McDonalds: Supply Chain Management - Case Study Example

Contents Page 2 McDonald's food supply chain 3 Children and McDonald's 7 McDonald's: a unique franchise 8 McDonald's versus the rest 9 Changes in McDonald's and the moral issue 10 References 13 McDonald's: supply chain management Abstract McDonald restaurants can be found in 118 countries and territories worldwide. They claim to serve 50 million customers every day. Revenues for 2004 were a whooping US$19.1 billion, with net income valued at $2.75 billion. Most detached McDonald's restaurants have drive-through service and in-counter services, with indoor seating generally. Some restaurants do however have outdoor seating. The McDonald's Corporation's business model is somewhat different from that of most other fast-food chains. In addition to franchise fees, supplies, and sales percentage, McDonald's collects rent, partly linked to sales. As per the franchise agreement, the Corporation owns most properties where McDonald's is located. The UK business model is different, in that fewer than 30% of restaurants are franchised, with the majority under the ownership of the company. McDonald's trains its franchisees and others at Hamburger University in Oak Brook, Illinois. Nearly one in eight workers in the US has worked with McDonald's at one point in their lives. [1] Eric Schlosser's. McDonald's is also the largest private operator of playgrounds in the country, apart from being the single biggest purchaser of pork, beef, potatoes, and apples. The meats that the company deploys vary with the culture of the country. McDonald's is unique in several ways to its competitors as regards the way it runs its business. It has not always been smooth sailing though, for the most famous fast food joint in the world. McDonald's has been targeted by criticism for allegations of manipulation of entry-level workers, , ecological damage generated by industrial processing of its products, selling far from healthy food, producing packaging waste, exploitative and controversial advertising and partaking in the suffering of livestock. McDonald's' tendency towards promoting high-calorie foods like French fries has not helped either. Also, several McDonald's restaurants are alleged to have used substitute meats, like wildebeest and horse. While these allegations are serious, some argue that it is simply paying the price for being famous. McDonald's Food supply chain McDonald's puts food safety at the very top of their agenda. This is not surprising for a company that does billions of sales revenue annually. This kind of ethics promotes good business as well. At the heart of the McDonald's operation is a quality assurance and supplier food safety programs and is seen as top corporate priority. Suppliers and franchisees have to follow meticulous quality and safety guidelines if they want to sustain their association with McDonald's. It is a high-profile business whose success is founded on good customer experience. Thus, setting clear food safety and quality expectations is the best way to make the business work. [2] Sarah Fister Gale "Food safety is a never-ending process for McDonald's, from raw materials, through the facilities and distribution centers, and all the way to the restaurants. It's a top priority at McDonald's. It's a fundamental standard of our business and our heritage, and will never be compromised." - Lamont Rumbers, director of quality systems for McDonald's USA. [2] For sandwich buns alone McDonald's has tie-ups with more than 20 bakeries all over the country (USA). The bakeries must produce precisely the same size, texture, color, flavor and consistency. Concomitantly, they should adhere to the stringent food safety guidelines set by McDonald's. Meeting this kind of requirement, year in year out, is much easier said than done. However, McDonald's is committed to painstaking, science-based food safety and then successfully communicating those expectations to its supply chain partners. It is more about the people and the process. The suppliers should be willing and competent enough to meet McDonald's strict food safety and quality standards. These standards cover storage facilities, dedicated production lines and production formulas. The McDonald's system necessitates constant quality checks all through the supply chain process and established traceability programs. It requires at least a step back to the ingredient supplier; in fact, in some cases, tracking should all the way back to the farm. It is upon the supplier to audit their personal ingredient and suppliers of raw material; this ensures that the producers upstream too cater to the high food safety and quality requirements the company demands. These demands include the application of HACCP (Hazard Analysis and Critical Control Points) as well as allergen control programs. Having a good HACCP program is the keystone of McDonald's' food safety program for its suppliers; it also serves as the bare minimum requirement to work with the company, "We purchase everything from our suppliers The suppliers are our front line; they are the guardians of quality." - C. Gonzlez Mndez, McDonald's North America senior vice president of supply chain management. [2] McDonald's USA works with high-profile local pork, beef, poultry, produce and egg processors, like Sunny Fresh Farms, Tyson Foods and Fresh Express. It is also associated with bakery, condiment, dairy, soft drink, juice and produce suppliers like Kraft Foods, General Mills, Dean Foods, Golden State Foods, Dannon, Newman's Own, McCormick and Coca-Cola. Each supplier is responsible for the safety, quality and uniformity of the products they generate and distribute to the McDonald's supply stream. McDonald's quality assurance personnel are in constant contact with each supplier about their processes, conferring about expectations, challenges and ideas for progress. The organization's sponsors councils on diversity and quality, and product-themed committees for chicken, beef and other product categories in its supplier community that promotes contact among the suppliers, restaurant owners and corporate representatives. Many McDonald's ideas have come from individual owner operators and suppliers who had designs to improve or add to processes and the restaurant's product lines. Also, it is a requirement of every McDonald's supplier to communicate his best practices with fellow suppliers and have their facilities visited by them. Suppliers have to send their products to fellow suppliers in their categories and to partake in company product comparison tests to evaluate characteristics, like color, quality, taste and thickness. The supplier who has the highest score will have to share its products with other suppliers in that product group to aid them in bettering their product specifications. To adhere to McDonald's food safety and quality needs, company's suppliers have devoted quality assurance staff on-site for the brand products they produce. In return, McDonald's advocates that suppliers share ideas and challenge the way the company as well as other suppliers thinks about food safety and quality. An interactive relationship makes everything a little easier. Along with a readiness to meet McDonald's stringent criteria, suppliers have to prove they can meet the high demand. This is an extremely important issue for McDonald's, as it cannot alter its menu to meet geographical and seasonal changes and has the responsibility to supply 30,000 restaurants annually. This can get particularly problematic with products like fresh produce, which characteristically limited growing seasons as well as short shelve lives. "We need guaranteed year-round supply and quality notes A main menu item has to be identical in any season. We can't change apple varieties or use produce that has crop damage." - Mitch Smith, McDonald's USA director of quality systems. [2] The color, texture, cut, newness and combine of all products must adhere to exact expectations. That interprets into millions of dollars of produce that should be available for McDonald's to meet the demand. It is the same with meat products, like beef patties and chicken filets, where the size, cut, shape, moisture level and tenderness of the products must be identical. To accomplish that, McDonald's has put in tremendous effort over the years to bring about a production system that offers the same consistency and quality of product, from each batch and supplier. Children and McDonald's McDonald's fast food is enjoyed by young and old. However, it can be safely said that McDonald's is far more a children-oriented fast food joint than otherwise. Ray Croc, the founder of Mc Kroc understood the worth of promoting McDonald's as family place. When he started, he linked McDonald's with several children's charities. However, getting young people to come to your restaurant is one thing. Having them repeated come is another. Today, McDonald's has circa 8,000 Playlands around the country. They can be a magnet to children who come from localities with very few or no playgrounds. McDonald's launched the Happy Meal in 1979. The cardboard box that came with the Happy Meal, children found a puzzle book, McDoodler stencil, a McWrist wallet, an ID bracelet et al. [3] Morgan Spurlock Toy versions of McDonald's mascots followed quickly. They included Ronald, Grimace, Hamburglar, Birdie and Captain Crook. Recently, in 2001, McDonald's opened the Mighty Kids Meal. This was meant for the eight or nine year olds who had probably outgrown the happy meal. It offers bigger meals and the customary toy. McDonald's: a unique franchise In January 2003, McDonald's declared its first-ever quarterly loss since turning a public company in 1965. The loss was estimated to be $343.8 million. It can be safely said that the once-powerful revenue growth and return on capital are in decline. The spotlight is to assertively upgrade the quality of McDonald's food and service. On the face of it, that may not seem a drastic approach as turning the fortunes of a struggling food chain. However, it is. The solution is simple. Better the quality of food, return service to its previous image, speed the drive-throughs, locate new fast-growing partners, and determine some way to unlock the startling value of the company's real estate. McDonald's is actually more than just a food chain. It is making money in a couple of ways. Primarily McDonald's is a franchiser, like most fast food joints. It receives its franchisees' royalty, who are autonomous business operators. Royalties are generally circa 4% from sales in the industry. However, unlike fast food joints McDonald's also is can also be seen as a real estate company, as it owns more than just the land in several of its franchises overseas. It also has control over the building. In the U.S that amounts to rent that is equivalent to a tenth of the sales apart from, of course, the 4% royalty. As a matter of fact, it would be no exaggeration to say that McDonald's is more of a landlord than a conformist fast-food chain. [4] Grainger David This real estate establishment is the reason why McDonald's chose to pursue profits by finding out, building, and coming up with more stores than anyone imagined possible. It is why McDonald's has 31,000 stores worldwide that produces some $900 million in net income (2002 revenue figures). In lay parlance, franchisees control 85% of McDonald's stores; the company runs the rest. Till the period where the returns from newly opened stores were bigger than building costs, McDonald's earned in ways that its competitors simply could not catch. McDonald's versus the rest Many probably laughed when at the notion of a chain of restaurants selling the same products all over the country. Still, that same idea revolutionized the business of the fast food industry. McDonald's is today the undisputed leader of the fast food business. In fact, it has been so since its inception. And while other are somewhat catching up, they can gain a lot by implementing the unique McDonald's business model for their own good. Apart from the distinctive franchise system that allows the company to collect rent form McDonald's outlets outside the US, there are several other factors that make McDonald's the best. McDonald's quickly assessed that most people yield to this fitting way of keeping their children happy. McDonald's specifically targeted the young. It can be safely said that children make the McDonald's business. "Children are often the key decision-makers concerning where a family goes to eat." - McDonald's 750 page Operations Manual. However, McDonald's did not rest on its laurels. Here are some examples. Right through the 1990s small outlets called "Express" stores were opened in zoos, airports, hospitals, etc. Though having a limited menu and lesser facilities, they succeeded to an extent. In 1996, McDonalds signed a decade long agreement with The Walt Disney Company. There were restaurants at Disney theme parks and Disney-produced movies were promoted at McDonalds outlets. Packaging is another huge source of advertising together with the supplementation of limited edition products that were added to the menu (E.g.The Lion King and Pocahontas) Then there is the thorough professionalism of the company that can be a blueprint to competition. There is an annual 'full field', where area managers, restaurant managers, and trainee managers do a broad check on the entire operation. The results are laid on the table and there is tremendous competition among stores as regards scores. Also unique is the McDonald's architectural design of its stores worldwide; the identical nature of the stores, that is. The fixtures and fittings are the same throughout the world, save for little variations that cultural differences demand. The McDonalds business model exerts a massive amount of control over customers and franchisees, shaping the elementary basis of the business. Standardization is applicable to both restaurants and their suppliers. Contractors have to share knowledge of food processing techniques, facilitating control and consistency of all features of the business for the company. Changes in McDonalds and the moral issue Though McDonald's target audience is essentially children, the time has probably come for the company to widen that aspect of its business. Thought sameness has brought about success, the presence of new competition warrants greater business and some variety. Generally speaking, since 1996, McDonald's has seen adults as a potential target. Television advertisement is meant for the age group 18-35. Magazines and press promotion is meant for adults as well as older children. McDonald's have has been reacting to what its competitors are doing. Recently, they came up with "bunless" hamburgers to compete with its low-carb rivals. Customers get the alternative of having their burger wrapped in lettuce instead to the traditional bun. Also, McDonald's is making an effort to appeal to customers' desires for safer foods. Perhaps the time has now come for McDonald's to come up with something new and different. The children-centric promotion is far from a spent force, but it is not guaranteeing the skin of runaway success that the company is used to. The criticism that McDonald's is responsible for obesity should be enough incentive for it to promote healthy food - though fast food and healthy don't quite fit in the same sentence. Ethics will somewhat be compromised in the process. To maintain its numero uno position McDonald's squeaky clean has to change somewhat. The solution is aggressive and more aggressive advertising and, subsequently, the opening of more stores around the world. However, drawbacks are there. More stores means greater production. Here, it is ironic that underdeveloped and undeveloped countries, where most children are underfed, are in reality having to export their staple crops for the feeding of animals. This feed is subsequently used to fatten cattle that are finally translated to the best burgers. It is believed that of the 145 million tons of feed needed for livestock, only 15% of meet are by-products are used. The monetary value of the waste is $20 million annually. That money can be sued for better purposes. . Also, Millions of acres of the finest farmland in disadvantaged countries are used for fast-food benefits. McDonald's aggressive campaigning would eventually lead to the impressionable children believing that it is the ideal food. That is just not true. Works Cited [1] Eric Schlosser. Fast food nation. (2001). [2] Sarah Fister Gale. Case Studies in Food Protection: McDonald's USA: A Golden Arch of Supply Chain Food Safety. FoodSafety Magazine. [3] Morgan Spurlock. The Truth about McDonald's and Children. Published on Sunday, May 22, 2005 by the lndependent/UK. [4] Grainger David. Can McDonald's Cook Again The great American icon ain't what it used to be. Fortune. http://money.cnn.com/magazines/fortune/fortune_archive/2003/04/14/340917/index.htm Read More