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The Roundup August 4

Starbucks store front
Lean management, but customer service sucks more than ever. When will the MBA wonks running this operation ever get a clue?

Starbucks is flailing about trying everything under the sun except for improving customer service.

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.

(“Latest Starbucks Buzzword: ‘Lean’ Japanese Techniques,” Wall Street Journal, August 4) For those unfamiliar with lean management, it’s all about “just-in-time” supply chains and production, so that companies like Toyota carry as little inventory as possible. For lean management principles to work, it requires a highly dependable supply chain, high quality work in production, and some kind of demand stability (particularly since production times at various parts of the supply chain differ). The upper limits of lean production are more frequently than not set by the variability of demand. Now, go sit in your average Starbucks with a spreadsheet (I’ve done this). Record everyone who comes in and what they order. Do this for one week. You know what? It’s as wildly variable as you can imagine. Which, to this observer, leads to intense scrambling by employees and equally intense lazing about. So here’s the upshot. Lean management, good. Requires stopwatches, spreadsheets, MBA’s, and a mighty hankering for statistical analysis. Now, ask yourself this question. How much does good customer service cost? How many statistical studies does it require to say “hello” to your customers? How much does it cost to smile, a commodity in pathetically short supply at Starbucks (and, in case you’re wondering, lean management techniques are rarely conducive to producing smiles on workers). As in all things, Starbucks aims at mad-science, MBA operations or marketing solutions when, well, all they have to do is start delivering superior customer service. It’s easy, cheap (usually free), and demonstrably profitable. Simply being cheerful will up in-store revenues by 10% or more. And speaking of operations, how about “just-in-time” waiting on customers? Okay, no dilly-dallying in dumping coffee, but why am I standing in a line while the cashier is cleaning tables?


At PayPal, failure is, it seems, an option.

PayPal suffered periodic breakdowns that crimped Internet sales for more than four hours Monday.

The main outage occurred from 1:30 p.m. EDT through 2:30 p.m. when PayPal was unable to process any transactions worldwide, according to company spokesman Anuj Nayar.

The online payment service continued to experience scattered problems until about 6:10 p.m EDT. A bad piece of hardware caused the trouble, according to PayPal’s blog.

PayPal is looking into whether merchants should be reimbursed for any lost sales during the outage, Nayar said.

(“PayPal outage frustrates merchants, consumers ,” Journal Star, August 4) A month ago, it was Authorize.net that went dark because of a fire in its Seattle data center. And now this. Pingdom crunched the numbers and calculated that total losses for PayPal businesses lie somewhere between 7 and 32 million dollars for this current outage (using numbers supplied by eBay, which claims that PayPal processes $2,000 in payments every second, Pingdom simply pulled out its multiplication tables and calculated that one hour of PayPal processes $7.2 million in transactions). PayPal was fully, totally, irrevocably, and irretrievably down for one whole hour with “problems” and “intermittent service” for the next three and a half hours. So the upper figure, $32 million, represents four and one-half hours of complete downtime — the maximum upper limit. And $7 million represents one hour of downtime, the absolute lower limit. If you’re a small business or startup depending on PayPal, you, along with all your big and small bretheren, got burned with losses somewhere between the two. Add that to the percentage they skim off the top of each transaction and, well, good reasons to use PayPal seem to be leaving the party.


How do you define a Focus or Civic as a “clunker”?

Ford Motor Co.’s Focus was the top seller, followed by Toyota Motor Corp.’s Corolla, Honda Motor Co.’s Civic and Toyota’s Prius and Camry, data from the department showed today. . . .

Named the Car Allowance Rebate System, the program provides credits of as much as $4,500 for the purchase of a new, more fuel-efficient vehicle when turning in an older car or truck to be junked. Lawmakers had expected the $1 billion to generate about 250,000 vehicle sales and last until about Nov. 1.

Vehicles made by the three largest U.S. automakers — General Motors Co., Ford and Chrysler Group LLC — were fewer than half of sales under the program through Aug. 1, according to Transportation Department data obtained yesterday. The companies accounted for 47 percent of the clunkers transactions.

(“Four of Top ‘Clunkers’ Model Purchases Are Foreign ,” Bloomberg, August 4) Big winner on the stimulus front (based almost entirely on the cash for clunkers program, Credit Suisse economist Neal Soss has revised his economic growth forecasts this quarter from 1.3% to 2.0% and next quarter from 2.0% to 2.5% — but Stephen Levitt (him of Freakonomics fame) suggests that a big part of the “stimulus” will be fixing up cars so that they can be driven to a government cash-for-clunkers trade-in), but looking like a big, gigantic loser on the environmental front. Check this out. Find any article about Cash for Clunkers from a mainstream source, like New York Times, and check out the picture they use: nine out of ten times it’s an SUV, right? Cash for Clunkers is about trading in gas-guzzling, filthy, polluting, massive cars like SUVs for more environmentally-friendly cars, like, say, a Civic. But the vast majority of cars being traded in aren’t gas guzzlers. Ford Focus? 30-35 mpg? Even the old ones? Civic? I used to get 28 mpg on my 93 Civic. Trade a Focus in for a Focus and you’re probably getting a net gain of a couple MPG. Trade a Focus in for, say, a Corolla or, worse, an SUV and you are now going the opposite direction environmentally. And what do you think is happening to the clunkers? Are they being junked? No, they are probably, they’re being sent down to Mexico where they’re resold. The probable end result: more gas guzzling and pollution than if the program didn’t exist. But you can’t argue with a stimulus program that blows a two-month budget in a little over a week. I call it the government “hokey-pokey”; because of the nature of policy-making and its necessary compromises, every government program is “one foot in” and “one foot out.”


VC’s saddle up again.


US venture capital investments reached USD3.7bn in the second quarter of 2009, a 15% increase on the previous quarter, according to the MoneyTree Report produced by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters. A total of about USD15bn is anticipated for the full year, which would be the lowest since 1997 – before the dotcom bubble.

The venture capital industry normally funds 1,000 new companies a year, or as many as 1,300 in recent years, but, according to the NVCA, in the last 12 months a mere 580 deals were completed.

(“US Venture Capital Deals Increase In Q2,” Investors Offshore, August 4) We will be blogging about the MoneyTree report in just a couple days after we finish studying it, but the number of deals was bound to increase this or next quarter. VC fund-raising has been in decline two quarters in a row, but it has been positive. Simply doing the math would show you that the deals were not keeping pace with the fundraising. And since VC funds are limited partnerships with set end dates, VC companies need to start putting some running shoes on the funds they’re building. You still interested in VC funding? Time to take out that moldy old business plan and pitch and put a bit of shine on it.

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