Starbucks – The OM Blog by Heizer, Render, & Munson

Guest Post: Building Resilient Supply Chains Through Sourcing Risk Management

Temple U. Prof. Misty Blessley shares her insights with our readers monthly.

In Ch 11 of your Heizer/Render/Munson textbook, the importance of buyer-supplier collaboration is discussed. In collaborative relationships, firms manage risk by working jointly to anticipate and address sourcing challenges, thereby fostering resilient supply chains.

Hershey, the iconic American confectionary company, offers a compelling example of collaboration in action. Confronted with unprecedented cocoa market volatility, Hershey strengthened its partnerships with farmers, NGOs, and governments. Through its Cocoa For Good initiative, the company committed $500 million to improving sustainability and stability in the cocoa supply chain. This includes investments in farmer livelihoods, agronomic training, and expanded market access. Hershey’s desire to collaborate is rooted in the belief that a resilient supply chain starts with a resilient farming community.

Global coffeehouse chain, Starbucks, employs a similar collaborative model in the coffee industry. It’s Coffee and Farmer Equity practices enable direct engagement with producers across Latin America, Africa, and Asia to improve sustainability, productivity, and income generation. Starbucks operates regional farmer support centers, provides pre-harvest financing, and integrates ethical sourcing into its procurement decisions. These long-term collaborations help Starbucks secure a dependable supply while positively impacting over 400,000 farming families.

In contrast, Taylor Farms, a major North American producer of fresh-cut fruits and vegetables, exemplifies a different risk management strategy– backward vertical integration. Rather than relying on external suppliers, Taylor Farms owns and operates its farms in addition to its processing, packaging, and distribution facilities. By controlling the key upstream stages from seed selection to harvest, the company reduces dependency on independent growers. Its farm-to-shelf model demonstrates how owning the supply base can offer long-term resilience.

Transactional buyer–supplier relationships often reflect a zero-sum mindset, where one party’s gain comes at the other’s expense. In contrast, the strategies employed by Hershey, Starbucks, and Taylor Farms showcase the value of moving beyond transactional interactions in pursuit of win-win partnerships/ownership to manage sourcing risk and assure resilient supply chains.

Classroom discussion questions:

Hershey and Starbucks manage upstream risk through collaboration, while Taylor Farms does so through backward vertical integration. Both strategies aim to strengthen supply chain resilience. What unique challenges do the two approaches pose for supply chain managers?
Transactional supplier relationships often focus on short-term cost savings rather than long-term stability. Based on the strategies used by Hershey, Starbucks, and Taylor Farms, what specific risks do transactional relationships present in building resilient supply chains?

OM in the News: Starbucks Uses New Technology to Fill Orders Faster

Starbucks says new technology is helping fix one of its customers’ biggest gripes: waiting too long for their coffee. A technology pilot at dozens of U.S. locations has shaved 2 minutes off the average time to make a beverage ordered inside cafes. Starbucks said 3/4 of orders at the test cafes’ busiest times were completed in 4 minutes or less, nearing its service-time goal, while not delaying mobile orders.

The company plans to soon expand the pilot to hundreds more of Starbucks’s 10,000 U.S. locations as it tries to recapture lost sales and improve customer sentiment. Starbucks is looking to jolt its business after reporting four consecutive quarterly declines in same-store sales. Customers have balked at the chain’s prices and lines, turning to rivals for cheaper and faster coffee, reports The Wall Street Journal (April 30, 2025).

Starbucks’ CEO has said it needs to improve its speed of service, particularly during the morning rush. Earlier this year, about half of in-store orders took longer than 4 minutes. Mobile orders averaged around 6 minutes to complete. Baristas currently handle orders on a first-come, first-served basis. The new algorithm will determine sequencing across cafe counters, drive-throughs and apps.

Starbucks also brought on six engineers who had worked for a software startup that helped restaurants better manage delivery orders. The team helped build the new proprietary order-scheduling algorithm in-house.

Starbucks is also using the new technology to experiment with scheduling specific pickup times for mobile orders. Baristas are learning to time the making of mobile orders based on factors such as order complexity, aiming to prevent drinks sitting out for minutes before a customer arrives. The new order-sequencing algorithm is “rules based,” following a predetermined “if-then” structure, rather than being powered by AI.

The company is harnessing technology in other areas, including improving its staffing levels. Currently it also has a 700-store pilot aimed at putting the right number of workers in cafes based on demand.

Classroom discussion questions:

What process improvement tools in Chapter 7 could Starbucks use to improve ?
From your own experience, what OM suggestions would you give the firm?

OM in the News: The Fast Food Revolution

McDonald’s has a new Texas restaurant with no tables or seats or bathrooms for customers and a conveyor belt that routes food to drivers who order ahead. Chipotle also offers no place for customers to sit inside an Ohio restaurant that only takes digital orders. Taco Bell is evaluating a new design that features 4 drive-through lanes, double the typical two. Starbucks, which long described itself as a “third place” for customers to gather after home and work, plans to add 400 U.S. stores with only delivery or pickup service in the next 3 years.

Taco Bell is testing a 4-lane drive through in Minnesota

America’s biggest restaurant companies made a bet during the pandemic that you would rather eat the food cooked on their premises someplace else. Now they are gambling you will want to do so for years to come. The strategy from these giant chains is to orient their operations around drive-throughs and online ordering while testing new restaurant concepts that only serve food to go, reports The Wall Street Journal (Jan.28-29, 2023). They say these designs will make them more profitable and efficient since restaurants that bring fewer customers inside cost less to build, maintain and staff.

Of all orders placed at U.S. fast-food restaurants in 2022, 85% were taken to go. That is down from a high of 90% during 2020 but up from 76% prepandemic. Among full-service restaurants, 33% of orders were to go in 2022— double prepandemic rates.

The concept of taking food and beverages to go took root in the years after World War II, as Americans embraced an automobile culture. In the 1970s the industry fully bought into the to-go idea. Wendy’s introduced its “pick-up” window in 1970, with the first McDonald’s drive-through in 1975. (90% of McDonald’s business is now drive-through).

The most distinctive feature of the new McDonald’s in Texas is an automated delivery system for customers who order ahead on an app. When you pull up to the window in the “order ahead” lane, a conveyor delivers your food with help from a robotic arm that pushes the bag out to the waiting car. Starbucks’ CEO has acknowledged its cafes now are often clogged with pick-up, drive-through, delivery and cafe orders all at once. The result: long lines and frustrated customers. His plan is 700 more U.S. stores in the next 3 years with drive-throughs as the primary means of sales.

Classroom discussion questions:

What operations issues will management face with this revised concept?
What dangers are there in making such changes? Consider a SWOT analysis as in Chapter 2.

OM in the News: Improving Productivity at Starbucks

A barista prepares a drink at the lab inside Starbucks HQ.

In Starbucks headquarters lies a technology lab that is plotting the firm’s renewal. That includes rethinking the onerous path its baristas must take to make a Frappuccino. Inside the massive space, baristas working in a mock-up of a cafe walked back and forth between refrigerators, blenders and syrups to make a single blended coffee topped with cold foam and caramel drizzle. They asked if the company could build kitchens that bring the equipment closer together (see the topic of layout in Chapter 9) and make syrup pumps, milk dispensers and ice bins that work better.

“Starbucks, the chain that made espresso ubiquitous, now faces daily crises in dispensing it,” writes The Wall Street Journal (Sept. 1, 2022). U.S. stores designed a decade ago struggle to meet today’s consumer demand. Cafes that once averaged 1,200 orders a day are now asked to make 1,500. Workers have been pressing for better pay, staffing levels and hours. Turnover has shot up. One in 4 baristas are quitting their jobs within 90 days, up from 1 in 10 previously.

So Starbucks also has been testing how to overhaul operations to improve the experience for both employees and customers. If employees spend less time running around fetching foam and carrying 20-pound buckets of ice, maybe they will be happier working there.

As Starbucks expanded, so did its menu (see Chapter 5). It started serving Frappuccinos in 1995, and pumpkin spice latte and other flavors followed. Warm sandwiches came in 2003. It introduced cold brew and draft nitro coffee in the 2010s. In 2015, the company launched an app that allowed customers to pay for their drinks ahead of time and to customize their coffee orders in 170,000 ways!

The firm expects workers to deliver handcrafted beverages fast. A store clipboard, used to track workers’ drive-through delivery times, said “Expectations: Under 50 Seconds.” But stores are heavily restricted by design and need a remodel to cope. Starbucks has upgraded equipment periodically, including adding espresso machines that can pull 3 shots for complex orders, rather than 2. It conducted motion studies (our topic in Chapter 10) to measure how long it took baristas to walk across the floor to pump extra syrup, among other tasks.

Engineers mocked up designs for the cafe prep area, producing prototypes with 3-D printers. Technicians studied milk dispensers, ice machines and the size of dispensers for strawberries. “Every second matters with customers waiting,” says the new CEO.

Classroom discussion questions:

What do you think Starbucks can do to improve productivity? (See Chapter 1)
What can they do to lower turnover?

OM in the News: Starbucks Tries Mobile Order/Pay Only Stores

Starbucks is opening a new coffee shop that only accepts orders placed on a mobile device, reports Geekwire (April 3, 2017). Starbucks now has more than 9 million mobile paying customers, more than a 1/3 of which use the Mobile Order & Pay (MOP) program that lets customers order with their smartphone and skip the line.

However, Starbucks has a problem. The uptick in mobile orders is creating congestion inside stores for mobile order-ahead customers trying to pick up their coffee and food at hand-off stations. This not only affects customers who are picking up items, but also potential customers who may notice the in-store traffic and end up not purchasing anything.

“We’re going to redesign new stores and existing remodels to reflect the fact that MOP is obviously going to be a significant part of the business,” said Chairman Howard Schultz. In response, Starbucks is adding dedicated stations for mobile order-ahead customers, distinct from existing in-store registers. There were 1,200 stores in the U.S. that saw more than 20% of transaction volume come from MOP during peak hours last quarter.

TheStreet’s Jim Cramer said that if Starbucks can solve “the throughput problem with mobile ordering, then its stock can go much higher. Starbucks has to become a technology company that gets your coffee to you without a throughput problem.”

Classroom discussion questions:

How can Starbucks handle the throughput problem?
Is it a mistake to create MOP only stores?

OM in the News: Starbucks Scheduling Software Makes the Headlines–Again

Starbucks employees protesting work conditions at a Starbucks in Decatur, Ga

Starbucks’ CEO Howard Schultz has long presented the brand as involving its customers and employees in something more meaningful than a basic economic transaction. But Starbucks has once again has drawn fire for its workplace practices, reports The New York Times (Sept. 24, 2015). Last year, the firm vowed to provide store employees with more consistent schedules from week to week, and to post their schedules at least 10 days in advance. The company said it would stop asking workers to endure the sleep-depriving ritual known as a “clopening,” which requires them to shut down a store at night only to return early the next morning to help open it.

But in the last 2 years, the combination of a tight labor market and legal changes has raised labor costs for employers of low-skill workers. And there has long been another central obstacle to change: the incentives of store managers, who are encouraged by company policies to err on the side of understaffing. It often turns peak hours into an exhausting frenzy that crimps morale and drives workers away. (Starbucks employees are often responsible for finding their own replacements when they are sick. “A lot of times when I’m really sick, it’s less work to work the shift than to call around everywhere,” said one barista.)

On the question of scheduling, Starbucks uses Kronos state-of-the-art software that forecasts store traffic and helps managers set staff levels accordingly. Using the software to schedule workers 3 weeks in advance typically is not much less accurate than using it to schedule workers one week in advance. “The single best predictor of tomorrow is store demand a year ago,” says Kronos’ VP.

Classroom discussion questions:

Why is scheduling in the service sector complex?
What benefits does Starbucks offer full-time and part-time employees that other food service operations do not?

OM in the News: Starbuck’s Controversial Scheduling Software

“Starbucks just announced revisions to the way the company schedules its 130,000 baristas, saying it wanted to improve ‘stability and consistency’ in work hours week to week,” reports The New York Times (Aug.15, 2014). The company intends to curb the much-loathed practice of “clopening,” or workers closing the store late at night and returning just a few hours later to reopen. All work hours must be posted at least one week in advance, a policy that has been only loosely followed in the past. Baristas with more than an hour’s commute will be given the option to transfer to more convenient locations, and scheduling software will be revised to allow more input from managers.

The revisions came in response to a Times article about a single mother struggling to keep up with erratic hours set by automated software. A growing push to curb scheduling practices, enabled by sophisticated software, has caused havoc in employees’ lives: giving only a few days’ notice of working hours; sending workers home early when sales are slow; and shifting hours significantly from week to week. Those practices have been common at Starbucks. And many other chains use even more severe methods, such as requiring workers to have “open availability,” or be able to work anytime they are needed, or to stay “on call,” meaning they only find out that morning if they are needed.

Starbucks prides itself on progressive labor practices, such as offering health benefits and stock. But baristas across the country say that their actual working conditions vary wildly, and that the company often fails to live up to its professed ideals, by refusing to offer any guaranteed hours to part-time workers and keeping many workers’ pay at minimum wage. Scheduling has been an issue for years. Said a former company executive: “Labor is the biggest controllable cost for front-line operators, who are under incredible pressure to hit financial targets.”

Classroom discussion questions:

1. What is the goal of the scheduling software many fast food restaurants use?

2. Why is scheduling a major operations issue at Starbucks?

OM in the News: Starbucks Process Improvement with Apps

Businessweek (Aug.23-30, 2012) provides a great example of business process improvement (Chapter 7) through Starbucks’ mobile payment plan program. Even before its recent $25 million investment in startup company Square, Starbucks had been processing a million mobile-phone transactions per week. “What mobile payments allows is an unprecedented relationship between us and our customer,” says Starbucks’ chief digital officer.

Starbucks released its first mobile app in 2009; it helped customers find stores, learn about coffee, and get nutrition information. In 2011, the chain released a more powerful Starbucks Card Mobile App, which also lets consumers pay at the register by waving a bar code on a phone’s screen in front of a scanner. Customers can load Starbucks’ digital prepaid card with an existing credit card.

Starting this fall, coffee lovers will be able to use smartphones to pay via an account linked directly to their credit cards. The mobile payment options also promise a profit boost for Starbucks. By letting its customers make purchases with their smartphones, Starbucks pays fewer fees—which sometimes top 2%—on credit-card transactions. Square says it can now process Starbucks payments at a lower rate than other payment networks.

From an OM perspective, the apps can also help sales by making store lines move 10 -20% faster during peak hours. Each 1% increase in a store’s capacity during rush hour translates into a revenue boost of up to 1%. “Current payment solutions don’t meet the expectations of customers or merchants,” says Wal-Mart’s VP. Since selling through a mobile app can cut transaction fees in half, the cost savings can make a big difference in retail, where operating margins are in the single digits (about 6% for Wal-Mart). The bottom line: Starbucks has created a successful mobile payments model that other retailers are following in an effort to reduce transaction fees.

Discussion questions:

1. What other mobile phone apps can increase OM efficiency?

2. How else has Starbucks increased productivity, as discussed in OM in Action boxes in the text?

OM in the News: Hotels Layout a New Lobby Look

As Jay and I were sitting in the lobby of the Marriott hotel on Michigan Ave. (in downtown Chicago), a few days ago at the POMS meeting, we were amazed at the crowd that seemed to be in the massive space all hours of the day. People were in mini meetings, they were watching six huge TV screens, they were drinking coffee, eating, or simply typing away at their laptops. It seems the new layout of hotel lobbies is intended to make them a place for both guests and locals to lounge and feel like they are in a living room or on the deck of an ocean liner.

Hoteliers, according to The Wall Street Journal (April 19, 2012), want a lobby that is abuzz with locals and out-of-town guests doing business or kicking back. Consumers, it turns out, are willing to pay a premium to stay at such a property. Beyond the buzz, mobile workers find there’s more leg room in hotel lobbies than in coffee shops. In some lobbies, it’s possible to order food and drink from the roaming wait staff. Freelancers have taken to hotel lobbies, instead of Starbucks, and hotels are courting them with long tables and lots of outlets. When Ted Copeland, for example, comes in for his coffee at Chicago’s Public Hotel (shown in the photo), the barista has his order ready. Then he sets up his laptop and lingers for a few hours over the caffeine and free Wi-Fi.

A crowded hotel lobby creates an upbeat, buzz-worthy atmosphere, which over time is thought to lead to higher occupancy. “If you have an active lobby, from a customer standpoint, it does reinforce the idea that the hotel is successful and a good hotel,” says an industry consultant. Many hotels say even overnight guests, especially those under 40, are more comfortable working in a public lobby than upstairs in their rooms.

Discussion questions:

1. Why is layout so important in this industry?

2. How has Starbucks taken advantage of the lobby trend?

OM in the News: Mass Customization, Starbucks, and the Millennials

Blame it on Starbucks. Our students in the millennial group (18-39 years old) seem to be looking for ways to customize everything they buy, according to the Chicago Tribune (Feb.26,2011). And it’s not just picking apps for their phones, IDs for their Nike shoes, or music for their iPods.

Now Kraft, the food giant, with its first new brand since the DiGiorno pizzas of 1995, has just introduced MiO, a $3.99 squeeze bottle of flavoring. Consumers can customize their water with flavors like pomegranate or strawberry. Not only will Kraft begin a TV marketing blitz in 3 weeks, but it will give away 100,000 samples through its Facebook page.

Northwestern prof. Alex Chernev points out that consumers derive “additional utility” in doing something themselves. He calls it the “Ikea effect” because buyers got to assemble their own furniture. In the old days, manufacturers made products to meet consumer tastes, he adds. Now they outsource the customization to consumers themselves.

Experts trace the mass customization rage to Starbucks’ success, which pioneered modifiers like “no-whip”, “double-shot”, and “nonfat” to the masses in the 1990’s, removing the stigma of complex orders. (My local Starbucks already knows I only get a “grande decaf iced-mocha with 2 pumps and a dollop of whipped cream”)!

So when you teach mass customization in Chapter 7, consider the quote from a 23-year-old student at Roosevelt U. in Chicago: “Our generation has this sense of entitlement. It’s not only ‘the customer is always right’ but ‘I’m always right’ “.

Discussion questions:

1. What other mass customizations are taking place among products?

2. Why is this an important issue to retailers and manufacturers?

OM in the News: Where Should Starbucks Open More Stores?

Under pressure to increase sales and share prices, Starbucks needs to add new stores in the right locations. The trouble is, the US market is saturated. So far, Starbucks has done very well in a handful of overseas markets. About 55% of its sales are in Canada, Japan, the UK, and China. But now even the UK and Canada are near capacity. Toronto, Vancouver, and London already have more Starbucks per person than NY or Philadelphia.

So the title of The Wall Street Journal article (Nov.4,2010) on the subject tells it all: “Starbucks Must Open More Stores–Overseas“. The Journal suggests Starbucks follows the McDonald’s international expansion. Where will the growth be? Germany and France are two prime candidates, as Starbucks has relatively few locations in each.

While McDonald’s draws about half its operating profit from overseas, Starbucks gets only 15% abroad. The Journal concludes: “Whether dry or wet, tall or grande, Starbucks needs to find a combination for similar overseas success”.

Discussion questions:

1. Why was McDonald’s so successful in its expansion abroad, and why will it be harder for Starbucks?

2. How can Starbucks increase profits without going overseas?

OM in the News: Starbucks’ Lean Teams Slowing Down

I always like to use Starbucks examples in class. Its the kind of “hip” company that students can relate to. Over the past few years , Starbucks has been applying lean manufacturing techniques to study every move its baristas make in order to shave seconds off each order. Chapter 1 in our text has an OM in Action box describing these productivity improvements.

But The Wall Street Journal (Oct.13, 2010) just reported that Starbucks now wants to reign in its baristas, an act that will result in longer lines and waits. Baristas are being told to stop making multiple drinks at one time, to steam milk one drink at a time instead of a pitcher at a time, to rinse pitchers after each use, and to use 1 espresso machine instead of 2.

Why would the company do this? The new methods have “doubled the amount of time it takes to make some drinks” says one employee. But the company is concerned about quality, with customers indicating that Starbucks espresso drinks are just “average”.

It is definitely an interesting class topic to see the lean techniques being reversed and I am sure many students will have a comment about such changes.

Discussion questions:

1. Why would baristas be opposed to slowing down the process?

2. What are some of the lean techniques the company has introduced over the years?

3. What other changes has Starbucks made recently in product and process?