Onward (34 page)

Six hours later, having done more due diligence, Tina shot off another e-mail.

FYI—We are out EVERYWHERE!!

Throughout the day Tina's e-mails were forwarded from one person to another and worked their way up the organization. Finally, the next day, at 6:36 a.m., an “Out of Ethos” e-mail was sent to Rich Nelsen, regional vice president, who e-mailed Craig Russell, senior vice president of store services, who immediately e-mailed Peter Gibbons.

Peter,

I wanted to ensure you had visibility to the Ethos supply issues impacting SE Plains. The teams are responding but the problem seems well beyond that team's scope of control.

When news of the problem somehow reached me, I walked up to the ninth floor and into Peter's office and slumped back on a chair in front of his desk as he briefed me about the situation. Dozens of Starbucks stores were running out of Ethos water, or their supplies had already hit bottom, and many warehouses did not have any Ethos in stock to replenish it. I was incredulous.

“How could this happen?” The fact that a portion of Ethos sales was donated added to my frustration.

“Don't worry,” Peter calmly assured me. “This is all going to be fixed.”

“But
how could it happen
?”

Instead of dancing around my question, Peter answered me straight up. “SCO is so confused with all the changes that have taken place
that no one knew who was supposed to order the water.”
Unbelievable
. “We'll get it straightened out. It won't happen again.”

I'd known for years that the overall cost-effectiveness and efficiency of our manufacturing and supply operations was not on a par with the quality of our coffee. I'd heard the complaints, but for years SCO was so busy keeping up with the company's explosive growth—“Just get products to stores” was the mandate
—
that it did not have the time to properly invest in the discipline and competency that building a world-class supply chain requires. Nor was there a reason for the company's senior leaders to insist that we invest in SCO. The financial success of our stores more than made up for, or rather covered up, logistics and distribution inefficiencies. Nonetheless, we still incurred hundreds of thousands of dollars in unnecessary expenses each year, such as paying to ship US-sourced supplies overseas to our European stores rather than sourcing them locally. Or doing business with so many local bakeries that our food tasted inconsistent and prevented the cost savings that come from purchasing large quantities of, say, blueberry muffins from one or two suppliers.

Like our information technology systems, Starbucks’ supply chain operations had not matured as the organization they supported grew in size and complexity.

Another source of the problem, to the board's point, was our lack of deep supply chain expertise. Fault didn't lie with SCO's current leaders or managers, but rather with our culture. Starbucks had a pattern of promoting talented people into new roles to stretch and develop them, even if they did not always seem to have the obvious credentials. For years that worked fine, and our people loved the opportunities, but our supply chain operations in particular had become too sophisticated to simply allow well-meaning, hardworking people to learn on the job, even if they were committed to success. SCO desperately needed specialists, not generalists.

I accepted part of the blame. Starbucks’ supply chain was not, historically, an area I focused on as chairman or as chief executive. Quite frankly, my attention went to the engine of the company: driving revenue by building the Starbucks brand, creating the Starbucks Experience, and inspiring our partners. These were my priorities and passions, as well as my skills, and like many people I gravitated to my strengths.

But debacles such as the Ethos shortage, while not necessarily life
threatening to the business, enlightened me to my own shortcomings as a leader: I hadn't delved far enough into the areas of the business that I was not comfortable with or had little innate interest in. I should have looked under the hood more often. Now I had an opportunity to self-correct and become as well versed in the company's back-end operations as I was in my own core competencies—which had been one of my intentions when I eliminated the coo role.

Still, SCO had needed its own leader who could come in and, with decisive authority, identify what was broken and adapt proven solutions. I put tremendous trust in Peter, who had joined Starbucks as head of manufacturing even though it was a step down from his previous responsibilities. Peter had been steeped in back-end operations since age 18, when he worked in a vinyl-floor factory in Scotland, and more than once in his two-decade career he'd driven radical supply chain changes through larger organizations with more locations and product variations than Starbucks. Plus, Peter is a natural leader. His confidence and straight-talking yet personal communication style belie his technical training, and he quickly earned the respect of partners who, as he sensed after hosting his first SCO open forum, were hungry to be led by someone with a back-to-basics clarity.

“At the end of the day,” Peter would repeat over and over, “someone places an order, someone fulfills that order in a warehouse, it gets loaded on a truck and is delivered to a store. That's what we do.”

His strategy to transform SCO was all of three words: “Service. Cost. People.” Under Peter, SCO would have three goals: Deliver great service to all who placed an order, be they our stores or hotels that served our coffee. Second, lower our costs. And third, develop internal talent and recruit specialists in transportation, logistics, engineering, and quality control.

“I won't take up your time with a lot of words or promises,” Peter had written in an e-mail to Cliff and about one dozen regional vice presidents about SCO's poor service record. “I just want you to know that the service levels that are being provided to you are not acceptable and will not be allowed to continue.”

Not only did Peter have to overhaul the current system—rebuilding it to accommodate the company for years to come—but he also had to do so while preserving our coffee's quality and not further alienating our vendors.

What's more, every new product the company was launching presented SCO with another piece to add to the puzzle. On September 10, 2008, it was my turn to receive an e-mail bemoaning our supply chain, albeit indirectly. The complaint came from a customer.

Dear Sir,

It sure is difficult to find stores with the ingredients in stock to make orange mango banana Vivannos. I have to drive all over. Some run out of bananas and others run out of the juice. Hope this will improve. Honestly, it's every day, and they taste soooo good, if you can get them and get them right.

I forwarded the e-mail to Peter without explanation. The original e-mail's subject—”Vivannos Missing In Action”—would tell him all he needed to know.

Five days later, the collapse of Lehman's sparked an economic crisis that would soon sweep the world.

In September 2008, the debate about what the fall of Wall Street meant for Main Street was in full swing, and I left Seattle to do a scheduled tour of Starbucks stores in Los Angeles as part of a board meeting. Cliff and two of our directors were visiting stores with me. At a Starbucks in downtown LA, after visiting with the baristas, Clara Rolan, the store's manager—who began at Starbucks as a barista in 2003—took us in the back office for a private conversation to discuss her store's performance. I wanted to know what was selling, what was not. And what she was witnessing with consumers.

“With the economy so bad,” I asked Clara. “How do you keep customers coming back?” Clara paused for a moment before answering.

“I think it would be better if one of our regular customers answers that question,” Clara said. I was unsure whether having a customer in the back office was a good idea, but I deferred to Clara, who walked out of the room and walked back in with a man in a suit. I could not help but notice he had a gun on his hip. “Don't worry,” he said, noticing me noticing his pistol. “I'm a police officer.” It turned out he was a detective for the Los Angeles Police Department who frequented Clara's store two or three times a day.

I asked him directly why he came to Starbucks so often.

“I could just as easily go to a 7-Eleven,” he said matter-of-factly. Then he shared a conversation that he and his wife had had at their kitchen table that past weekend as they reviewed their family's budget, just as millions of other families had been doing of late. “My wife asked whether I could give up my daily Starbucks.” Standing there in the back room, he recounted his reply. “Let me tell you why I cannot give it up. Because it's not about a cup of coffee. I have a tough job. I see things on a daily basis that no one should see and experience. But the one good thing I can count on every single day is how the people in that store make me feel.” Then he addressed me directly. “I want to tell you about your employees. They know my kids’ names. They know where I go on vacation. They write notes on my coffee cup. I could be seventh in line and they start making my drink.” The baristas knew he took his grande nonfat latte with two Splendas, extra hot with no foam.

He added that, as a police officer, he understood the importance of treating every person he came in contact with in his job with respect. “You never know what's going on in people's lives when you serve them,” he paused. “For all you know, it could be someone's last day on earth.” Coming from a detective who had seen his share of trauma, this was not a statement made in jest. “This is my little escape,” he said he had finally told his wife. “You just have to allow me that.” And with that, Officer Kevin Coffey—I swear that was his name, Kevin Coffey—thanked us for our time, hugged Clara, and walked out.

It is one thing for me to espouse the importance of human connection. But hearing it from a customer was just the boost I needed before meeting with the board.

One month after Wall Street's September 2008 meltdown and a few weeks before Starbucks would announce shockingly reduced profits for the fourth quarter, I was being pressured to cancel Starbucks’ leadership conference, a once biennial meeting the company holds for all North American district, regional, and store managers—about 10,000 people. But I refused. From the moment I came back as ceo I was steadfast in my decision to hold this event.

As local leaders, Starbucks’ store managers were keys to the company's transformation. All the cost cuts and innovation meant nothing unless our baristas understood their personal responsibility to connect with customers and unless our store managers felt personally accountable for operating profitable stores. The in-store experiences our partners created would carry the brand—wherever we decided to take it—and as our sales and our stock and the economy fell, I needed an unfiltered venue for expressing my empathy about all that we were asking our partners to do and telling them plainly what was at stake.

Some former attempts to bring our managers together had been canceled, one because it fell on the heels of the September 11 terrorist attacks and another because it was deemed an unnecessary expense. Now, in the fall of 2008, there was no question, at least for me. Starbucks was in dire need of an event that would educate our partners and reinstill confidence in the company's purpose.

Almost every major US city wanted to host us. The food and lodging revenue alone—a significant piece of the conference's $30 million price tag—would be a windfall for any local economy.

But we chose New Orleans.

To some people this seemed absurd. We had never held the conference outside Seattle, and coordinating travel and lodging and meals and programs for tens of thousands of people in a hard-to-reach city that was still recovering from 2005’s devastating Hurricane Katrina would be a logistical nightmare. But the reasons against going to New Orleans—that spicy southern city known for jazz and Mardi Gras and hospitality—were the very reasons we had to go. After our July layoffs and store closings (none, however, in New Orleans), Starbucks was losing not just money but also partners’ trust. Unless we rallied our store managers around our new mission and taught them how to more profitably operate their stores, our company would drown. I was sure of it.