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Total Quality Management Starbucks
strategic management
Harper Adams University
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TABLE OF CONTENTS
- 1 Introduction..............................................................................................................................................................
- 2 Question 1 Discussion...............................................................................................................................................
- 2 Definition of Quality Management.......................................................................................................................
- 2 Definition of Financial Benefits.............................................................................................................................
- 2 Statement Discussion............................................................................................................................................
- 3 Question 2 Discussion...............................................................................................................................................
- 3 Company Introduction..........................................................................................................................................
- 3.1 Competitors Background...............................................................................................................................
- 3 Quality Management Practices in Starbucks........................................................................................................
- 3.2 Quality systems..............................................................................................................................................
- 3.2 Starbuck’s Standards for Food Suppliers........................................................................................................
- 3.2 Quality of conformance and Availability........................................................................................................
- 3 Starbucks: Financial Performance.........................................................................................................................
- 3 Relationship between Quality Management Performance and Financial............................................................
- 3 Company Introduction..........................................................................................................................................
- 4 Conclusion...............................................................................................................................................................
- 5 References...............................................................................................................................................................
- 6 Appendices..............................................................................................................................................................
- Figure 1: The Effect Quality has on Income and Expenses............................................................................................. LIST OF FIGURES
- Figure 2: Relationship between customer service and Sales Growth...........................................................................
- Figure 3: Relative Costs to Fix Software Defects.............................................................................................................
- Figure 4: Starbuck’s Global Footprint..............................................................................................................................
- Figure 5: Starbucks Financial Performance Chart (2010-2014)......................................................................................
- Figure 6: Coffee Price and Starbuck’s Performance......................................................................................................
- Table 1: Starbuck’s Competitor Background................................................................................................................... LIST OF TABLES
- Appendix 1: Starbuck’s Corporation Financials............................................................................................................. LIST OF APPENDICES
1 Introduction..............................................................................................................................................................
Total Quality Management (TQM) is considered an important catalyst in this context. For this reasons, the TQM concept has captured the attention of all sides of commerce and industry. During the past decade, quality improvement has become one of the most important organizational strategies for achieving competitive advantage. As of late, business competitiveness continues to be altered considerably. Company’s started to relinquish market share to international competitors who were effective at delivering higher-quality products with more affordable costs and more diversity.
2 Question 1 Discussion...............................................................................................................................................
2 Definition of Quality Management.......................................................................................................................
The terms “quality management” can be defined contrarily in numerous frameworks, mentioned by Deming (1986), the quality of any product or service can only be defined by the customers (Henry N., 1987). In Deming’s perspective, consistency in meeting to exceeding the customer’s expectations about quality, once they have been communicated, is the essence of quality management (Vincent B., and Larry M., 1999). On the other hand, Sharma defines quality as the degree to which a set of inherent characteristics (distinguishing features) fulfills requirements, whereas Crosby described quality as conformance to customer requirements (Ashwini S., Dixit G., and Ashish A., 2012). Dean and Bowen define quality management as customer focused, continuous improvement, and team work (Kevin L., 2004). Despite the fact that both definitions are strikingly identical, the definition perceives the system perspective of the organization, which is suitable to quality thinkers like Deming. The implementation of quality planning and assurance as well as quality control and quality improvement is referred to as Total Quality Management or its abbreviation TQM.
2 Definition of Financial Benefits.............................................................................................................................
Financial benefits may be defined differently, as the definition is determined by the situation or area of research. Financial benefits refers to financial gains as a result of organizational development, moreover, comprehend by lucrative management procedures within the firm (Ilia T., Plamena Z., Mariana S., Silvia P., and Georgi T., 2006). Nevertheless, this report will be referring “financial benefit” as to the direct result of organizational improvement expressed in financial terms and realized by cost effective management practices (The 9000 Store, 2016).
service feature for numerous customers. A corporation that is responsive to requests and illustrates a “can do” attitude will gain competitive advantages.
Figure 2: Relationship between customer service and Sales Growth...........................................................................
Source: (The Institute of customer service, 2012)
In addition, quality entails cost reduction from enhanced quality levels (Sakthi K., and Baskaran R., 2010) which tend to be accomplished considerably faster. Production costs can be diminished whenever production procedures are streamlined on their effectiveness increased. This can be attained through enhanced process control that reduces the undesirable production of bad parts. To illustrate this point, IBM reported the cost to fix an error found after product release was four to five times as much as one uncovered during the design (figure 3), where software defects could have prevented these defects (Mukesh S., 2015).
Figure 3: Relative Costs to Fix Software Defects.............................................................................................................
Source: (IBM Systems Sciences Institute, 2016)
3 Question 2 Discussion...............................................................................................................................................
3 Company Introduction..........................................................................................................................................
Founded by Gordon Bowker, Jerry Baldwin and Zev Siege in 1971, Starbucks has become the world’s specialty coffee retailer with more than 19,209 coffee shops in about sixty (60) countries (The Washington Post, 2016). Figure 4 shows Starbucks global footprint. Starbucks offers coffee drinks and food items, as well as roasted beans, coffee accessories, and teas (Hoovers, 2016). In addition, Starbucks markets its coffee through grocery stores, food service customers, and licenses its brand for other food and beverage products (Hoovers, 2016).
Dunkin Donuts introduced its first specialty coffees and drinks in the early 2000s and slowly began making a name for itself as more of a destination coffee shop. The company has continued to expand its menus, augmenting its product line with more substantial food items (Julia H., 2015).
3 QUALITY MANAGEMENT PRACTICES IN STARBUCKS
3.2 QUALITY SYSTEMS
Starbucks uses several quality systems. Firstly, beginning with the baristas on the floor, the drinks are called from the barista on the Point of Sale (POS) to the barista making drinks. This is then recalled to the first barista. When the drink is called back, it is checked for accuracy as well as making sure no drinks is missed/skipped. After the drink is made, the barista checks the drink for accuracy before handing it off to the customer (Kioumars P., 2011).
A second system that Starbucks uses is random checks-ins from District Managers. In such check-ins, the district managers talk to customers, watch the baristas, and do random checks of drink to ensure quality (Glassdoor, 2016). The final system utilized by Starbucks is a third party company called ECOSURE to perform checks on all the stores to ensure all quality standards are met every six months. The sores have a copy of the required qualifications that is must meet to prepare for these checks as well as maintain these standards (Mizz R., 2010).
3.2 STARBUCK’S STANDARDS FOR FOOD SUPPLIERS Starbucks uses the premium character in quality management. For instance, the company carefully sources its coffee beans from coffee farmers who comply with Starbucks quality standards (Starbucks, 2014). In addition, the organization also prefers to purchase coffee from farmers certified under the Starbucks Coffee and Farmer Equity (CAFÉ) program (Starbucks, 2014). Premium quality service is ensured through servant leadership and a warm friendly culture. In this decision area of operations management, Starbucks implements high quality to align with the company’s premium brand image.
3.2 QUALITY OF CONFORMANCE AND AVAILABILITY
Quality of conformance is meeting specifications regardless of what quality of desing was reached. For instance, Starbucks meets specifications by allowing customers to have their coffee to their liking (e. non-fat, decaffeinated, foam and other personalized options). Availability, reliability and maintainability, are important for conformance. Availability is when the product or machines to make the product are fully functional (Siemens, 2016). Starbucks has more than one machine in each store and each employee is trained to service the machine to ensure that it is fully operation, which creates reliability as well. To maintain each machine, employees clean them every night and have proper training to use them correctly. In rare instances that there are machinery failures, a new machine is ordered or repaired on the severity of the problem within three days.
3 STARBUCKS: FINANCIAL PERFORMANCE
Growth analysis of Starbucks financials from 2008 to 2013, it can be seen that the revenue growth of the company has experienced a drop of 5 percent during the 2008/2009 recession, however, from then on, Starbucks has experienced a health revenue growth from 2010- (Nithin G., 2014). In the year 2014, the company reported revenues of 16, 447 million USD (figure 5), an increase of 10 percent over 2013 (Global Data, 2015). In addition, the company recorded a net margin of 12 percent compared to a net margin of 0 percent in the year 2013. Starbuck’s cash conversion cycle has increased to a high 54 (Nithin G., 2014) in the year 2013, which is where Starbucks should concentrate on reducing to attain a higher efficiency. Although Starbucks net income growth is less significant than its competitors, Starbucks reports a total revenue increases in the 3rd quarter 2015 by 17 percent, with sales growth above Starbucks competitor’s average growth of 3 percent, recorded in the same quarter (CSI Market, 2016). A detailed ratio and growth calculations of Starbucks are given in appendix 1.
company practices on quality can create a strong brand image as well as create loyal customers (this strategy is also used by Apple Inc.).
Nevertheless, quality practices are established with the company’s suppliers; therefore, there is a risk with commodity price volatility as a primary risk factor. However, Starbucks has managed to combat price volatility in coffee prices, maintaining the quality of its coffee, while increasing its financial performance (figure 6).
Figure 6: Coffee Price and Starbuck’s Performance......................................................................................................
Source: (Market Realist, 2014)
4 CONCLUSION
This report has highlighted the relationship that exists between quality management and financial benefits. This has been done with the assistance of the quality practices executed by the Starbuck’s Corporation and analyzing the corporation’s financial performance. During this report, it was learnt that quality management practices lead to financial benefits. Total quality management is hostile as well as an ethical tactic for the firms such as Starbucks, to consistently develop their products/services or processes associating all stakeholders to be able to satisfy their customers and to enhance performance and sustainability.
It can be concluded that total quality management practices enhance numerous performance measures in the organization e. financial performed. All components of total quality practices ought to be essentially managed in a firm simply dues to the fact that each factor of total quality management practices enhances different aspects of firm performance. These aspects are not
merely limited to financial, but production performance, internal performance as well. The synergy among total quality management factors contributes to exceptional or crucial improvements in the firm’s performances. Firms need to improve employee involvement and/or skill and firm structures and designate adequate resource to implement total quality management successfully.
5 REFERENCES
Ranjay Gulati, Sarah Huffman, and Gary L. Neilson (2002) The Barista Principle — Starbucks and the Rise of Relational Capital, Available at: strategy- business/article/20534?gko=582b3). (Accessed: 14 January 2016).
Arash Shahin (2011) 'An Investigation on the Influence of Total Quality Management on Financial Performance the Case of Boutan Industrial Corporation', International Journal of Business and Social Science , 2(15), pp. 105-106.
Ashwini Sharma, Dixit Garg and Ashish Agarwal (2012) 'QUALITY MANAGEMENT IN SUPPLY CHAINS: THE LITERATURE REVIEW', International Journal for Quality research , 6(3), pp. 193-199.
ASQ (2010) Quality Revolution Reduces Defects, Drives Sales Growth at 3M, Available at: asq/public/wqm/reduced-defects-sales-growth-3m.pdf (Accessed: 9 January 2016).
CSI Market (2016) STARBUCKS CORPORATION (SBUX), Available at: csimarket/stocks/compet_glance.php?code=SBUX (Accessed: 13 January 2016).
Davood Gharakhani, Hossein Rahmati, Mohammad Reza Farrokhi and Arshad Farahmandian (2013) 'Total Quality Management and Organizational Performance', American Journal of Industrial Engineering , 1(3), pp. 46-50.
Kevin B. Hendricks and Vinod R. Singhal (2000) 'Firm characteristics, total quality management, and financial performance', Journal of Operations Management, 23(8), pp. 1-17.
Kioumars Paryani (2011) 'Product quality, service reliability and management of operations at Starbucks ', International Journal of Engineering, Science and Technology, 3(7), pp. 1-14.
Market Realist (2014) Must-know risks: Why Starbucks should hedge its shrubs, Available at: marketrealist/2014/01/must-know-risks-starbucks-hedge-shrubs/ (Accessed: 14 January 2016).
Mizz Royalty (2010) TEAM 1 STARBUCKS: Quality Management , Available at: team1starbucks.blogspot/2010/11/starbucks-uses-several-quality-systems.html (Accessed: 11 January 2016).
Mukesh Soni (2016) Defect Prevention: Reducing Costs and Enhancing Quality, Available at: isixsigma/industries/software-it/defect-prevention-reducing-costs-and- enhancing-quality/ (Accessed: 9 January 2016).
Nithin Geereddy (2014) Strategic Analysis Of Starbucks Corporation, Available at: scholar.harvard/files/nithingeereddy/files/starbucks_case_analysis.pdf (Accessed: 12 January 2016).
Sakthi Kumaresh and Baskaran R., (2010) 'Defect Analysis and Prevention for Software Process Quality Improvement', International Journal of Computer Applications , 8(7), pp. 42-46.
Siemens (2016) Manufacturing Quality, Available at: camstar.industrysoftware.automation.siemens/en/resources/glossary/manufacturing- quality/ (Accessed: 12 January 2016).
Starbucks (2014) Starbucks Standards for Food Suppliers, Available at: globalassets.starbucks/assets/3d96b317b4454a2b8ae939db76dba99e.pdf (Accessed: 11 January 2016).
The 9000 Store (2016) How to Realize Financial Benefits of ISO 9001, Available at: the9000store/ISO-9000-Tips-financial-benefits-of-iso-9001.aspx (Accessed: 8 January 2016).
The Washington Post (2016) A coffee giants global footprint, Available at: washingtonpost/apps/g/page/world/a-coffee-giants-global-footprint/514/ (Accessed: 9 January 2016).
Vincent Amanor-Boadu and Larry Martin (1999) Quality Management in a Changing Organizational Environment, Available at: ageconsearch.umn/bitstream/18091/1/mi99am02.pdf (Accessed: 5 January 2016).
Total Quality Management Starbucks
Module: strategic management
University: Harper Adams University
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