McDonalds Corporation

By
Abhishek Shankar (uemf1600
Ruchira Panigrahy (uemf1601
 Flow

Case Challeng McDonal Operati Nature Latest

Facts es Faced ds ons of Buzz
Operati Strategy Network
ng Matrix Relation
System ship
 Case Facts
Started with Dick and Mac McDonald in 1941
Establishment Carhops used to take orders from patrons parked in the restaurants large
lot.

Serves around 68 million customers daily

Facts Operates over 36,000 restaurants in 119 countries
Employs more than 1.7 million people

Downfall Sales per unit started slowing down between 1990 & 1991

Speedee In 1948, introduced self-service windows

Used to standardize their preparation methods
Service Used exact product specifications & customized equipment for each
System products

High quality products

Unique operating system
Objectives The Three legged Stool model : McDonalds corporation, Suppliers &
Franchisees
QSCV performance : Quality, Service, Cleanliness & Value
Challenges faced by McDonalds

Trade-off between market

Issues in getting the right
competition & McDs
suppliers initially
unique operating system

Issues while storing

Growing market
potatoes & other raw
competition
materials

Market Positioning : Place

for hamburgers and quick Outbreak of
service environmentalism and
Not a place for casual sustainability
dining

Demographic trends
reshaping American
eating habits
Getting it Right - Again and Again
Develop
Supplier
Relations
hip

Equipmen McDonal
Train &
t ds
Monitor
Improvem Operatin
Franchise
ent g
es
System

Product
Improvem
ent
 Supplier Relationship

Established Leading companies : Kraft, Heinz and Swift

Refused to accept McDonalds concept & specifications
Food Suppliers Concentrated solely on Retail market

Support from fledging vendors

Small Fledging McDonalds created a whole new set of vendors
Threats : Meeting McDonalds strict standards & price
Food Suppliers requests
Suppliers were guaranteed future volumes

Meat : 83% lean chuck from grass-fed cattle & 17% choice
Specifications plates from grain-fed cattle
for Raw Fillers were unacceptable
Accepted potatoes with 21% starch content, checked with
Materials hydrometers
 Franchisees Relationship
Benefits to
McDonalds
Philosophy behind Franchise
and operating practices
Corporate revenue come not
from initial franchise fee but
from success of restaurants
Franchise owners felt
themselves as partners
Franchisee became the brand
ambassadors for local
promotions
Benefits to
Franchisees
McDonalds made sure the
Franchisees would make
money before them
Being partners developed
products
(Filet-O-Fish Sandwich & Egg
McMuffin)
Formed powerful regional
cooperatives for advertising
and purchasing
 Product Improvement
French Fries : Identity &
Exclusiveness
By 1985 French fries potatoes accounted for more than 25% of US market
Provided McDonalds & its suppliers sufficient purchasing power to influence the
growers to adhere to planting practices
Market opportunity for Potato processors for storage facilities using temperature
controller

Extensive Research
Company simply monitored the way French fries were cooked in its restaurants
Discoveries of Researchers :
Temperature settings on the fryers had little connection to the temperature of
the oil in the vat once cold potatoes were dropped in.
Fries were always perfectly cooked when the oil temperature rose three
degrees above the low temperature point & hence designed a new Fryer
Potato Curing : 3 weeks
Accepted potatoes with exactly 21% starch content & checked through
hydrometers
From Fresh potatoes to Freezing of potatoes
Designed V-shaped aluminum scoop with funnel at the end to fill french-fry
bag in one motion
 Product & Equipment Improvement

In June 1976, McDonalds franchisees introduced BREAKFAST

Breakfast MEAL
Egg McMuffin, hotcakes, scrambled eggs, sausage and Canadian
style bacon
Developed the first-ever 91% fat-free burger - McLean Deluxe
Introduced salads, chicken and muffins

Fred Turner : Onions to be substituted by bite-sized chunks of

deep-fried chicken
Chicken Keystone : Found an efficient way to cut chicken into bite-sized,
McNuggets boneless chunks
Arend : Developed 4 sauces to accompany the nuggets.
McDonalds was deriving 7.5% of domestic sales from its newest
product

Invented Pizza Oven that could cook McDonalds Pizza in 5

Equipment minutes
High-tech temperature and moisture controlled cabinets
Cutting prices an average 20%
 Operations Strategy Matrix
Pe Resource Usage Ma
rfo rk
Quality of Specification High Tech temperature and
rm et
Product & provided to moisture controlled
an Co
Services NA suppliers cabinets NA
ce m
Patrolled suppliers Developed process to dry
Ob pe
scrupulously French fries with air for
jec titi
Performed Lab preserving
tiv ve
testing
es ne

ss
Speed & Helped to develop Engineers developed V- Speedee Service
Dependabi products in record time shaped scoop to fill fries System
lity efficiently and Grill to cut on developed
time Standardized
preparation

Flexibility Developed Careful product
number of NA NA development closely
building in accordance to
prototypes, drive- customers new
ins habits

Cost Developed new
smaller profitable NA NA NA
restaurants
pivota Capacity Supply Network Process Technology Development &
l Strategy Strategy Organization
 Nature of Network Relationship
LEARNING
TRANSACTION COST
POTENTIAL

ECONOMIES OF RESOURCES
OPERATIONS DEFICIENCIE
SCALE RESOURCES S

Nature of Network
Relationship

COMPETITOR MARKET MARKET

BEHAVIOUR REQUIREMENTS POSITION

MARKET
STRUCTURE MARKET RISKS
 Operations Resources
ECONOMIES OF TRANSACTION LEARNING RESOURCES
SCALE COST POTENTIAL DEFICIENCIES

7.5% of Search cost for Temperature settings Deficiency of

domestic sales raw materials, on the fryers had potatoes in
were derived location little connection to summers
from these the temperature of
newest product the oil in the vat
Bargaining Developed
Partnered with costs for process for
3500 US franchisees, storing Frozen
Franchisees licensing Designed a new Fryer potatoes
which accounted
for 39% revenue Transfer costs
for storage, Potato Curing : 3
80% of the
handling & weeks, 21% starch
revenue
transportation content
generated from
Breakfast &
Designed V-shaped
Lunch Screening
aluminum scoop
costs for
Marketing/
Advertising

Monitoring
costs for R&D
 Market Requirements
COMPETITO
MARKET MARKET MARKET
R
POSITION RISKS STRUCTURE
BEHAVIOUR

Increased Traditional Rivals :

Family friendly low variation in the Highly
Burger King, Wendys, or KFC
cost restaurant in the supply chain competitive
were no longer competitors
fast food business market -
Oligopoly
Well-saturated Chilis and Olive Garden :
market
Company is engaged Menus offered a wide variety of
Concerns to Competitors : choices, Prices were kept
in periodical re- Burger King,
achieve competitive
positioningof products double digit Wendys, or
and services according growth KFC as well as Sonic and Rallys :
to changes in the Small 2 hamburger chains
segment New found competitors
emphasis on like Chilis and Offered drive-through service
healthier Olive Garden, Specialized in delivering burgers
eating Taco Bell fast
Made its place for Taco Bell :
hamburgers & Quick Shifted food preparation to
service Dinner menu in vendors
the restaurant Reduced kitchen space in its
outlets
Prices were always kept low
 Latest Buzz
HYPERACTIVE BoB SYSTEM
Based on Artificial Intelligence
Bob sees car traffic into the restaurant,
analyzes that visual data in conjunction
with historical and real-time point-of-sale
(POS) data, and directs kitchen employees
in real-time on what to cook, when & how
much
Time required to train new hires has been
reduced from three months to just over a
week when using the system.

KIOSKS
McDonalds much-hyped Create Your
Taste menu, which allowed customers in
about 2,000 US restaurants to build their
own burgers using touch-screen kiosks
 Highlights
Characteristics of McDonald's production system for the success &
growth in the industry
Uniform operating system, taste and service in every McDonalds
outlet
McDonalds is very particular in quality of the raw materials they
use
Their concern
Strengths over the franchises and make them to feel as one of
of McDonalds
their partner
Usage of eco friendly packaging, ensuring efficient solid waste
disposal.
Allocation of budget for Research & Development (R &D).
Elasticity in operational time
Streamlining of menu
Future growth of McDonalds
Keep innovating the products, take into consideration the dinner
menu
Developing outstanding supplier relationship
Training and monitoring the franchises
Study the market trend and act accordingly
Use advance ERP and data centres
Necessary changes in ambience space as per requirement