Why Starbucks Needs Henry Ford

Starbucks cares about ice cube scoopability.

To see why, we have to start with a quiz.

Starbucks Lattes

The Question:

How many kinds of Starbucks lattes can we order?

• 383
• 383 thousand
• 383 million
• 383 billion

The Answer:

383 billion

Yes, your Starbucks latte was one of a whopping 383 billion you could have enjoyed. Because of the different sizes, syrups, milks, and all else they offer, according to a Bloomberg computation, we have a massive menu of possibilities. The upside is the $1 billion (plus) in revenue that customization reaps for Starbucks.

However, it all means we have a longer wait. After receiving our order in the café or through our Starbucks App, baristas have to scramble to prepare it quickly. As a result, a small group of people is navigating the pathways among the caf and decaf coffees, foamers, the pumps, and all else they need.

Now, looking for a better way, Starbucks has begun using smaller ice cubes. Smaller and more scoopable, they are faster.

Henry Ford also needed to reorganize and reinvent land, labor, and capital.

Making Henry Ford’s Model-T

At the beginning of the 20th century, in one place, teams of Ford’s workers gradually assembled a car. At that time, the chassis took 12 hours to finish while magneto production required 15 minutes and 29 workers. (A magneto helped to start the ignition.)

Realizing they would need many more autos as demand accelerated, Ford figured out how to expedite the entire process. Most fundamentally, they experimented with conveyor belts that streamed parts to the worker. Consequently, using 14 workers doing repetitive tasks, magneto assembly time plunged to five minutes. Then, with efficiency up and time down, chassis production dropped to 2.3 from 12 hours. And finally, rippling to the cars, output soared from 68,773 in 1912 to 170,211 the next year, and 735,020 in 1917.

Magneto production on one of Ford’s first moving assembly lines. From: Car and Driver

 Our Bottom Line: Productivity

Whether looking at an early 20th century factory or a contemporary Starbucks café, the issues are timeless. Starbucks and Henry Ford needed more efficiency. They had to produce more during a shorter period of time. As economists, we should consider their total factor productivity (TFP).

Explained below, TFP is all about getting more output from your land, labor, and capital inputs.

At Starbucks, it returns us to their scoopable ice cubes and all else that they plan to reorganize and reinvent.

My sources and more: Thanks to yesterday’s Slate Money for alerting me to the productivity effort at Starbucks. Then, Morning Brew had the details while our Ford facts are from a past econlife post.