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1. INTRODUCTION

1.1 BRIEF HISTORY

In 1954, Ray Kroc met Dick and Mac McDonald’s. They produced a limited menu of fries,

burgers and beverages which allowed them to focus on quality and quick service. In 1955,

Ray Kroc founded McDonald’s system, Inc. (a predecessor of McDonald’s Corporation) and

six years later bought the exclusive rights to the McDonald’s name. Ray had a vision of

creating McDonald’s restaurants all over the US that would be famous for providing food of

consistently high quality, uniform methods of preparation and identical taste. To achieve this,

he designed the supply chain philosophy for McDonald’s, which is named the three-legged

stool (Fig. 1). One leg was McDonald’s franchisees, the second was McDonald’s suppliers

and third was McDonald’s employees (McDonald’s, 2015).

Figure 1. McDonalds Three Legged Stool

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1.2 MCDONALD’S AND THE GLOBAL FAST FOOD INDUSTRY

McDonald’s is a world leading global food service retailer with 36,000 locations in over 100

countries serving approximately 69 million customers each day. Her favourites include Big-

mac, Quarter Pounder, Famous fries and chicken Mc Nuggets. (Dow Jones and company,

2007). It has a 19% market share in the global Fast food industry (Fig. 2) and runs 1200

restaurants across United Kingdom and Northern Ireland.

Figure 2. Market Share of McDonalds and other Fast Food Corporations

1.3 OVERVIEW OF THE SUPPLY CHAIN

McDonald’s UK supply chain has been rated highly by the food industry, with over 17,500

farms as third-tier suppliers, ~20 second-tier suppliers of raw materials, processed and

finished stock and 1 first tier supplier providing warehousing and logistics solutions to 1200

restaurants (Wallop, 2014; Haire, 2013), it has seen continuous improvement and change

over the last decade. McDonalds China operates a similar supply chain structure and has over

2000 restaurants. It forecasted revenue of $7.23 billion for its third quarter of 2014, but this

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was not to be, as in July 2014 McDonald’s patty supplier Shanghai Husi (a US owned

company) was closed down after reports and video footage from its factory floor showed that

expired meat was being mixed with fresh meat. In addition to this, footage showed factory

workers picking up raw meat and patties from the floor and returning same into the

production line (Jourdan and Baertlein, 2014). China, being McDonald’s 3rd

biggest market

saw a 9.9 % drop in regional sales, a 3% drop in global sales and a 2% drop in share prices in

the same quarter (CBSN, 2014). From investigations carried out these problems were related

to poor Quality control, Quality assurance and poor Food handling within the Supply Chain.

1.4 MCDONALDS SUPPLY CHAIN STRATEGY

Globally, McDonald’s corporate strategy consists of 5 objectives supported by 8 supply chain

strategies (Table 1).

In the UK it sources all its beef, eggs, milk, potatoes and other ingredients locally whereas in

China 95% of its produce is locally sourced.

In China, McDonald’s receives supply of its raw materials and processed goods from a range

of suppliers within and outside the country, raw materials for its products are obtained from a

range of suppliers within and outside its field of control (Jenkins, 2008; Christopher, 1994).

Off-shore raw materials’ sourcing has resulted in periods of shortage of key produce such as

vegetables and patties (Burkitt, 2014). It trains staff using its China Leadership Program (a

group by group training system which does not differ significantly from its company

leadership programs elsewhere in the world). However, the individuals trained have low

levels of know-how due to the language barrier and cultural background.

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Table 1. McDonald’s Corporate Objectives and Supply Chain Strategy

Corporate

Objectives

Supporting supply chain strategy Outputs /Products

QUALITY (Q):

Raw materials,

Finished goods

Quality Assurance and Control

Downstream and value added

services

Supplier Management

Inventory management (Just-in-

time)

Consistently high standards,

Dependability, Customer

retention, Brand leadership.

CLEANLINESS Personnel management

Quality Assurance and Control

Clean decorum and Hygienic

food preparation and

consumption.

CUSTOMER

SERVICE &

VALUE

Speed and flexibility

Downstream and value added

services

Supplier Management

Inventory management

Emotional attachment, Brand

publicity, Customer retention,

Dependability, Speed, and

added experience

SOCIAL

RESPONSIBILITY

Waste reduction, Emission

management and Community

development

Legal satisfaction, Unique

selling point.

RETURNS ON

INVESTMENT

Total Cost Management

Increased shareholder value

and Stable pricing of its

products

*Strategies in red indicate areas where improvement could be made

This strategy is brought together by an integration of the supply chain using web-based

record keeping and inventory management (Fig. 3)

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Figure 3. Supply Chain Integration at McDonalds UK

2. DESCRIPTION OF THE SUPPLY CHAIN STRATEGIES

2.1 QUALITY ASSURANCE AND CONTROL

McDonald’s UK operates a buy in-shore policy for 90 % of its raw materials and processed

goods. It is able to do this by establishing quality standards across the whole supply chain,

due to its position as the supply chain channel leader. Standards for beef, chicken, potatoes,

buns, coffee and all its other products are laid down by McDonald’s. Inspection of processing

facilities and routine product sampling is done to ensure skilled, fully equipped and hygienic

practises are employed at processing facilities and farms. For instance, during Patty

production (Fig. 4) forty quality tests are carried out before final consumption (Royle, 2000;

Zeng et al, 2015).

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Figure 4. Patty Production Process Flow

2.2 DOWNSTREAM AND VALUE ADDED SERVICES

Final product freshness is managed using a push and pull strategy/ Just-In-Time assembly at

outlets, while information sharing, web-enabled inventory management and cold chain

logistics assists between restaurant and suppliers (Gaiardelli, 2009). On-line, toll-free and

drive-in services are also rendered. Summed together with consistent quality these services

enable McDonald’s to provide quick, safe and tasty food, which is its order winning criteria.

2.3 PERSONNEL MANAGEMENT

McDonald’s provides formal training for 82% of its workforce in catering, cleaning and

customer service (McDonald’s Europe, 2011), by consolidating this with its supply chain

success it is able to satisfy customers.

2.4 WASTE REDUCTION, EMISSION MANAGEMENT AND

COMMUNITY DEVELOPMENT

McDonald’s UK purchases from suppliers practising within EU established sustainability

regulations (Vitasek, 2014). At present McDonald’s UK recycle 90% of all their cooking oil

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into bio-fuel used for its vehicles. It rates, monitors and awards it suppliers by grading their

annual usage for energy, water and waste. 97% of its food components used in Europe is

sourced from within and this supports its objective to promote local farming and economic

development (Lee et al, 2015; McDonald’s Europe, 2011).

2.5 TOTAL COST MANAGEMENT

The use of single sourcing for most of its raw materials and processed goods helps

McDonald’s utilize economies of scale in its purchasing. Joint planning takes place across the

supply chain continuously in order to take into consideration transportation cost, restaurant

owner cost and all costs incurred, to ensure restaurants sell products at the same price

profitably. Also, its cost sharing system charges equal transport delivery levies to all

restaurant owners (Fristedt et al, 2013). All these practises combine to ensure profitability for

each of the supply chain partners and consistent pricing of finished products.

2.6 SPEED AND FLEXIBILITY

Queuing in store is done on first-in first-out basis. McDonald’s uses drive-through

management to ensure a 90-second average service time for its drive through customers.

Using their Family and Friends contract, McDonald’s allows family workers in the same

branch to cover each other’s shifts (without prior notice) hence, extreme flexibility is gained

in workforce management without reducing service quality (Department of Works and

Pensions, 2012). Flexibility in the supply chain is also achieved through collaboration and

trust gained through its long term relationships with its suppliers.

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2.7 SUPPLIER MANAGEMENT

McDonald’s operates single sourcing with most of its 2nd-tier suppliers. This gives their

products the feeling of exclusivity (hence higher brand appeal). It also gives their suppliers

more integration into McDonald’s supply chain, which reduces the total lead time (Murphy

and Li, 2015). Key suppliers also receive funding for key expansion projects from

McDonald’s, which builds more co-operation and trust needed for Fast food chain

management.

2.8 INVENTORY MANAGEMENT

Logistics and warehousing solutions in China and UK are provided through one service

operator who provides point to point delivery for all outlets. Logs from McDonald’s E-

Procurement model (Roni et al, 2015) (Fig. 4), which forecasts demand using an algorithm of

data from previous year sales, present promos, special events and a final adjustment from the

restaurant manager. This final information can be simultaneously accessed by the logistics

provider, giving the supply chain transparency to all supply chain partners. This information

is generated into orders across all suppliers and deliveries are made 2-3 times per week to

insure against stock-outs.

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Figure 5. McDonalds E-Procurement Model

3. AREAS WHERE CHANGES NEED TO BE MADE AND HOW

THEY CAN BE IMPLEMENTED SUSTAINABLY WHILE

OVERCOMING THE POSSIBLE BARRIERS

3.1 QUALITY ASSURANCE & CONTROL (MCDONALD’S CHINA)

3.1.1 IMPROVEMENT OPPORTUNITY

The number of Quality control tests carried out during the transformation of some of its

components such as raw meat (into patties) are too few, local managers and shop floor

workers lacking training and sincerity are common, this provides entry points for

mishandling and fraud. It should be addressed.

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3.1.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE

SUSTAINED

We would initiate an audit every four months (as opposed to present annual audit). During

this, re-evaluation of the raw materials, processed goods and processing facilities would be

carried out by a team of reliable food scientists, manufacturing consultants and In-house

technologists. During such an exercise, investigations on entry points for substandard/

contaminated products would be identified and analysed. Critical control points would be

introduced at these points and quality control tests would be implemented at same.

We would increase the minimum standard of raw materials used.

Long term solutions to this problem would be to train shop floor workers within its supply

chain. This could be assisted by transferring trusted and competent factory managers

within its supply chain to China in order to raise staff standards at factories.

We would also need to clearly state to our suppliers that the most important requirement is

quality, not cost and inform them that we are willing to pay premium for quality. This

would prevent suppliers from using cheap labour or raw material and greatly deter fraud.

3.1.3 BENEFITS

Frequent audits would produce accountability in the supply chain. Analysis of critical control

points would reduce the number of entry points for contamination and increase the reliability

of the supply chain. Training of staff within the supply chain would raise operating standards

while the willingness to pay premium for our raw materials would encourage suppliers to

make the necessary investments into their production facilities. All these changes would lead

to greater confidence from government and consumers. This would lead to increased regional

sales.

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3.1.4 BARRIERS

The barriers to this solution would be staff reluctance, costs incurred, language barrier,

change management and transferring competent managers within the supply chain to China.

Before such a transformation project is carried out, staff involved in fraudulent practises

would need to be identified and most likely ejected from the system. After this, staff would

need to be addressed of the challenge before them and made to understand its possible effects

throughout the system. This would encourage commitment and create the mental energy

necessary to drive the project. Any necessary infrastructure costs will need to be shared

between suppliers and McDonald’s, this will ensure that both parties have a stake in the

failure or success of the upgrade hence encourage teamwork amongst both parties. Language

barrier could be addressed by searching globally for reputable Mandarin speaking supply

chain managers and being willing to pay premium for their transfer to China. Work process

documents in China, such as SOP’s and HACCP plans will also need to be reviewed and a

system that monitors them on a regular basis will be put in place.

3.2 WASTE REDUCTION, EMISSION MANAGEMENT AND

COMMUNITY DEVELOPMENT (MCDONALD’S UK AND

MCDONALD’S CHINA)

3.2.1 IMPROVEMENT OPPORTUNITY

McDonald’s operates in a mature and saturated market meaning that investments have longer

pay-off times and higher risks. There is a need to gain clear market leadership using a

sustainability approach to achieve more return on investment.

3.2.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE

SUSTAINED

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We would distance ourselves from competition through patenting, copyrights, trademarks and

Intellectual property (IP). We would employ this in waste reduction (where we already have a

leading market position) by using novel compostable, re-usable and recyclable materials

within our supply chain. This would be done by purchasing IP rather than setting up an R&D

department.

3.2.3 BENEFITS

This would improve McDonald’s brand globally and provided that all factors are kept

constant, it would increases sales.

3.2.4 BARRIERS

Research capability would be needed in the implementation of this project. Hence, the

sustainability department would need to develop its capability in IP and waste reduction

technology. It would also need to hire experts on a contract basis to provide a solid know-

how and this could be an added cost which will be managed so as not to be detrimental.

3.3 SPEED AND FLEXIBILITY (MCDONALDS CHINA AND

MCDONALDS UK)

3.3.1 IMPROVEMENT OPPORTUNITY

During peak hours, long queues are common and customers expect that the service rendered

by the crew is faster than usual. This waiting time could be minimized to reduce the no. of

customers who walk away after waiting.

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3.3.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE

SUSTAINED

Self-service: Customers would pay a fixed fee for different grades of foods and then serve

themselves from a buffet like setting within McDonald’s restaurants.

Long task & short task: The managers can separate order into long tasks and short tasks,

which means that normally the long task food will take longer time to cook compared with

the short task food. If the customer order both short task and long task food, they will get

the short task food along with a Kanban with the name of the long task food and a number.

A beeper system would be designed to alert the customer when the long task food is ready

(Pourmohammad et al, 2015)

3.3.3 BENEFITS

Self-service would lead to increased speed and flexibility during peak periods and would

foster consumer engagement. Long & short task division would lead to more flexibility in

providing on-queue customers with quick and fast service. In total this would increase sales

and customer satisfaction

3.3.4 BARRIERS

Pilot tests would need to be done to test the effectiveness of Self-service in its ability to

reduce the length of the queues. Self-service would need to be assisted by humans to help

persons who are unable to use them. Investment costs and Staff training for self-service and

long & short task will be needed.

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3.4 INVENTORY MANAGEMENT (MCDONALDS UK AND

MCDONALDS CHINA)

3.4.1 IMPROVEMENT OPPORTUNITY

Difficulties in forecasting customer demand results in bullwhip effect along the supply chain

and occasional unavailability of a particular product in McDonald’s restaurants. Though this

may not be solved totally it could be reduced to a further minimum (Interview with

McDonalds manager, Castle Marina, Nottingham branch).

3.4.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE

SUSTAINED

Planning the capacity: Capacity planning is determining the capacity of product needed to

meet changing demands. We would make more effort to distinguish between ingredients

which require short, medium and long-term stock. This would be done by analysing

ingredients using cost, level of importance, packing space, supplier, country of origin and

average lead time. This data would be used to determine which ingredients require buffer and

which ingredients should be kept at minimum.

3.4.3 BENEFITS OF THE CHANGE

With the help of capacity planning, we would be able to respond quickly to consumer

demand in seasons of fluctuation while minimizing inventory.

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3.4.4 BARRIERS

It is difficult to plan the accurate capacity needed because of fluctuations in consumer

demand. Hence, we would utilize marketing, promotion and enhanced consumer studies to

support capacity planning.

3.5 PERSONNEL MANAGEMENT (MCDONALD’S CHINA)

3.5.1 IMPROVEMENT OPPORTUNITY

Employees within the supply chain are frequently rotated due to high level of flexibility.

This sometimes produces undertrained staff, resulting in lack of expertise at raw material

processing and the final stage of assembly. This can be changed.

Low levels of know-how in food safety and hygiene lead to poor food preparation

practises and cases of physical contamination of final products. This can be reduced.

3.5.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE

SUSTAINED

Staff training for this type of flexible workforce will need to be a continuous training

program where staff could undergo training as they are hired without waiting for a fixed

number of persons to begin training sessions. In addition to in-house training, we would

source the services of a food consulting company with expertise in food quality and a good

understanding of the Chinese market.

Basic requirements for employment in restaurants and supplier factories within China

would include certifications in food safety and manufacture, to ensure screening of

applicants without minimal food safety understanding. Also contracts to all personnel

involved in food handling would include clauses stating that court and/or financial

sanctions would be placed on staff that are involved in food safety related offences.

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3.5.3 BENEFITS

Continuous training would provide a flexible training scheme for the flexible workforce and

minimise the total opportunities for defects within the supply chain. Increasing minimum

qualification would reduce the potential of unskilled labour gaining entry into the supply

chain while imposing sanctions on defaulting staff would increase the level of attention

placed on food safety.

3.5.4 BARRIERS

Cost of training could increase as a continuous training program might be more expensive

than a batch training process. We would need to verify if it is lawful within China to have

employment contracts that hold scandalized employees liable and suable in the event of food

safety issues.

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CONCLUSION

The supply chain of McDonalds within the UK has been seen to be more developed than its

counterpart in China. This write-up shows that even where supply chains are working at the

highest levels (McDonald’s UK) significant improvement can still be attained. It shows that

supply chain improvement in markets where it is the leader is important in order to distance

itself from competition and gain more market share.

The problems at Shanghai Husi have also shown that global companies doing business in

China, need to maintain their high standards within China. This write-up has shown that

when food service businesses are operating global franchising they should not fully transfer

responsibility for Quality control (QC) and Food safety to the regional offices, rather frequent

audits and inspections should be done by central to monitor the QC and Food safety practises,

while benchmarking of countries with best practise should be carried out simultaneously.

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