Edwards Deming’s 14 Points
This is the case study analysis about Starbucks. It introduced the company background and struggling issues faced by Starbucks. This analysis is mainly focus on how Starbucks using the W Edward Deming’s 14 points to apply on their international business. The sources such as news were applied in this analysis in order to prove that the matters were happened during Starbucks struggling season. On the other hand, the total quality management that Quality Management (TQM) practices is primarily found in larger and multinational organizations but little has been written on how TQM has been applied in Starbucks.
It had using some example that existing in the company in order to show how the company manage their product quality. Lastly, this case study analysis was also stated about how the customer values provided by Starbucks are affecting their value chain activities. It had explain how the Taylorism can applied in Starbucks and how they using the skills to operate their business in today competitive market.
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Introduction Dr. W.Edwards Deming taught that by creating and adopting W Edwards Deming’s 14 points, organizations can increase quality and simultaneously reduce costs and meanwhile, in the same time, reducing rework, staff attrition, works and litigation while in the sametimes increasing customer loyalty.
The key is to practice continual improvement and think of manufacturing as a system and adopt new philosophy (Gabor, 1992). Customer value is also created when the perceptions of benefits received from a transaction exceed the costs of ownership (Daniels, S. 2000). Moreover, value is the ratio between perceived benefits received and the costs associated with receiving these benefits. Perceived value is a consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given. Increase the market capital by using new system and leadership development in marketing and product, as what W. Edwards Deming quote before, “Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them”.
It is important to emphasize on technology which is always occur in a collective form and therefore, the teams of technology have to access to many systems which typically compare the features of one technology rather than account for team to use of multiple technology (Evans, G. 2002). In the end, transformation of company is needed to reach the market demand and change of company philosophy is also requiring in the meantime. Dr. W. Edwards Deming also has quote, “It is not enough to do your best; you must know what to do, and then do your best”.
Company Background Starbucks started in 1971 in Seattle, Washington. It is the company that adopts high quality whole bean coffees and develops the market along with rich-brewed, Italian style espresso beverages, a variety of pastries and confections. It also uses the coffee-related accessories and appliance which primarily through its company operated retail stores. On the other hand, Starbucks also sells whole bean coffees through their specialty sales group and hypermarket in order to operate through their company operated retail stores.
Additionally, Starbucks sells the bottled Frappuccino coffee drinks due to market opportunities and a line of premium ice creams through its joint venture. Starbucks is intent to establish their brand as the most well-known and respected brand in the world. To achieve the objective, Starbucks propose to continue to develop its retail operations, rapidly grow its sales volume and franchise operations, and look for opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.
Services of Starbucks Starbucks management has a good planning when they closed all of their 7,100 stores for 3 hours. It intended to retrain their baristas on creating the best customer experience. With an average amount of 20 employees in every outlet, they are staggering 426,000 man hours, more than $3 million in wages, and 21,300 hours of lost customer revenue. That is what Starbucks plan on their customer services and do it until the best. Struggling Issues Competitive Analysis Starbucks struggling with market structure which is Monopolistic Competition.
Secondly, it also faced with competitive activity such as many companies are in the market and competition is strong developing (Joseph C. Jr and Lane, S. 2007). Their competitors also use location, product mix, and store atmosphere differentiation to establish market niche. Besides, industry costs and capital structure in Starbucks is also troubling it. They are low to moderate costs for each location and their major start-up expenditures are property and equipment. Starbucks also having the problem of major operating costs that are labor and cost of sales.
Industry PEST Analysis Political Influences of Starbucks which is the relationships between coffee producing nations and United States. In addition, it also strict with the State & Local government controls in US and therefore, it is very hard for them to grow fast when compare to other country. In the other hand, Economic Influences of Starbucks like constant demand for food and beverages also causes trouble to them. The changes in disposable income in US also influence the purchase levels of consumers.
The Social Influences in Starbucks also occurred when consumer preferences could shift from coffee to other beverages like Pepsi and Coca-cola. The technological influences in Starbucks also are a struggling issue because they have to use the technology can improve operational efficiencies while other competitors are rapidly improving their technology at the same time. Deming’s Profound Changes Dr. Deming introduced four changes to the thinking of Japanese managers. Those 4 changes reflect a fundamental change in philosophy for western management (Robertson, D, 2009).
This theory told us that every system has variation; hence, the information needed to create optimum systems is unknown and unknowable. It means that all systems will have built-in flaws;” optimum systems” are impossible and expecting a process to perform identically in another place time is foolish. Thus, Starbuck have a corporate headquarters exercises controls over individual sites in different country and also have different total Quality Management which is specifically built into their processes meanwhile utilizes a large amount of information technology (Madu, C.N. and Kuei, C. , 1993).
On the other hand, this theory also stated that using the scientific method we learn what is unknown but knowable faster. It means that theory is necessary for observation to gain knowledge. People must be able to tell the truth without fear because there will be occasions where existing theory is proven to be wrong (Quality Assurance Agency, 2003). Therefore, Starbucks initiated C. A. F. E. (Coffee and Farmer Equity) Practices to evaluate, recognize, and reward producers of high-quality sustainably grown coffee.
It seeks to ensure that Starbucks sources sustainably grown and processed coffee by evaluating the economic, social and environmental. In addition, Deming’s Profound Changes stated that by observing the operation of the system, its built-in flaws can be detected and isolated. It focused to requires a process orientation and stabilize the system before improving it (Spanbauer, S. J. ,1995). In Starbucks, they retraining mainly occur during new product roll-outs, although this site does not use regular meetings, but instead one-to-one discourse.
Lastly, this theory also said that complexity can be reduced and entropy lowered by removing the built-in flaws. It helps to reducing complexity which is the key to improving productivity (Zeithaml, V. et al. , 1990). In order to oversee the expansion process, Starbucks created zone wise vice-presidents to direct the development of each region and to implant the Starbucks culture in the newly opened stores. W Edwards Deming’s 14 points in Starbucks Dr. W. Edward Deming is variously described as the “patron saint of quality” in Japan.
His findings are statistical and give powerful insights of excellent quality management; in his book “Out of the crisis” we can observe the Deming 14 points on quality management (Deming, 1986). 1. Create constancy of purpose toward improvement of product and service. It mainly focuses to inspire the workers to stay competitive in the market and remind about the importance of stability in jobs (Lakshman, C. , 2006). The CEO of Starbucks, Howard strongly believes in “Making Starbucks a Great Place to Work”.
This slogan highly influences the mind thinking and attitude of Starbucks worker to seeking their way to survive in this company. Employees are also paid $9-$12 which is higher than minimum hourly wages. 2. Adopt the new philosophy. The customer demands and taste change rapidly so we have to accept new philosophies according to the market trends and technology revolutions. Starbucks intend to maximize market penetration. In the other hand, it also provides a relaxing, attractive social atmosphere, offer high-quality products, create a great working environment and achieve profitability 3.
Cease dependence on inspection to achieve quality. Instead of inspecting the product for quality after production, infuse quality at the beginning itself. This will ensure that none of the raw materials are wasted for the sake of quality (Engelkemeyer, S. W. , 1993). Therefore, Total Quality Management is specifically built into their processes in Starbucks and internal controls for the store are determined by the manager based in part on information provided by the IT system. 4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost.
We often spend lots of time and money to find better suppliers and shift rapidly between them for slight monetary gains. Thus, Starbucks move towards a single supplier for any item who can be trusted. It also minimizing the cost in new logistics operation and also can increase the long term relationship with the supplier. 5. Improve constantly and forever the system. There is no stopping point in the process of quality management (Dahlgaard, J. J. el al. , 1995). The enterprise systems and services must keep growing indefinitely in order to catch up with the competitive market.
Starbuck’s new espresso machines were equipped and look more Italian than old world nautical. 6. Institute leadership. Good leaders have always performed wonders everywhere the growth a company can display stunning growth if potential leaders are identified and encouraged and also by promoting the leadership quality of other normal workers. Schultz restored the old and honest employees of Starbucks to give the best service to the customers. Dave Lawrence was hired as an executive vice presented and charged with leading operation, finance and human esources.
Remove barriers that rob people of pride of workmanship. Responsibility of supervisor must be changed from numbers to quality. Fixing points for employees and again ranking them inside the company would infuse more completion within the organization which is very unhealthy for the quality (Douglas, T. J. & Fredendall, L. D. , 2004). In Starbucks, work duties are assigned by shift supervisors but on the other hand, employees are allowed to use initiative and empowered to make decisions which mean it is a decentralization company.
This can gain more opinion from different level of employees from the company and using this ability to improve the quality of product. Total Quality Management Starbucks company system is created based on a TQM (Total Quality Management). TQM is an integrative philosophy of management for continuously improving the quality of products and processes. TQM functions on the company that the quality of products and processes is the responsibility of everyone who is involved with the creation or consumption of the products or services offered by an organization (Ghobadian, A. et. al. , 1994).
In other words, TQM capitalizes on the involvement of management, workforce, suppliers, and even customers, in order to meet or exceed customer expectations Company high employer turnover have effect the structure and system of the company to maintain it quality and product and recent financial crisis have effect the company sales and profit in the meantime also effect the staff income to be drop to low-income categories. Starbucks is running on a Site 7-S system that apply TQM with it. The Site 7-S system is based on seven categories, (Strategy, Structure, Staffing, Systems, Skills, Shared Value and Style).
Strategy * Store’s strategy is to create a comfortable Third Place environment * Serve customer a customized high-quality product * Achieve high level of profitability by focusing on high-margin items while generating add-on sales * Minimize overall expenses by focusing on controllable expenses * Minimize total workforce and full-time worker, high employment on part-time basic workforce Structure * Functional in structure and relatively flat * Corporate organization is tall with four levels of management above store management * Staffing Location has one manager, an assistant manager and 16 partners.
Benefits package includes health, dental, and vision care, stock options, free shift drinks, and a free pound of coffee each day * Income based on location of the branch * Raises are based on semi-annual performance evaluations with raises ranging from 0-5% * Bonuses are not utilized, but the location has given away non monetary rewards Systems Corporate IT System Individual Stores Individual Stores Sales, Inventory, Staffing Sales, Inventory, Staffing Individual Stores Inventory, Orders, Transfers Vendors, Distributors, Mgmt. ,