Best Buy, Starbucks, and Yum Brands: The Effect of Operations Management

Introduction

The concept called “Operations Management” is such a broad and general idea applied to the management of business enterprise. It is made complicated by the fact that the words management and operations can be defined several ways. The knowledge and understanding about operations management can be enhanced by studying principles of lean management systems and quality management. It can also be explained by studying an article written by Henry Ford wherein he talked about the necessity of increasing efficiency and the steps that can be taken on how to increase revenue while eliminating the factors that will slow down the company. Based on these concepts the proponent of this study will attempt an investigation on three major companies namely: a) Starbucks; b) Best Buy; and c) Yum Brands. These companies had to battle several kinds of problems related to operations management. It is interesting to find out what the company did to address issues like pertaining to wasteful practices, weak leadership, the inefficiency of the organizational structures, and the need to increase revenue while at the same time maintaining a high-level of quality products and services.

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This exercise will be made more productive by applying principles and ideas learned in operations management to widely recognized firms. Starbucks practically requires no introduction, it is a company bent on becoming the McDonalds in terms of selling coffee. Best Buy on the other hand is known for selling TV and computer products but is now entering into other aspects of the electronics market. Yum! Brands, on the other hand is one of the largest food and restaurant companies in the world. It boasts of the following iconic brands under its wings: KFC, Pizza Hut, Taco Bell, and Long John Silver’s (Yum! Brands, 2009). All three are giants in their own respective fields but there are times when corporate leaders need to dig deep into their understanding of operations management in order to deal with a highly competitive environment. They have to contend with a lot of factors such as globalization and the rising costs of production. These problems can only be overcome by the wise application of operations management principles.

Starbucks

Starbucks was a phenomenon at Wall Street. The value of the company was multiplied a thousand times when its current CEO Howard Schultz was able to transform a small company into a global company. Soon countries like Japan, China and Korea became very enthusiastic about Starbucks and the fame and acclaim of the coffee product knew no bounds. But it was not the case two years ago when Starbucks began its decline. The financial crisis can be partly blamed for its unexpected poor showing but the company CEO was willing to turn things around.

From the very beginning of the process to improve operations management, Howard Schultz knew that the company is in for a very rough ride. First of all, there are many restaurants and coffee shops that are trying so hard to take a bite of their market share. It is not that hard to roast and make a fresh brew of coffee. Having the right kind of equipment will even increase the value and quality of their competitor’s products. While the competition is very aggressive, the CEO was also quick to admit that the company and its corporate leaders were partly to be blamed because they were not true to what they proclaimed from the very beginning. According to one commentator, “But perhaps the most hurtful have been the mounting complaints from customers, employees and even Schultz himself that in its pursuit of growth, the company has strayed too far from its roots” (Kiviat, 2008). There is no need to be an expert in order to realize that the goal of the company is to brew high-quality coffee, provide an extraordinary experience while consuming coffee within the four walls of Starbucks and make it all accessible to the average person.

Due to the numerous complaints and the perceived weakness in responding to their needs the customers fired back by voting with their feet and instead of going to Starbucks they preferred alternatives such as coffee from McDonalds or the cheap and yet tasty one from Dunkin Donuts. For Howard Schultz this is unacceptable not only because they are losing their foothold but also because $400 million dollars of his fortune had been eroded due to these problems. They had to make changes and implement it fast.

Best Buy

In an interview with Best Buy CEO Brad Anderson, one can have a glimpse of how radical operations management can help turn things around as well as perceive that there is a need to innovate and make daring choices in order to increase efficiency as well as revenue. In the 1970s Best Buy was then known as Sound of Music. There was a total of seven stores all in all and yet the company was losing money (Grant, 2008). At that time Brad Anderson was a sales clerk in a three-man store (Grant, 2008). When the founder of the company was looking to replace someone from his management team, Anderson volunteered and he explained later on that he was not very confident at that time but his boss gave him a chance.

When he got the job he went on to prove to himself and to his boss that he was the right man for the job. But the success of Best Buy did not only rest on the abilities of Anderson, in fact he admitted that their secret for extraordinary success is their ability to “collapse” the distance between a customer and the company’s decision-makers. Anderson realized that the sales clerk are the human resources that has the best single insight when it comes to customer needs (Grant, 2008). Armed with this insight, Anderson went on to develop a system that can harness these “insights’ as well as provide a mechanism that allows sales clerk to voice out their concerns and ideas on how to improve the system.

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Yum! Brands

At one point Yum! Brands KFC, was in trouble of losing a great percentage of their market share and bowing to McDonalds. The solution is to become more innovative and daring when it comes to developing new products. They have to if they want to thrive in places like China where food, culture and language can be a very difficult set of problems to overcome. When it comes to KFC there is no other way to do it but to adapt. They began selling food items that the Chinese people would love. Then they leveraged their experience, their wealth, and their brand name to draw customers and make them want to come back for more (Cullen, 2008).

They were able to turn around by allowing business people and interested parties to franchise their brands. In the past every restaurant that was opened outside the United States was controlled and managed by the company. It was the epitome of inefficiency. When they finally learned to franchise the brand they were able to pass the responsibility of managing a restaurant to the franchisees. This has made them more efficient.

Lean Management Systems

One way to deal with the problems faced by the aforementioned global brands is to incorporate Lean Management Systems (“LMS”) into their overall corporate strategy (Bell, 2006). It has been made time and time again that the ultimate goal is to make a profit. It dos not matter if the company was productive last year, shareholders are only interested if the company made money or not. LMS offers strategic solutions to their problems by pointing to the weaknesses in the systems and how to improve it by eliminating wasteful practices.

This can be done by lowering production costs (Bell, 2006). This is where LMS comes in. There is no need to spend a million dollars if the same task can be accomplished using half of that money. Whatever is saved can be translated to profit. This can be done by looking at the overall production flow and find out what aspects of the production process is slowing the system down or what aspect of the process is to blame for poor quality work. If the product that comes out of the manufacturing facility has poor quality or is defective then the customers can send it back for repair or rework and that will entail greater costs.

In the case of Yum! Brands, Best Value, and Starbucks there is a need for them to improve their ability to generate feedback and allow management to hear it and act on it. This is made possible if employees are empowered. There must be continuous learning and encouragement within the firm with regards to the system that allow employees to communicate effectively ideas and suggestions that they saw at the shop, the warehouse or show room. Everyone must understand that it is not only the job of the supervisors and line managers to be attentive to the forces that are shaping the work environment.

It is no longer acceptable to simply produce and generate output. In a highly competitive age there is a need to monitor everything, every material and every resource used for the manufacture of a product and the delivery of particular service. A company can use the assistance of highly functional computer systems that will aid them in monitoring the process. The presence of computes will result in automation and the use of Information Technology will increase the ability of the company to find out the most wasteful aspect of their production process. Employee participation in the process of lean-management systems will benefit in the long run because whatever the company can save in production can be easily translated to profit and every employee will also benefit it from it greatly.

Corporate leaders must work hand-in-hand with rank and file employees. But first the leaders must initiate the transformation of a wasteful production process by educating employees. One of the first steps is for business leaders to provide clear strategic direction (Shinkle et al., 2004). After that the business leader must provide a way for its employees to help create a structured and disciplined process for approval, communication, and control of the flow of money, human resources, material projects and other related activities (Shinkel et al., 1994). In this manner the company seeks to empower employees that the are part of the process and that their inputs are highly valued. Moreover, this system will provide a clear direction for employees and they will not be confused.

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Quality Management

It is one thing to eliminate wasteful practices it is also another to produce products that are not in conformity to the instructions, wishes and desires of the customers. In the great bid to reduce costs, increase efficiency, and speed up the process, quality need not be sacrificed. This can be achieved by having the mindset that the goal of the company is to do it right the first time. There is no need to spend money to move the product only to spend the same amount in delivering it back to the facility for rework and even worse redesign of the whole thing.

Again, this requires the help of employees. An empowered workforce will help in the production of quality goods and services. They must be educated as to the concept of getting it right the first time to eliminate wastage. This is a good starting point for companies like the Yum! Brands. For they have to venture far from their main base of operations and forced to adapt to a new environment. Their greatest challenge is to develop food products that other people of varied cultural backgrounds and ethnicity will be encouraged to try.

Henry Ford on Leadership

There were numerous ideas and business concepts that were discussed in the preceding pages. This can be made easier to digest and understand if seen from the perspective of a titan of the U.S. auto industry. It is interesting to find out that Henry Ford was no ordinary entrepreneur and what he had to say about operations management will impress even the most jaded critic because this piece was written in the early 1920’s and yet its truth still rings today. Henry Ford pinpointed issues regarding leadership, red tape, inefficient operations, and the value of hard work.

It can be argued that Henry Ford was one of the first to have a clear understanding of industrialization and how man and machine should work together. It is important to show that while machineries are very critical in the early phase of the Age of Industrialization, Ford was emphatic in saying that it is all about leadership, quality of the products and human nature. Ford knew that creating a top-down hierarchical view of leadership and the workforce will render a company inefficient. His idea of creating an almost flat model of business leaders-rank and file relationship was radical for his time. After all, the Industrial Revolution followed the classical period where it was normal to obey royalty and obey the nobility and clergy. Society was highly structured and therefore the same thing could be expected from the factories.

Analysis

Using principles brought together by the study of LMS and quality management and Henry Ford’s ideas regarding corporate organizations, the proponent of this study was able to understand that quality must not be sacrificed in the bid to reduce costs and increase efficiency. It is therefore possible to aim for quality management and lean management systems both at the same time. In order to apply these principles there is a need to re-educate the workforce and certain key leaders regarding the company’s need for a new direction.

In the case of Starbucks they would do well to follow the advice of Best Buy CEO Brad Anderson. They must “collapse” the distance between consumer and CEO. In other words they must give value to the ability of their sales clerks to reach out to their customers and at the same time hear what they have to say. This system will only work if the company will be persistent in going after the feedbacks of the customers. Starbucks is not in the manufacturing business per se but they roast their own coffee and deliver it fresh to their customers. Aside from that they also promised not only to deliver quality coffee and make it accessible to average consumer while creating an ambience making them a dispenser not only of a beverage but also of a particular experience. The customers are saying that their standards are slipping and therefore it is no longer that much fun to spend a considerable amount of money to purchase latte. They have to look into that problem.

Best Buy on the other hand scored great when it comes to customer relations and the efficiency when it comes to redirect consumer feedback from sales clerk to CEO but they are working on how to improve the efficiency of their operations in the same way that Yum! Brands was able to leverage their experience and resources when venturing into foreign lands. Best Buy recently merged with a company that sells cell phones, a market that they had difficulty penetrating (Grant, 2008). As of this point they were successful in combining the strength of the two companies but they must not rest on their laurels as the electronics business is unstable, especially in the current financial crisis.

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Yum! Brands was successful in developing their “franchise” system and allowed them to shift their focus on improving their global presence instead of the day-to-day operations of their restaurants. By doing so, it is now their franchises who will do the “dirty work” for them while the continue to use their large network to multiply their strengths and make them more cost-efficient in the long run.

Conclusion

Operations management is a broad topic but it was simplified with the discussion of key concepts needed in the 21st century such as lean-management systems, and quality management. This was made easier to understand by following what Ford said about simplifying the structure of the organization. Ford also said that at the end of the day it is revenue and profitability that will be the mark of success. He is actually saying that we should not confuse movement with productivity. Brad Anderson’s insight regarding the need to improve communication between decision-makers and customers is also a very important piece of advice for up and coming corporate leaders.

References

  1. Bell, S. (2006) Lean Enterprise Systems. New Jersey: John Wiley & Sons, Inc.
  2. Cullen, L. (2008) Kentucky Fried Rice.
  3. Grant, Alistair. (2008) Q & A with Best Buy CEO Brad Anderson.
  4. Kiviat, B. (2008) Starbucks Looks for a Fresh Jolt.
  5. Lewis, M. & N. Slack. (2003). Operations Management: Critical Perspective on Business Management. New York: Routledge.
  6. Yum! Brands (2009) Yum! Brands.
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