A study on Supply Chain Management System Of

McDonalds India

Section F Group 6 ATUL GARG (11FN-126) DEEPSHIKHA AGARWAL (11FN-033) NIRAJ SATNALIKA (11IB-038) RAHUL KUMAR (11DM-118) RAVI RANBIR (11DM-123) SAHIL GOEL (11DM-131)

Operations Management- I

Section F, Group 6

McDonalds- im Lovin it!

McDonald's Corporation History: Two brothers, Richard and Maurice McDonald came to make a career in Hollywood and sadly ended up as owners of a drive-in restaurant in San Bernardino of Los Angeles. In the year 1940 the brothers began with a restaurant which today is among one of the largest retail food chain. Their introduction of the "Speedee Service System" in 1948 furthered the principles of the modern fast-food restaurant that the White Castle hamburger chain had already put into practice more than two decades earlier. The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois, on April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion, and the company became listed on the public stock markets in 1965. With the expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also made it a frequent topic of public debates about obesity, corporate ethics and consumer responsibility. McDonald's India - A Profile McDonald's is the world's leading global foodservice retailer with more than 33,000 locations serving approximately 64 million customers in 118 countries each day. In India, McDonald's is managed by two Indian entrepreneurs: Amit Jatia, Vice Chairman, Hardcastle Restaurants Pvt. Ltd. owns and spearheads McDonald's operations in West & South India. Vikram Bakshi, MD and Joint Venture Partner, Connaught Plaza Restaurants Private Limited, owns and operates McDonald's in North and East India.

Celebrating over 15 years of leadership in food service retailing in India, McDonald's now has a network of over 235 restaurants across the country. Local Sourcing Is Key for Truly Indian Products: McDonald's India is committed to sourcing almost all of its products from within the country. Prior to its launch, the company invested six years to develop its unique cold chain, which has brought about a veritable revolution in food handling, immensely benefiting the farmers at one end and enabling customers to get the highest quality food products, absolutely fresh and at a great value. McDonald's India today has developed local Indian businesses, which can supply the highest quality products required for its Indian operations. Respect for Indian Customs and Culture: McDonald's worldwide is well known for the high degree of respect to the local culture of each market it operates in. In line with this respect for local culture, India is the first country in the world where McDonald's does not offer any beef or pork items. McDonald's has developed a menu especially for India with vegetarian selections to suit the Indian palate and has also re-engineered its operations to address the special requirements of
IMT Ghaziabad Page 2

Operations Management- I

Section F, Group 6

vegetarians. Special care is taken to ensure that all vegetable products are prepared separately, using dedicated equipment and utensils. This separation of vegetarian and nonvegetarian food products is maintained throughout the various stages of procurement, cooking and serving. So much so that the mayonnaise and soft serves are also 100% vegetarian and McDonald's uses only vegetable oil as a cooking medium in India. An Employer of Opportunity: McDonald's India is an employer of opportunity, providing quality employment and longterm careers to professionals across the country. The average McDonald's restaurant employs 60-80 people from crew to restaurant manager. McDonald's invests in its employees, leveraging world class-training inputs to create ambassadors of the brand and creating food service professionals with global attitudes. The brand currently has over 8000 employees in India. Quality, Service, Cleanliness & Value McDonald's is driven by the philosophy of Quality, Service, and Cleanliness & Value for Money. This translates into a commitment to provide customers high quality products, served quickly with a smile, in a clean and pleasant environment at an affordable price. This effectively means that the McDonald's menu is priced at a value that the largest segment of the Indian consumers can afford while at the same time ensuring that quality is not sacrificed for value - rather McDonald's leverages economies to minimise costs while maximizing value to customers. Our Values We place the customer experience at the core of all we do Our customers are the reason for our existence. We demonstrate our appreciation by providing them with high quality food and superior service, in a clean, welcoming environment, at a great value. We are committed to our people We provide opportunity, nurture talent, develop leaders and reward achievement. We believe that a team of well-trained individuals with diverse backgrounds and experience, work is essential to our continued success. We believe in the McDonald's System McDonald's business model, depicted by the "three-legged stool" of owner/operators, suppliers, and company employees, is our foundation. We operate our business ethically Sound ethics is good business. At McDonald's, we hold ourselves and conduct our business to high standards of fairness, honesty, and integrity. We are individually accountable and collectively responsible. We give back to our communities We take seriously the responsibilities thet come with being a leader. We help our customer build better communities, support Ronald McDonald's House Charities, and leverage our size, scope and resources to help make the world a better place.
IMT Ghaziabad Page 3

Operations Management- I We grow our business profitably

Section F, Group 6

McDonald's is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuing focus on our customer and the health of our system. We strive continually to improve We are learning organisation that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation. Business model McDonald's Corporation earns revenue as An investor in properties, A franchiser of restaurants, and An operator of restaurants

Approximately 15% of McDonald's restaurants are owned and operated by McDonald's Corporation directly. The remainder are operated by others through a variety of franchise agreements and joint ventures. The McDonald's Corporation's business model is slightly different from that of most other fast-food chains. In addition to ordinary franchise fees and marketing fees, which are calculated as a percentage of sales, McDonald's may also collect rent, which may also be calculated on the basis of sales. As a condition of many franchise agreements, which vary by contract, age, country, and location, the Corporation may own or lease the properties on which McDonald's franchises are located. In most, if not all cases, the franchisee does not own the location of its restaurants. In countries other than US and UK, McDonald's restaurants are operated by joint ventures of McDonald's Corporation and other, local entities or governments. As a matter of policy, McDonald's does not make direct sales of food or materials to franchisees, instead organizing the supply of food and materials to restaurants through approved third party logistics operators. Supply Chain Management Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996). Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain). Another definition is provided by the APICS Dictionary when it defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally." How McDonalds Uses E-procurement Systems Emac Digital: (Internet procurement site designed for McDonald's Corporation's 27,000 franchises)

IMT Ghaziabad

Page 4

Operations Management- I

Section F, Group 6

Emac Digital Company is E-Procurement website which is jointly owned by McDonalds and Accel-KKR Internet Co. It is a procurement hub launched in 2001, and it allows all of McDonald's franchises across the globe to buy everything needed to run their restaurants from uniform to HamBurger. Aside from being faster and more convenient for franchises, the procurement site also allows business owners to buy supplies and materials at a discounted price, ultimately reducing costs for McDonald's. E-Procurement allows 85% cut in costs according to McDonalds supply chief Edwards. McDonalds Supply Chain Management Supply Chain is one of the critical factors for the smooth functioning of any business. And when we are talking about fast food business with McDonald's as the subject of the study a Supply Chain model of one of the highest precisions is expected. This unmatched Supply Chain Structure of McDonalds not just ensures on time delivery of raw materials and supplies to McDonalds but also enables it to cut down on its cost and maximize profitability along with maintaining highest quality standards of its products. The level of commitment of McDonalds can be gauged from the fact that even before it set up its first restaurant in the country it infused Rs 400 Crore to set up its delivery mechanism. McDonald's initiative to set up an efficient supply chain and deploy state-of-art technology changed the entire Indian fast food industry and raised the standards of performance to international levels. McDonalds, an international brand which was trying to make inroads into the country, developed its Indian partners in such a manner that they stayed with the company from the beginning. The success of McDonalds India was achieved by sourcing all its required products from within the country. To ensure this, McDonalds developed local businesses, which can supply it highest quality products. Today, McDonalds India works with 38 different suppliers on a long term basis and several other stand alone restaurants for its various other requirements. McDonald's distribution centres in India came in the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and The latest one in Kolkata (2007)

McDonald's entered its first distribution partnership agreement with Radha Krishna Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. The association goes back to July 1993, when it studied the nuances of McDonald's operations and requirements for the Indian market. As distribution centres, the company was responsible for procurement, the quality inspection programme, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value-added services like shredding of lettuce, re-packing of promotional items continued since then at the centres playing a vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Cold Chain- The unique concept of McDonalds Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it had spent more than six years to get the system into place. This system brought about a
IMT Ghaziabad Page 5

Operations Management- I

Section F, Group 6

veritable revolution, immensely benefiting the farmers at one end and enabling customers at retail counters get the highest quality food products, absolutely fresh and at great value. Through its unique cold chain, McDonalds has been able to both cut down on its operational wastage, as well as maintain the freshness and nutritional value of raw and processed food products. This has involved procurement, warehousing, transportation and retailing of perishable food products, all under controlled temperatures. Following is the brief outline of the supply chain management of McDonalds India:

Potato Farming

Radhakrishna Foodland

Trikaya Agriculture

Dynamix Dairy

Vista Processed Food private Ltd.

Let us now look at the various levels in detail: Potato Farming In Gujarat-Sourcing the Right Potato Even prior to its entry into India, McDonald's was committed to working with local suppliers and farmers to source all its requirements. The company therefore spent 6 years and around Rs. 450 Crore to set up the food supply chain before opening its first restaurant in the country. India, despite being the world's second largest producer of food, loses nearly Rs.50,000/Crore worth of food produce due to wastage at various levels, especially due to lack of proper infrastructure for storage and transportation. McDonald's India has pioneered the cold chain management system wherein the freshness, crispness and nutritional value of vegetables and processed products are retained. In 1991, McDonald's was looking for a particular variety of potato for manufacturing its world famous French fries. The right quality potato in India was unavailable as farmers used seeds from the preceding crop, which in turn resulted in a single variety and poor quality potatoes. McDonald's needed the process-grade variety of potato for its products, which are as per McDonald's international quality standards. The variety of potato required by McDonald's had to have a certain length, high solids content and low moisture content while the ones that were available were of the tablegrade variety. Nonetheless, as per its initial commitment to local sourcing, McDonald's and its supplier partner, McCain Foods Pvt. Ltd., began to work closely with farmers in Gujarat and Maharashtra to develop process-grade potato varieties.
IMT Ghaziabad Page 6

Operations Management- I

Section F, Group 6

McCain Foods Pvt. Ltd. is the world's largest French Fry Company in the world. Leaders in agronomy, technology and innovation, McCain Foods Pvt. Ltd. partnered with McDonald's to work with farmers in Gujarat (specifically the towns of Deesa and Kheda) to interact with agronomists and field assistants to demonstrate the best practices - right from better agronomy techniques like irrigation system, sowing seed treatments, planting methods, fertilizer application programmes and better storage methods for the produce. In addition to this, the farmers also benefit through incremental monetary gains as they sell directly to McCain Foods Pvt. Ltd. instead of commission agents. The result of these efforts has been that now the Gujarat potato crop has been utilised to make McDonald's Chatpatey' Potato Wedges. Radhakrishna Foodland-McDonald's Distribution Partner Radhakrishna Foodland (P) Ltd. is a part of the Radhakrishna Group, which is engaged in food and related service businesses. From July 1993, much before McDonald's started its operations in India, sincere efforts were made by Foodland to carefully understand McDonald's operations and requirements for the Indian market. Better facilities and infrastructures were created and new systems were adopted to satisfy McDonald's demands. Finally, all those efforts put in by Foodland culminated into a handshake agreement with McDonald's India, to serve as Distribution Centres for their restaurants in Mumbai. The division has focused all its resources to meet McDonald's expectation of 'Cold, Clean and On-time Delivery'. From this evolved the mission statement, "To ensure that all McDonald's restaurants are supplied without interruption, products conforming to acceptable standards at lowest local costs to the system. The Distribution Centre (DC) is responsible for Procurement Quality inspection programme Storage, inventory management Deliveries to the restaurants and data collection Recording and reporting

Value added services like repacking of promotional items are also carried out at the DC. The DC plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain' - the distribution system that ensures the products, which arrive at McDonald's restaurants from suppliers all over India, are absolutely fresh and as per McDonald's Quality Standards. All these operations need to be managed in the most cost- effective manner. The operations and accountings are totally transparent and are subject to regular audit. McDonald's helped Foodland to start an affiliation with F. J. Walkers of Australia, so as to refine its operations to achieve the following: Designing and establishing the distribution system to handle large volume Engineering the storage and delivery network to service the unique requirements at each of the customer's locations

IMT Ghaziabad

Page 7

Operations Management- I

Section F, Group 6

Devising delivery schedules to minimise business interruption and maximise efficiency so that store managers know exactly what to expect and when Maintaining open communication lines with customers, suppliers and all business associates Emerging as a key system player after realising the inter-dependence of all the associates in the McDonald's business system Transferring some of the good distribution practices to other divisions of the group.

The company has also invested in ERP Software to bring in efficiency, speed and accuracy into the system. Trikaya Agriculture- McDonald's Supplier Of Fresh Iceberg Lettuce McDonald's India benefits other Indian businesses through local sourcing. Working with these local suppliers, McDonald's and its international supplier network have helped transfer advanced technology and state-of-the-art procedures in the areas of agriculture, food processing, warehousing and distribution, restaurant equipment manufacturing, restaurant operations and other disciplines related to the food service industry to them. One of the best examples of this supplier development is Trikaya Agriculture, McDonald's supplier of fresh iceberg lettuce. Initially lettuce could only be grown during the winter months but with McDonald's expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is now able to grow this crop all the year round. McDonald's has provided assistance in the selection of high quality seeds, exposed the farms to advanced drip - irrigation technology and helped develop a refrigerated transportation system allowing a small agro - business in Maharashtra to provide fresh, high quality lettuce to McDonald's urban restaurant locations thousands of kilometers away. Today, Trikaya Agriculture is a major supplier of iceberg lettuce to McDonald's India for its Indian operations. Its post harvest facilities include a cold chain consisting of a vacuum precooling room to remove field heat, a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of this crop is maintained between 1C and 4C and 95% respectively. Vegetables are in the pre-cooling room within half an hour of harvesting. The pre-cooling room ensures rapid cooling to 2C within 90 minutes. The pack house, pre-cooling and cold room are located at the farms itself, ensuring no delay between harvesting, pre-cooling, packaging, and cold storage. This results in freshness and no spoilage. Dynamix Dairy- McDonald's Supplier of Cheese Towards fulfilling its commitment to sourcing almost all of its products from local suppliers, McDonald's has identified local Indian businesses, which share its level of commitment and dedication in satisfying customers by supplying them the highest quality products. Dynamix Group is McDonald's supplier of cheese in India. McDonald's India has approved Dynamix Dairy, Baramati (Maharashtra) for the supply of cheese to its restaurants, which has 100% computer control, high tech automation equipment. Baramati is small district, which has a large number of milch cattle. However, average land holding per farmer is very low and the farms are scattered across the countryside. Due to this scattering of farms, there are long times lapses between the milking of the cows and the final refrigeration of
IMT Ghaziabad Page 8

Operations Management- I

Section F, Group 6

the milk at the diary farm. The lack of proper refrigeration can impact the quality of milk and the farmer does not get a good price for his product. Owing to the lack of infrastructure in Baramati and recognising the need for quality milk to make quality cheese, Dynamix set up a dedicated quality program for milk procurement and invested significantly in setting up bulk coolers at all milk collection centres in the Baramati area. Efforts were made to see that the bulk cooling centres were located at an accessible location so that the farmer had to travel only a distance of 1-2 km from his farm to the collection centre, drastically reducing the time from milking to refrigeration. On receipt, the milk is immediately stored in the bulk coolers installed in Dynamix's 45 milk collection centres, to prevent further growth of bacteria in the milk and preserving its freshness - thus, maintaining the cold chain.' A model demonstration dairy farm with a dedicated R&D centre was established to educate milk producers with the latest concepts in modern dairy like animal management. This highlights hygiene and cleanliness, regulated feeding, disease control and the genetic improvement of milch cattle to increase the yield and ensure consistent high quality. To encourage these improvements in quality standards and world class manufacturing capabilities at Dynamix, McDonald's introduced Dynamix to two of its global suppliers Schreiber Foods, USA and Erie Foods, USA. This resulted in joint venture and developing business with companies.

Vista Processed Foods Pvt. Ltd.-McDonald's Supplier of Chicken and Vegetable Products Vista Processed Foods Pvt. Ltd., McDonald's suppliers for its chicken and vegetable range of products, is another important player in this cold chain. Technical and financial support extended by OSI Industries Inc., USA and McDonald's India Private Limited have enabled Vista to set up world-class infrastructure and support services. This infrastructure includes hi-tech refrigeration plants for manufacture of frozen food at temperatures as low as - 35 C. This is vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is maintained. The frozen product is immediately moved to cold storage rooms. With continued assistance from its international partners, Vista has installed hi-tech equipment for both the chicken and vegetable processing lines, which reflect the latest food processing technology (de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the latest vegetable mixers and blenders are in operation. Also, keeping cultural sensitivities in mind, both processing lines are absolutely segregated and utmost care is taken to ensure that the vegetable products do not mix with the non-vegetarian products. Conclusion McDonald's India's Cold Chain-Spreading the spirit of Enterprise all over India A unique sense of dedication and commitment characterizes McDonald's India - a commitment to be driven by the leadership of local owners. Commitment to provide quality products and fast friendly service at a real value to support other Indian businesses through
IMT Ghaziabad Page 9

Operations Management- I

Section F, Group 6

local sourcing and imparting new skills and to generate local employment by being a part of the local culture. This commitment has translated into enduring benefits to the businesses at the grass root level, in the areas of introduction of new crops, new agricultural practices and food processing methods and procedures. McDonald's unique 'cold chain' has brought about a veritable revolution, immensely benefiting the farmers at one end and enabling customers at retail counters get the highest quality food products, absolutely fresh and at great value. Explaining the concept, Mr. Amit Jatia, Joint Venture Partner & Managing Director, McDonald's - Western India, said, "Every year, Rs. 50,000 Crore worth of food produce is wasted in India because of lack of proper infrastructure for storage and transportation under controlled conditions. These range from physical damage and vermin infestation to improper temperature, humidity and air-flow." "McDonald's, through its unique cold chain, has been able to both cut down on its operational wastage, as well as maintain the freshness and nutritional value of raw and processed food products. This has involved procurement, warehousing, transportation and retailing of perishable food products, all under controlled temperatures."

McDonalds- Details Revealed!! Type Traded as Public NYSE: MCD Dow Jones Industrial Average Component Restaurants May 15, 1940 in San Bernardino, California; McDonald's Corporation, April 15, 1955 in Des Plaines, Illinois Richard and Maurice McDonald McDonald's restaurant concept; Ray Kroc, McDonald's Corporation founder. Oak Brook, Illinois, U.S.

Industry Founded

Founder(s)

Headquarters

Number of locations 33,000+ worldwide Key people

IMT Ghaziabad

James A. Skinner
Page 10

Operations Management- I (Chairman & CEO) Products

Section F, Group 6

Fast food (hamburgers chicken French fries soft drinks coffee milkshakes salads desserts breakfast) US$ 24.075 billion (2010) US$ 7.473 billion (2010) US$ 4.949 billion (2010) US$ 31.975 billion (2010) US$ 14.634 billion (2010) 400,000 (January 2010)

Revenue Operating income Net income Total assets Total equity Employees

IMT Ghaziabad

Page 11