2010

BBA 06

Amna
Rassul
Beenish
Hasni
Mishal
Termezi
Namra
Nadeem

[MCDONALDS]
This Project is based on the operations that undertaken to keep McDonald’s one of
the most competitive organizations. Our research is based on a meeting with an
Operations Manager at McDonald’s, residing in F-9 Park.
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About the company Page

2

Services
Network Database
Production Area
Story Distribution System Page
3
Head Office
Warehouse
Suppliers
Division (Lobby, Drive-through & Production)

Operations Management Strategy

Page 4
 Design of goods and services
 Managing quality
 Process strategy
 Location strategy
 Layout
 Human resource
 Supply chain management
 Inventory management
 Scheduling
 Maintenance

Total Quality Management Strategy

Page 11
 Product Quality
 Training
 Continuous Improvement
 Customer Satisfaction

Productivity & Efficiency Page

13
 Just-in-Time (JIT)
 Fat (Minimization of waste)
 Service Quality & Control
 Inventory
 Buffer / Safety Stock
 Demand & Supply Forecast
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 Logistics
 Supply Chain Perspective

HOW DOES MCDONALD’S MAKE A PROFIT?

Page 15

About the Company

McDonald's Corporation is the world's largest chain of fast food restaurants, serving
nearly 54 million customers daily all the way through more than 31,000 restaurants
in 120 countries worldwide. McDonalds is known to be both product and service
industry. As a service provider, McDonald’s treats its customers properly, as if they
are in a regular restaurant. In terms of product, it offers its customers a large
variety of fast and tasty food for reasonable price. McDonald’s sells a variety of fast
food items and soft drinks including, burgers, chicken, salads, fries, and ice cream.
Many McDonald's restaurants have included a playground for children and
advertising geared toward children, and some have been redesigned in a more
'natural' style, with a particular emphasis on comfort: introducing lounge areas and
fireplaces, and by eliminating hard plastic chairs and tables. Each McDonald's
restaurant is operated by a franchisee, an affiliate, or the corporation itself.

History analysis:

McDonald’s Corporation is one of the world’s leading fast food chain restaurants. In
1940 the first restaurant was opened in California and was primarily called Dick and
Mac M Donald. McDonald’s

In 1948 their introduction of the "Speedee Service System" was established the
ideology of the modern fast-food restaurant.

The original mascot of McDonald's was a man with a chef's hat on top of a
hamburger shaped head whose name was "Speedee." in 1963 Speedee was
ultimately replaced with Ronald McDonald.
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The company presents its founding date of the opening of a franchised restaurant
by Ray Kroc in Des Plaines, Illinois April 15, 1955, the total McDonald's of the ninth.
Kroc later purchased the McDonald brothers equity in the company and lead its
expansion international and the company was listed on public stock markets in
1965.With the expansion of McDonald's into many international markets, the
company has become a sign of globalization and the spread of the American way of
life.

In the early 1990s McDonald’s, the long-time leader in the fast-food wars, faced a
crisis. Domestically, sales and revenues were flattening as competitors encroached
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-
pressed consumers. On the higher end, Olive Garden and Chili’s had become
powerful competitors in the quick service field, taking dollars away from
McDonald’s, which was definitely well-established in the fast-food arena and hadn’t
done anything with its dinner menus to accommodate families looking for a more
better dining experience.

At the same time as these competitive wars were being fought, McDonald’s was
gathering flak from environmentalists who decried all waste its restaurants
generated each day. To counter some of the criticism, McDonald’s partnered with
the Environmental Defense Fund (EDF) to discover new ways to make its operations
better and friendlier to the environment.

McDonald's in Pakistan:

In 1998 McDonald’s started its operations in Pakistan and is a leading fast food
service retailer for its valued customers. With a strong believe in the phrase "when
it's green it's growing", McDonald's Pakistan is growing with the focus to provide
friendly and quick service experience to their customers. McDonald's Pakistan is a
part of Lakson Group of Companies, operating with a network of restaurants in
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various cities with a vision leading them to reach their customers for providing
friendly services in all regions of the country. They are operating, presently in 7
cities of Pakistan Karachi, Lahore, Rawalpindi, Islamabad, Sialkot, Faisalabad, and
Hyderabad In Future; very soon they are planning to expand in many other cities of
Pakistan.

Story

On a hectic day, 4 students decided to eat out at McDonald’s because

thankfully it could cater to both the parties through its two different
customer satisfaction Services. Two of the four decided to go for the
Counter service, considering they had time to themselves but the other
pair of friends had strict timing issues and thus decided to stick with the
Drive-Through service.

On being asked the order by a crew member, the ones at the drive through
and the other at the counter gave their orders which were quickly notified to
the Production Area after these orders were fed into the Network
Database. A Shift Manager, who was responsible for keeping an eye on the
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Inventory levels, aware of a necessary delivery need that, was expected to

be made any time that day.

An order for inventory was sent from this branch of McDonald’s to the Head
Office, which ultimately led to an organized Distribution System to collect
the stored inventory supplies from McDonald’s Warehouse. The Field
Warehouse Incharge gathered all the required supplies present in the
warehouse, which comprised of 80 – 90% supplies from abroad and 12 – 20%
supplies from within the Pakistan Supplier’s production. All these supplies
where then on a road trip in a refrigerated container.

In a matter of almost 30 hours, the delivery was at Mc Donald’s branch which

is currently being unloaded. The timer has stroke its tenth minute and a
single prepared food placed on a heated tray dropped down the order into
the bin, which was now no more than waste, in the Production Area. The
timer in the Drive-Through order area is near its 150 seconds completion
and the crew member is already handing over the bill and the order to the 2
time-restricted friends, while the 2 who had ordered at the Counter are
already at their table in the Lobby, happy, and about to give a bite at their
Big Mac!

Created By – Beenish Hasni

Operations Management Strategy

Goods & Service Design

More than 80% of the jobs in the modern world in businesses are services.
Considering restaurants over this factor, we have come to develop a consensus
during our Operations Management classes that, restaurants are designed to 75%
services and 25% goods and McDonald’s is no exception to it.
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Mc Donald’s provides tangible goods and intangible services that are maintained
globally, including Pakistan.

Tangible Goods Intangible Services

Food & Drinks Lobby to dine

Toys Play Area for Kids

- Drive through

- Restrooms

- Secure & comfortable environment

In order to provide the services and goods efficiently, McDonald’s has divided all its
outlets in a similar manner – The Counter Area, Drive-Through and The Lobby.

 The Counter Area – It consists of a number of trained crew

members, fluent in understanding the basic languages (Urdu and English) to take
the orders from the customers.

 Drive-Through – It enables take-home service to customers

placing orders and taking it with them with a maximum time limit of 90 seconds.

 The Lobby – The dining area where customers eat and leave
without throwing their trash in the bins. For this purpose, McDonald’s,
understanding the Pakistani culture has designated crew members to clean up the
place for the coming customers. Apart from that, it also includes the Play Area for
the kids, which works as the major attraction because kids are the target audience
at McDonald’s.

Quality

There is increasing concern about obesity rates and related risks to well-being
among consumers, governments and NGOs, and health and nutrition experts.
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McDonald’s takes these issues seriously, and is working to do what it can as a

company to positively influence the situation.

It is aware of the fact that the customers are counting on McDonald’s to meet their
expectations in three main areas, so that’s where they’re focused:

High-Quality Choices - Continue to develop high quality menu offerings that provide
our customers with a range of choices that meet their needs and preferences and
that fit in a balanced diet.

Consumer-Friendly Nutrition Information - Enable consumers to make the right

decisions - continuing to provide even easier access to nutrition information

Communicate Responsibly - Continue to refine the marketing and communication

practices, particularly to children.

In order to maintain its holistic approach a lot of expenditure is made in the quality
maintenance and improvement researches. McDonalds maintains the following
quality rules:

 Maintaining strict standards of quality and safety, so that the customers can
feel comfortable fitting any of the food products into their personal eating
styles.

 Serving a variety of nutritious, high-quality food products and portion sizes,

including new salad, fruit, and vegetable offerings and Happy Meal choices.
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 Providing nutrition information to help customers make smart choices that

address their individual lifestyle needs.

Location Selection

Mc Donald’s takes its location selection decision considering two factors – Business
areas and Play lands & Shopping Areas. Taking the example of Islamabad and
Rawalpindi outlets, the decisions on their selection areas in apparent. McDonald’s F
– 9 outlets (constructed on lease and is the biggest branch of Pakistan) is present
inside the Capital Park’s premises and the location allows corporate and working
class to come out and dine in, for lunch hours specifically. In comparison, the one
present in Rawalpindi is surrounded by a cinema, a play land, a shopping area and
is also present in a Park’s premises.

These factors ultimately lead to customers’ convenience due to comfortable

availability and customer gaining as a result of good environment.

Layout Design

The layout design includes interiors and exteriors while referring to environment.

McDonald’s uses interior pattern that is similar in every other country, though it
may vary according to the premises size. The colors, materials and
illustrations chosen for interior decoration carry the environmental theme to
encourage customers to adopt environmental good practices.

Same is the nature of the exterior design. It may vary in size but the standard
remains the same worldwide. The reason being that it enables McDonald’s to save
time, satisfy their customers and provide comfortable environment for both,
employees and customers.

Human Resource

People are hired on the basis of their personality traits (i.e. education, family, social
class, style, experience, etc), but are fired due to character traits (i.e. dishonest,
cheater, untruthful, corrupt, etc.)” Online recruitment is undertaken by McDonalds,
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through which part time and temporary workers are hired as it saves money and
increase the worker flexibility.

Human Resource Management Benefits on joining:

 Leaves - McDonald’s employees obtain a leave of up to two months for

personal reasons or to study for examinations or school projects.

 Company Car - Restaurant managers are eligible for a company vehicle after
only three years of service.

 Educational Assistance - McDonald’s offers an educational assistance

program for its employees.

 Social Activities - McDonald’s enjoys a variety of activities with its team which
includes an annual convention, summer picnic or outing, Eid Party. etc.

 Being in pure services and goods production sector, McDonalds exercises a

good strategy for its human resources, for example:

 Right Person on Right Job ~ McDonalds allocates its human resource in

different areas according to the abilities, qualifications and experiences of
employees. They appoint a marketing expert for marketing, accountant for
accounts and so on.

 Trainings ~ The minimum qualification for the crew members is metric and
for the managerial post it is a bachelor’s degree. Training opportunities are
provided for its employees who need training in a particular area. Special
courses are conducted for the new and old employees. Whenever new
employees are hired they are given special training in the form of courses
according to their designated position. Its helps them to get better
understanding of the environment and it also enables the organization to
achieve its goals efficiently.

 Separate Departments for Different Functions - McDonalds has different

departments for different functions. Marketing department consists of
marketing experts who perform marketing analysis. Finance department
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consists of finance experts who arrange and manage finance. McDonald’s

Finance Department has two key areas of responsibility - financial reporting
and management accounting. Although each of these functions has different
priorities, working together ensures the best financial position for the
company now and for the future. A key role of the McDonald’s finance team is
to help formulate relevant targets for the business and report actual
performance against these targets. IT department is different which deals
with the computers and the software, etc.

 Proper Utilization of Resources - Presences of many experts in different areas

allows them to use all available resources and opportunities properly. They
provide services to their customers efficiently, which satisfies customers and
achieve their goals successfully.

 Employee’s Job Satisfaction - McDonalds provides training opportunities to its

employees to improve their skills. So it results in enhanced employee
performance and they become more interested to work in good manner,
which gives a good reputation to the organization.

 Competency - McDonald’s trains its employees of all departments to enhance

their capabilities and to improve their skills and therefore employees provide
right product to right customers on right time, thus enabling the organization
to compete in the market.

Supply Chain Management

It is imaginable that McDonald’s supply chain is extensive and complex. But at the
same time it is also very efficient, which is why McDonald’s is consistently able to
offer its customers safe and quality food. But there’s more to the equation.

Every step of the McDonald’s supply chain contributes positively to the safety,
quality, and availability of its final products. At the same time, it also wants its
product ingredients to be produced in ways that contribute positively to the
development of sustainable agricultural and food manufacturing practices.
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Since McDonald’s does not actually produce any of the food that is ultimately
served to the customers, it’s essential that it works with suppliers who share its
values.

McDonald’s envision a supply chain that profitably yields high-quality, safe products
without supply interruption while leveraging their leadership position to create a net
benefit by improving ethical, environmental and economic outcomes.

 Ethical – McDonald’s envisions purchasing from suppliers that follow practices

that ensure the health and safety of their employees and the welfare and
humane treatment of animals in our supply chain.

 Environmental - McDonald’s envision influencing the sourcing of its materials

and ensuring the design of its products, their manufacture, distribution and use
minimize lifecycle impacts on the environment.

 Economic - McDonald’s envision delivering affordable food, engaging in

equitable trade practices, limiting the spread of agricultural diseases, and
positively impacting the communities that their suppliers operate in.

Inventory Management

These strategies determine what is to be made and what is to be purchased.

McDonalds follows these strategies and utilizes a just-in-time (JIT) inventory system.
This means that the orders are placed as the raw material comes to near finish.
Plus, McDonalds maintain no inventory levels for perishable goods.

Suppliers – McDonald’s has a large number of direct suppliers – companies that

make or deliver final products for the restaurants – as well as an even larger
number of indirect suppliers – companies and farms that grow or process the
ingredients that are eventually delivered to the direct suppliers.

The major suppliers of McDonald’s in Pakistan are as follows:

 Coca-Cola Ltd. for drinks
 Packages for packing
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Internationally, McDonald’s works with the best food suppliers in the world. Few of
its examples include:

 Gaviña Gourmet Coffee for McDonald's Premium Roast Blend

 Potatoes from 100 Circle Farms

Raw Materials Acquisition – Most of the inputs are imported from different countries
like Saudi Arabia, South Africa, UAE and Malaysia and Brazil. McDonald’s has been
developing and implementing a range of sustainable practices in its supply chains
for many years.

Scheduling

 Ordering Raw Material - Based on the demand, forecasted by the Restaurant

Manager, the First Assistant sends the order to the Head Office, which is
collected from the warehouse, twice a week. Warehouse is independent to
acquire the raw material from wherever it desires but it remains limited only
by the strict specifications of materials by McDonald's. It stores all the raw
materials, in its own cold stores and delivers only one-day material to the
restaurant.

 Storing Raw Materials - Islamabad branch has its own cold storage facility,
which is used to store the daily-procured raw material, so that the raw
materials remain fresh and nutritious until they are delivered in the form of
finished goods (burgers, French fries, ice cream, etc.) to the customers.

 Distribution – Venus is the name of the distribution system that is involved in

transporting the inventory orders from the warehouse to the McDonald’s
restaurants.

 Cooking - The cooking procedure and recipe is documented so that the

products become standardized and customers get the similar taste, quantity
and quality to whichever restaurant branch of McDonald’s they go to. It is the
policy of McDonald's to throw away any burger if it remains on heated grill for
10 minutes.
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Restaurant Maintenance

The overall maintenance process of McDonalds emphasizes on the maintenance of

the product quality, the human resources used within the organization, its location
and layout designs. They train their employees of all departments regarding their
job, so they can handle their customer and work as well which helps to maintain
their status quotas.

All the utensils and equipment used in cooking are washed at the closing of
restaurant every night, with anti-microbial fluid. Kitchen, floor, washrooms and all
other restaurant areas are cleaned after every half an hour.

Total Quality Management

Total Quality Management refers to a quality emphasis that encompasses the entire
organization, from supplier to customer. McDonalds practices this factor to enhance
its efficiency & affectivity level by working in different areas such as continuous
improvement, quality of goods and services, training, and customer satisfaction.
Their performance measure includes:

 Quality

 Service

 Cleanliness

Quality
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Due to the cultural differences of countries and regions, McDonalds has carefully
designed its menu with respect to maintenance of quality and yet everywhere its
major ingredients include: beef, chicken, bread, potatoes and milk. As mentioned
earlier, 80 – 90% of ingredients are imported from countries such as USA, China,
Malaysia and other countries, while 10 – 20% of ingredients are bought from within
Pakistan.

Furthermore, in order to keep up with this standard, McDonalds, all around the
world, has been strategized in accordance with a timed bin. Any food tray that
remains on the order tray for 10 minutes automatically drops down the food into the
bin.

Testing is conducted in accredited laboratories, published resources or from

McDonald’s suppliers for nutrition information. The nutrition information is based on
standard product formulations and serving sizes. All nutrition information is based
on average values for ingredients from McDonald’s suppliers throughout the world.
Variation in serving sizes, preparation techniques, product testing and sources of
supply, as well as regional and seasonal differences may affect the nutrition values
for each product.

Service

McDonalds is known for two of its services, provided to customers 24/7 – Self-
Service System and Drive-Through Service System.

Both these systems as mentioned earlier are a part of the Counter Area. As
mentioned on all websites, by the Manager we met and the test that we conducted,
it was confirmed that it does take McDonalds no more than 60 seconds to deliver
the ordered food to its customer and no more than 90 seconds to deliver from the
Drive-Through System.

Cleanliness

One of the highest priorities at McDonalds which are being fulfill accordingly. The
purposes of cleanliness include health, beauty, absence of offensive odor,
avoidance of shame, and to avoid the spreading of dirt and contaminants to oneself
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and others – in short, a healthy environment. This is one reason why people still
prefer eating out at McDonalds.

Training

Considering the moods of Pakistani Customers, McDonalds, in Pakistan, has not only
hired Managers (like everywhere else around the world) but an additional Crew that
is responsible for the cleaning. McDonalds elsewhere has customers involved in
wiping the table and throwing the after food wastage in the identified bins.

The human resources at McDonalds are involved in creating a balance in the overall
working of employees. They try to create a connection between the quality of a
product and the ability of the employees. Every employee is given training for
his/her work, for example; the cashier is trained for all the cash handling, floor
manager is polished against his degree in hotel management and etc.

Continuous Improvement

This factor in apparent, considering new food choices that McDonalds brings out
almost every year. Continuous improvement also includes some other factors like
employee empowerment, benchmarking a quality standard & maintaining just in
time inventory system and etc.

Customer Satisfaction

McDonalds pays a lot of attention on the satisfaction level of its customers. The
improved quality standards, well trained employees and a continuous learning
desire of McDonalds results in increased level of satisfaction of the customers.

Productivity & Efficiency

Just-in-Time (JIT) ~ McDonald's is another example of a JIT system wherein

McDonald's does not begin to cook its orders until a customer has placed a specific
order.

What used to be the case was, McDonald's would pre-cook a batch of hamburgers
and let them sit under heat lamps. They would keep them for as long as possible
and eventually discard what couldn't be sold. The only way to get a fresh
hamburger under the old system was to make a special order. Now, due to more
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sophisticated burger-making technology (including a record-breaking bun toaster),

McDonald's is able to make food fast enough to wait until it's been ordered.

McDonald’s provides a customer with their order as fast as possible while having
the finished product sitting in inventory for as short as possible. JIT system allowed
them to exploit the savings that were realized by holding fewer inventories.

Fat (Minimization of waste) ~ This factor is not as high a priority on Mc Donald’s list.
We came to know about this after a thorough conversation with a McDonald’s
Manager during which he showed us the heating grills and the bins, where any
order placed on the heating tray automatically disposed off the food after ten
minutes of its idle position.

Service Quality & Control ~ This factor was introduced by McDonald’s which
actually states; ‘Best quality, at low cost and with good customer service.’

Buffer / Safety Stock ~ The other aspect of JIT is the drastic reduction in safety
stock. It takes almost 30 hours to receive the ordered delivery from the warehouse
and thus McDonald’s keeps a safety stock of one day. And it is used on first-come-
first-serve (FIFO) basis.

Inventory ~ It is Periodic in nature as deliveries take place twice a week. . Since

lead time is shorter, which JIT accomplishes, then the safety stock is smaller, this
lowering safety stock inventory.

Demand & Supply Forecast ~ McDonald’s uses Time Series Forecasting method,
which is based on the history of orders, demand and supply of the restaurant. Here
the Managers are aware that June, July and August are the months of highest sale
point period and Ramadan the lowest, as most people prefer fasting and
McDonald’s has to comply with the Government Regulations as well. As a result,
during Ramadan period, McDonald’s operates 6 hours instead of its regular 24/7.

Logistics ~ As discussed in our lecture class Mc Donald’s is an example of third

party logistics providers typically specialize in integrated operation, warehousing
and transportation services that can be scaled and customized to customer’s needs
based on market conditions and the demands and delivery service requirements for
their products and materials.

Supply Chain Perspective ~ Upstream activities are carried out by suppliers to

ensure right supplies arrive when needed, internal activities operations carried out
by the restaurant to produce an output (product or service) from the range of inputs
and the downstream activities carried out by customers through whom the product
passes on its way to the end user.

HOW DOES MCDONALD’S MAKE A PROFIT?

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McDonald’s has two sources of profit:

• Sales made by company-owned restaurants

• Rental and royalty income from franchised restaurants.

Profit from Restaurant Sales

Sales 100
Food & Paper (30)
Labor (30)
Advertising (5)
Maintenance (3)
Utilities (3)
Other (2)
Profit 30

McDonald’s retains all of the profit earned by company-owned restaurants.

Increasing sales and controlling costs are fundamental to ensuring the profit of each
restaurant is either maintained or increased.

Franchise Rental & Royalty Income - The owner of each franchised restaurant,
known as the franchisee, keeps all of the profit they make through sales after
paying McDonald’s a royalty for trading under the brand name and rent for
operating in a McDonald’s owned property. The benefit to McDonald’s of operating
franchised restaurants is that these restaurants guarantee a stream of income for
McDonald’s at a reduced level of risk while enabling the company to maintain a
single brand presence.

Performance and Motivation at McDonalds -The ‘McDonalds’ company applies three

components of the motivation system: financial encouragement, non financial
encouragement, and social policy.