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Abhishek PuriShikhar

Neha saini

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McDonald’s World's largest chain of  fast food restaurants. The Golden Arches—the corporate emblem ,symbolized

pleasant, fast service and tasty, inexpensive food. Serve around 68 million customers daily in 119

countries. Operates over 34,000 restaurants worldwide, employing

more than 1.7 million people. Between 1990 and 1991, sales per unit had slowed down. Reasons:

Consumers were changing management to wonder whether the company’s

operating system, suited to the new circumstances the company faced

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CHALLENGES To what extent should McDonald’s change its operations

strategy to accommodate the growing need for flexibility and variety in products. Was it merely tweaking—or a dramatic change—which would support the company’s volume growth objectives?

To what extent would environmental concerns compromise McDonald’s traditional strengths and complicate an already challenging competitive situation?

Finally, could the lessons learned in the recent collaboration with the EDF help McDonald’s as it sought solutions to the continuing competitive challenge?

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The Speedee Service System

Dick and Mac McDonald opened their first drive-in restaurant in 1941.

Carhops used to take orders from patrons parked in the restaurant’s large lot.

In 1948, introduced self-service windows and standardized their preparation methods with exact product specifications and customized equipment.

Ray Kroc, became a national franchise agent for the brothers, and founded the McDonald’s chain and performed :To make sure McDonald’s products were of consistently high quality.To establish a unique operating system, and To build a special set of relationships between the McDonald’s

corporation, its suppliers, and its franchisees

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Getting it Right - Again and Again

McDonald’s operating system concentrated on four areas: improving the product; developing outstanding supplier relationships; improving equipment; and training and monitoring franchisees.

McDonald’s revolutionized the entire supply chain .

Fred Turner, Senior Chairman of McDonald’s, stressed the critical importance of menu size.

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Turner developed the operations manual, including detailed preparation of items; proper temperature, food quantity, etc.

Turner was the first corporate employee to visit and evaluate each restaurant, and, as early as 1957.

Evaluations by assigning a letter grade to a restaurant’s performance in three categories: quality, service, cleanliness and Value.

Getting it Right - Again and Again

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Suppliers Kroc brought a supplier loyalty that the restaurant business had

never seen.

The established suppliers refused to accept McDonald’s concepts and specifications .

Only small, fledgling suppliers were willing to take orders.

Reasons:Respect for SuppliersThey didn’t chisel on price and were always concerned with

suppliers making a fair profit .suppliers were guaranteed future volumes .

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Franchisees

Philosophy of McDonald’s franchise by Ray Kroc :

“partners” would make money before the company did, and insisted that corporate revenue come not from initial franchise fees but from success of the restaurants themselves.

Franchise owners developed products such as the Filet-O-Fish sandwich and the Egg McMuffin and the McDLT.

Franchisees also formed powerful regional cooperatives for both advertising and purchasing.

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Cooking Up Products French fries gave MacDonald’s an identity and exclusiveness.

At first the company simply monitored the way French fries were cooked in its restaurants.

They discovered, however, that temperature settings on the fryers had little connection to the temperature of the oil in the vat once cold potatoes were dropped in.

McDonald’s researchers discovered, the fries were always perfectly cooked when the oil temperature rose three degrees above the low temperature point . And designed a new Fryer.

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Cooking Up Products

Simplot gave an idea of converting from fresh to frozen potatoes.

Simplot’s organization grew to a $650 million frozen potato processing giant.

Ralph Weimer, designed a V- shaped aluminum scoop with a funnel at the end that enabled operators to fill a french-fry bag in one motion.

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Cooking Up ProductsBREAKFAST

In June 1976, McDonald’s franchisees introduced BREAKFAST MEAL.

Egg McMuffin, hotcakes, scrambled eggs, sausage and Canadian style bacon.

McDonald’s had again distinguished itself from competitors.

Chicken McNuggets Fred Turner suggested that Arend , the Chef, substitute bite-sized

chunks of deep-fried chicken instead of onions. Keystone, one of McDonald’s meat suppliers: find an efficient way to

cut chicken into bite-sized, boneless chunks. Arend developed four sauces to accompany the nuggets. McDonald’s was deriving 7.5% of domestic sales from its newest

product.

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New Competition McDonald’s most menacing competition no longer came from

Burger King, Wendy’s, or Kentucky Fried Chicken—the traditional rivals.

Chili’s and Olive Garden : Menus offered a wide variety of foods, yet prices remained competitive with those at McDonald’s.

Sonic and Rally’s, two hamburger chains , offered drive-through service only and specialized in delivering burgers fast.

Taco Bell shifted food preparation to outside suppliers, reduced kitchen space in its outlets, and used a cost-based strategy to compete—prices were always kept low.

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Early Responses from McDonald’s

McDonald’s had introduced salads, chicken, and muffins.

It developed the first-ever 91% fat-free burger, McLean Deluxe.

McDonald’s engineers had invented a pizza oven that could cook McDonald’s Pizza in under five minutes.

High-tech temperature and moisture controlled cabinets—that would allow parts of a product to be prepared ahead of time without detracting from food quality.

Cutting prices an average 20%.

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Flexibility and Growth

McDonald’s success formula: Limited Menu, Low Prices and Fast Service.

To meet changing customer demands and divergent customer needs they have to explore new dimensions.

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Changes Made

Developing of new building prototypes, i.e. from drive through to small cafés.

Menu extension, including items such as lasagne, corn on the cob, fruit cups etc.

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Problems Faced

Increased variation in the supply chain.

Due to extended menu problems regarding the uniformity, quality control and speed of service were the major concerns.

Complicated preparation processes for the items such as spaghetti.

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Further Problems

They wanted to include the dinner menu in the restaurant.

For that they had to come up with complete menu.

They had a fear that their recipes would be copied by the competitors.

Finally the problem related to protecting the environment.

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Stepping into the Future-The EDF

Taking initiatives in recycling and solid waste management.

Environment Defence Fund (EDF) and McD joined hands together to work upon environmental issues.

The Waste Reduction Task Force was formed having members from both the organisations.

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Waste Reduction Task Force

In all 6 members, 4 senior managers from McDonald’s and 2 scientists and an economist from EDF in August 1990.

Three things were kept in mind: Reduction, Reuse and Recycle.

Introduction of reusable shipping containers, substantial packaging material, use of unbleached paper and employee training.

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Changes made Brown Bag: 100% recycled, made from unbleached material and

looked brown.

Initially people were tepid but later accepted the change gladly.

Corrugated Boxes: Earlier these were made up of 21% recycled material but McDonald’s mandated it to 34% recycled material.

Mc Recycle USA: A $100 million annually program in which 350 new restaurants were opened by using recycled equipment's and 1000 others were remodelled.

Over 500 suppliers and manufacturers registered and participated for this program.

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Sandwich Packaging: McDonald’s abandoned the use of polystyrene and shifted to quilted wraps.

Reducing the volume of waste by 90% and volume of shipping by 80%.

Packaging had to perform the following: Provide insulation, Breathability, Handling ability and Standards of appearance.

Changes made

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Packaging

Tests for quality were conducted.

Set of procedures for wrapping the food was developed.

Packaging was judged by the content of reusability and recycled material.

They introduced thinner paper based wrap consisting of 3 layers of tissue, polystyrene and sheet of paper.

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Advantages of Layered Wrap

Less volume than its polystyrene counterpart.

Less industrial pollution.

Lower in volume so promised to reduce the impact of waste disposal.

90% reduction in deposited waste as compared to 40-50% in case of polystyrene.

Wrap required 85% less energy, 40% less air emission, 80% less water discharge and 65% less solid waste.

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Planning for the Future No doubt they faced criticism from suppliers and they

have to drop a few of them also.

But the team brought a huge success in terms of providing flexibility and providing the solutions for environmental crisis.

Their main business is still hamburgers but not only they took environmental initiatives but also maintained their food quality that too at low prices.

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McDonald’s Sustained Prosperity

The Secret of McDonald’s success is its willingness to innovate, even while striving to achieve consistency in the operations of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich were all examples of how the company tried to appeal to a wider range of customers.

The company has also made convenience its watchword, not only through how fast it serves customers, but also in the location of its outlets. Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or by car in the suburbs, Plus McDonald’s is tucking restaurants in schools, stores and more.

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Key Threats

The key threat to McDonald’s domestically is the lack of growth opportunities.

1. The market is well saturated and it would difficult to achieve double digit growth.

2. Other concerns are a newfound emphasis on healthier eating.

3. Most of the McDonald’s popular food items probably in small way contributes to the increasing incidence of cancer, heart disease and diabetes among the population

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Key Threats McDonald’s are everywhere. The dining experience is never

special.

1. As baby Boomers age and become more affluent, it is likely that they will leave behind their fast food ways, if only to step up to moderately priced restaurants like Olive Garden, Bennigans and Pizzeria Uno.

2. These chains have the added advantage of serving high margin alcoholic drinks.

3. McDonald’s meanwhile, has to continually battle Burger King and Wendy’s which leads to an erosion of margins for everyone.

4. Every alliances with toy manufacturers, while popular with customers, do little for the bottom line because the cost to run these promotions can be quite expensive.

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Conclusion McDonald’s faces some difficult challenges that can only be

overcome through following ways..

1. Key to its future success will be maintaining its core strengths – an unwavering focus on quality and consistency - while carefully experimenting with new options.

2. These innovative initiatives could include launching higher-end restaurants under new brands that wouldn’t be saddled with McDonald’s fast food image.

3. The company could also look into expanding more aggressively abroad where the prospects for significant growth are greater

The company’s environment effects, while important, should not overshadow its marketing initiatives, which are what the company is all about.

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Questions

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Q1 Which characteristics of McDonald's production system have

been most important in building its record of success and growth in the industry?

Characteristics of McDonald’s are:

1. Their uniform operating system, taste and service in every McDonald’s outlets at every time.

2. McDonald’s is very particular in quality of the raw materials they used and very concerned with their suppliers.

3. Their concern over the franchises and make them to feel as one of their partner and to work towards prospective..

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Q2 What are the primary new challenges McDonald's

faces in the 1990s?

McDonald’s. the long time leader in the fast food wars, faced a crossroads in the early 1990s.

Domestically, sales and revenues were flattening as competitors like on its domain.

In addition to its traditional rivals – Burger King, Wendy’s and Taco Bell, the firm encountered new challenges.

Sonic and Rally’s competed using a back - to – basics approach of quickly serving up burgers, just burgers, for time-less consumers.

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Q2 What are the primary new challenges McDonald's

faces in the 1990s?

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 dinning experience.

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Q3How would you adapt the system to accommodate

these changes in the U.S.?

Usage of eco friendly packaging, ensuring efficient solid waste disposal.

Necessary changes in ambience space as per requirement

Allocation of budget for Research & Development (R &D).

Elasticity in operational time.

Streamlining of menu.

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Q4How can McDonald’s lay the basis for future

growth?

McDonald’s have o keep innovating the products

Developing outstanding supplier relationship.

Improving the equipment.

Training and monitoring the franchises.

Use advance ERP and data centers.

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THANK YOU