Starbucks, as we all know, are one of the globally popular companies, but like everything else, it has its own weaknesses. Here I will suggest some solutions to help solve the problems faced in their inventory management processes. Starbucks follows the EOQ model, which involves heavy calculations and predictions.
Without the formulas and some basic information about the demands from customers, the cost of placing orders, and other variables, the calculation of the EOQ model will not be able to reach its optimal potential.
From this, collecting the accurate information for the calculations is vital, the company has to acquire reliable and timely sources. Conveying surveys, searching data online from sources like Google Analytics about the spending behavior, and carrying out research are among the ways to collect vital info from current and potential customers. By doing this, it can help determine the annual demand of the company, which can help solve or at least ease on the uncertainties of demand.
Having skilled or experienced employees/ staff is also crucial as they are considered by some are the most valuable assets of a company, which they experience customer feedback firsthand. These ‘customer feedback’ are useful to further improve the customer of said company. Listening to employee feedbacks can also help to execute certain operations, selling products to customers, and how to do things better (Vos 2013, p. 1). Other than that, having good employees that takes charge of the calculation, for example the calculation of the EOQ model, are vital because they are needed to calculate the best possible figures of ordering.
Through this, it can help narrow down the EOQ model predictions. Also, they can help predict through experience without completely relying on the calculations. Calculation based on the EOQ model also requires constant set of data. For example, the demand for the year has to be known (which has been covered on the second paragraph on accurate data collection), the cost of ordering has to be same throughout the year and also the lead time must not fluctuate and remains consistent.
Having a good supplier can help solve the consistency of ordering cost and also constant lead time (Ready Ratios, 2013). A good supplier will be able to achieve expected results, offering good quality of products and delivering goods on time are among some of the benefits of having a good supplier. Building a good relationship with the supplier will get you more benefits, such as priority as a valued customer, competitiveness (in terms of pricing, quality, reliability ahead of the competition, in this case, Starbucks, is facing), innovation and also product development (Bob Reiss, 2010).
Other than that, having good material handling can also help cope with the unpredictable usages or the uncertainties of demand. By having good material handling, the company can improve the efficiency of the production this will save time and indirectly save labor cost as productions run faster. It can also maximize space utilization by storing materials in the way it should, it also can reduce cost by saving on inventory carrying cost which is not properly handled.
All of this are necessary to make sure if something goes wrong in the calculation, the loss can hopefully be covered by the savings in material handling, making the loss easier to swallow. Having good transport of goods is also beneficial by having shorter lead time and at the same time transporting more goods are both time and cost saving. Furthermore, keeping a contingency plan at the ready can also help the company in case of unpredictable situations happening, such as natural disasters, shortage of raw materials usually hits us by surprise.
So, to keep the company on their toes, to be ready to face emergencies such as this, the company can either keep additional safety stocks, or have another backup supplier from another region to provide with the supplies just to counter the sudden changes and to prevent stock outs to happen. Other than that, the appropriate application of the contingency plan can showcase how the company can utilize and prove to others that the company can manage themselves well, inviting more investors to join in the company.
Moreover, advancement of technology plays a part in the inventory management of Starbucks. They can use it to keep track of their inventory much faster and efficient. This allows them to keep track and keep updated with how many units they have. With this said, they can improve their inventory flow and also quickly order materials that are needed for fear that miscalculation happens in the EOQ model which leads to surplus or shortage of materials, with the help of inventory management system (IMS) that Starbucks uses, they can further improve their services and provide better quality products.
To wrap things up, to have a successful company, one needs to have more than a capable workforce, it needs to have a blend of luck and some daring decisions to start up something new. For instance, Starbucks Corp. which was founded by a few teachers and their friends, and with a simple idea of a company selling overpriced coffee with decent atmosphere. Who could’ve thought that it could be this successful?
1. Bob Reiss. (2010). Build a Good Relationship With Suppliers. Available: http://www.entrepreneur.com/article/205868. Last accessed 15th June 2013. 2. Readyratios.com. 2013. Economic Order Quantity Model (EOQ). [online] Available at: http://www.readyratios.com/reference/analysis/economic_order_quantity_model_eoq.html [Accessed: 16 Jun 2013]. 3. Vos, L. 2013. People: The Most Important Asset of Any Company. [e-book] Georgia: p. 1. Available through: Georgia SBDC http://www.georgiasbdc.org/pdfs/vos09.pdf [Accessed: 16 Jun 2013].