Operations and McDonalds - Case Study Example

Operations and McDonald’s I. Their Mission McDonald’s “regards itself as the leading global food service retailer.” They have the numbers to prove it. By serving over 47 billion people a day at over 30,000 restaurants in over 121 countries, they have managed to lead the fast food service industry (bized, 2006, www.knowmore.com, 2005). This is proof that they are achieving their stated vision of seeking “to be the world’s best quick service restaurant” (McDonald’s, 2004). By remaining true to their original objectives they have become the standard that others in the industry hold themselves to. II. Their Objectives and Goals A large part of their success is due to their corporate-wide adherence to a basic set of values, which have provided guidance for the corporation since its inception. In the UK version of the “McDonald’s Franchising” pamphlet (2004) the corporation’s “values and principles” are listed. Their goal is to provide customers with “Quality, Service, Cleanliness, and Value.” They further state that they are committed to their people, use integrity and honesty in all interactions, are dedicated to “giving back” to the community, and are continually seeking ways to improve the services they provide. They want to fully satisfy each customer, at each and every visit, and state that they could not meet this goal without the “three-legged stool of franchisees, employees, and suppliers” working together to fulfil this commitment. They work hard to protect their brand and to keep and increase the dividends flowing to their stockholders (McDonald’s, 2004). These guiding principles, along with constant innovation, have built their corporation into a multi-billion dollar industry, which continues to grow and expand every year. In fact, between March and April of this year, their global comparable sales rose 6.2% (McDonald’s, 2006). Mc Donald’s has used management levers, both in the past and today, to obtain their stated objectives and achieve their goals. II. Their Management Levers McDonald’s uses many management levers to stay successful. Such tried and true levers as facilities, capacity, vertical integration, quality management, supply chain relationships, new products, process and technology, human resources, inventory management, and production planning and scheduling have given them the leading edge in the industry and through the process of continually updating and innovating, will continue to do so in the future (Chambers and Johnson, 2004). One of McDonald’s strengths lies in its use of the inventory management lever because “McDonald’s…is a counter”, a fact “many Americans [and others] don’t go very far in analyzing the company’s propensity for” (Kincheloe, 1997, Chambers, 2004). They have built an empire by knowing just how many burgers they can get out of a pound of ground beef or squirts of ketchup from a bottle (Love, 1995). They keep a close watch on in-store inventory, with checklists which must be filled in several times per shift and day, but are also aware of exactly how much of each product the various suppliers can deliver in a load. They have honed, to the exact degree, the proper temperature for storing their inventory, both in-store and in-transport, to maximize product freshness, quality, and health safety. If all of these steps are adhered to stringently, there is very little wasted product at McDonald’s (Early, et al.). The McDonald’s Corporation, its franchisees and partners have always been innovators. It began with the reopening of the McDonald brothers’ first store in 1948, when they began to utilize customized equipment and place an emphasis on speed, service, value and cleanliness (Love, 1995). They implemented these changes in an effort to appeal to families, who were increasingly pressed for time and money. They succeeded in this respect, to such a degree that parents not only brought their children in to the stores, but also allowed them to go in by themselves. The first customer in the newly remodelled McDonald’s restaurant was a nine-year old girl, buying burgers for the family meal (Love, 1995). McDonald’s advertising over the years has focused on appealing to kids and their parents, as have many of their marketing strategies. From kids’ meals and the toys that go in them to Ronald McDonald and play areas at many stores, McDonald’s has placed an emphasis on creating a healthy, safe and clean environment for children and parents (Boje, 2003, Kincheloe, 1997). In an effort to keep improving its service and appeal to families, the corporation has announced the creation of a panel of mothers, the Global Moms Panel, “to help the company better serve the needs of moms and families both inside and outside its restaurants worldwide” (McDonald’s, 2006). The UK, US, China, Argentine, Germany and Italy are represented on this panel. Plans are underway to create similar panels in several countries. Changes in society’s eating and spending habits have led the company to provide healthier menu items, such as fruit, salads, and bottled water, local and ethnic menu options, and value meals, which offer several items at a cost lower than their separate prices combined when bought individually (Kapica, 2004, Hoovers, 2006). Even though they offer local, regional, and ethnic foods at individual stores throughout the world, they have found that their best sellers remain their core menu items. Those are their order winners (Chambers, 2004). They have also used innovation in their manufacturing process in-store. First, they standardised their methods of preparation. Then, to improve their preparation time and consistency they made changes to their equipment, starting with their grill in the first McDonald’s store (Love, 1995). Their fryers were redesigned so that they produced the perfect fries, as was the tool they used to stuff the product into its packaging. A special utensil was made just for the grilling of eggs for Egg McMuffins, so that they would be the proper rounded shape every time (Upton, 2005). Furthermore, by employing the latest technologies they are able to communicate with all members of their supply systems. The grinding system, Fat Content Management, Mixer Station, Hamburger Farming Station, Laboratory Station, Laboratory Manager, Production Manager and Technical Manager are all connected in the company’s computer network servers. This places a vast amount of technical information right into the hands of the employees who need it – immediately (McGraw Hill, 2006). This leads to the human resource management lever, one that McDonald’s is extremely proud of. “At McDonald’s, our training reflects the latest in management training” (McDonald’s, 2006). Beginning with an extensive, intensive 18-week Management Development Programme, followed by further ongoing training on a regular basis, along with the aid of an over 700-page operations manual, the company strives to have well-prepared management in all of its stores (McDonald’s, 2006, Love, 1995). The operations manual gives managers full access to the company’s accumulated wisdom, answering not only how to maintain the machines and store, but almost any question that could come up in nearly any situation (Love, 1995) There is also a well-structured chain of command at their immediate reach through the phone, as well as a twenty-four hour line to the company’s headquarters. Production planning and scheduling are handled by the management and are based largely upon consumer demands, the highs and lows of sales on each shift and specials being advertised heavily in print and on the radio and television. The use of vertical integration has been a major part of the chain’s operational success. Whereas most of their competitors focused on recruiting franchisees, “Kroc, on the other hand sought (i) to make sure McDonald’s products were of a 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” (Upton, 2005) They initially began by using smaller suppliers who were willing to take the risk on meeting McDonald’s rigorous standards, and as the company grew and expanded, so did their suppliers businesses as well. This sharing of the wealth, led to even more intimate relationships with suppliers, who began to grow or manufacture their products with McDonald’s in mind, such as J.R.Simplot, who found ways, such as freezing and precooking of product, to meet the stores’ growing demands and guarantee consistency year round. They also took their customer’s compliments, complaints, and requests to their own labs to improve their products. As they made innovations and changes to their menu to please their customers, they acquired new suppliers to meet their new needs. All the time maintaining strict standards of quality, in-store, in the supply chain, and at the service counter (Upton, 2005). IV. Future Operations The future looks bright for the retail giant. McDonald’s has an extensive strategy for future success, which covers growth, franchising, store location and construction, products, operations, sales promotion, marketing , and merchandising, and human resources, as well as their social responsibility and community citizenship, according to “A Strategy Example: McDonald’s” (www.divandari.com). They plan to further penetrate new markets by “adding 1750 restaurants annually.” They expect that approximately 90% of those stores will be built outside of the US market (www.divandari.com). They are also performing an extensive “reimaging” of their current outlets, with “over 5000” remodelled by 2002, and plans to remodel many others (mcd.mobular.net, 2006, McDonald’s, 2006). They are restricting their franchising opportunities, by seeking out only highly-motivated individuals, with excellent financial track records, to be the on-site owners of their stores. Mc Donald’s has long had a policy of only franchising with non-absentee owners, but is now tightening its qualifications for new owners (mcd.mobular.net, 2006, Love, 1995, www.whichfranchise.com, 2006). They plan to “reduce site costs and building costs by using standardised cost-efficient store designs and by consolidating purchases of equipment and material via a global sourcing system” (www.divandari.com). Furthermore, they will be limiting their menu, tightening standards on food quality and improving cleanliness in all aspects of their store maintenance, from the fryers to the restrooms. They also intend to enhance all of their promotion, marketing, and merchandising to better reflect these changes (www.divandari.com, Derby, 2003). They are intent upon improving customer service by offering more competitive wages and improving training at all levels, including the educational tools offered to franchisees globally (www.divandari.com, mcd.mobular.net, 2006, McDonald’s, 2006, Forbes, 1996). This is especially important since many of their employees are under 21 years of age and they have an over 100% turnover of employees in their stores (Royle, 2000). They are in the process of shifting the focus back to customer service in existing stores worldwide (Griffin, 2005, Taylor, 2000). Finally, they intend to place a higher emphasis on community service and citizenship. They plan to open more Ronald McDonald Houses in children’s hospitals globally and to contribute more to local charities and non-profit organizations. Giving back to the community has long been emphasised by McDonald’s and as their franchising operations grow so do their opportunities to make a difference in the communities that they serve (www.divandari.com, McDonald’s, 2006). If McDonald’s is able to follow through with these strategies, and they have an excellent track record of doing so, they will be able to continue to grow and profit in the global marketplace. 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