Logistics and Supply Chain Management

Study of Supply Chain Practices Industry: Hospitality Company: McDonalds

Submitted By Group 10:

Abhilash Nair (101) Abin Abraham (104) Ankur Arora (111) Radhakrishnan R (141) Rajesh Dharmarajan (143) Shauvik Biswas(149)

Table of Contents
1. Introduction 2. Types

2.1 Hotels 2.2 Restaurants 2.3 Nightclub 2.4 Corporate Entertainment 3. Issues and concerns in the Hospitality Industry 3.1 Socio-economic issues 3.2 Conservation issues 3.3 Environmental issues 4. Regulations 5. SCM in Hotels 6. SCM in Flight Catering 6.1 The Process 6.2 The Logistical challenge 6.3 Mass Customization (MC) 7. SCM in Quick Service Restaurants McDonalds 7.1 Cold Chain System 7.1.1 Dynamix Dairy Industries (Supplier of Cheese) 7.1.2 Trikaya Agriculture (Supplier of Iceberg Lettuce) 7.1.3 Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable ) 7.1.4 Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai) 7.1.5 Amrit Food (Supplier of long life UHT Milk and Milk) 7.2 Safety and Quality Measures 7.3 Results of SCM Practices 7.4 SWOT Analysis McDonald's

Introduction
The hospitality industry consists of broad category of fields within the service industry that includes lodging, restaurants, event planning, theme parks, transportation, cruise line, and additional fields within the tourism industry. The hospitality industry is a several billion dollar
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industry that mostly depends on the availability of leisure time and disposable income. A hospitality unit such as a restaurant, hotel, or even an amusement park consists of multiple groups such as facility maintenance, direct operations (servers, housekeepers, porters, kitchen workers, bartenders, etc.), management, marketing, and human resources. The hospitality industry covers a wide range of organizations offering food service and accommodation. The industry is divided into sectors according to the skill-sets required for the work involved. Sectors include accommodation, food and beverage, meeting and events, gaming, entertainment and recreation, tourism services, and visitor information. The Indian hospitality sector has become one of the fastest growing sectors within the tourism and travel industry. It is rapidly growing on both the fronts of revenues and generating employment. The hotel industry of India accounts for approximately USD 17 billion. 70% of this has its origin in the unorganized sector and the balance 30% come from the organized sector. The hospitality industry is major service sector in the world economy. The industry encompasses an extensive variety of service industries that include food service, tourism and hotels. Hospitality industry suffers from fluctuations within an economy every year.

2. Types
Hospitality industry can be empirically divided into two parts: food and entertainment areas like clubs and bars, and accommodation. Accommodation takes the form of public houses, resorts, inn, campgrounds, hotels, hostels, serviced apartments, and motels. The food and entertainment category include restaurants, fast foods, and nightclubs. The hospitality industry also includes tourism support commercial activities like airline cabin staff and travel agents. Travel technology like applied information technology (IT) and its workers in hospitality, travel and tourism are included in the hospitality industry. Corporate entertainment is also a very thriving activity amongst corporation. 2.1 Hotels A hotel is an establishment that renders lodging in lieu of payment. This lodging is usually given in exchange for a specified predetermined amount of money. Modern hotel rooms come equipped with climate control and attached bathrooms. Higher end hotels offer guests internet connectivity within rooms and also throughout the premises. A combination of meals and accommodation comes as a package in most hospitality establishments. Hotels are usually managed by professionally qualified managers. Junior workers usually maintain the hotel. Functions like cooking is usually done by professionally trained chefs. 2.2 Restaurants Restaurants now form a major part of the hospitality industry. These restaurants employ an optimal number of personnel for providing customer service. Food may also be sold from kiosks. 2.3 Nightclub
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Nightclubs are entertainment venues where dancing is accompanied by light snacks and drinking. Apart from service personnel like waiters and cooks, nightclubs employ disc jockeys (DJs) and stand up comedians as part its varied attractions. 2.4 Corporate Entertainment Corporate entertainment refers to private events held by companies for clients, stakeholders or staff. It can be in the form of conventions or conferences where a large audience is involved. Or it can be small and more private affairs like company annual parties, away days and concerts etc. We will be mainly covering logistics practices in hotel, in-flight catering and quick restaurant services through this document.

3. Issues and concerns in the Hospitality Industry

3.1 Socio-economic issues The sector of accommodation requires staff in high numbers, and thus can provide employment for many communities which are directly or indirectly related. But the jobs in this sector are not highly paid. It also demands long working hours and very difficult and flexible shifts. Since the tourism industry is highly seasonal in nature, the requirement of the people is also seasonal. Hence the types of job are insecure and temporary in nature. Usually the organizations opt for the labour which is not local. This is specially the case in large hotels. Steadily the hotel and tour operators are looking over the issues like improvement in the working conditions and improvement in pay, generating employment for locals etc. 3.2 Conservation issues Few hotels are historic buildings which were built in olden days. This old architecture gives them a new life and its preservation is required since they are valuable heritage. As a result of them being attractive and local heritage, it attracts tourists and becomes a source of income. 3.3 Environmental issues Waste generated by passengers on tours and waste materials litter in the sites the travelers visit.

Air Transportation causes a huge amount of carbon emission. Some of the tour operators suggested some schemes which would help to reduce the impact on environment like encouraging use of trains rather than aero planes wherever it was feasible.

4. Regulations
Government of India has changed Quarantine a rule under there is a need to individually certify each item of import. Earlier Hotels and Restaurants place an order with the international suppliers who would cart a refrigerated container and put all the supplies in the containers and hotel can obtain a single quarantine certificate for that. But with the new changes, Hotels have to import individual item separately. For this Hotels rely on consolidators who import for several customers, get them certified and store in their warehouses.

Restaurant serving undercooked meat, such as rare steaks or hamburgers, must post relevant details of the health risks involved with eating it in a prominent area, such as on the menu. There are many government agencies in a country like FDA US food & drug administration and USAD- US department of agriculture. These agencies are responsible for regulation of various food products. These agencies also ensure that the food which people eat is safe and does not have any harmful additives.

The food products need to be labeled correctly and now some countries have even issued strict guidelines for advertisements of various products.

HACCP hazard analysis and critical control point is being implemented by FDA and USDA in order to standardize the practices in food quality and safety. This would streamline the business processes and would reduce the risk of compliance. This would be done keeping the operational costs to bare minimum.

US Bioterrorism act made in 2002 has a major role in the worldwide food industry. It requires the tracking of the source of raw materials and also the destination customer of the goods. It also says that the participants in the supply chain has to maintain inventory attributes like revision codes, expiry dates, serial numbers, lot numbers etc. which should help everyone combat bio terrorism threats and also manage the product recalls.

5. SCM in Hotels
The Hotels should source supplies and ingredients in order to get preferred ingredients to the table in the right combination which is not easy with global supply chain and perishable food supplies. Plus many table items must be custom made a month in advance. They procure either through: Centralized Procurement consortium Decentralized Procurement Process These hotels have invested to computerize and streamline their supply chain in order to clamp down the costs. Hotels like Hyatt; Marriott uses e-procurement application to manage their procurement process. Several Hotels uses BirchStreet Systems for their e-Procurement, AP Automation, Inventory Control, Recipe Management and Capital Projects solutions. The e-procurement will bring following advantages:

It will reduce the price on products and services because of volume aggregation and thus it will deliver enhanced value to the users through strategic sourcing and leveraging the founders procurement expertise. It will provide real time and immediate access to the market place with an established mass of buyers and suppliers with various suppliers offerings being captured in electronic catalogue which would cover all the products and services required customers and offered by the suppliers. It will simplify the purchasing process and hence would increase the savings by providing an order processing which is automated. The easy search tools and the electronics auction capabilities will further add to savings. Customized content and user interface Connectivity to broad range of IT Infrastructure and ERPs. On-line and off-line help desk and customer service. It will provide off line and online helpdesk and also a customer service.

Challenges in Logistics:

Wage cost is lower but costs for importing foodstuffs is very high. Hotels have to set up expansive control lab where food goes through checks right from right material storage, cooking to serving. Some of the raw material which were available earlier, now become scarce due to export e.g. Kashmir Apples, Alphorns Mango, Kerala Prawns.
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Import of specialized fish, meat and poultry products

6. SCM in Flight Catering

6.1 The Process In Flight caterers consists of kitchens and warehouses as close to airports.

They hold up to four days of raw materials as inventory. The material is brought in, inspected and washed in mineral water and then refrigerated. The process of unfreezing, chopping, cutting, preparing starts with 24 hour lead time. 6 hours before any flight there is a visibility on the count of meals. The meals will be ready before 5 hours and popped in the freezer. The food is delivered before 2 hours of flight departure for an originating flight. For return flight turnaround time is tighter the caterer will clean the gallery and deliver of meals within 30- 45 minutes post landing. The meals are prepared using industrial cooking equipment such as ELRO Sirius cooking ranges and Foster Blast chillers and freezers. The flight meals are delivered at below 5 centigrade after packing it in aluminum foil or plastic film; hot meals are flash- frozen to minimize cases of bacterial infection. The food and beverage are loaded into airline trolleys and delivered in refrigerated hiloader trucks. These trucks cost around 3 times normal trucks with same capacity but 30 % less fuel efficiency. These trucks can deliver 1330 meals /day on 5 trips. Food is considered delivered only after it is loaded and tallied by cabin crew.

6.2 The Logistical challenge Airline catering is 90 % logistics and 10% food. Caterers should not be root cause of delay of flights owing to late delivery of food. Should not be cause of an in flight food poisoning incident. Caterer has to prepare large no of meals and they cant offer same meal day in and day out. The menu is decided by Airline chefs .e.g. Kingfisher has exhaustive list of 200 menus which they keep on rotating on different routes and in different cycles.

 Margins are low as compared to other hospitality industry and capital investments are high. The complexity of the logistics extends to the carriers. It is common for same airline to use many caterers .It depends upon where it flies and who has available facilities over there. Therefore contracts are specific and it is also possible that airline uses different caterer for return journey. Airline used to track frequent fliers in business class, to meet their preferences and ensure no repeats.

6.3 Mass Customization (MC) Flight Catering in the hospitality industry is the first one to adopt MC. Mass customization includes lean production, JIT inventory, flexible working hours, modularity and agile manufacturing. Flight Kitchen requires MC because of their high daily output, variety between airlines, seat classes and products. The uses MC Relies heavily on forecasting Last minute changes in schedules and menus Common ingredients to manage wide variety of menus Mix of contract Lobour and permanent staff.

7. SCM in Quick Service Restaurants McDonalds

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. 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 foodrelated service businesses. As distribution centres, the company was responsible for procurement, the quality inspection programme, storage, inventory management, deliveries to
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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'. The two most important unique parameters for McDonalds are offering their products at lowest cost with highest possible quality. Hence they rank among top quality service restaurants in the world. McDonalds achieved this position by having highly efficient Supply chain management. In India particularly they have excelled at their supply chain management which is also known as Cold Chain.

Figure 1 SCM in Mcdonald's

7.1 Cold Chain System 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 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
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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. The following list of suppliers, who build up the major supply chain of McDonalds, reveal how this Cold Chain' works and contributes towards the efficiency of McDonalds.

7.1.1 Dynamix Dairy Industries (Supplier of Cheese) Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up a network of milk collection centres equipped with bulk coolers. Easy accessibility has enabled farmers augment their income by finding a new market for surplus milk. The factory has:

Fully automatic international standard processing facility. Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein & whey protein and humanized baby food. Stringent quality control measures and continuous Research & Development

From the point cheese is delivered onwards, until just before the burger is actually served in a McDonald's restaurant hundreds of kilometers away, the temperature is never allowed to increase. When the refrigerated milk arrives at the Dynamix plant at Baramati, the milk in every single tanker is thoroughly tested and rejected if found sub-standard, adulterated or contaminated. The sophisticated testing lab can check fat content with an accuracy of 0.1 per cent. It can even detect minute traces of pesticides or antibiotics administered to cows. This instant feedback and the rejection of the entire tanker-load forces farmers to follow the best practices in terms of animal husbandry, use proper feeds, cut down on the indiscriminate use of pesticides and animal medicines and completely stop even the slightest attempts at adulteration.

7.1.2 Trikaya Agriculture (Supplier of Iceberg Lettuce) Implementation of advanced agricultural practices has enabled Trikaya to successfully grow specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm infrastructure features:

A specialized nursery with a team of agricultural experts. Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant.
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Pre-cooling room and a large cold room for post harvest handling. Refrigerated truck for transportation.

Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such enterprise that is an intrinsic part of the cold chain. Exposure to better agricultural management practices and sharing of advanced agricultural technology by McDonald's has made Trikaya Agriculture extremely conscious of delivering its products with utmost care and quality. 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 agri-business in Maharashtra to provide fresh, highquality lettuce to McDonald's urban restaurant locations thousands of kilometers away. 7.1.3 Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products including Fruit Pies) A joint venture with OSI Industries Inc., USA, McDonald's India Pvt. Ltd. and Vista Processed Foods Pvt. Ltd., produces a range of frozen chicken and vegetable foods. A world class infrastructure at their plant at Taloja, Maharashtra, has:

Separate processing lines for chicken and vegetable foods. Capability to produce frozen foods at temperature as low as -35 Degree Cel. to retain total freshness. International standards, procedures and support services.

Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the 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 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. 7.1.4 Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai) An integral part of the Radhakrishna Group, Foodland specializes in handling large volumes, providing the entire range of services including procurement, quality inspection, storage, inventory management, deliveries, data collection, recording and reporting. Salient strengths are:

A one-stop shop for all distribution management services.

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Dry and cold storage facility to store and transport perishable products at temperatures upto -22 Degree Cel. Effective process control for minimum distribution cost.

McDonald's local supply networks through Radhakrishna Foodland, which operates distribution centres (DCs) for McDonald's restaurants in Mumbai and Delhi. The DCs have focused all their resources to meet McDonald's expectation of 'Cold, Clean, and On-Time Delivery' and plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Ranging from liquid products coming from Punjab to lettuce from Pune, the DC receives items from different parts of the country. These items are stored in rooms with different temperature zones and are finally dispatched to the McDonald's restaurants on the basis of their requirements. The company has both cold and dry storage facilities with capability to store products up to -22 C as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state. 7.1.5 Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts) Amrit Food, an ISO 9000 company, manufactures widely popular brands Gagan Milk and Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh. The factory has:

State-of-the-art fully automatic machinery requiring no human contact with product, for total hygiene. Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High Temperature) processed milk and milk products. Strict quality control supported by a fully equipped quality control laboratory.

7.2 Safety and Quality Measures All suppliers adhere to Indian government regulations on food, health and hygiene while continuously maintaining McDonald's recognized standards. As the ingredients move from farms to processing plants to the restaurant, McDonald's Quality Inspection Programme (QIP) carries out quality checks at over 20 different points in the Cold Chain system. Setting up of the Cold Chain has also enabled it to cut down on operational wastage Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that emphasizes prevention within its suppliers' facility and restaurants rather than detection through inspection of illness or presence of microbiological data. Based on HACCP guidelines, control
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points and critical control points for all McDonald's major food processing plants and restaurants in India have been identified. The limits have been established for those followed by monitoring, recording and correcting any deviations. The HACCP verification is done at least twice in a year and certified. The relationship between McDonald's and its Indian suppliers is mutually beneficial. As McDonald's expands in India, the supplier gets the opportunity to expand his business, have access to the latest in food technology, exposure to advanced agricultural practices and the ability to grow or to export. There are many cases of local suppliers operating out of small towns who have benefited from their association with McDonald's India. 7.3 Results of SCM Practices Following are the milestones McDonalds achieved after implementing an efficient supply chain management: Their gross margin improved by 0.15%. Their raw material wastage reduced by 30% Their average inventory reduced by 30% The stores transfers halved. Their order time halved.

7.4 SWOT Analysis McDonald's Strengths McDonald's has been a thriving business since 1955 and 20 of the top 50 corporate staff employees started as a restaurant level employee. McDonalds invests more than $1 billion annually in training its staff, and every year more than 250,000 employees graduate from McDonald's training facility, Hamburger University.

The business is ranked number one in Fortune Magazine's 2008 list of most admired food service companies. One of the world's most recognizable logos (the Golden Arches) and spokes character (Ronald McDonald the clown). Approximately 85% of McDonald's restaurant businesses world-wide are owned and operated by franchisees. They have global locations in all major airports, and cities, along the highways, tourist locations, theme parks and inside Wal-Mart. They have an efficient, assembly line style of food preparation. In addition they have a systemization and duplication of all their food prep processes in every restaurant.
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McDonald's uses only 100% pure USDA inspected beef, no fillers or additives. McDonald's foods are purchased from only certified and inspected suppliers. McDonalds works closely with ranchers, growers and suppliers to ensure food quality and freshness. McDonald's takes food safety very seriously. More than 2000 inspections checks are performed at every stage of the food process. McDonalds are required to run through 72 safety protocols every day to ensure the food is maintained in a clean contaminate free environment.

Weaknesses High employee turnover in their restaurants leads to more money being spent on training.

They have yet to capitalize on the trend towards organic foods. McDonald's have problems with fluctuations in operating and net profits which ultimately impact investor relations. Operating profit was $3,984 million (2005) $4,433 million (2006) and $3,879 million (2007). Net profits were $2,602 million (2005), $3,544 million (2006) and $2,395 million (2007).

Opportunities In today's health conscious societies the introduction of a healthy hamburger is a great opportunity. They would be the first QSR (Quick Service Restaurant) to have FDA approval on marketing a low fat low calorie hamburger with low calorie combo alternatives. Currently McDonald's and its competition health choice items do not include hamburgers.

They have industrial, Formica restaurant settings; they could provide more upscale restaurant settings, like the one they have in New York City on Broadway, to appeal to a more upscale target market. Provide optional allergen free food items, such as gluten free and peanut free. In 2008 the business directed efforts at the breakfast, chicken, beverage and convenience categories. For example, hot specialist coffees not only secure sales, but also mean that restaurants get increasing numbers of customer visits. In 2009 McDonald's saw the full benefits of a venture into beverages.

Threats They are a benchmark for creating "cradle to grave" marketing. They entice children as young as one year old into their restaurants with special meals, toys, playgrounds and popular movie character tie-ins. Children grow up eating and enjoying McDonalds and then continue into adulthood. They have been criticized by many parent advocate groups for their marketing practices towards children which are seen as marginally ethical.

They have been sued multiple times for having "unhealthy" food, allegedly with addictive additives, contributing to the obesity epidemic in America. Any contamination of the food supply, especially e-coli. Major competitors, like Burger King, Starbucks, Taco Bell, Wendy's, KFC and any midrange sit-down restaurants.
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