EPM938 Operations Management Group Coursework 1 [19.11.

17]
Executive Summary
The aim of this report is to contrast by way of comparison the operational activities of two
organisations: Nespresso and Starbucks Coffee.

Both companies are prominent players in the coffee and beverage industry albeit with a different
client focus.

Nespresso’s business model is based on supplying household consumers with premium quality
coffee in the form of capsules as well as own-branded electric coffee machines. This is collectively
referred to as the Nespresso system.

Starbucks’ operations on the other hand involve retailing of premium coffee products through a
network of strategically located and highly visible coffee shops.

Both companies have adopted almost similar sustainable procurement programmes within their
supply chains which are reinforced by a desire to ensure only superior quality and responsibly
sourced coffee beans are delivered to their respective production centres.

Nespresso Sustainability & Corporate

Responsibility Commitment:

‘’We are committed to ensuring sustainability Starbucks Ethical Sourcing Commitment:

throughout our operations, making clear
commitments and seeking to create shared value
and positive impact for farmers, consumers and
society at large, while caring for the
environment. We believe that each cup of
Nespresso coffee has the potential not only to
deliver a moment of pleasure for our consumers,
but also restore, replenish and revive
environmental and human resources.’’
‘’We know our supply chain inside out, bringing
you unique sustainably produced coffees from
around the world.
We work with over 300,000 farmers across
nearly 30 countries to ensure we’re producing the
best coffee possible, in the most ethical way.
When we purchase products for our stores, we
evaluate our suppliers for their commitment to
social responsibility too.’’

The report will also consider customers perceived views when faced with choices and decisions
regarding both companies’ final product in terms of variety, convenience, perceived product value
and cost.
Contents
Overview of Starbucks and Nespresso.................................................................................................... 4
Competitive Strategies............................................................................................................................ 5
Nature and Characteristics of Operations .............................................................................................. 7
Operations Strategy ................................................................................................................................ 9
Process Types ........................................................................................................................................ 16
Supply chains ........................................................................................................................................ 17
Operation Level Processes .................................................................................................................... 19
Operations Characteristics of Starbucks and Nespresso ...................................................................... 19
Planning and Control Issues .................................................................................................................. 22
Operations Improvement ..................................................................................................................... 22
CONCLUSION......................................................................................................................................... 23
 Introduction
Parts of Nespresso operational activities this report will cover:

 Household end-users (Direct-to-Consumer)

 Coffee Bean Procurement
 Production and Marketing Strategies
 Coffee Machines
 Technology

Parts of Nespresso operational activities this report will NOT cover:

 Commercial end-users (Business-to-Business Industrial Client)

Parts of Starbucks operational activities this report will cover:

 In-store Coffee products only (Direct-to-Consumer)

Parts of Starbucks operational activities this report will NOT cover:

 Other confectionery products sold in Starbucks coffee shops

 Commercial end-users (Business-to-Business Industrial Client)
CONTENTS:

Types of Operations analysed in this report:

1. Competitive Strategy
2. Operations Strategy
3. Supply Chain
4. Characteristics of Operations
5. Operations Performance Objectives
6. Nature of Competitive Factors
7. Process types & Process Layout
8. Process Technologies
9. Planning & Control Issues (i.e. Inventory Control and Capacity Management)
10. Approach and Success in Operations Improvement

Overview of Starbucks and Nespresso

Overview of Starbucks
Starbucks Corporation is an American coffee company and coffee-house chain. Starbucks was
founded in Seattle, Washington in 1971. In 1982, Howard Schultz joins Starbucks as director of retail
operations and marketing. A year later, Schultz convinces the founders of Starbucks to test the
coffeehouse concept in downtown Seattle. This experiment was the beginning of Schultz rebranding
Starbucks and then a full takeover of the company in 1987. (Starbucks, 2017)

Overview of Company A [Nespresso S.A]

Nespresso was founded in 1986 and is an autonomous globally managed business unit wholly owned
by the Swiss-based Nestle Group. The company pioneered the concept of selling pre-measured and
portioned espresso coffee pods and capsules using their Nespresso range of coffee making
machines. This innovation is largely centred on the argument that portioned coffee is more superior
compared to standard soluble coffee because it reduces wastage of water and coffee thereby
reducing the carbon footprint. The Nespresso machine also ensures a consistent quality cup of
coffee is dispensed on every occasion by anyone not just by a skilled barista.

The company has operations in 64 countries and employs 12,000 people world-wide and are a visibly
powerful global brand as evidenced by over 340,00 online daily visits and hits on their sales
websites. They also have over 5 million followers on the Facebook social media website. The brand is
also represented by popular actor George Clooney as its brand ambassador.

Competitive Strategies
Competitive Strategy of Starbucks
Product Development

Starbucks has emphasized elevating coffee experience as the most crucial aspect to the company’s
growth. This strategy is backed by the fact that the coffee market is set to grow multi-fold in the next
few years. This makes pulling all the stops to attract customers and be the most preferred coffee
shop. Starbucks has developed a new pyramid in which Roasteries is at the top targeting uber-rich
and coffee connoisseurs. Just below that is the reserve stores, which have twice the square footage
of a normal store. This they hope will address the problems of competition and the ubiquity of
delivering customers the highest quality coffee. (Trefis Team, 2016)

1.
Fig 1. Starbucks Coffee Experience Pyramid (Trefis Team, 2016)

Market Development

Attracting new customers is quite a difficult feat considering that the market is saturated in recent
years. To achieve this, starbucks is changing its stores mix. Instead of opening more dine-in
restuarnts, the coffee giant is concentrated on improving sales by growing the number of stores.
This they how will create a footprint that will benefit the company for years to come. This growing of
stores would not only increase sales but also be an effective advertising platform. (Trefis Team,
2016)

Market Penetration

The fastest growing sales for starbucks in the last few years has been lunch hour sales. starbucks
want to improve this sector of sales by offering more fresh food like sandwiches and soups. This is
aimed at enticing a greater number of customers to its redesigned stores. This strategy, if successful,
will be offering new and innovative food and beverage options. (Trefis Team, 2016)

Competitive Strategy of Nespresso

Nespresso’s unique direct-to-consumer business model and route to market provides them with a
unique competitive advantage versus competitors and offers a distinct advantage to Club Members.
Direct relationship with customers through the Nespresso Club allows anticipation of customers’
needs and tailor offerings and services based on the insight and feedback that they provide.
Nespresso exclusive boutiques around the globe provide personalised services and a unique gateway
to allow consumers to interact with the Nespresso brand.

The company continues to forge new paths of innovation in the portioned coffee market to maintain
its leading competitive edge. The wide ranges from the coffees and design of new machine models
to the development of innovative retail solutions and services, including the new Nespresso Cube,
the first fully automated Nespresso boutique.

NESPRESSO COFFEE SYSTEM PERCIEVED USE & DIMENSIONS OF COMPETITION

 Nature and Characteristics of Operations
Nature and Characteristics of Starbucks Operations
Starbucks input transformation Model

FARMERS PROCESSORS

STARBUCKS
SUPPLIERS
STORE

Transformed Resources
Coffee, Customer
Information, Capital
Transformation

• Customer Service
•Customer Requiremnts • Brewed Coffee
•Coffee • Brewing coffee • Sales
• Packaging • Market Growth

Input Output

Transforming Resources
Café Shop, Staff,
Management, Various
Coffee Machines, Storage
facilities

Repeat
4V Characteristics

Volume

According to Business insider UK, people around the world spent 10 Billion on beverages at
Starbucks. This equates to about 4 Billion cups of coffee on average over the past 2 years. This is
possible as Starbucks has 28,772 store in high traffic areas staffed by 254,000 employees in 74
countries. (Loxcel, 2016)

Variety

Starbucks has a wide variety of flavoured coffee to offer its customers around the world. This allows
Starbucks to enjoy high customer satisfaction as they allow customers to create their own coffee.

Variation

Starbucks is usually located in high traffic areas of urban centres in countries they operate. This
makes them easily accessible to most customers and satisfy customer demands for quick service

Visibility

As a premium coffee service, Starbucks is more expensive compared to other coffeehouses. Starbuck
wants customers to be involved in the coffee making process. They make their counter very thin, so
customer can see the coffee making process in action.

Characteristics High Low

Volume Highly repetitive
Specialisation
Low cost
Variety As you wish
Matching what you want
Variation Custom-made
Flexibility
Visibility High customer Involvement
High unit cost
 Operations Strategy
Operation Strategies of Starbucks

Design of Good &

Services

Quality Management

Process and capacity

Design.

Location Strategy
Operation Strategies

Layout Design and

Strategy
Job Design and
Human Resources
Supply Chain
Management.
Inventory
Management

Scheduling

Maintainance

Risk Management
  Premium Pricing
Strategy
 Premium Pricing is
Reflected in Brand
Design of Good & Services
Image
 Brand
Differentiation

 High Quality Beans

 Starbucks Coffee
And Farmer Equity
program
Quality Management
certification (CAFE)
 Premium Quality
Service
Operation Strategies

 Highly Efficient
Processes

Process and capacity  Maximize Cost

Design. Through Efficient
Workflows

 Urban Centres
 Strategic Clustering
Location Strategy  Affluent Customers

 Maximize Workflow
Efficiency

 Designed to Engage
Customer (Coffee
Layout Design and Strategy
Experience)
 Premium Café
Ambiance

 Employee Oriented
Company
Job Design and Human
Resources
 Servant Leadership
 Starbucks Culture
  HRM & Inventory
Management

 Multi-National
Coffee Supply Chain
Supply Chain Management.  Diversity of
Suppliers
 Tackle Ethics Issues

 Coffee Inventory
from Farm to
Facilities
Inventory Management  Maximize Stock-out
 Ensure Continuous
Supply of Coffee
Beans

 Automated &
Manual Scheduling
Approaches
 Streamline
Processes
Scheduling
 Flexibility Among
Management
Positions

 Trained Employees
for Maintenance
Maintainance
 Third Party Services
 Training &
Retention Strategies
  Economic
Conditions
 Brand Image
 Incidents Involving
Risk Management
Beverage
 Customer
Information Hacking

Operations Strategy of Nespresso S.A

According to Slack et al, ‘’Operations strategy concerns the pattern of strategic decisions and actions
which set the role, objectives and activities of the operation. ‘’

Nespresso’s operations strategy is captured within the following points:

 Strategy is underpinned by passion for perfection and track record of continuous innovation
to consistently deliver the highest quality coffee tasting experience to consumers worldwide.
This is achieved through delivering high quality ‘’Grand Cru’’ coffee capsules range to be
used by unique home-use Nespresso system coffee making machines.
 The business model is constantly refined with a focus on continually enhancing the
consumers’ coffee experience.
 Launching of online sales boutique concept that enable 24/7 direct online ordering.
 Creating a global brand by expanding geographically.
 Establishment of a consumers Membership Club network.

Characteristics of Nespresso
Nespresso operations transformation model:

Transformed Resources

Portioned Nespresso
coffee capsule
• Input

Transformation Process Customers

Input resources Products & Services Home Coffee Consumer
Nespresso Coffee
System

Transforming Resources

Nespresso Coffee
Machine
Nespresso’s operations can be classified as high-volume low visibility for both the Nespresso system
and coffee pods as illustrated in the graphic below:

Operations Performance Objectives Nespresso

Nespresso’s operations performance objectives and roadmap for sustainable growth can be
classified as follows:

1. SPEED
Nespresso’s primary objective is to enable customers to instantly prepare good quality
coffee in the shortest time possible through utilising the Nespresso coffee system.

2. QUALITY
Nespresso’s revolutionary concept is to enable anyone to create the perfect cup of coffee
similar in quality to coffee made by skilled baristas.

3. DEPENDABILITY
The Nespresso system offers reliable and innovative coffee machines that strive to meet
customers values and expectations.

4. FLEXIBILITY
Nespresso offers coffee lovers worldwide the widest range of ‘Grand Cru’ coffees and
continue to regularly innovate to bring new, exceptional experiences to their Club Members.

5. COST
The initial cost of the Nespresso coffee system may seem higher in the short term, but over
time is becomes significantly lower compared to buying specialist barista made coffee from
coffee shops.
NESPRESSO STRATEGY FORMATION PROCESS
 • Channel
Where • Locations

Customer
segment

• Size Product
• Features
• Variety
• Quality

NESPRESSO OPERATIONS MODEL:

Process Types
Processes Mass Production Batch Production Flow Production
Coffee bean Starbucks
production
Nespresso
Coffee capsule Nespresso
Production
Making a coffee Flow Production
drink
Nespresso

Starbucks
Missing process types of Nespresso

Supply chains

Supply Chain needs changing

Starbucks Supply Chain

Strategy and Structure of Starbucks’ supply chain

Supply Chain Structure

Starbucks’ success can be greatly attributed to its highly efficient and sustainable supply chain.
Starbucks works directly “with over 300,000 farmers, across 30 countries”
(www.starbucks.co.uk/responsibility/sourcing, 2017) to ensure the best quality coffee makes it
through the supply chain and into its customer hands. (M.Hoban, 2016) The way this efficiency is
achieved is by having a centralized system that controls both the supply chain and logistics network
across multiple global distribution centres and 6 roasting centres
(http://www.supplychain247.com/article/behind_the_scenes_at_starbucks_supply_chain_operatio
ns, 2014). (A. Venkatraman, 2014) Starbucks also relies heavily on digital services to monitor its
supply chain, to ensure its 24,000+ stores (www.starbucks.com/business/international-stores, 2017)
are constantly supplied. The supply chain is configured in this way because of the huge number of
deliveries they facilitate weekly, 70,000+.

Coffee Farmers are the backbone of Starbucks’ success so they are also a vital element in the supply
chain and this can be seen by the full cooperation and integration they receive in the supply chain.

Starbucks Philosophy

In 2004 Starbucks launched C.A.F.E. (Coffee and Farmer Equity) Practices and are now the largest
coffee retailer to achieve 99% ethically sourced coffee
(www.starbucks.co.uk/responsibility/ethicalsourcing/ourcoffee, 2017). More detail

Nespresso Supply Chain

Suppliers Production Products Distributors Retailers

Cultivation Nespresso
and selection Boutiques

Coffee
Coffee Capsules Warehouse
Farmers
in Denmark
Transportation
Amazon Eu

Miele Nespresso
Coffee
Coffee machines Affiliates
Processing Major
Supermarkets

Siemen
Packaging
www.nespresso.com

DeLonghi Machine
Manufacturing
Strategy and Structure of Nespresso’s supply chain
Coffee Beans

Nespresso has a very strict and diligent coffee bean selection process and sourcing is based on
selected terroirs or set of a region’s relevant environmental factors. The company estimates that
only two percent of the coffee grown globally meets their specific taste and aroma profiles, and
quality requirements. These rare coffees are responsibly sourced and supplied from the world’s
most well-renowned coffee growing regions. The worldwide sourced coffee beans are then crafted
into exceptional blends and single origin coffees, specially developed to suit every taste preference,
by specialists in state-of-the-art production centres. The company’s coffee beans are supplied
directly from the farmers thereby cutting out the middlemen and ensuring sustainability
commitments are entirely considered.

Nespresso Coffee Machines

Stylish Nespresso machines are continually re-invented with innovative design and features to offer
consumers more convenience. Currently there are over 60 models of machines and 8 specialised
outsourced design partners. The most popular machine is the Nespresso Magimix series.

Operation Level Processes

Operations Characteristics of Starbucks and Nespresso

Company

Volume High Medium

Variety High High

Process Type Made to order Self-service

Layout 24,000+ Stores Globally 450+

Boutiques/online/Shops
 Technology Specialised Barista Machine Home or Office based
Pod Machine and
Capsules
Design of Job Flexible design, customer can make Simple, easy to make,
a lot of decisions when ordering e.g. self-explanatory. No real
flavoured syrup, cold coffee, decision making beyond
seasonal specials, multiple sizes, which pod and milk or
frothy milk etc. sugar

Operation Level Processes of Starbucks

Production process of a Starbucks coffee drink

Farmers International Storage Processing Local Producing Customer

Distribution Centres (roasting) Distribution (brewing)

Process of making a Nespresso Capsule

Coffee Production
Cultivation Harvesting and processing Transportation

Coffee seeds are panted and After they ripen the cherries The cherries are
bear coffee cherry in a farm. are handpicked. The outer transported from the farms
covering of the cherries are to a processing factory
removed leaving the beans.
 Milling and Roasting
The beans are left to
dry and then heat is
applied to the beans.
Grinding
The coffee beans are then
ground to a required fineness

Coffee Capsules

The ground coffee

beans are combined
Casting with the aluminium
The aluminium is cast to container in a factory.
form the required shape.

Ore Chemical Process Smelting

The raw aluminium Alumina powder is Using electrolysis, the
material is mined. produced using a alumina powder is
chemical process smelted into aluminium.

Aluminium Capsule Production

Process of making Nespresso Coffee drink

Planning and Control Issues
Planning and Control Issues of Starbucks
(panmore.com/starbucks-coffee-operations-management-10-decisions-areas-productivity,
2017) Because coffee beans are a perishable good, planning and controlling the level in
their various distributions and roasting centres is a fundamental requirement for Starbucks to
succeed. Starbucks also ensures that its stocks and inventory management system is highly
refined and efficient to help achieve minimal waste. On a store level, inventory management
is split between manual and automated monitoring to ensure all their stores are adequately
stocked. At a higher level, Starbucks relies on automation through computer based cloud
systems ((A. Venkatraman, 2014) to monitor and control inventory levels at its distribution
and roasting centres.
Another major issue Starbucks needs to plan for is the uncertainty of supply of a raw
material that is so dependent on weather, and the geographical and climactic changes that
are impacting their farmers around the world.
(https://www.theguardian.com/business/2011/oct/13/starbucks-coffee-climate-change-threat,
2016)

Planning and Control Issues of Nespresso

Planning and Control issues of Nespresso

Sustainability and unfair labour has become a major talking point as far as the major industries are
concerned. The company has set many targets which will enable it to achieve a 100% carbon
efficiency in its operations by 2020. It has also made significant strides since 2003 to help local
farmers who play a significant role in their supply chains. Meeting these targets rely very much on
technology. An area in which technology plays a key role is during the farming stage. Nespresso
ensures methods, equipment’s and techniques that are used for cultivation meet standards of
quality, sustainability and productivity. In terms of quality farmers are provided high quality sun
dryer, fermentation tanks and training. To achieve sustainability and productivity standards farmers
are provided with pesticides, internal control systems and fertilizers.

Operations Improvement

Operations Improvement of Starbucks

Starbucks and the coffee industry as a whole is highly competitive, so improvements are
always required to be able to grow and develop as a business. In the early 2000’s Starbucks
was struggling as a business but all that changed when former CEO Howard Schultz
returned. He set out a clear plan on how operations were to improve all across the board,
from farmer to the final customer experience. (www.shmula.com/starbucks-why-lean-why-
now/5639/, 2010). One of the fundamental operations at Starbucks is making coffee, so in
2008, as a way to drastically and rapidly improve the Starbucks experience for all customers,
Howard Schultz ordered all stores to close for 3 hours in order to train all of their baristas in
the proper technique to making an espresso
(http://www.nytimes.com/2008/02/27/business/27sbux.html, 2008).
(https://rctom.hbs.org/submission/starbucks-its-not-just-about-the-coffee/, 2015) Small
changes and innovations to daily operations have also had a huge impact on productivity
levels. These changes include; smaller milk cartons, newly designed milk frothing jugs to
speed up the frothing process and a store-wide relocation of syrups for easier accessibility.
As was mentioned above, the centralized global distribution network was a key in
maintaining and improving all their distribution and supply chain operations.
The customer experience and the instore interaction is also an operation that Starbucks are
constantly trying to improve. This is evident in their increased digital presence and constant
innovation in coffees, which can be seen by one of their latest viral sensations, the Unicorn
Frappucino (https://www.marketingweek.com/2017/04/28/starbucks-changing-consumer-
behaviour/, 2017)

Operations Improvements of Nespresso

Nespresso achieves improvement by setting long term targets. Its three key principles have been to
ensure “continuous improvement, creating shared value and innovation. These principles have been
the basis for some of the long-term targets set by organisation particularly in terms of sustainability.
For example, in 2014 Nespresso launched it 2020 sustainability ambition after having successfully
achieved set by the Nespresso Ecolaboration program. In 2003 Nespresso launched its AAA
Sustainable Quality Program to improve farmers productivity. Examples of some of the social
contributions being made by the company include its investment in reviving coffee production in
Sudan as well as being an industry leader in the training coffee farmers around the world.

EPM938 Operations Management Group Coursework 1 [19.11.17]

CONCLUSION
Nespresso (Company A) and Starbucks Coffee (Company B).
In conclusion, it is reasonably noted that although the operations strategies employed by both
companies may be significantly divergent, particularly in volume and visibility, ultimately they seem
to follow a similar…in terms of long term performance objectives [INPUT TO FOLLOW….]