Latest Starbucks Buzzword: 'Lean' Japanese Techniques

By JULIE JARGON

Starbucks Corp. built its business as the anti-fast-food joint. Now, the recession and growing competition are
forcing the coffeehouse giant to see the virtues of behaving more like its streamlined competitors.

Under a new initiative being put into practice at its more than 11,000 U.S. stores, there will be no more
bending over to scoop coffee from below the counter, no more idle moments waiting for expired coffee to
drain and no more dillydallying at the pastry case.

Starbucks says the efforts are already helping its bottom line, as shown by quarterly results last month that beat
analysts' expectations. Still, some baristas fear the drive will turn them into coffee-making automatons and take
away some of the things that made the chain different.

Starbucks Stores Speed Up

Pushing Starbucks's drive is Scott Heydon, the company's "vice president of lean thinking," and a student of
the Toyota production system, where lean manufacturing got its start. He and a 10-person "lean team" have
been going from region to region armed with a stopwatch and a Mr. Potato Head toy that they challenge
managers to put together and re-box in less than 45 seconds.

Mr. Heydon says reducing waste will free up time for baristas -- or "partners," as the company calls them -- to
interact with customers and improve the Starbucks experience. "Motion and work are two different things.
Thirty percent of the partners' time is motion; the walking, reaching, bending," he says. He wants to lower that.

If Starbucks can reduce the time each employee spends making a drink, he says, the company could make
more drinks with the same number of workers or have fewer workers.

Some say lean techniques aren't a panacea. "Those efficiencies only help when people come in the door," says
Jeffrey Bernstein, a restaurant-industry analyst at Barclays Capital. "Broader economic pressures need to ease
and traffic needs to increase before they can benefit from those efforts." Starbucks's U.S. transactions fell 4%
in the most recent quarter.

Starbucks's efficiency quest is an example of how even premium brands are re-engineering how they do
business amid an economic crisis. Unlike in boom times, offering ever-fancier products and opening new
stores is no longer a recipe for growth. The recession has resulted in a new thrift among consumers. In an April
poll of 1,500 people, research firm WSL Strategic Retail found 28% said they were putting more money into
savings, up from 19% six months earlier.
Retail sales in June, excluding gasoline and autos, declined for the fourth consecutive month, according to the
Commerce Department. Upscale brands are reacting in a variety of ways. In June, Coach Inc. introduced
"Poppy," a new line with handbags that sell for about 20% less than most Coach purses. J.Crew Group Inc.
recently opened its first boutique dedicated to accessories, which often bring in higher margins. Department
stores including Saks Inc. and Nordstrom Inc. are culling inventory.

The economy has forced Seattle-based Starbucks to plan for the closure of 900 stores, renegotiate rents and
trim its number of bakery suppliers. The company recently cut the price on "grande" iced coffees, and began
offering pairings of breakfast sandwiches and drinks for $3.95. Starbucks is facing heightened competition
from McDonald's Corp. and Dunkin' Brands Inc. trying to lure customers with new, cheaper specialty-coffee
drinks.

All major fast-food chains use some kind of lean techniques, says Dennis Lombardi, executive vice president
of food-service strategies at consulting firm WD Partners. Dunkin' Donuts uses lean methods "everywhere
from manufacturing to in-store organization and work flow," says Joe Scafido, chief creative and innovation
officer for Dunkin' Brands. McDonald's declined to comment.

One of Starbucks's biggest expenses is store labor, which costs about $2.5 billion, or 24% of revenue, annually.
When the economy was strong, Starbucks added workers to handle an expanding menu. The company
employed 176,000 people world-wide as of Sept. 28.

"We continued to add things, but we'd never had a real pressure on us to look at an optimal way to do the
work," says Cliff Burrows, president of Starbucks U.S. "Lean has helped us relook at what we do every day."

Starbucks declined to be specific about how much its moves could save.

The company began testing lean methods in Oregon last year. One of the first stores was managed by Tara
Jordan, in Oregon City. "In my eyes, we couldn't get better," says Ms. Jordan. Her store boasts one of the
fastest Starbucks drive-through windows in the country, according to the company, with an average time per
order of 25 seconds.
To help her understand how work can be done more efficiently, Kim Landreth, a member of the lean team,
brought a Mr. Potato Head to Ms. Jordan's store and sprinkled the ears, nose, lips and other accessories across
several tables.

Using a stop watch, Ms. Landreth timed how long it took Ms. Jordan to assemble the toy and place it in its
box. It took more than a minute. Ms. Landreth asked her to think about how she could complete the task faster.
Moving items closer together shaved time, as did altering the order of assembly. Over two hours, Ms. Jordan
amended the task. Her final time: about 16 seconds. "That really opened my eyes," she says.

The next project: observing the area where blended drinks, such as frappuccinos, are made. "I thought it was
going to be the best station in my store," Ms. Jordan says. "What I saw was how much my partners were
moving and reaching for things that were never in the same place. It took way too long to make one beverage,"
she says.

They moved all but the most commonly ordered syrup flavors and now store pitchers closer to where the
drinks are made. After learning that topping the drinks with whipped cream and chocolate or caramel drizzle at
the drink station was slowing down production, they moved those items closer to where drinks are handed to
customers. The changes shaved eight seconds off the 45-second process. "Just to top the beverage with
whipped cream and drizzle took six seconds," Ms. Jordan says.

In all, new methods have cut two seconds off the store's drive-through time -- to an average of 23 seconds.

Between September 2008 and June 2009, her store experienced a 10% increase in transactions. The company
says that having food and drinks ready to go quickly can boost traffic because that keeps people from leaving
stores.

Cost-cutting helped Starbucks post better-than-expected profit in its third quarter. The company reduced costs
by $175 million in the quarter, above the $150 million it had targeted. Starbucks reported net earnings of
$151.5 million, or 20 cents a share, for the quarter, compared with a net loss of $6.7 million, or one cent a
share, a year earlier. Net revenue fell 6.6% to $2.40 billion from $2.57 billion a year ago, as same-store sales
fell 5%.

Drink preparation wasn't the only bottleneck at Starbucks stores.

Earlier this year, Mr. Heydon accompanied regional directors to New York. At one store, the barista made
about 40 trips back and forth before the store opened -- carrying baked goods from one end of the shop, where
they were delivered, to the pastry case at the other end. Time clocked: one hour and 15 minutes. Mr. Heydon
and the store's manager came up with changes including rolling a pastry rack next to the case. Efforts at other
stores have shaved an average of an hour-and-a-half off the task per store per week.
Starbucks has faced some resistance to the program. "They're trying to turn workers into robots," says Erik
Forman, a barista in Minneapolis. "It's going to essentially turn the cafe into a factory. They want to control our
every move in order to pinch every possible penny."

Mr. Heydon says that's not the intent. Since every store is configured differently and has its own customer-
traffic patterns, he says employees are encouraged to come up with their own solutions. That's crucial, says
John Shook, a former Toyota Motor Corp. executive, who has been advising Starbucks on lean methods. At
Toyota in the 1980s and '90s, he instituted the Japanese auto maker's lean production in a General Motors plant
owned by Nummi, a joint venture of the companies.

Jason Henry for The Wall Street Journal

Starbucks is implementing a push for efficiency at its more than 11,000 U.S. outlets.

"Most companies just focus on cost savings and figure out a better way to do things and roll it out
everywhere," Mr. Shook says. "With more than 10,000 sites, Starbucks can't do that. The only person who's
going to know the work the best is the person on the front line."

Starbucks baristas used to grind all of the day's coffee in the morning and, at a lot of stores, keep it under a
counter where they would have to bend over and scoop the grounds each time they made a new batch. The lack
of grinding sounds and fresh coffee aroma were among the things Howard Schultz criticized before he returned
to the company as chief executive in January 2008 to turn things around.

Now, baristas are required to grind beans for each batch and timers buzz every eight minutes to signal when it's
time to make new coffee. At a busy downtown Chicago Starbucks, store manager Ryan Dobbertin says bins of
beans are kept on top of the counter so the baristas don't have to bend over; bins are color-coded, so they can
find a particular roast without having to pause and read the label. They also use different colored tape to
quickly differentiate between pitchers of soy, nonfat or low-fat milk.

At the beginning of April, Mr. Dobbertin's store had a customer-satisfaction score of 56%; by June, it jumped
to 76%. His store has seen a 9% increase in transactions between April and June.

Not all stores are as far along. At a different downtown Chicago store, baristas on a recent morning temporarily
ran out of coffee around 7:45 a.m. Mr. Heydon observed two workers at the espresso machine and traced their
movements on what's called a "spaghetti map," because of all the lines.

After a few minutes, his map showed a jumble of lines from the espresso machine to the sink, over to the ice
chest and back. Shaking his head Mr. Heydon said, "We're on a never-ending quest to get to perfection."

Write to Julie Jargon at julie.jargon@wsj.com

A LEAN "TEACHABLE MOMENT": STARBUCKS IN THE WALL STREET JOURNAL

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Shook, John

8/7/2009

I like to keep my consulting relationships quiet. Nothing like a provocative piece on the front page of The Wall
Street Journal to blow any quietude out of the water.

This week's Journal featured an article titled: "Latest Starbucks Buzzword: 'Lean' Japanese Techniques." The
article referenced me as the 'former Toyota executive who has been advising Starbucks on lean methods." You
can also find a free version of the article here.

The blogosphere the Journal on-line comments space and other websites is buzzing. Starbucks is a huge
flashpoint for bloggers anyway. Many folks hate and many folks love Starbucks. Many folks seem to hold both
feelings about the company. Some seem to love hating them.

I won't comment on everything in the article nor will I reply to all the things being said in the blogosphere.
But, there are a few matters that call for being set straight, key among them the charges (we've heard this
before, from industry after industry as it encounters lean) that lean is nothing more than an efficiency campaign
that is indistinguishable from Taylor's scientific management; and, that Starbucks baristas will become robots
as Starbucks seeks to equal fast food joints in labor efficiency.

Of course, that is all far from the truth.

The problem with Taylor's Scientific Management: Who is the scientist when it comes to process
improvement? Scientists must see real work to do science on the work.

Previously in this space, we've discussed the unscientific nature of most interpretations of Taylors scientific
management. Those misconceptions seep into the dialogue of even very experienced lean practitioners.
There is a technical side of lean that seeks to make production all production, all services, all work flow
from beginning to end as efficiently and effectively as possible. Traditional industrial engineering practices
including the ideas of Frederick Taylor play a critical role in those aspects of lean.

Lean Thinkers (from Toyota Production System developer Taiichi Ohno to MIT lean production research team
leader Jim Womack) credit Henry Ford with first establishing flow production, a precursor to the lean
enterprise. Henry combined interchangeable parts with the flowing assembly line and showed it to the world.
Production hasnt been the same since.

Toyota then evolved Ford's flow production in two critical ways. First, technically, Toyota figured out (with
great benefit for the customer) how to achieve flow production in lower volume, high-variety environments.
Ford's flow production worked best when offering only "any color you want as long as its black." But,
customers eventually demanded more variety. And when faced with the need to respond, Toyota showed us
that flow is possible even in complex product mix environments.

Toyota's most radical innovation.

Toyota's second, and most radical, innovation was to answer the central problem that came with Taylors
Scientific Management: the inhumane treatment of workers doing manual labor. Toyota revolutionized the
technical side of lean production with the inclusion of product diversity into the production flow. But more
importantly, Toyota revolutionized the social dimension of work, respecting workers brains as well as their
hands. So factory workers become knowledge workers.

Toyota combined old IE Scientific Management principles and techniques with social dimensions appropriate
for the modern world. Even workers who do "manual labor" with their hands are knowledge workers. Front-
line employees become the scientists.

By redefining roles, Toyota changed the answer to the question of who is the scientist in scientific
management.

The march of civilization is usually considered to progress from the Agrarian Age (with the Agricultural
Revolution) to the Industrial Age (with the Industrial Revolution) to the Information Age (led by the
knowledge worker).
So, Starbucks...

It seems that in early stages of embracing lean or any process improvement methodology, practitioners
inevitably misunderstand and go through a period of neglecting the social dimension of lean. They try to
determine the One Best Way to do work and then deploy (roll out) that Way, in a programmatic way, seeking
compliance. What is especially interesting in the Starbucks case is that they can't even HOPE to do that, not
with 10,000 stores in North America managed by kids managing part-timers to provide a high-end product and
service. So Starbucks is working out a way that could be revolutionary. It leads to a better way of working for
baristas that brings even better service for customers. And, oh, by the way, tremendous cost savings can come
along, as well.

The way Starbucks has chosen to incorporate this new way of working is revolutionary. Traditional companies
too often try to implement lean (or perhaps traditional industrial engineering, or six sigma or process
reengineering), in a programmatic way. They do it that programmatic way because simply because they can.
Starbucks, on the other hand, couldnt approach change on its massive, diverse level in a programmatic,
straight-forward, cookie-cutter way. Not and provide the kind of unique, customer-oriented service they want
to provide. They had to do it a different way. They have no choice but to do it the right way through
involving the people who do the work.

The comparison with McDonalds is erroneous and misleading. McDonalds very business model seeks a highly
cookie cutter approach. Therefore, McDonald's may be successful in implementing traditional Industrial
Engineering (Taylorism and all that not lean) in a very traditional, top-down, programmatic way.

Starbucks decided long ago and reconfirms this every day that a cookie-cutter store approach is not the
pathway to success for their product, which is a higher-end, higher-priced coffee that emphasizes the
customers experience. (That is Starbucks explicit aspiration. Many people hate Starbucks. Some hate it
because it is too upscale, over-priced, and pretentious. Others hate the taste of the coffee, complaining that it is
too strong, too weak, too "burnt." Some call Starbucks loyalists with their particular espresso demands "coffee
snobs" while there are also extreme coffee connoisseurs who consider Starbucks coffee to be undrinkable
swill. You may or may not appreciate Starbucks' aspirations or agree or disagree that it meets them that is not
the point of this discussion.) Each Starbucks store is different. The footprint is different, the customer
experience is different. I believe Starbucks wants the customer experience from store to store to be consistent
but unique. McDonalds wants the customer experience to be exactly the same, totally common from store to
store.

Starbucks wants the customer to enjoy the experience of being in the store, of interacting with the barista, of
hearing the barista call his or her name. Starbucks wants the customer to appreciate the fact that the barista is
highly skilled at crafting each drink to perfection and to the customers satisfaction.
In each of Starbucks 15,000 or so stores (the gemba or place of work for over 100,000 employees), the next
customer to walk in the door may order any of over 80,000 drinks from the nearly infinite available
combinations. And then there are those custom drinks, with "quad shots" of espresso (popular with students
during final exam week).

Far from becoming robots, think of the best bartender or waiter/waitress you've ever seen. Remember
marveling at how he or she could handle orders coming from all directions, without missing a beat. Thats
what Starbucks wants from its lean initiative.

Instead of barista's having to stop to search for things that are in the wrong place, or aren't there at all, the goal
is to make as many things as possible routine so that the barista can spend just a few more seconds talking with
the customer. That's the goal. No workarounds due to the line backing up, no short-cuts to get caught up
handling each unique order as it should be handled, in stride, without burden, and to the customers
satisfaction.

No doubt McDonald's wants its customers to be just as happy, but they want to achieve that by making every
experience exactly the same. Therefore, there is no problem with designing the work (with good Industrial
Engineering built-in) at headquarters and then rolling that work design out to the masses. In other words, I
would argue that McDonald's and the others aren't doing lean, but Industrial Engineering. The technical side of
lean without the social side isnt lean at all.

Starbucks is approaching lean with the intent of providing their baristas with the skills to do better work design
on their own, as they go along. This is in total contrast to the uninformed charge that baristas are being made
into "robots." If that is what Starbucks wanted, there are easier means to get there than their chosen method of
introducing the concepts to each store and asking the baristas to work on their own unique solutions suitable to
their own unique situations.

Starbucks and beyond . . .

By the way, the lean transformation Starbucks is pursuing is possible for all service and retail industries. Many
service industries especially healthcare are discovering the power of lean. But retail is still a state of nature
- the way employees have to stock and restock goods, often having the wrong items in stock is a huge
opportunity for retailers everywhere. Did you know that, on average, grocery shoppers fill their baskets with
what they want only a little over 50% of the time?! Did you realize that a good 20% of the time, your shoe
store doesn't have the style or size you need?! Do you remember the last time (this morning for me) you
received service that made you want to scream or just roll your eyes?
Back to The Wall Street Journal, all this publicity is probably unfortunate in the sense that Starbucks is still
very early in its lean journey. Starbucks is approaching lean the only way it can, and has been very slow and
methodical in developing it in a way that fits its Starbucks culture. It is fantastic that as a result of all this
Starbucks may be able to provide a great model for other service and retail companies to learn from. But that's
a big maybe (underlined, italicized, bold) it's way too early to tell about that. Im happy that they're trying
and learning.