an interesting process to think about.

One of the non-Lean blogs I follow is Starbucks Gossip (main page). I saved this post's first link back in November and hadn't gotten around to posting about it. But, Starbucks was in the news, as their CEO was fired, the founder/Chairman took that job back, and McDonald's is creeping into SBUX territory with espresso cafes. That's not what I'm here to write about.

The thing that struck me in the linked post is the operational details that employees, talk and (sometimes) bitch about. You can see Lean-type issues, management issues, quality discussions, and opportunities for improvement. I can't link to particular comments, but I'll list them by time and you can search if you want:

• 8:57:04 AM: Discussion of layout differences in stores and how that impacts productivity, how managers help during busy times (labor/volume flexibility)
• 9:41:56 AM: Comment about managers forcing them to push certain drinks making "veiled threats on our jobs if we don't meet our goals" (not very lean)
• 8:02:52 PM: Comment on running out of peppermint syrup (a supply chain issue) and managers "had us buy another brand's syrup and put it in the Starbucks labeled bottles" (a workaround)
• 11:19:15 AM: Complaint about a manager "micromanaging obsessively and making veiled threats about my job..."
• 12:14:44 PM: Discussion of planned upgrades / maintenance to espresso machines, how long that should take (standardized work)
• 8:26:30 PM: Incorrect drinks being made (quality problems and defects)
• 8:34:17 PM: A few posts about customer requirements vs. safety (people ask for drinks hotter than the allowed temperatures) -- different associates react differently (std work)
• 10:44:08 AM: Questions and discussion (many posts) about the proper standards for "remaking" a drink (std work, quality, and cost)
• 11:50:26 AM: Lots of stockouts (inventory)
• 2:19:27 PM: Mention of a "Business Resource Manual" (sounds like SOPs), they also have a "portal" (assuming a website for info)
• 8:03:23 AM: Stores with "emergency peppermint storage for your district" (safety stock, inventory)

Anyway, I think it's always interesting to hear directly from employees. In a company that big, it's natural there will be problems and complainers, so I know to take some of this with a grain of salt. But, if you get past the whining, there's a real treasure-trove of operational, quality, management, and customer service issues to work on. I wonder if the founder/CEO will be able to help?

Coffee Topics for Your Sunday Coffee

Starbucks Gossip: Is another price increase in the works at Starbucks?

One of the random blogs in my blog reader is Starbucks Gossip. I'm a regular customer (grande drip, no room) and I like getting some insights into how the stores work (and what employees complain about). The post I've linked to has much hand wringing about a potential price increase and the discussion focused on "is that fair?" and "well, did our costs go up?"

From the cost side, someone posted this:

According to Starbucks standardized procedures, the total amount of labor required (including prep and COGS) for a Grande Syrup Coffee Frappuccino is 1.5 minutes labor and $0.41COGS. A minute and a half of labor. That's about $0.20. Plus COGS. Wow. A whopping 61 cents.

Venti Raspberry Mocha Frappuccino: $4.60
Actual Cost: $0.61

Where's that other $3.99 going?

Somebody else came back with:

what about the labor of making said mixes, someone has to do that, then put said mix into the sure shot, label it, etc. Get your prices staright. [sic]

There are a lot of costs -- materials (COGS), direct labor (to make the drink), indirect labor (prep, other work), store overhead, corporate overhead.... but is any of that relevant to the price they can charge? A lot of that $3.99 is probably going to pay for employee health care that Starbucks funds.

Starbucks pays more for health care than for raw materials, but that's a different topic for a Lean Healthcare post.

I posted:

Prices companies charge are basic economics -- they charge what the market will bear. Why does Starbucks charge $4 for a venti drink? Because customers are paying it.

It has nothing to do with what your costs are. It has nothing to do with "what's fair."

If prices are too high, customers will go away. That's how business works.

Whenever you ask, "why does company X charge $$ for product Y?", the answer in your head should be "because they can."

We should all be so fortunate as to choose a business with low materials costs, where the customer is willing to pay a price that gives us a good strong margin! This ties back to the Toyota equation, Profit = Price - Cost. Starbucks probably isn't taking their costs and adding on a profit margin (Price = Cost + Profit). That would be outdated thinking.

I'm sure Starbucks is generally charging what the market will bear. Starbucks prices seem pretty consistent nationwide (at actual Starbucks locations). I'm sure they could charge more in some cities, but probably want customers to know what the price will be regardless of where they are? Does Starbucks have a consistent pricing policy, I wonder?

Remember this WSJ article (and my blog post) from a few years back about Starbucks and their efficiency efforts?

Is a "Rude" Customer Still Right?

Starbucks Gossip: I know Starbucks would never allow a sign like this to be posted...

One blog I follow sometimes is one run primarily for the purposes of allowing Starbucks coffee pourers, I mean "baristas," to bitch about us customers. They are coming dangerously close to biting the hand that feeds them, if these attitudes are widespread. I assume only the most disgruntled-y are taking the time to post on a site like this, but still, I'd be concerned if I were management. Is this a "lean" story? No, but I think it's a complex story that might be interesting to explore in lean terms, if we can.

To be clear: I'm not really setting out to bash Starbucks employees. As in any organization, management has a responsibility for helping create a good work environment. There was a WSJ journal article about two years ago about Starbucks corporate sending "efficiency experts" out to the stores. This isn't "lean." A "lean" approach would involve Starbucks management harnessing the ideas and suggestions of their employees, employees who consider themselves to be intelligent, above-average workers, I would assume. It doesn't sound like Starbucks management is doing a great job at that. The ideas need to be listened to, as long as those ideas don't involve cell-phone jammers..... read on, you'll see what I mean.

Starbucks is an interesting growth story. What began as a small upstart company that was passionate about coffee and the experience has lost focus and become commoditized as it has grown (and as us customers have "gotten used" to them). Starbucks isn't as special as it was when I first discovered it around 1994.

The corporate "bean counters" (now there's a horrible pun) have made a number of decisions in the name of efficiency -- stores no longer grind their own beans (removing the aroma portion of the experience) and manual espresso machines that required some knowledge and experience have been replaced by automated "push a single button" machines. Starbucks has been generous with their employees (good health insurance) and has created the idea that they are "coffee artists" (not their phrase, it's mine, to borrow a similar, and sort of silly sounding, phrase from Subway, the "sandwich artist).

Is the Starbucks employee a "barista" whose job is to craft a specialty drink and be chatty, creating a warm friendly customer experience, or are they part of a, sp coffee assembly line that values efficiency, speed, and revenue/customer? Starbucks chairman Howard Schultz recently wrote about the struggles with Starbucks growth and their loss of identity. Sounds like a problem with "constancy of purpose," as Deming would have talked about. Is Starbucks a coffee company or a place that sells candy, mugs, CD's, and whatever crap they can peddle? I imagine this shift and lack of constancy might be one root cause of employee stress, particularly among the long-timers?

Back to the employees. There are some "respect with people" struggles on both sides of the counter. If you read the blog, *$ employees (as they'll abbreviate the company name) hate you, the customer for:

• Digging for change and slowing the line
• Ordering Frappucinos
• Ordering drinks the wrong way AND
• Being on your cell phone while you order

For that last point, the baristas are complaining that many customers are "disrespecting" them by being on their phones while in line and either mouthing their orders, pointing, or ordering real quickly and going back to their phone calls. I'm not sure if that's people being rude or disrespectful as much as it is people being busy and just wanting coffee without human interaction. Maybe *$ needs self-serve kiosks?

Many employees report taking steps such as:

• Wanting signs saying you can't order if you're on the phone
• Refusing to take orders from customers who are on the phone
• Verbally abusing customers who are on the phone
• Installing (allegedly, in one case) an illegal cell phone jammer to kill phone calls

Has *$ lost their way? Should employees who are this insulted just quit and find another line of work? Can *$ afford to keep such crabby employees on the payroll in a customer-service business? I'd probably come down on the side of the customer, that the employees should be grateful that the cell-phone jerk is willing to pay $5 for a drink.

The employees also complain about corporate management, that they aren't doing enough to support their quality of worklife, as ruined by the cell-phone jerks. The customer defines "value" right?

No, I'm not one of the cell-phone jerks. But I really don't expect anyone at *$ to be my friend. I'd just like my coffee (coffee, not a latte) so I can go on with my day.

Maybe *$ needs a separate brand that's focused on ruthless efficiency and another that's the warm friendly place? Different customers value different things, apparently, so should it be broken out into separate "value streams?"

Some comments from their blog, in case you don't feed like wading through the hatred. We can only guess that these are from employees:

#1

Our poor precious customers can simply not go through there day and actually talk to the people serving them! Oh no they might get lower class all over their nice Gucci bags! Or their handsome suits![/sarcasm]

#2

I used to work with someone who, if he noticed the person ordering was on their phone would call it from bar as for "the customer on their cell phone". That way, every person in the store notices that this is the only person whose drink was not delivered by name, because they were too busy on their phone to give a name. Generally the person would look embarrassed/angry and everyone would glare at them while they walked away. It worked like a charm.

#3

If they are on the phone, I usually just continue what I'm doing behind the register until they are ready to have a real conversation with me, or I help the person behind them who has an annoyed look on their face because they also agree that this inconsiderate person can't take a minute to order, make a payment and leave the counter.

#4

We do not have this problem at my Starbucks. I bought a cell phone jammer and it works like a wonder. If a person walks within 30 feet of my store there cell phone connection is lost. Enough said.

Ugh. That's just a small sampling.

Operational Problems Slow Starbucks Growth

BREITBART.COM - Starbucks' Sales Slide on Frozen Drinks

Starbucks is blaming operational problems for their sales slide (actually, it's just the rate of sales increase that fell, from 7% to 4% - let's ignore the faulty Wall Street math that views a 4% increase as a "slide"). With their frozen Frappucino coffee or fruit drinks being so popular, apparently it is bogging down their lines and some frustrated customers are bailing out (some classic "queue balking," in Industrial Engineering terms).

I'll pick on Starbucks for not being faster in realizing that if the frozen drinks are more labor intensive (something they should test and model during their product development phase). Is Starbucks developing new drinks and "throwing them over the wall" to the stores? Starbucks is going to add labor to better balance their cycle time (how long it takes to make a drink) with their takt time (customer demand). Not planning properly for these new products seems more "GM-like" than "Toyota-like."

I'll give Starbucks credit, though, for owning up to their operational challenges. Admitting that you're reponsible is definitely more Toyota-like. If Starbucks wanted to be GM-like, they would have a hundred excuses, ranging from oil costs, healthcare costs, etc. Sure, they should have fixed their operational problems earlier, but they're taking responsibility. Good for Starbucks.

"Chief Executive Jim Donald said the company was working to solve the problem by having more baristas work the morning peak hours, among other possible changes, including reducing the time it takes to blend cold drinks."

I normally just order drip coffee, a simple process and fast turnaround time. For those of you who order frozen drinks or more complicated drinks, how would you use lean principles to fix Starbucks? I found an example of "visual controls" once at a Starbucks, but I lost the picture.

I also found an old blog posting of mine, from April 2005 about how Starbucks had "efficiency experts" working on their processes. So much for relying on experts! I wonder if the experts thought things would be OK, but people at the stores were screaming for help?

The WSJ article I linked to then, said:

"Times for drink preparation range widely, from less than 20 seconds for a Tall black coffee to about 90 seconds for the Venti Double Chocolate Chip Frappuccino Blended Crème."

I can't find a free version of the article, but it's still there for the WSJ subscribers. I can't post the whole thing, unfortunately.

Bottlenecks in Buying

Seth's Blog: Waiting in line

Another thought provoking post from Seth Godin. Although he doesn't write about lean, think about the examples he gives:

Lack of "order taking" capacity (in two examples), leads to lost revenue (and/or the wasting of customers' time). Although you have a captive audience at the airport (people who usually have time to wait), I'm sure you're losing some customers who "balk" at the "queue" (sorry for the lingo, I'm an Industrial Engineer).

Seth wrote:

The last step, though, that's cheap. The last step, the step where someone actually takes your money--it's not just cheap, it's nothing but incremental profit.... It's difficult to cost-reduce yourself to growth.

Exactly. Why go cheap in the area that brings money in the door??

Also, why don't concessions set prices so, with tax, common orders come out to a nice even amount? Think of the labor savings from not having to give coins as change, plus you can serve customers faster.I guess I'm risking that Starbucks raises the price of a Grande drip coffee so that it's $2 exactly, with tax.

Visual Controls Example at Starbucks

I liked seeing this at my local Starbucks. As they sell whole bean coffee and bags are removed, you can see stickers that have been applied on the shelf to indicate what product goes where.

I'm not saying Starbucks is "lean", but I liked this example.

Get me a Lean Latte, I mean Non-Fat Latte

WSJ.com - Coffee on the Double (registration required, but this link might work)

From Today’s Wall St. Journal, the lean parallels are hard to miss, although it's presented in terms of "efficiency" experts. The only thing I would question in their process improvement is this: “Why did engineers have to notice obvious inefficiencies in the drink making process?” That’s the difference, I think, between “lean” and “Toyota Production System.” Lean takes out the inefficiencies with experts, but TPS builds the ability of teams to solve the problems themselves.

Starbucks has focused on taking time out of their processes. I also like how they hired a “floater” position – as it says below, yes, it increased costs, but it also reduced time greatly (which leads to increased revenue by serving more customers faster). That's a similar fight we often have over material handlers -- it's not a direct role, but it helps the core production team be that much more effective.