Group23 Case Study

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Mc Donald¶s Supply Chain Management

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MC DONALD¶s SUPPLY CHAIN MANAGEMENT

Submitted to: Prof. Sushil

Submitted by: Group 23

Deboshree Roy (201SMF6625)

DC Parimalah (2010SMF6538)




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TABLE OF CONTENTS

y

Introduction««««««««««««««««««««.03

y Origin of Mc Donalds««««««««««««««««.03

y Some important facts««««««««««««««««04

y Indian markets«««««««««««««««««««04

y About Supply Chain Management««««««««««..05

y Supply chain in Mc Donald¶s India««««««««««..06

y Mc Donald¶s distribution centre««««««««««««07

y Concepts of cold chain«««««««««««««««..07

y Steps involved in cold chain concept«««««««««..09

y Outsourcing at its Best«««««««««««««««..10

y List of suppliers and how cold chain concept works«««.12

y Different items are sourced from««««««««««.«.14

y Three logistical drivers««««««««««««««««15

y Three cross functional drivers«««««««««««««15

y Pull/push process««««««««««««««««««.16

y Supply chain process««««««««««««««««..17

y Comparison of Dominoes vs McDonald¶s Supply chain««18




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INTRODUCTION

About Mcdonalds

McDonalds is a name which is today synonymous with the fast food. McDonald's is afast food chain with restaurants all over the world with headquarters in oak brooks,Illinois, US. It serves burgers and other fast food customized to local tastes. Itsphilosophy has been 'one world, one burger;' which meant that the burger must beconsistent in terms of cost and quality. To meet such high standards, it was essential tohave an excellent supply chain management system. In India, McDonald's had a verywell orchestrated supply chain, called the 'Cold Chain'.

ORIGIN OF MCDONALD¶Sy In 1954, Ray Kroc, 52, distributor of milk shake maker- multimixer, went to see

Mcdonalds brothers hamburger stall in California.

y With an opportunity, he thought to open several of such restaurants so as to sellhis multimixer milk shake machine.




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SOME IMPORTANT FACTSy Ranked 10th in Worlds most Admired Company 2011

y Ranked 1 in food services

y 31000+ restaurants.

y 47 million customers served daily.

y 1999- 8th most valueable brand.

y 2000- ranked amoung top 100 firms in the world.

INDIAN MARKETy It¶s a huge sub-continent.

y India is 4 times more populated than the US.

y India has 300 million strong middle class people.

y India is one of the largest economy.

y Incorporated in 1993, MIPL is Mcdonalds india¶s wholly owned subsidery.y In India, Mcdonalds open its first restaurant in vasant vihar, South Delhi.

y 50:50 joint venture with-(1) North- Connaught plaza restaurants( owned by Mr. Vikram Bakshi) and(2) West- Hardcastle restaurants ( owned by Mr. Amit Jatia).

World map showing the presence of McDonalds and the year when it started. InIndia it started in year 1996.




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ABOUT SUPPLY CHAIN MANAGEMENT

A supply chain is a system of organizations, people, technology, activities, informationand resources involved in moving a product or service from supplier to customer . Supply

chain activities transform natural resources, raw materials and components into afinished product that is delivered to the end customer.

Supply Chain Management involves the planning and management of all activitiesinvolved in sourcing and procurement, conversion, and all logistics managementactivities. Importantly, it also includes coordination and collaboration with channelpartners, which can be suppliers, intermediaries, and customers. Supply chainmanagement integrates supply and demand management within and acrosscompanies. Supply Chain Management is an integrating function with primaryresponsibility for linking major business functions and business processes within andacross companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations,and it drives coordination of processes and activities with and across marketing, sales,product design, finance and information technology.´

The primary objective of supply chain management is to fulfill customer demands throughthe most efficient use of resources, including distribution capacity, inventory and labor.




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SUPPLY CHAIN MANAGEMENT OF MC DONALD¶S IN INDIA

In a fast food business, supply chain is of highest importance. It helps in minimizingcost, cut down the delivery time, improve the profits and at the same time maintain thehighest standards.The importance of supply chain can be understood by the fact that before setting uptheir first restaurant in India, MC Donald¶s infused around Rs. 400 crores in the supplyand delivery chain.Mc donalds india source all its products and its raw materials from India only. Mcdonalds develops local businesses that supply them the products and that too of highest standards. Today mc donalds have around 38 suppliers and that too on the longterm basis.




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MC DONALDS DISTRIBUTION CENTRES

y Noida and kalamboli(Mumbai)«««««..1996

y Bengaluru««««««««««««««..2004

y

Kolkata««««««««««««««««2007

1st distribution agreement was done by Radhakrishana group, a group engaged in foodbusiness in the year 1993 and it was their 1st distribution centre.

THE CONCEPT OF COLD CHAINIn 1996, when McDonald's entered India, it was looking for a distribution agent whowould act as a hub for all its vendors. Mumbai-based Radhakrishna Foodland PrivateLimited (RFPL) was chosen for the job as it was already a distributor for its sister concern, Radhakrishna Hospitality Services, a catering unit supplying to offshore

institutions. The iceberg lettuce from Ooty, mutton patties from Hyderabad and sesameseed buns from Punjab were all delivered to RFPL's distribution centre (cold storage) inits refrigerated vans.RFPL stored the products in controlled conditions in Mumbai and New Delhi andsupplied them to McDonald's outlets on a daily basis. By transporting the semi-finishedproducts at a particular temperature, the cold chain ensured freshness and adequatemoisture content of the food. The specially designed trucks maintained the temperature




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in the storage chamber throughout the journey. Drivers were instructed specifically notto switch off the chilling system to save electricity, even in the event of traffic jam."This centralized distribution system is unique to McDonald's. We have to ensure thatthe integrity of the product is maintained throughout the cold chain," said H. Shriram,

General Manager, Distribution Centre, RFPL. FJ Walker of Australia, a McDonald'spartner, helped RFPL build a cold storage in Thane. Another cold storage withequipment worth about Rs.75 lakh was built in Delhi in 1998. RFPL also handledMcDonald's inventory management. It had to anticipate future requirements andcontingencies and plan for optimum utilization of the refrigerated vehicles.Meeting McDonald's "cold, clean, on-time" delivery standards was no easy taskconsidering that there were 30 suppliers situated all over the country. AFL Logistics Ltd(ALL), a joint venture between and Coughlin of the US, and RFPL was responsible for ensuring these standards. Coughlin's task was to make sure that McDonald's had theproper amount of supplies and materials at each restaurant. The challenge was thephysical movement of material and inventory control in a country with bad roads and

basic infrastructure bottlenecks. To meet McDonald's high standards, Coughlin ensuredthat quality, temperature and packaging requirements were met. At the same time,unused capacity in the vehicles was used to transport goods from other vendors. Thishelped Coughlin deliver the lowest cost with the highest quality.RFPL also handled in-city distribution to restaurants. According to Vinay Adhye (Adhye),director, RFPL, "Managing logistics for McDonald's is as complicated and demanding asrocket science." To begin with, while the restaurants were not supposed to stock morethan three days of inventory, the time limit for distribution centres or warehouses was astringent 14 days to minimize costs and optimize quality control. This required round-the-clock monitoring of pick-ups and truck movements. Since most of the items wereperishable, McDonald's standards covered the entire delivery schedules.

For in-city delivery, the truck was monitored from the time it left the distribution centre tillthe time it reached the restaurant. Not just that, the time taken in offloading was notedtoo. The restaurant gives a strict 30-minute window in which time they have to completethe delivery. And in the last two and a half years we have missed the window onlyonce.The products were transported from the suppliers' end to the distribution centre inrefrigerated and insulated vehicles through a system of consolidation to ensure better utilization of vehicle capacity. While the temperature in the reefers ranged from -18º to -22º, that in chilled trucks ranged from 1 to 4º. "At no point is the cold chain disturbed, somuch so that if any of the McDonald's restaurants face a power breakdown, reefer trucks are arranged to ensure that temperature is maintained", said Shriram. He further added, "We have a contingency plan and a back-up at every point, in the event of a

failure.RFPL was also responsible for cleanliness (including the personal hygiene of thedrivers), and the packing and temperature control of the food (digital probes wereinserted into items selected at random) it transported. There were also data logs to trackthe movement of each batch. Thismeant that in the case of a complaint from arestaurant, the batch could be identified, isolated,and dumped. To perfect the system,the RFPL team travelled to a number of countries, including Turkey, the Philippines,

Australia, and the US. AFLL also followed similarly detailed procedures.




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McDonald's insisted on standardization by its suppliers. Vista Processed Foods & KitranFoods (Vista & Kitran Foods), which supplied the pies, nuggets, vegetable, and chickenpatties, commissioned a new facility for the purpose in 1996, complete with insulatedpanels,temperature control, and chill rooms. McDonald's also assisted its suppliers with

improvements.For instance, it helped Trikaya Agriculture develop a variety of iceberg lettuces (which isa winter crop) that would grow all year round. And for quality control, Trikaya's post-harvest facilities included a cold chain consisting of a pre-cooling room to remove fieldheat, a large cold room, and a refrigerated van with humidity controls.

STEPS INVOLVED IN COLD CHAIN CONCEPT

y Procurement

y Warehousing

y Transportation

y Retailing

All the above activities took place intempreture controlled atmosphere.

McDonald's finding the factor of cold room

being vital ensured that even before

vegetables from farms entered the

refrigerated zones, they were locked in a

pre-cooling room to remove field heat.

Vegetables were placed in the pre-cooling

room within half an hour of harvesting

where rapid cooling decreased the field

temperature of vegetables to 2ºC within

90 minutes. Then a large cold room (a

refrigerated van) was used for

transportation to the distribution centers.In the van, the temperature and relative

humidity of crop was maintained at 1-4ºC and 95 per cent, respectively and

the flavors and freshness are locked.

At the suppliers' level, care was taken to guard against any possible contamination or




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interruption in the cold chain that can break the link and have a detrimental effect on the

quality of our product.

The iceberg lettuce from Ooty, mutton patties from Hyderabad and sesame seed buns

from Punjab were all delivered to Radhakrishna Foodland Private Limited (RFPL)

distribution centre (cold storage) in its refrigerated vans. RFPL stored the products in

controlled conditions in Mumbai and New Delhi and supplied them to McDonald's

outlets on a daily basis.

By transporting the semi-finished products at a particular temperature, the cold chainensured freshness and adequate moisture content of the food. The specially designedtrucks maintained the temperature in the storage chamber throughout the journey.Drivers were instructed specifically not to switch off the chilling system to saveelectricity, even in the event of traffic jam.

OUTSOURCING AT ITS BESTMcDonald's sourced ingredients from all parts of India. (Refer Table I). The iceberglettuce was specially developed for India using a new culture farming technique. Thisvariety of lettuce was similar to the lettuce McDonald's used elsewhere in the world. Tomeet the demand consistently, McDonald's helped Trikaya Agriculture grow the lettucethroughout the year and even in rainshadow areas. The crop was harvested between 45days, depending on the climate. The crop was harvested early in the morning andimmediately stored in vacuum pre-coolers installed at the farm. The pre-cooler broughtdown the temperature of the lettuce from 26º to 3º.McDonald's was able to bring technology to its suppliers too. Vista and Kitran Foodswas formed through a joint venture between Vista and OSI Industries, US, for chickenproducts; and between Kitran and Kitchen Range Foods, UK, for vegetable patties.Vista and Kitran's Taloja plant was commissioned in December 1996."We have developed a supplier chain to get fresh vegetables and chicken. We testeverything that comes into our plant," said Jose Azavedo, CEO, Vista & Kitran. Theplant had a Hazard Analysis Critical Control Point (HACCP) system to ensure quality.The ready-to-cook patties, manufactured at the plant, were stored in rooms at -26º c.McDonald's had also applied supply chain technology when setting up Dynamix DairyIndustries Limited. The Dynamix Dairy plant, with technological collaboration fromvarious international firms, including Schreiber International Inc, US, went in for backward integration, by tying up with cooperative organizations at the district level.The joint venture with Baramati Cooperative Milk Marketing Federation resulted infacilities across Baramati to collect milk. "We did a survey of Baramati and set up 35bulk cooling stations with 50 tanks where milk can be collected, checked and stored at3º", said A. R. Sumant, General Manager, Milk Procurement, Dynamix Dairy IndustriesLimited. "Our aim was to ensure that the milk producer does not travel more than 2.5 km




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to deliver his product. That ensures longer life for milk," he added. Once collected, themilk was transferred to Dynamix's plant in insulated tankers. Dynamix procured 3.5 lakhlitres of milk every day, which was used to make processed cheese exclusively for McDonald's. The product was made according to the multinational's specifications.

McDonald's convinced its suppliers to set up two separate production lines for chickenand vegetable patties, keeping in the mind the link between food and religion in India.This was in sharp contrast with its global practice, where McDonald's suppliersproduced all types of patties from the same line. These two production lines werehoused in two different rooms and the only way a worker could cross over from one lineto the other was by passing through the shower room. This eliminated all chances of contamination. However, from a supplier's point of view, more lines meant a reduction incapacity utilisation and high cost of production. To minimise costs, McDonald's helpedVista & Kitran Foods produce derivatives of chicken and vegetable nuggets(not based on McDonald's recipe) for Indian hotels and restaurants and thereby reachnew markets. Vista & Kitran's higher margin and higher capacity utilization for non-

McDonald's products helped it remain cost competitive. McDonald's philosophy hadbeen 'one world, one burger' i.e. the McDonald's burger should be consistent in terms of cost and quality throughout the world. To ensure this, all of McDonald's suppliersfollowed the internationally acclaimed HACCP systems wherein both inputs and finishedgoods were subjected to chemical and microbiological tests.This kept food fresh and free from contamination. Apart from this, the entire productionline was automated using sophisticated technology, barring only the final compilation of the bun, cheese and patty - which was done by hand.




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LIST OF SUPPLIERS AND THE DISCRIPTION SHOWING HOW COLDCHIN CONCEPT WORKS AND CONTRIBUTE TOWARDS EFFICIENCY

y Dynamix dairy industry (cheese)

y Trikaya agriculture (iceburg lettuce)

y Vista processed food pvt ltd. (chicken and veg range of products)

y Radhakishana food land(distribution centre- delhi and mumbai)

y Amrit food(long life UHT milk and milk products for frozen desserts)

Below mentioned is the data about Refrigerated vans for McDonald's distribution

Type Route Quantity

National inbound Suppliers to Distribution Center 20 vehicles

Outbound North Distribution Center to restaurant 13 vehicles

Outbound West Distribution Center to restaurant 11 vehicles

Outbound South Distribution Center to restaurant 1 Vehicle




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DYNAMIX OF DAIRY INDUSTRY (SUPPLYING CHEESE)

y Firm from baramati, maharashtra

y Milk collection centres with bulk coolers

y International standard and processing facilitiesy Stringent quality control measures

y All activities from procurement of milk to changing it into cheese and then toserve that cheese in the restaurant is all under temperature control atmosphere

TRIKAYA AGRICULTURE (SUPPLYING ICEBURG LETTUCE)

y Advanced agricultural practices helps them to grow speciality crops like lettuce

and herbs.y Pre cooling room and large cold room for post harvest.

y Refrigerated transportation.

VISTA PROCESSED FOOD PVT. LTD. (FOR SUPPLYING FROZENCHICKEN AND VEG PRODUCTS)

y For chicken, temperature maintained is -35 degrees Celsius.

y Refrigerated transportation.

RADHA KRISHNA FOODLAND (DISTRIBUTION CENTRE)

y Specialized in handling large volumes.

y Activities involved are procurement, quality inspection, storage, inventorymanagement, deliveries, data collection, recording and reporting.

y One stop shop for all distribution management services.

y Both dry and cold storage facility.

AMRIT FOODS

y An ISO 9000 firm

y Supplies long life UHT milk/ milk products for desserts.




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DIFFERENT ITEMS ARE SOURCED FROM DIFEERENT GEOGRAPHYIN INDIA

y BUNS-shah bector &sons, Maharashtra and cermica, ludhiyana

y BATTER & BREADING- cremica, ludhiyana

y VEGETABLE PATTY- kitran foods, taloja, Maharashtra

y CHEDDAR CHEESE- dynamix dairy, baramati, Maharashtra

y SEASAME SEED- Gaziabad, UP

y SPL VEG EGGLESS SAUCE- Quaker, cermica, ludhiyana




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THREE LOGISTICAL DRIVERS

1. Facilities- they are the actual physical location in the supply chain network where

the product is stored, assembled, or fabricated. The two main facilities areproduction sites and the storage sites.In McDonalds, because the products are perishable, storage time was minimalso as to reduce the wastage.

2. Transportation- it is the process where the inventory is moving from place toplace. Refrigerated vans are used here in this case.

3. Inventory- it includes raw materials, work in progress, and finished goods within asupply chain.

THREE CROSS-FUNCTIONAL DRIVERS««

1. sourcing- who will perform which activity( production, storage, transportation, anddistribution) in a supply chain.This activity was taken care by mcdonalds corporation.

2. information- it includes data and analysis related to facilities, inventory,transportation, cost, prices and customers in the whole supply chain.This activity was done by Radhakrishana food land that acts as their

distribution centre.

3. pricing- how much a firm could charge for a particular goods and services that itmakes available in the supply chain.Here it was done by the mcdonalds only.




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PULL/PUSH PROCESS

Pull processes are initiated by a customer order while the push processes are initiatedby the anticipation of customer order.

Mcdonalds use both pull as well as push process, to a certain extent push is createdand after that level the pull created by the firm did its task. One important question canbe asked to what level that push can be applied.The products will be pushed to therestaurants where the customers automatically demand that product and hence a pull iscreated.

Fig. showing the boundry of pull and push, push last till the product reaches therestaurant and pull starts when a customer orders the product.

Various Suppliers supplies the materials

Products delivered to Distribution centres

Products delivered to restaurant

Customer order at restaurant,

Push stops ,pull starts here




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SUPPLY CHAIN PROCESS CYCLEThe processes in the supply chain are divided into a series of cycles, each performed atthe interface between 2 successive stages of supply chain

customers

Retailer/ McDonalds restaurants

distributor

suppliers

Customer order cycle

Replenishment cycle

Procurement cycle




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vs

Dominoes Supply Chain :Commissary processed the wheat and prepared the pizza dough. The pizza dough and other items

prepared in commissaries were then sent to the retail outlets again in refrigerated trucks. Thetemperature inside the truck was fixed based on the distance between the retail outlets and the

commissaries. This was to set the dough at a particular level when it reached the outlets. Theretail outlets had to use up the processed dough within three days of delivery. If they failed to do

so for some reason the entire quantity was discarded.

1. Procurement of raw materials

y R aw materials like wheat, baby corn, tomatoes and spices are got, out of whichwheat was bought in from jalandhar and then sent to the commissaries in

refrigerated trucks.

y 4 commissaries (R egional Centralized Facilities)1. Delhi

2. Bangalore3. Kolkata

4. Mumbai

2. Distribution

y Pizza dough processed from the wheat is then sent to the retail outlets again inrefrigerated trucks.

y Logistics requirement for sending frozen

foods, at a temperature of 18C and of

refrigerated trucks in which food is sentat a temperature range of between 1 to

4C.

3. R etail Outlets

y R egular stores

y Super stores : High traffic, More countersExpress stores : those where people were expected to walk in and order rather

than ask for home delivery




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MC Donald¶s Supply Chain:

The focus of all resources is to meet McDonald's expectation of 'Cold, Clean, and On-TimeDelivery' and plays a very vital role in maintaining the integrity of the products throughout the

entire 'cold chain'. the DC receives items from different parts of the country. These items arestored in rooms with different temperature zones and are finally dispatched to the McDonald's

restaurants on the basis of their requirements.Ramco Systems pdt ³Marshal´ ER P Implementation-order processing, order fulfillment,

shipping, invoicing

y Specialized in providing

services procurement

quality inspection

storage inventory management deliveries

data collection recording and reporting

y Dry and cold storage facility

y Transportation trucks maintained at 22 C

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