Operating Management: Starbucks - Assignment Example

Faculty of Creative Industries and Business Department of Management & Marketing NEW ZEALAND DIPLOMA IN BUSINESS APMG 632 – Operations Management Assessment Three Semester: TWO, 2013 Date issued: Week One Due date and time: Thursday 31 October, 11.59pm (late assignments NOT accepted) Delivery: Turnitin class ID 6614937 / password unitec22013 Total marks: 120 marks Weighting: 40% of course Instructions: Complete this cover sheet and attach it to each part of your assignment. Answer ALL questions. This is an individual assignment and must be your own work. Collusion, copying or plagiarism may result in disciplinary action We advise that you keep a copy of this assignment StudentName & ID He Yongna 1394205 Lecturer: Nick Kearns Class time: Wed afternoon Student declaration: I confirm that: This is an original assessment and is entirely my own work. Where I have used ideas, tables, diagrams etc of other writers, I have acknowledged the source in every case. This assignment has not previously been submitted as assessed work for any academic course. Signature of student: Date of signature: 30/10/2013 Question1 A) Response to customer pull Any business that endeavors to succeed in its business operations is mandated with an obligation to, strategically position itself with respect to the specific needs of its market. This entails understanding specific customer needs in respect to their service or product. Such needs include, but not limited to, the specific time the customer wants the product or service, and the amount the customer wants. For example, Starbucks is an international coffeehouse chain based in Seattle Washington. The key issue behind the success of Starbucks is its marketing strategy. It is arguably true that the success of any company is founded on the precincts of proper implementation and execution of a strategic marketing plan. Despite having an ideal product, a company that lacks proper product positioning, lacks proper marketing plan and has poor target market identification will not achieve success in marketing its products. Starbucks has managed to achieve its global success through introducing different flavors to suit different market needs. For instance, after introducing the Via brand, in both Columbian and Italian roasts, Starbucks embraced a marketing strategy that involved selling high value meals to all its clients. Coupled with promotional displays, the coffee was served in the two flavors. This is known as customer pull system, and it has helped the company to grow from a local coffee bean roaster in Seattle, with a new store being opened everyday in the 1990s, to a global leader in the coffee industry. Starbucks is presently largest coffee chain in the world, with over 17, 800 stores in 49 countries (Market Watch, 2009). B) Pursue perfection and standard The business sets the targets for perfection and creating flow to, systematically and continuously remove the root problem of poor quality from the production processes so that the plant and its products are moving towards perfection. For example, one of the goals of Starbucks is to create a superior brand name that can stand the stiff competition from other firms in the industry, such as McDonalds. The introduction of the Via brand in Italian and Columbian roasts, for instance, was geared towards selling high value meals to all its clients. Starbucks endeavors to provide the best product for customer. Starbucks is well known for excellent products and services. The company has adopted the following approaches to quality: Strong Process Culture An accredited way of infusing a strong process culture in organizations is through ISO (International Organization for Standardization) certification. ISO 9001 is an international quality management standard. Starbucks has adopted this and hence it has achieved excellent standards of quality (Market Watch, 2009). Strong Team Starbucks has developed a strong quality team, which is mandated with the following duties: Document Control: To enhance a high degree of consistency and compliance, the team ensures that documentation should cover the company’s product specifications, order transactions, training records, and procedures. Product Integrity: The Company has clearly defined requirements and expectations of its output. Auditing and Training: the company conducts a continuous monitoring of processes, people, product, and suppliers.   Strong Quality Processes In order to set expectations and drive specific goals, Starbucks has developed quality processes throughout an organization. These include: Sampling Plans: A sampling plan is a blueprint for collecting, handling, and testing representative samples of products. Implementing a clearly defined and consistently employed sampling protocol reduces the chance that the sampling process will be a source of error (Market Watch, 2009). CAPA: Starbucks believes in continuous improvement. CAPA (Corrective Action and Preventive Action) has helped the company to process and eliminate causes of non-desirable outcomes or situations (Market Watch, 2009). Corrective actions are help to detect the causes of deviations, while preventive actions are the plan put in place to avoid a recurrence of a particular problem.   Question 4 A) Considering the tables shown above: Big tree will drop its profits when selling 30000 units since the total cost exceeds total revenue (i.e. 225000 dollars > 210000). It will lose 150000 per year, and that implies that it should increase its marketing price to cover the cost. The 250,000 dollars will be accumulated by Round Bend as profit. The collected information reveals, when the fixed, selling, and variable cost are set at $500,000, $70 per unit, and $45 per unit respectively, for 20,000 units, the company will make loses. When Bent Knee, Big tree and Round Bend are compared, Bent knee appears to be making maximum profit of up to $440,000. For net profit, it gets $60,000 for selling 20000 units. Therefore the best solution is for Bent Knee, to change its fixed, selling price, and Variable cost at $700,000, $68 per unit, and $30 per unit respectively B) 1) In relation to the above data, the average increase percentage of total attendees for each year is 6 %. The total number of attendees is therefore expected to be: Year 2010 = 229100 X 1.06 =242846 attendees Year 2011 = 242846 X 1.06 = 257416 attendees Comparing the data shown above, the average increase in percentage of attendees in Game 2 for each year is 2% increase so we expect the number of attendees in Game 2 for 2010 and 2011 are 53106 and 54168 respectively Year 2010= 50100 X1.02=53106 attendees Year 2011= 53106 X1.02=54168 attendees 2) The president set the average ticket price of 50 dollars in 2010 and 5% increase each year. Given that, the total number of attendees in 2010 and 2011 are 242846 and 257416 respectively, then: Total revenue in 2010 242846 X 50 = $ 12,142,300 5% increase on ticket price in 2011 50 X 1.05 = $ 52.5 ticket price Total revenue in 2011 257416 X 52.5 = $13,514,340 Year Total revenue 2010 12,142,300 2011 13,514,340 3) Following the case results it is clear that SWU football game has a popularity in the city, resulting in over 25,000 attendees watching each game for the past six years. However, there is availability of information from the data collected for past six years, and it shows Game 2 as being with the largest number of attendants each year. Attendees in game 2 rises from 39,800 in 2004 to 50,100 in 2009, which gives us a 2% increase in number of attendees for game 2 each year. Following this, the number of attendees in game 2 in 2010 and 2011 are will be 53,106 and 54,168 respectively. However, SWU stadium seat capacity stands at 54,000, meaning that the stadium will reach its maximum capacity 2011. SWU should therefore expand the seat capacity of the stadium or build a new stadium. Unfortunately, for SUW they only have 2 years to take action, and considering that building a new stadium may take 5 years or more, SUW should rather go for a stadium expansion plan, increasing the seat capacity which will only take approximately 2 or 3 years to complete. In addition, Pitterno suggests there be dormitories solely for his athletes to be part of the expansion plan. In accordance with the data shown above, the total number of attendees is expected to increase 6% each year. Therefore, we can expect the total number of attendees in 2010 and 2011 will up to 53,106 and 54, 168 respectively and the total revenue for 2010 and 2011 to be 12,142,300 dollar and 13,514,340 dollar respectively. This represents more than 1 million increase in revenue for each year, meaning SWU is certain of growth resulting from profits made with the ticket sell. SWU can therefore build dormitories solely for athletes in the stadium as an additional feature of any expansion. C) 1. Economic Order Quantity (EOQ) is the one of the oldest classical production scheduling models. EOQ helps businesses to minimize their total inventory holding costs and ordering costs EOQ 2DS/H Q*= 2(6000) (30)/10 =190 units Average inventory = Q/2 =190/2= 95 units Optimal number of order per year N=D/Q N= 6000/190=32 units order per year Optimal number of days in between any two order T = Number of working days per year N T=250/32 =8 days between order Total annual cost Total annual cost = Setup cost + Holding cost =$1760 Total annual inventory cost including 6000 unite = (95X10) + (190X30) + (100X6000) = 950+5700+600000 = $606,650 D) 1) 2) From the ABC analysis table, Boreki knows that items G2 and F3 are in the A class, and items in A class have the highest annual consumption value. Boreki should therefore have a tight inventory control for items G2 and F3, and store them in the secured storage areas and make better sales forecasts. Reorders should be recorded and frequently checked to avoid these items stock-outs. Items A2, C7, D1, and B8 are in the B class, and B class, which have the second highest annual consumption value. Boreki should monitor the potential evolution of items in B class toward the A class. E9, I6, J8, and H2 are in the C class, which gets the lowest annual consumption value, so Boreki should not store many C class items on hand and only record when these items are purchased. 3) The items in B class which have the second highest annual consumption value, and 15-25% of the annual consumption value of the business usually gets from only 30% of total inventory items. However, the class B items are made 28.9%% of annual consumption, value and A2 item gets 13.8% of annual consumption value. The potential evolution of A2 towards A class puts A2 item into the A class, hence the percentage of annual dollar volume increases from 70% to 78.2%, and the percentage of annual dollar volume of B Class decrease to 15.1%. To this extend, Bireki might put the A2 item into the A class. References Market Watch. (2009). Instant Starbucks: What the Drinkers Say. Retrieved October31,2013from http://www.marketwatch.com/video/asset/instant-starbucks-what-the-drinkers-say-2009-09-29/3B4847A8-A1B6-4B34-B5A8-3FFD4FA795EF#!3B4847A8-A1B6-4B34-B5A8-3FFD4FA795EF Read More