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Report on case study “McDonald’s Corporation : A World Class Operating System” By ITM - XMBA – 13 Sheeba Lawande Dnyanada Wagh Hemlata Malani

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TABLE OF CONTENTS S.No. CONTENTS Page No.

1.0 Problems & Issue of the case 3

1.1 Brief Chain of Events 5

1.2 Speedee Service System 11

1.3 Hamburger University 12

1.4 QSCV 13

1.5 Franchisees and Suppliers 16

1.6 Key Dates 18

2.0 Applications, Techniques, Methods 23

2.1 Business Model 23

2.2 Operation Strategy 24

2.3 Operations Management 25

3.0 Recommendations 27

4.0 Learning from the case 28

5.0 Application in other areas 29

6.0 Bibliography 30

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PROBLEMS AND ISSUE OF THE CASE : McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, more than 32500 globally, serving around 64 million customers daily in 117 countries. Headquartered in the United States, the corporation was founded by businessman Ray Kroc in 1955 after he purchased the rights to a small hamburger chain operated by Richard and Maurice McDonald. McDonald’s provides it customer a unique and uniform experience in all its restaurants. It does so by practicing an operating system that ensures product & process uniformity throughout the chain. Hence, its products were not only of exceptional quality but also consistent everywhere. Its operating system of efficient service has become the benchmark for the fast food industry. In this case study, we discuss in detail the operating system at McDonald’s and the chain’s competitive position at the start of 2000. Though the company’s operational system was a model of excellence, McDonald’s was plagued with a series of problems ranging from industry saturation to poor service standards at its restaurants. We will see how the company reached a low point in 2001 and managed to make the biggest comeback by rediscovering “value”.

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GOALS AND OBJECTIVES:

1. McDonald’s vision is to be the world’s best quick service restaurants experience. 2. McDonald’s is committed to maintaining and developing the best food products in the quick

service restaurant market. 3. In order to deliver this, the company has made a number of commitments to food safety and

nutrition. 4. Lead the Quick Service Restaurant market by a program of site development and profitable

restaurant openings, and by attracting new customers. Increasing sales through promotions will enable them to continue their program of expansion.

5. McDonald’s have an objective to continual enhance and improve their menu. This will better satisfy their customers and give customers more reason to visit. Many ideas for new items on the menu come from the franchisees responding to customer demand.

6. Consumer tastes change over time and McDonald’s has to respond to these changes. MISSION STATEMENT: "McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile."

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BRIEF CHAIN OF EVENTS : 1) McDonald’s started off in 1941 as a drive-in restaurant, which later on became a self-service

restaurant. Richard and Maurice identified speed, customer service and cleanliness as critical success factors and implement their innovative “Speedee Service System” The brothers designed their kitchen with assembly line procedures similar to that of Ford’s. They standardized food preparation methods. This self-service proved useful and soon many small businessmen expressed interest in taking up franchises.

2) Ray Kroc founded the McDonald’s chain. He bought out the brother’s share and named the company McDonald’s corporation. He also emulated Ford’s mass production techniques and designed a system to apply the same rigor to the preparation of sandwiches and hamburgers. He established a training program called the Hamburger University where franchisees were taught about the scientific methods of running a successful McDonald’s. He founded a new corporate policy Quality, Service, Cleanliness and Value.

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3) During the 1990’s McDonald’s began to face problems. To face competition it started to fill every possible niche area for fast food. It also opened smaller outlets known as express stores. Under Greenberg it decided to diversify its food offerings. It bought Donatos Pizza chain, took a minority stake in Chipotle Mexican Grill and acquired Boston market restaurants. In 2001 it opened up a gourmet coffee shop McCafe.

4) In 2001 McDonald’s underwent a comprehensive review operation to ensure quality and service levels. It planned to scrutinize operations through the use of mystery shoppers. Customers were provided with toll free telephone number for complaints.

5) McDonald’s introduced the Made for You concept where customers could choose their own ingredients. McDonalds operating procedures concentrated on Improving the product, Developing outstanding customer relationships, providing a clean ambience and Training and monitoring franchisees QSCV. It refined the production system; crewmembers began to perform specialist functions. McDonald’s began the practice of cooking and packing food instead of waiting for orders. Standards were also developed on when to discard cooked products that had not been purchased.

6) McDonald’s treated its suppliers as partners. It employed quality assurance and purchasing specialists, who worked closely with suppliers to ensure that every product met the quality norms.

7) McDonald’s also worked closely with its franchisees. Kroc saw them as business partners, not as customers. Kroc sold them the operating systems instead of just the ingredients. McDonalds’ developed an extensive training program for its franchisees.

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DECLINE: Changing Customer Preferences The company reached a low point in 2001, when customer-satisfaction surveys showed McDonald's was falling well behind its direct rivals, Wendy's and Burger King. Customers were also switching to healthier offerings, such as Subway's freshly filled sandwiches. Lots of money was spent opening yet more stores, but margins were shrinking and complaints about dirty restaurants and indifferent staff were growing. The firm's philosophy of QSC&V—quality, service, cleanliness and value—just was not working any more. McDonald's ended 2002 with its first quarterly loss since 1954.

And there was growing concern about obesity and junk food. McDonald's was even sued (so far, unsuccessfully) for making people fat. Even now, long after its debut in America, Morgan Spurlock's film “Super Size Me” is making overseas audiences cringe at how he made himself ill and gained 25 pounds (11kg) by eating only McDonald's food for 30 days.

Poor service standards & customer complaints A company memo sent to franchisees in North Carolina in July bluntly summed up the situation: "We are meeting our speed of service standard only 46% of the time, and 3 out of 10 customers are waiting more than four minutes to complete their order. Our 800 number has confirmed that the number of complaints for rude service, unprofessional employees and inaccurate service has risen steadily."

Franchisee problems A major area of contention was McDonald’s continuous expansion as a result of which, revenues and profits of franchisees per store fell by 30 percent in the 1990s. Many franchisees claimed that for every new restaurant that was opened nearby, McDonald’s outlets lost anything from 6 percent

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to 20 percent of their revenues. A survey of franchisee showed that only 28 percent of them thought the company’s strategy was “on the right track”. Most of them felt that the long term focus was missing. Industry saturation The challenges facing McDonald's come supersized. Its home market is all but saturated, its sterling reputation for fast, friendly service and cleanliness is tarnished, and customers are putting a growing premium on freshness and taste, neither of which McDonald's is renowned for.

Competition

McDonald’s faced crossroads in the early 1990s. Domestically, sales and revenues were flattening as competitors encroached on its domain. In addition to its traditional rivals—Burger King, Wendy’s, and Taco Bell—the firm encountered new challenges. On the higher end, Olive Garden and Chili’s had become potent competitors in the quick service field, taking dollars away from McDonald’s, which was firmly entrenched in the fast-food arena and hadn’t done anything with its dinner menus to accommodate families looking for a more upscale dining experience. Its average annual return on equity was 25.2% between 1965 and 1991. But the company found its sales per unit slowing between 1990 and 1991. In addition, McDonald’s share of the quick service market fell from 18.7% in 1985 to 16.6% in 1991. Plus growth in the quick service market was projected to only keep pace with inflation in the 1990s.

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Environmental Issues While these competitive wars were being fought, McDonald’s was gathering flak from environmentalists who decried all the litter and solid waste its restaurants generated each day. To counter some of the criticism, McDonald’s partnered with the Environmental Defense Fund (EDF) to explore new ways to make its operations more friendly to the environment. In the late 1980s, McDonald’s began recognizing the importance of maintaining an ecologically correct posture with the public, which was becoming more concerned about the environment. It’s no surprise, then, that McDonald’s sought a way to reduce its solid waste while providing a more environmentally acceptable face to the public. Beginning in 1989, it partnered with the Environmental Defense Fund, a leading organization devoted to protecting the environment, to seek ways to ease the company’s environmental burden on the landscape.

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COMEBACK:

In the late 1990s, McDonald’s abandoned its traditional batch, Make-to-Stock production process and replaced it by a batch, Assemble-to-Order system, known as the “Made-for- You ” process. Yet, this was not universally successful. The problem lay in the food and the menu. The food was not seen as being fresh enough and menu seemed to be out of step with a society that was becoming more concerned by carbs. Yet, by late 2003, McDonald’s seemed to have turned the corn e r. Profits are up; sales are up; customers are returning to McDonald’s. The secret to this turn a round – McDonald’s has rediscovered value. In the interview, Mr.Cantalupo talked about the challenge of expanding a mature company in a fast-changing consumer landscape. At the heart of his response were the following actions:

• Removing initiatives that didn’t focus on our restaurants or our customers.

• Getting back to focus and discipline – speed at the drive through, friendly service, marketing leadership, product innovation.

• Making sure that the food sold by McDonald’s was tastier and better.

• Recognizing that McDonald’s is a mass marketer and, as such, it must broaden its appeal. The focus must be on the customer and on what they’re looking for. McDonald’s will listen to them and give them choice, variety, and satisfy as many of their needs as they can.

• The shift to low-carb is driven by what the customers want. McDonald’s will deliver superior value to its customers

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THE SPEEDEE SERVICE SYSTEM:

Dick and Mac McDonald opened their first drive-in restaurant in 1941, relying on carhops— waiters who went from car to car—to take orders from patrons parked in the restaurant’s large lot. In 1948, the brothers abandoned their popular format and introduced self-service windows, 15-cent hamburgers, french fries, and milk shakes. They standardized their preparation methods (in what they termed the “Speedee Service System,”) with exact product specifications and customized equipment. Every hamburger, for example, was prepared with ketchup, mustard, onions, and two pickles; the ketchup was applied through a pump dispenser that required just one squirt for the required amount.

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HAMBURGER UNIVERSITY: In 1961, the McDonald's Corporation founded Hamburger University, marking the starting point for the corporate university. The first courses were held in the basement of a McDonald's restaurant in Elk Grove Village, Illinois. Hamburger University was designed exclusively to instruct personnel employed by McDonald's Corporation or by McDonald's Independent Franchisees in the various aspects of the business and operations of McDonald's. There, franchisees and operators were trained in the scientific methods of running a successful McDonald’s. Hamburger University also had a research and development laboratory to develop new cooking, freezing, storing and serving methods. During the following four decades, more than 65,000 managers in McDonald's restaurants graduated from Hamburger University, which eventually moved to a 130,000 square foot, state-of-the-art facility on the McDonald's Home Office Campus in Oak Brook, Illinois. There, a faculty of 30 resident professors can teach and communicate simultaneously in 22 languages with the help of translators and technology. By the end of the twentieth century, Hamburger University had branches in England, Japan, Germany and Australia. Today, more than 80,000 people have graduated from the program.

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GETTING IT RIGHT – QUALITY – SERVICE – CLEANLINESS – VALUE:

Ray Kroc wanted to build a restaurant system that would be famous for food of consistently high quality and uniform methods of preparation. He wanted to serve burgers, buns, fries and beverages that tasted just the same in Alaska as they did in Alabama. To achieve this, he chose a unique path: persuading both franchisees and suppliers to buy into his vision, working not for McDonald’s, but for themselves, together with McDonald’s. He promoted the slogan, “In business for yourself, but not by yourself.” His philosophy was based on the simple principle of a 3-legged stool: one leg was McDonald’s, the second, the franchisees, and the third, McDonald’s suppliers. The stool was only as strong as the 3 legs. The Roots of Quality McDonald’s passion for quality meant that every single ingredient was tested, tasted and perfected to fit the operating system. As restaurants boomed, the massive volume of orders caught the attention of suppliers, who began taking McDonald’s standards as seriously as McDonald’s did. As other quick service restaurants began to follow, McDonald’s high standards rippled through the meat, produce and dairy industries. Again, Ray Kroc was looking for a partnership—this time with McDonald’s suppliers—and he managed to create the most integrated, efficient and innovative supply system in the food service industry. These supplier relationships have flourished over the decades: in fact, many McDonald’s suppliers operating today first started business with a handshake from Ray Kroc.

McDonald’s designed its operating system to ensure consistency and uniformity across all outlets. Operating procedures guaranteed customers the same quality of food and service visit after visit, store after store. Every hamburger, for example, was dressed in exactly the same way: mustard first, then ketchup, onions, and two pickles.

McDonald’s operating system concentrated on four areas: improving the product; developing outstanding supplier relationships; improving equipment; and training and monitoring franchisees. In its quest for improvement, McDonald’s revolutionized the entire supply chain, introducing innovations in the way farmers grew potatoes and ranchers raised beef, altering processing methods for both potatoes and meat, and inventing efficient cooking equipment tailored

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to the restaurant’s needs. Most revolutionary, perhaps, was McDonald’s attention to detail. Never before had a restaurant cared about its suppliers’ product beyond the price, let alone the suppliers’ methods of operation.

McDonald’s was able to spend as much time and effort as it did in perfecting its operating system because it restricted its menu to ten items. Most restaurants in the 1960s and 70s offered a variety of menu items, which made specialization and uniform standards rare and nearly impossible.

Fred Turner, one of Kroc’s original managers and later Senior Chairman of McDonald’s, stressed the critical importance of menu size in attributing success of the company’s operating system: It wasn’t because we were smarter. The fact that we were selling just ten items, had a facility that was small, and used a limited number of suppliers created an ideal environment for really digging in on everything.

Turner developed the first operations manual in 1957, which, by 1991, reached 750 detailed pages. It described how operators should make milk shakes, grill hamburgers, and fry potatoes. It delineated exact cooking times, proper temperature settings, and precise portions for all food items— even prescribing the quarter ounce of onions to be placed on every hamburger and the 32 slices to be obtained from every pound of cheese. French fries were to be 9/32 of an inch, and to ensure quality and taste, no products were to be held more than ten minutes in the transfer bin.

McDonald’s patrolled suppliers and franchisees scrupulously. The meat in McDonald’s hamburgers, for example, had particular specifications: 83% lean chuck (shoulder) from grass-fed cattle and 17% choice plates (lower rib cage) from grain-fed cattle. Fillers were unacceptable. Whereas other restaurants merely accepted what suppliers provided and complained only when meat was visually inferior, McDonald’s routinely analyzed its meat in laboratories.

In 1991 McDonald’s spent $26.9 million on its field service operation to evaluate and assist each of its restaurants. Each of the company’s 332 field service consultants visited over 20 restaurants in the US several times every year, reviewing the restaurants’ performance on more than 500 items ranging from rest room cleanliness to food quality and customer service. Turner was the first corporate employee to visit and evaluate each restaurant, and, as early as 1957, he summarized his

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evaluations by assigning a letter grade to a restaurant’s performance in three categories: quality, service, and cleanliness (QSC). For more than thirty years, therefore, McDonald’s had prided itself on QSC and a fourth letter—V for value.

McDonald’s meticulous attention to detail and careful analysis of quality and procedures did not come from an unbending need for regimentation. Instead, McDonald’s sought to study every component of its operation to learn what worked and what failed, to determine how best to offer consistently good service and food. Whereas other chains ignored both franchisees and suppliers, McDonald’s sought to elicit commitment from them—commitment that required not only adherence but experimentation. Turner explained: We were continuously looking for a better way to do things, and then a revised better way to do things, and then a revised, revised better way.

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FRANCHISEES:

The franchising system soon turned out to be a bad idea as many franchisees did not understand and hence did not maintain McDonald’s standard of cleanliness, service and product uniformity.

From the moment he opened his first McDonald’s, in Des Plaines, Illinois, Kroc made the operating system his passion and his company’s anchor. Whereas many competitors could prepare products that were similar to McDonald’s, most focused on recruiting franchisees, whom they promptly ignored, and on identifying the lowest-cost suppliers.

Kroc, on the other hand, sought

(i) to make sure McDonald’s products were of consistently high quality, (ii) to establish a unique operating system, and (iii) to build a special set of relationships between the McDonald’s corporation, its suppliers,

and its franchisees.

McDonald’s referred to its 3,500 U.S. franchisees as its partners for good reason. By 1992, McDonald’s generated 39% of its revenues from franchise restaurants. When Ray Kroc first sold franchises, he made sure that his “partners” would make money before the company did, and he insisted that corporate revenue come not from initial franchise fees but from success of the restaurants themselves. That philosophy continued to be at the center of McDonald’s franchise and operating practices.

Franchise owners did indeed see themselves as partners, developing such products as the Filet-O-Fish sandwich and the Egg McMuffin in the 1960s and the McDLT in the 1980s. Franchisees also formed powerful regional cooperatives for both advertising and purchasing. Their regional advertising budgets enabled them to “customize” local promotions while also supporting national programs, and the buying cooperatives gave franchisees a channel for challenging suppliers to be innovative, even when those suppliers were meeting corporate requirements.

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SUPPLIERS:

A simple handshake secured every arrangement between McDonald’s and a supplier, and it symbolized the way McDonald’s revolutionized the entire relationship. Jim Williams, head of Golden State Foods, which supplied McDonald’s with meat, contrasted the traditional supplier-restaurant relationship with the changes McDonald’s introduced:

Deals and kickbacks were a way of life. How long you let a guy stretch out his payments was more the determining factor of whether you got the business than the quality of the product you were selling. Kroc brought a supplier loyalty that the restaurant business had never seen. If you adhered to McDonald’s specifications, and were basically competitive on price, you could depend on their order. When McDonald’s first approached the established food processing giants, such as Kraft, Heinz, and Swift, the restaurant chain received a cold response. The established suppliers refused to accept McDonald’s concepts and specifications and continued to concentrate solely on the retail market. Only small, fledgling suppliers were willing to gamble on McDonald’s, and in turn, McDonald’s created a whole new set of major institutional vendors. Each McDonald’s restaurant ordered 1,800 pounds of hamburger meat per week and 3,000 pounds of potatoes. By meeting McDonald’s strict standards and price requests, suppliers were guaranteed future volumes from a burgeoning restaurant chain. Kenneth Smargon, whose Interstate Foods supplied McDonald’s with shortening, described the novel relationship that developed: Other chains would walk away from you for half a cent. McDonald’s was more concerned with getting quality. They didn’t chisel on price and were always concerned with suppliers making a fair profit. A lot of people look on a supplier as someone to walk on. But McDonald’s always treated me with respect even when they became much bigger and didn’t have to. That’s the big difference, because if McDonald’s said “Jump,” an awful lot of people would be asking “How high?”

Suppliers grew alongside McDonald’s and were thus carefully attuned to the company’s needs. As one supplier commented, “You’ve got to be deaf, dumb, and ignorant to lose McDonald’s business once you have it.”

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KEY DATES:

1937: Patrick McDonald opens a hamburger and drinks stand called "The Airdrome" on historic Route 66 (now Huntington Drive) near the Monrovia Airport in Monrovia, California.

1940: Brothers Richard and Maurice McDonald open the first drive-in restaurant in California Its menu consisted of 25 items and they employed around 20 carhops (waiters).

1941 : McDonald’s started off as a drive-in restaurant, which later on became a self-service restaurant. Richard and Maurice identified speed, customer service and cleanliness as critical success factors and implement their innovative “Speedee Service System”

1948: After noting that almost all of their profits came from hamburgers, the brothers closed the restaurant for several months to implement their innovative "Speedee Service System", a streamlined assembly line for hamburgers. The carhops are fired, and when the restaurant reopens it sells only hamburgers, milkshakes, and french fries. At 15 cents, the burgers are about half as expensive as at standard diners, and they are served immediately. 1953: The McDonalds begin to franchise their restaurant, with Neil Fox the first franchisee. The second McDonald's opens in Phoenix, Arizona at N. Central Ave and Indian School Road. It is the first to feature the Golden Arches design; later this year the original restaurant in San Bernardino is rebuilt in the same style.

1954 : Ray Kroc, who held the national marketing rights to the multimixers used in the restaurants to make milk shakes, met the McDonald brothers in 1954. He was so impressed by their restaurant and its potential that he became a national franchise agent for the brothers, and founded the McDonald’s chain. Like the McDonald brothers’ first restaurant in San Bernardino, California, the McDonald’s chain featured a limited menu, low prices, and fast service. He also emulated Ford’s mass production techniques and designed a system to apply the same rigor to the preparation of sandwiches and hamburgers

1955: Kroc opens his first McDonald's restaurant in Des Plaines, Illinois.

1955: Ray Kroc hires Fred Turner (later CEO and Chairman) as a grillman in his store in Des Plaines. 1960: Kroc's company is renamed "McDonald's Corporation". 1961: The McDonald brothers agree to sell Kroc business rights to their operation for $2.7 million

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1961: Hamburger University opens in the basement of the Elk Grove Village, Illinois, McDonald's restaurant. Bachelor of Hamburgology degrees went to graduating class of 15. Here franchisees were taught about the scientific methods of running a successful McDonald’s. He founded a new corporate policy Quality, Service, Cleanliness and Value.

1962: The first McDonald's restaurant with seating opens in Denver, Colorado. 1963 : The Golden Arches was adopted as the Corporate logo. 1963: The Filet-O-Fish is introduced in Cincinnati, Ohio. 1965 : McDonald’s goes public selling its shares @ $22.50 each.

1967: The first McDonald's restaurant outside the United States opens in Richmond, British Columbia.

1968: The Big Mac (similar to the Big Boy hamburger), the brainchild of Jim Delligatti, one of Ray Kroc's earliest franchisees, is first introduced in the Pittsburgh market in 1967, before going system/nationwide a year later, following its great local success

1971: The first Asian McDonald's opens in July in Japan, in Tokyo's Ginza district.

1973: The Egg McMuffin, invented by Herb Peterson, owner and operator of a Santa Barbara franchise, is introduced to the menu.

1976: McDonald's pays its first cash dividend.

1979: The Happy Meal is introduced in the U.S.

1980: The Chicken McNuggets are introduced to the menu and instantly become a success by early-

1984: Ray Kroc dies on January 14.

1984: The Company is a main sponsor of the 1984 Summer Olympics.

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1990: On January 31, the first Soviet McDonald's opens, in Moscow. At the time it is the largest McDonald's in the world.

1990: In October, the first McDonald's opens in mainland China, in the city and Special Economic Zone (SEZ) of Shenzhen, Guangdong province.

1992: Stella Liebeck receives third-degree burns from coffee purchased at a McDonald's drive-through. She sued in what became known as the McDonald's coffee case.

1995: McDonald's receives complaints from franchisees that too many franchises are being granted, leading to competition among franchisees. McDonald's starts conducting market impact studies before granting further franchises.

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1996: The first Indian McDonald's opens.

1998: Jack M. Greenberg succeeds Michael R. Quinlan as CEO.

2000: Eric Schlosser publishes Fast Food Nation, a book critical of fast food in general and McDonald's in particular.

2001: it opened up a gourmet coffee shop McCafe.

2002: A survey in Restaurants and Institutions magazine ranks McDonald's 15th in food quality among hamburger chains, highlighting the company's failure to enforce standards across its franchise network.

2002: McDonald's posts its first quarterly loss ($344m), for the last quarter. It responds to the stiff competition from other fast-food restaurants, offering higher quality burgers and more variety, by attempting to move more upmarket by expanding its menu and refitting restaurants. It announces it is withdrawing from three countries (including Bolivia) and closing 175 underperforming restaurants.

2003: McDonald's starts a global marketing campaign which promotes a new healthier and higher-quality image. The campaign was labeled "i'm lovin' it" and begins simultaneously in more than 100 countries around the world.

2003: According to Technomic, a market research firm, McDonald's share of the U.S. market had fallen three percentage points in five years and was at 15.2%. [5]

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2003: The firm reports a $126M USD loss for the fourth quarter [6].

2003: McDonald's introduces their premium salads, the McGriddles and the chicken selects.

2004: Morgan Spurlock directs and stars in Super Size Me, a documentary film in which he eats nothing but McDonald's food for 30 days to the great detriment of his health.

2004: After the release of Super Size Me, McDonald's does away with their Supersize options.

2005: Jim Skinner is elected President and CEO.

2005: Owing in part to competitive pressure, McDonald's Australia adopts "Made for you" cooking platform in which the food is prepared from pre-cooked meat after the customer orders (as opposed to the firm's normal procedure since 1948, in which the food is cooked then sold as needed). It should become standard practice in all Australian restaurants by 2007. Some restaurants in New Zealand also follow suit. The practice had earlier been tested, and abandoned, in the U.S.

2006: McDonald's announces that it will include nutritional information on the packaging for all products beginning in March [9] and that its upcoming menu changes will emphasize chicken, salads, and other "fresh foods" rather than hamburgers [10].

2006: McDonald's begins their "forever young" branding by redesigning their restaurants.

2006: McDonald's and Disney end their 10 year promotional partnership.

2007: Dreamworks Animation and McDonald's begins promotional partnership.

2009: 20th Century Fox and McDonald's begins promotional partnership.

2010 : 92 consecutive months of global sales increase by end of 2010, with operations in 117 countries with 32737 restaurants.

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APPLICATIONS, TECHNIQUES & METHODS: Business Model McDonald's Corporation earns revenue as an investor in properties, a franchiser of restaurants, and an operator of restaurants. Approximately 15% of McDonald's restaurants are owned and operated by McDonald's Corporation directly. The remainders are operated by others through a variety of franchise agreements and joint ventures. As a matter of policy, McDonald's does not make direct sales of food or materials to franchisees, instead organizing the supply of food and materials to restaurants through approved third party logistics operators.

Franchise Model – Only 15% of the total number of restaurants are owned by the Company.

The remaining 85% is operated by franchisees. The company follows a comprehensive framework of training and monitoring of its franchises to ensure that they adhere to the Quality, Service, Cleanliness and Value propositions offered by the company to its customers.

Product Consistency – By developing a sophisticated supplier networked operation and distribution system, the company has been able to achieve consistent product taste and quality across geographies.

Act like a retailer and think like a brand – McDonald’s focuses not only on delivering sales for the immediate present, but also protecting its long term brand reputation.

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McDonald’s Operations Strategy Statement of McDonald’s Operations Strategy : “To provide unmatched consistency in operations in support of high product quality. This must be accomplished with adequate speed, low cost, and process innovation to accommodate changes in consumer tastes.” From the statement of McDonald’s operations strategy, it is clear that both consistency And high product quality are considered order winners, while speed, cost, and innovation are considered order qualifiers.

Dimension Strategy Capacity Growth as needed through additional stores - but capacity added carefully Well-utilized - franchisee's well-being depends on it being used heavily

Facilities Distributed facilities, each facility being very similar to the next, all focused around the

same menu - although the uniformity is beginning to change Process High degree of process understanding, emphasis on "fool-proof" processes Technology A leader in the technology of fast-food delivery Vertical Partnership arrangement

Integration Long-term relationship with suppliers to promote innovation and quality improvement

Workforce Franchisees: well-trained, carefully selected, entrepreneurs Operators: high-turnover, cheap Organization Guidelines provided by corporation, but franchisees push to locally optimize Control Centralized buying Systems Bulk contracts "Push" system for basic supplies, "pull" system day-to-day in the restaurants

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McDonald’s Operations Management Product Planning In McDonald’s Restaurants, product planning is a key operation. It has to keep on adding new products to its menu so as to meet the needs of the customers as their needs and preferences are constantly changing. For instance, the increasing preference of consumers towards healthy food made the restaurant add healthier food items to its menu. Similarly it has to add new products for different seasons, for examples hot coffee in winter and milkshakes in summer. Capacity Planning In McDonalds Restaurant, the operations managers have to set its capacity of making food items in such a way that it responds quickly to the demands of those items in peak hours which is very important for a fast food restaurant like McDonalds. It also have to make sure that it has enough stock of ingredients to prepare food items which is very important because if one ingredients fall short then the whole process of making food may halt. For instance if the buns required for making hamburgers falls short then the restaurant may not be able to sell any hamburgers even if it has enough quantities of other ingredients. Location Planning McDonalds Restaurants also have to plan their location in such a way so that maximum customers visit their restaurants. Therefore McDonalds prefer locations such that it can have large customer base, transport access and availability of parking space. Moreover it also prefers location that are suitable for raw material delivery, that is availability of ample space for deliveries of raw material. Process Planning In McDonalds restaurant also, the operations manager develop and establishes the process of cooking food items so that food is prepared using that method which helps them to maintain the speed and the quality of the food. Moreover it also designs processes so that the health, safety and hygiene issues are taken into consideration. Also the managers keep on introducing latest equipments with the advancement of technology so as to bring pace, perfection and quality in the product. Layout Design In McDonalds Restaurant also layout designing is a very important operation. A proper layout of the equipments in the kitchen is very essential to ensure preparation of quality food in less time. It also designs its layout keeping in mind the health and safety issues. It also designs layout in such a way that needs of supervision is minimised. Another factor that is considered is the cost of production which also depends on the layout.

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Job Design Job designing is also an important operation in McDonalds restaurant. Each employee is designed a particular set of jobs. For example, some crew members cook food items in kitchen, some crew member work on the counter, while others look after the customers in the lobby. Also there are employees who manage all the crew member and look after overall wellbeing of the restaurant. While designing these jobs the technical, economical and behavioural feasibility is taken into consideration. Supply Chain Management In McDonalds Corporation , the restaurants also have certain suppliers who supply them the with the raw materials like buns, beef, patties, ketchup, sauce, mayonnaise, disposable cups, food packaging materials etc. Therefore it has to manage its relationship in a effective manner so as to get the raw materials at the right time, in proper quantity, and at acceptable cost. Inventory Management In McDonalds the inventory is managed on the basis of First-In-First-Out basis. This is because most of the inventory consists of perishable items. Therefore delivery of inventory happens thrice or more times a week depending on the business of the restaurant. Moreover inventory is stored in freezer with proper packaging so as to ensure freshness of the food items. All this activities comes under inventory management of the organisation. Quality Management Quality in McDonald restaurant is very important because of two reasons. Firstly because of the legal requirements of the quality of food served. Secondly ,to keep up the good reputation which McDonalds restaurants have earned over the years. Quality of food can be very difficult to maintain and therefore McDonalds restaurant carry on a number of practices to make sure that quality food is served. Some of these practices are the visits by the food inspector from the head office, supervisor checks etc. Maintenance In McDonalds, there are several equipments that are used for the preparation of food. Therefore it is very important to maintain and service those equipments so as to maintain the quality of the product, safety of the employees and to avoid further costs of repairing machines. Another important things that needs maintenance are hygiene, costs, quality etc.

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RECOMMENDATIONS: McDonald’s faces some difficult challenges. Key to its future success will be maintaining its core strengths—an unwavering focus on quality and consistency—while carefully experimenting with new options. These innovative initiatives could include launching higher-end restaurants under new brands that wouldn’t be saddled with McDonald’s fast-food image. The company could also look into expanding more aggressively abroad where the prospects for significant growth are greater. McDonald’s need to watch for these three headwinds in 2011. Rising food prices: Higher food commodity and energy prices have recently pushed up wholesale and retail food prices. Rise in food price inflation for the year. McDonald's and other big burger chains have largely been unaffected so far, but that might soon change. Limitation of beverages over burgers: McDonald's increasingly diverse menu has helped it become the nation's best-performing restaurant company during the economic slump. The chain has expanded too broadly into beverages, and the plan will eventually catch up with the company. Selling beverages is good but it makes operations more complex. It takes more to make a latte than to pour a Coke. Return on investment: Some franchises worry that their investments will not pay off, a poll of franchisees shows some concern that corporate demands to redo stores and sell more coffee cost too much and might not pay off in the end. The McCafe machines cost $100,000 to install, with McDonald's covering just $30,000 of that.

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LEARNING FROM THE CASE:

Branding A Service And An Operating System

In seeking to build a chain, Kroc knew that McDonald's did not have the field to itself. When he opened for business in 1955, a lot of established chains were already in the market. Kroc took great pains to differentiate McDonald's from these players -- for competitive and intellectual reasons. The crucial difference between Kroc and his rivals was one of world view. He saw franchisees as business partners, not as mere customers. In his travels selling the Multimixer, he had observed the way franchisers milked franchisees for profits without concern for their long-term viability. Kroc vowed not to fall into that lucrative but ultimately unproductive trap. "My belief was that I had to help the individual operator succeed in every way I could. His success would insure my success. But I couldn't do that and, at the same time, treat him as a customer," he said.

Instead of simply supplying franchisees with milk-shake formula and ice cream, Kroc wanted to sell his new partners an operating system. In other words, he branded a service. And this was the revolutionary means McDonald's would use to create a chain in which a store in Delaware and a store in Nevada could serve burgers of the exact same size and quality, each containing the same number of pickle slices and topped with the same-size dollops of mustard and ketchup, each arrayed on similar tray alongside potatoes deep-fried for the exact same length of time. As Kroc recalled, "Perfection is very difficult to achieve, and perfection was what I wanted in McDonald's. Everything else was secondary for me." But the exacting demands served a strategic goal. "Our aim, of course, was to insure repeat business based on the system's reputation rather than on the quality of a single store or operator," Kroc said.

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APPLICATION IN OTHER AREAS: McDonald’s operating system would has proved to be model of efficient service not only for fast food operators, but also for hotels, retails stores, banks and other businesses where personal contact is an essential part of day-to-day functions.

Some of the companies which could adopt its operation strategy would be business organization where its required to :

– manage the supply chain to meet customer needs – become a lean service organisation – do Product development through continuous improvement – invest in safety – Implement excellent customer service – manage Inventory efficiently

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BIBLIOGRAPHY: http://www.aboutmcdonalds.com/ http://en.wikipedia.org/wiki/McDonald's http://money.cnn.com/2011/01/21/news/companies/mcdonalds_slowing_growth.fortune/index.htm "Big Mac's Makeover: McDonald's Turned Around". The Economist. 2004-10-14 http://www.wiley.com/legacy/products/subject/business/forbes/kroc.html “Can McDonald's Shape Up?” http://www.time.com/time/business/article/0,8599,354778,00.html