Mc donald's SCM (report)


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McDonald's Supply Chain Management - Pakistan

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Mc donald's SCM (report)

  1. 1. McDonald’s Supply Chain Management How does the world’s premier fast food restaurant do it? Submitted to: Mr. Muhammad Taha Dossal Prepared by: Maria Farooq Maria Mansoor Ali Mariya Crystal Syed Bilal Majid Mazhar May 4, 2014 IQRA UNIVERSITY-GULSHAN CAMPUS
  2. 2. McDonald’s History Raymond Albert Kroc The birth of McDonald's began with Raymond Albert Kroc Ray Kroc was the exclusive distributor of a milk shake maker called the Multimixer. Meanwhile, two brothers, Richard and Maurice McDonald owned and ran a hamburger restaurant in San Bernadino, California, in the 1950s. Ray Kroc heard how well the McDonald brothers were doing using his Multimixers to serve their customers. He met up with them and acquired the franchising right from them to run McDonald's restaurants. A great success story was in the making. In 1955, Ray Kroc founded the McDonald's Corporation and opened the first restaurant in Des Plaines, Illinois. In 1961, he bought out the McDonald brothers And the rest, as they say, is history. McDonald's grew into the largest restaurant organization in the world. Today, there are more than 34,000 McDonald's restaurants serving 69 million customers each day in over 119 countries. Ray Kroc died in 1984 but his legacy is very much alive. His success story continues with McDonald's families of employees, franchisees and suppliers. His commitment, dedication and achievements continue to live on at McDonald's restaurants across the world. McDonald’s Pakistan History Amin Lakhani McDonald’s is the largest and best known global food services retailer with more than 30,000 restaurants in 121 countries. Our outstanding brand recognition, experienced management, high-quality food, site development expertise, advanced operational systems and unique global infrastructure ensure a position that enables us to capitalize on global opportunities. We plan to expand our leadership position through great tasting food, superior service, everyday value and convenience. McDonald’s Pakistan is part of the Lakson Group of Companies, a leading business house in Pakistan. McDonald’s first restaurant opened its door to the people of Pakistan in September 1998 in Lahore. This launch was met with unprecedented enthusiasm from the citizens of Lahore, who are known for their liveliness, vigor and penchant for quality food. Karachi opened its first restaurant a week after Lahore. Ever since we opened the doors of our restaurants both in Karachi & Lahore, we have been proud to provide our customers the same great taste, outstanding value and superior service that is synonymous with the Golden Arches all over the world.
  3. 3. There are now 27 restaurants in 8 major cities of Pakistan. (11 in Karachi, 1 in Hyderabad, 10 in Lahore and 1 in Faisalabad, 1 in Kala Shah Kaku, 1 in Sialkot, 1 in Islamabad & 1 in Rawalpindi) Today millions of Pakistanis place their trust in McDonald’s every day- trusting the company to provide them with food of a very high standard, quick service and value for money. So next time you walk into one of our restaurants, please remember, McDonald’s Pakistan is here now, to put a smile on your face, each and every time you visit us. McDonald’s is firmly committed to giving back to the community where it operates. We are happy to become involved because we recognize that organizations have a role to play in helping communities to work successfully. The contribution we enjoy most is the experience of working together with others in the community to achieve worthwhile benefits for those who need it most. McDonald’s Statement Vision Statement To be the best and leading fast food provider around the globe. Mission Statement McDonald's mission is to be our customers' favorite place and way to eat with inspired people who delight each customer with unmatched quality, service, cleanliness and value every time. We invite you to be the part of this winning team and give yourself an opportunity to grow with the family of people striving to create smiles on the faces of millions of people every day. McDonald’s Values Being a responsible corporate citizen, McDonald’s firmly believes in giving back to the communities it operates in. We love to provide support and encouragement to the people who need it the most. All our restaurants contribute to their local community and every year we help set up and support numerous educational, sporting and charity programs designed to help a wide range of people. McDonald's has a proactive approach to charities and sponsorships. We believe these help inspire and support the people of Pakistan, especially the underprivileged ones, to live a better life. We are dedicated to delivering great experiences through our ongoing community support programs.  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
  4. 4. in a clean, welcoming environment, at a great value. Our goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each and every time.  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 experiences, working together in an environment that fosters respect and drives high levels of engagement, is essential to our continued success.  We believe in the McDonald’s System. McDonald’s business model, depicted by our “three-legged stool” of owner/operators, suppliers, and company employees, is our foundation, and balancing the interests of all three groups is a key.  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 that come with being a leader. We help our customers build better communities, support Ronald McDonald House Charities, and leverage our size, scope and resources to help make the world a better place.  We grow our business profitably. McDonald’s is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuous focus on our customers and the health of our system.  We strive continually to improve. We are a learning organization that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation. McDonald’s Products
  5. 5. McDonald’s Target Market McDonald’s wants to attract as many customers as it can. But the main targets of the efforts by McDonald’s are following groups:  Parent visit McDonald’s to give the children a treat.  Children want to visit McDonald’s as it is a fun place to eat.  A business customer visits McDonald’s during the day as service is quick, the food tastes great and can be eaten in the car without affecting a busy work schedule.  Teenagers are attracted by the Saver Menu which is affordable, and the internet access. Supply Chain Management in Fast Food Sector  There are two key components to the fast food industry supply chain; 1. Raw materials are essential to the ultimate product - value added component. 2. Quick, convenient, and quality food.  The most important aspect of the industry supply chain is that it is driven by the consumer.  The consumer has what seems to be an endless amount of fast food chains to choose from every day.  McDonalds' main goal of their marketing is to make the consumer drive that extra two blocks past the competitor to eat at their chain. McDonald’s Supply Chain Management  Supply chain is extensive and complex.  Efficient, safe and quality food at an affordable price.  Large number of direct suppliers – companies that make or deliver final products to their restaurants.  Large number of indirect suppliers – companies and farms that grow or process the ingredients that are eventually delivered to their direct suppliers.
  6. 6. McDonald’s E-Procurement  In the process of procuring a product, a typical McDonald’s franchise restaurant places an order through E-MAC digital website.  The order is sent to the suppliers. Suppliers order is processed and managed by the logistics.  The logistics sends the order of the products to the franchise restaurants. It is the responsibility of the E- MAC and logistics that the products are sent to the restaurant.  All the above, steps are handled and executed by the E-MAC digital.
  7. 7. McDonalds’ Suppliers Following are the McDonald’s suppliers of food;  Gaviña Gourmet Coffee: Our 25-year relationship with Gaviña has delivered countless cups of delicious coffee.  Lopez Foods: McDonald’s 100% pure beef patties are produced to the highest quality standards.  Keystone Foods: Innovation and Chicken McNuggets  100 Circle Farms: The potatoes for our World Famous Fries are grown with efficiency, precision and heart.  Jiangsu Dingneng Foods Co. Ltd: Dehydrated onions Following are the McDonald’s suppliers of equipment and other items;  Zhengzhou Kerry Machinery Equipment Co., Ltd.  Guanxing (Shanghai) Import & Export Co., Ltd.  Guanxing (Shanghai) Import & Export Co., Ltd.  Guangzhou Maibao Package Co., Ltd.  Zhengzhou Shuliy Machinery Co., Ltd.  Shantou Eastoys Factory  Shantou Kai Dongfan Plastic Toy Factory  Wenzhou Xiangou Foreign Trade Corporation  Shanghai Tianwan Food & Beverage Equipment Co., Ltd.  Shanghai Xinrui Catering Equipment Co., Ltd.  Wuhan Xinhengyue Industry And Trade Co., Ltd.
  8. 8. McDonald’s Logistics Logistics is the management of flow of resources between their point of origin and their point of destination so as to meet some requirements McDonald’s - the largest fast food chain in the world selected Venus Pakistan as its logistic partner after careful and thorough evaluation. We are responsible for the procurement, imports, clearing, warehousing and distribution of all products to all McDonald’s restaurants in Pakistan. In McDonalds logistic involves 3 phases  Inbound logistic  Operations  Outbound logistic Inbound logistics Operations Outbound logistics
  9. 9. Inbound logistic It is the movement of materials from suppliers and vendors in to production processes and storage facilities. Every McDonald’s burger has nine different ingredients, which are sourced, from suppliers across the country before it reaches the consumer. McDonald's has a global package design for there to-go bags and fountain drink cups. All the inputs are imported from different countries like Saudi Arabia, South Africa, UAE and Malaysia; only the buns used in burgers are procured locally from Dawn Bread. Based on the demand forecast by the Restaurant Manager, the First Assistant orders the Venus Distributors on daily basis. Venus Distributors (supplier of McDonalds) 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. Venus Distributors stores all the raw materials, in its own cold stores and delivers only one-day material to the restaurant. Venus group companies providing different facilities to McDonalds like:  Providing McDonalds Pakistan the most comprehensive range of Specialized & Customized Services  Warehousing, Storage/Cold Storage, and Sole Distribution  Services starting right from Pick-up at Sea Port to Delivery at all McDonalds Restaurants in Pakistan – everything is handled with maximum efficiency.  Central Inventory Management of Venus Pakistan dedicated to handling every aspect of McDonalds inventory.  Quality Inspection Process (QIP) Units at Venus Pakistan especially operates to look after McDonalds Logistics Operations. With a proven track record of having served the Logistics needs of McDonalds, Venus Pakistan established its dedicated McDonalds Logistics Operations in 1997. It also received the DQMP (Distribution, Quality, and Management Process) Certification from McDonalds USA Audit Team after they visited and inspected our facilities and certified us as such (which makes us the only one to receive any such Certification from McDonalds USA). Main Boulevard 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 up till they are delivered in the form of finished goods (burgers, French fries, ice cream, etc.) to the customers. There are only two products buns and Cokes, which are sent directly to the restaurants. Buns have a limited shelf life, hence they are sent directly to the outlets, while Coca Cola is also sent directly to ensure quick dispatch of its products. The buns are packed in plastic crates to ensure their quality. These crates have to go back to the bakery, that’s when return logistics takes place. Venus Pakistan has full-fledged facilities to pack locally manufactured products in sachets such as sugar, tomato ketchup, toothpicks, etc., and supply these to Institutions (Restaurants, Cafes, Hotels, 5-Star Hotels, Hospitals, etc.), through its own Distribution Network and Logistics support. Being responsible for McDonald’s supply chain, the company had to import lettuce from Europe. The logistics involved in handling the product at the airports late night forced the directors to think of alternate ways to manage this business. The company with the assistance of advisors from the agricultural university and experts from china set up a pilot farm in Lahore. After experimenting for one year the group decided to setup an agriculture division. Today lettuce is farmed in Lahore on 100 acres during the winters and on 3 parcels of 25 acres each in Abbotabad and man sera. Production/yield is approximately 5000 kg (5 tons) per week. The farm is experimenting with romaine. The farm management has plans to grow exotic vegetables in the future and tap/develop the export market in Dubai. The transportation of McDonald’s has been completely outsourced and since 80 percent is in refrigerated truck movement. The products are transported in a dedicated fleet of refrigerated trucks to the company’s Distribution Centres. Multi-temperature and single temperature trucks then transport the fast food swiftly to the McDonald’s restaurants across the country.
  10. 10. Cold Chain logistics A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range. It is used help extend and ensure the shelf life of products such as fresh agricultural produce, processed food. McDonalds’ entire network supply- chain consists of movement of goods through a cold chain. Suppliers are also a part of this cold chain. McDonalds have the largest refrigerated movement of products. An interesting and innovative feature of this cold chain is that the same truck can carry products at different temperatures ranging from:  Frozen products at -18C to -25C,  Chilled products from 1C-4C  Dry products at ambient temperatures Venus Custom Bonded Warehouse/Carrier owned by The Venus Group of Companies and operated by the parent company Venus Pakistan is the ONLY Company in Pakistan that enjoys the exclusive distinction of having its own refrigerated Custom Bonded Warehouse/Carrier License issued by Pakistan Customs. This means that Venus Pakistan is capable of providing frozen storage services to its customers without paying duties to Customs. Customers can simply pay the duties/taxes to Customs only for the quantity required from the Bonded Warehouse operated by Venus Pakistan. McDonald’s expects its distribution partner to meet its standards of ‘cold, clean and on-time delivery. Outbound logistic Outbound logistics is the process related to the storage and movement of products from the end of the production line to the users end. When customers enter the restaurant, they go to the counter, give their order, which they are served within a single minute. Now customers take away the tray in which the order is served, and take their seats themselves, in the big hall with a sitting capacity of 200 persons.
  11. 11. McDonald’s Operation 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 they go. It is the policy of McDonald's to throw away any burger if they remain on heated grill for 15 minutes. 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. McDonald’s Transportation  The distributors receive items from different parts of the country.  The items are stored in rooms with different temperature zones and are finally dispatched to the McDonalds restaurants on the basis of their requirements.  The company has both cold and dry storage facilities with capability to store products up to -22º C as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state.  The specially designed trucks maintained the temperature in the storage chamber throughout the journey.  Matching supplier production with deliveries to meet schedules and restaurant needs.  Centralized distribution centers.  Emphasis on economies of scale – High storage volumes.  QIP (Quality Inspection Program).  HACCP (Hazard Analysis Critical Control Point) – Food safety standards emphasizing prevention of faults rather than detection through inspection.  No Knife in restaurants.
  12. 12. McDonalds Distribution systems McDonald uses three types of Distribution strategy  Franchising  Licensing  Joint venture McDonald’s has a successful franchise business model wherein all restaurants are operated either by the company or by franchisees, including conventional franchisees under franchise arrangements and developmental licensees and foreign affiliated markets under license agreements. The company’s operations are designed to assure consistency and high quality at every restaurant. When granting franchises or licenses, the company is selective and generally does not franchise to passive investors. McDonald’s has franchised about 80% of its restaurants, while the remainder is owned and operated by the company. Each of the company’s franchisees usually has a standard 20-year franchise license. A franchise license is an authorization granted by either a company or a government body to an individual or a group that enables them to perform specific commercial activities. For McDonald’s, the franchise model has led to years of profitability, growth, and risk mitigation. McDonalds Forecasting McDonald’s is a well-known worldwide franchise and has been around since the 1950s. Serving customers for over 50 years successfully entails a strong inventory and operations management system. “McDonald's is the world's # 1 fast-food company by sales, with more than 33,500 restaurants serving burgers and fries in 119 countries”. To maintain and continue a successful franchise operation, quality food items, and highly successful sales continue to increase its efforts to “raise the bar” and offer items that cater to all types of consumers. Whether it is McDonald’s famous hamburger, chicken nuggets or salad and a latte, McDonald’s has it. Striving to continue to be the # 1 franchise, McDonald’s obtains its forecasting data from consumers, employees, and the industry itself. Combining both expert judgment and market research, McDonald’s continues to rely on putting the customer first when it comes to the future and success of McDonald’s. Qualitative Forecasting Expert Opinion and Market Research McDonald’s uses qualitative forecasting methods to help aide in predicting the future growth of the organization. Developing a strong customer focus, McDonald’s relies heavily upon gathering information from customers, employees, and other experts in the field to assist in the decision-making process. Within the qualitative approach, McDonald’s focuses attention on utilizing expert judgment. Expert judgment is important because it provides significant insight into different aspects of the organization. When seeking expert’s opinions, a technique known as Delphi is used to ensure quality opinions are formed. The Delphi technique allows McDonald’s to gather expert’s opinions on predictions of future behavior.
  13. 13. McDonald’s Competitors  Subway  Kentucky Fried Chicken (KFC)  Mr. Burger  Burger King
  14. 14. McDonald’s Market Share in Pakistan McDonald’s SWOT Analysis McDonalds is a growing and striving business. It has successfully managed to turn out huge amounts of profits every year therefore it has ample number of investors. These investors contribute in monetary form and allow McDonalds to maintain its competitive advantage. McDonalds is a well and high financed company that has the ability to charge excessively low on its products and turn out a high profit. Other firms that are limited on funds cannot charge low, as they have to meet their costs. Strengths  Praised and ranked high in many food magazines for quality of service and food. Therefore, McDonalds has a reputed name amongst various companies.  The McDonalds logo according to many experts has been termed to be the most recognizes logo in various countries, amongst children.  McDonalds has established its branches in all important locations including; airports, railways and bus stops. 25% 30% 15% 10% 5% 15% Market Share McDonalds KFC Subway Mr. Burger Burger King Others
  15. 15.  McDonald takes cleanliness and food hygiene very seriously; therefore it has one the most awards.  McDonalds was one of the first few restaurants which started to show all nutritional values on their menus.  McDonalds has the ability to easily adapt to various cultures, hence it has been successful in most of the countries.  McDonald is engaged in many corporate social activities during the year.  They have an assembly line system which ensures that the cost of production is always kept low.  Provides professional training for all employees, to ensure high and consistent quality to all the customers. Weakness  McDonalds over the years has attracted negative press due to selling junk food at very low prices. Many organizations and companies have sued McDonalds on various issues.  McDonalds lacks the ability to create innovative advertisements to attract children.  McDonald’s service is no longer the same in all locations due to the ample franchising contracts.  McDonalds has a high set up cost.  McDonalds’ tends to lose out on sales when the economy fluctuates because people use their disposable income to purchase fast food. When their disposable income is changed their spending also changes, hence McDonalds loses out on sales.  McDonalds only offers processed and inorganic food line.  McDonalds’ has a high employee turnover.  McDonalds has an extensive training program which often lowers the total revenue. Opportunities  McDonalds’ can expand or enter into the organic food industry because now people are becoming very health conscious.  McDonalds’ could provide more services such as free delivery in various countries, to capture more market share.  McDonalds’ could expand its menu to cater to all the individuals.  McDonalds’ could attract attention by keeping or sponsoring various events for adults and children.  McDonalds’ could add more services, such as free internet to attract and retain its customers.  McDonalds’ could engage in various promotions and season discounts to beat the competitors.  Expand more intensively into other countries or launch in new locations to cover the untapped areas. Threats  In many countries, McDonalds has been known to advertise and incite children in to consuming their products with toys other events. Many companies and agencies are observing and are considering taking actions.  McDonalds’ sales and revenue are very dependent on the economic conditions of a country. Therefore, countries that do not perform well tend to also have a negative impact on McDonalds sales and revenue.  McDonalds’ is facing immense competition from the fast food places and organic restaurants.  The negative press could have a significant impact on McDonald if corrective actions are not taken.  The increase in health awareness can also have an impact on McDonalds as people would not want to consume junk food, once they know its side effects.
  16. 16. McDonald’s Quality Assurance The Homely Touch of the Highest Quality Standards at McDonald’s At McDonald’s it’s always like coming home. We make sure that the warmth of our homely touch reaches your highest expectations. Be it food, service or the ambiance, we keep elevating our quality standards to new levels. McDonald’s has implemented rigorous food safety standards called “from farm to restaurants”. Here food is not just meant for thought. Food means quality by all means. That is why McDonald’s is served to you and your loved ones with all our heart and soul. Meat With 100% Purity 100% purity is the reason why all our beef sandwiches taste so delicious. They are made from 100% halal beef cuts with no additives or preservatives. Chicken that we serve is carefully deboned breast meat only, with seasoned batter and a choice of sauce portions, while our Spicy McCrispy Chicken Deluxe uses only muscle cuts. All relevant authorities monitor our high quality standards of 100% halal chicken. High Quality Baked Buns We source our buns from suppliers who use only high quality wheat. All the buns are subject to strict quality and safety controls all through the production process. Crunchy Farm-Fresh Vegetables We select the best of the best vegetables that are continually monitored for freshness, high nutrients and safety, to maintain top quality standards. We use regional/local suppliers to ensure that the freshness and high quality are delivered to you in all our products. No Compromise At McDonald’s we give high importance to the smallest of the detail, from meat to spices, and everything is standardized. That is because we follow our global set quality standards with no compromise, right from the farm to the restaurant till the time it is served to you.
  17. 17. Recommendation for McDonalds Market Development As we know there is increasing trend in fast food industry and people are more conscious about their health. Similarly McDonald international should open as many branches in other cities of Pakistan like Multan, Gujranwala, Hyderabad, and other cities like these because this step will not only reduce their business risk but also improvement in their profitability. In the said cities there is a lot of potential for the fresh investment in the fast food industry. So it should develop the market for its products, only in this way it can maintain its competitive advantage over its competitors like KFC and Pizza Hut. Diversification Currently McDonald is importing Potatoes from abroad, this makes the product cost so high, so it becomes very difficult for it to capture the middle-income people. By diversification we suggest that McDonald should go for backward integration because Pakistan is an agricultural country and it also exports potatoes to other countries of the world. By growing potatoes in Pakistan McDonald’s can maintain the same quality at lower cost of operations. Similarly McDonald’s should go for its own cattle farm in Pakistan so it will reduce its input cost and it will lead to lower market price of its products as compared to its competitors. In this way the sales of McDonald can be increased by at least 50% of current sales volume By doing this backward integration McDonald’s can avoid the problems like Govt. heavy duties on inputs imported from other countries and similarly it can avoid the problems of continuous devaluation and exchange rate. Product Development McDonald’s, it should introduce all the time new products that make it differentiated and it must sustain it so that no other competitor can copy their products and there should be lesser chances of product imitation. For this it may altogether change the whole product and can bring a new product or sometimes any major modification in the existing products. So we recommend that McDonald should apply the Product Development at all times whenever the need arises.