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McDonald’s Restaurant

STAT 2800 Survey of Operations Management Project II Dr. Rotimi Aderohunmu

November 15, 2004 By: Stephanie Earley Matt Kellond Heather Kraich Eddie Phillips Rabab Sadeq Thuy Van

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EXECUTIVE SUMMARY

To sustain its viability in a competitive market, the McDonald’s Corporation sets its overall goal of “making its customers happy.” To reach this broad goal, McDonald’s mainly focuses on competitive bases of speed, cost, and nutrition. The corporation also recently created dramatic strategy changes to its stores internal processes by introducing the Made for You System, and McDonald’s also created a Revitalization Plan which encompasses all areas of the business to make its customers happy. Quality management at McDonalds is one of the major factors that make the corporation one of the most successful fast food restaurants in the world. The corporation uses computerized information systems and strict corporate quality standards to maintain quality at their restaurants. To enforce the standards, the corporation undertakes exhaustive inspections on each restaurant two times per year. Also, thorough training processes ensure that all McDonald’s employees have the proper knowledge to meet the corporation’s standards, which will in turn make their customers happy. Many suppliers aid McDonald’s success by supplying their raw materials efficiently and on time. McDonalds reassures that their product is fresh by choosing suppliers near the restaurants, to minimize transport time. To ensure quality of products and reduce cost between the restaurants and their suppliers, the McDonalds Corporation publishes specific guidelines to ensure that the restaurants receive the best quality materials. McDonald’s ensures consistent products by enforcing strict standards and frequently inspecting its suppliers. The corporation participates in a very efficient supply chain network. The corporation also takes advantage of long-term relationships with suppliers to ensure consistent products. McDonald’s also takes active steps to avoid bad products and reduce overall costs. Forecasting is in large part down by the corporation as their responsibility to the franchisees and share holders. McDonald’s uses qualitative forecasting methods by gathering information from customers, employees, and experts, via written surveys and other correspondence. Forecasting has given the corporation opportunity to excel in creating new innovations, creating localized meal selections, and generally making the customer happy. In summary, the entire McDonald’s corporation revolves around its goal to make its customers happy. McDonald’s works toward this broad goal with strong competitive bases, quality management, an efficient supply chain with quality products, and continuous forecasting.

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TABLE OF CONTENTS Introduction........................................................................................................................4 Operations Competitive Strategy Main Competitive Bases ..........................................................................................4 Strongest Priority .....................................................................................................7 Strategy Changes .....................................................................................................8 Quality Management Speed......................................................................................................................11 Quality Inspections ................................................................................................12 The 5 P’s ................................................................................................................14 Training..................................................................................................................15 Raw Materials Arrival and Maintenance........................................................................................16 Grade “A” Beef and Other Meats ..........................................................................16 Produce ..................................................................................................................18 Supply Chain Examination of Supply Chain................................................................................18 Supply Chain Efficiency ........................................................................................19 Quality Along Supply Chain..................................................................................20 Share Costs.............................................................................................................21 Forecasting Aspects of Forecasting...........................................................................................21 Listening to Customers ..........................................................................................22 Forecasting Success and Failure ............................................................................23 Conclusion ........................................................................................................................24 Appendices Appendix 1, TTL Control Chart ............................................................................25 Appendix 2, KVS Control Chart............................................................................26 Appendix 3, Data for Control Charts.....................................................................27 Appendix 4, McDonald’s Hierarchy......................................................................28 Appendix 5, Process Chart for Preparing a Hamburger ........................................29 Appendix 6, Illustration of a McDonald’s Supply Chain ......................................31 Appendix 7, Interview with Ronald Lessnau.........................................................32 Bibliography .....................................................................................................................36

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The company recently made drastic changes to its Operation Management Project 2 Page 4 of 36 . management and employee training. forecasting. In this segment. McDonald’s is competitive in many categories. quality management. With this in mind. McDonald’s has a strategic plan to stay on top of their competitors by providing consumers with affordable prices. quality.INTRODUCTION McDonald’s. founded by Ray Kroc. raw materials. The only difference is that their shopping cart is a whole lot bigger. especially the health conscious food options. Although McDonald’s competes on several bases. great service. including price. This report details McDonalds’ competitive strategy. To sustain its viability. their strongest priority is “making customers happy” (“McDonald’s Worldwide” 3).000 different locations worldwide (“Food Service”). is now one of the most popular fast food restaurants across the world. They’ve proudly served more than 46 million customers in 59 different countries and currently have more than 30. and nutrition. and more healthy meal options. Consumers trust McDonald’s products because they use many of the same trusted brands that families buy at local grocery stores. the McDonald’s Corporation employs an effective competitive strategy to make it stand out against competitors such as other fast food restaurants. The fast food industry is booming at a rapid rate. and supply chain. OPERATIONS COMPETITIVE STRATEGY Main Competitive Bases McDonald’s Corporation competes in a challenging market segment by providing need-satisfying products to customers. cost. including speed. ineffective competitors often fail without proper strategies (Kerin).

Through extensive market research and survey. The value meal allows customers to buy a sandwich. Therefore. Speed McDonald’s competes on several bases mainly to make their customers happy by providing speedy. McDonald’s realizes that specific targets are necessary to measure the performance of speed. the company utilizes proven. and continuously takes relevant measurements to compare actual performance with desired targets Specific measurements are detailed later in this report in the “Quality Management” section. Once again. standardized training processes for its employees and new drive-thru layouts to reduce service times. McDonald’s also competes by offering prices at a low cost. Cost To offer high quality products at low cost requires efficient processes throughout the entire McDonald’s organization. McDonald’s restaurants offer seven to McDonald’s twelve value meals. and beverage at a discount when purchased together. friendly and accurate service” (“McDonald’s Worldwide” 5). Operation Management Project 2 Page 5 of 36 . the organization discovered that its customers desire speed as one of the restaurants’ top priorities. french fries.process by introducing the Made for You system (Chase). this goal is built into their vision statement when they claim that “We will be the most efficient provider so that we can be the best value to the most people” (“McDonald’s Worldwide” 5). McDonald’s vision aims to “provide fast. affordable. both for their lunch menu and breakfast menu. Along with speed. and nutritious foods. incorporates several avenues to provide great value to its customers: One strategy that the company has employed for many years is the value meal. To achieve efficient service times.

the organization has recently focused extraordinary efforts to promote their new nutritious choices. Nutrition McDonald’s third main competitive base is nutrition. bottled water. McDonald’s has already introduced many options to achieve this goal: In the United States.39 hamburger Wednesdays. Operation Management Project 2 Page 6 of 36 . Although not specifically built into the organization’s vision. These meals include a salad. as an alternative to french fries (“McDonald’s Worldwide” 12). consisting of many individual items costing only $1.00 each. the dollar menu has proved to be very successful and has been since incorporated to many individual stores (Zuber 2). First tested in southern California. The United Kingdom saw fresh fruit bags. The organization understands that health trend is an increasingly popular trend therefore. containing apples and grapes.More recently. Other countries have seen similar healthy options. “Go-Active” meals have been offered within the last few years. Not only does McDonald’s care about its customers. Big Mac Mondays are a popular regional promotion. the organization worked with external nutritionists to develop an “Employee Guidebook” which contains tips and nutrition information for healthy lifestyles (“McDonald’s Worldwide” 13). and a “step-o-meter” to help customers keep track of how many steps they take a day. Some individual franchise owners choose to offer daily specials of special menu items. In Europe.” or other similar specials. such as “$0. but it is also considerate of its employees’ health. McDonald’s began offering a dollar menu.

place the items in the online bag. their ambient goal is making customers happy. pickles. (“Bag a McMeal”). The current McDonald’s website lets a user select any combination of menu items. Although the company strives to compete on several bases. McDonald’s visionary goal is to continually improve their organization. and other professionals to ensure that McDonald’s takes appropriate steps in helping its customers achieve optimal health. We work hard to provide every customer with a choice of meals and an experience that exceeds their expectations. McDonald’s plans to: add additional healthy menu options (fruits and vegetables). Strongest Priority “At McDonald’s. To Operation Management Project 2 Page 7 of 36 . The company is also utilizing technology to their advantage. environmentalists. etc. down to individual condiments. and conduct a nutritional analysis on their selections. but it will strive to continue the trend toward nutrition.McDonald’s has assembled their Global Advisory Council on Balanced Lifestyles. The user can break down the analysis even further than a menu item. Not only has the company introduced many steps to ensure nutrition. making customers happy is what our business is all about. including ketchup. This council consists of exercise & obesity specialists.” U U The preceding statement is the quote which introduces McDonald’s Worldwide Corporate Social Responsibility Report (2004). as well as other actions (“McDonald’s Worldwide” 13). And we know it takes a lot to make that happen. increase nutrition awareness among McDonald’s employees. and conceive new ways to deliver nutrition information to its customers. They reach this goal through a variety of efforts.

Precise prediction had to be used because if there were not enough food placed on hold. McDonald’s in-store managers conduct frequent inspections of their store. Strategy Changes Made for You McDonald’s organization recently underwent drastic strategy changes to better serve their customers. the McDonald’s Corporation introduces new ways to measure performance and food safety. and the corporation also conducts thorough inspections several times per year. McDonald’s dramatically changed their strategy in order to stay competitive with other fast food organizations. When a customer places an order. In the Made for You system. standard food items are not held in a bin until they are sold. Under this new system. Under their previous system. Management” section.achieve this goal. and too much food would cause waste of expired items. For long term improvement. the sandwich items are immediately Operation Management Project 2 Page 8 of 36 . the company would make several sandwiches at once. McDonald’s strives to reach its goal of making customers happy through their normal competitive bases of speed. and nutrition. and hold the sandwiches in a warming bin until purchased by a customer. Under this system. price. and they also ensure customer satisfaction through continual improvement of their operations. modern technology greatly assists McDonald’s Continuous improvement is detailed in the “Quality operations. In summary. McDonald’s spent $181 million to introduce their Made for You system (Chase). this would create the problem of increase waiting times for customers. management had to precisely predict how much food had to be put on hold. In 1999.

while customized orders list the sandwich name and the desired condiments. Once the sandwich is assembled. After further research. Specific goals of the revitalization plan are to: Attract new customers Encourage existing customers to visit more often Operation Management Project 2 Page 9 of 36 . it was not as quick as the previous system. the corporation emphasized adding more restaurants to increase sales. desserts.displayed on a computer monitor in the kitchen and a tone sounds to alert the kitchen staff. Revitalization Plan In order to cope with the first ever quarterly loss that resulted from inefficient use of the Made for You system (Chase). McDonald’s watched its customer satisfaction drop for the three consecutive years beginning in 1999 (Chase). McDonald’s continues to fine tune Made for You and add new options to help the system work faster. Standard items simply list the name of the sandwich. The new plan will reduce spending. The system works the same for front counter orders as well as drive-thru orders (Phillips. and assemble the sandwich accordingly. Previously. they realized that although the new system provided fresher food. the introduction of the Made for You system did not transition smoothly. Upon a new order. where a different staff person retrieves the sandwich and completes the order by adding french fries. etc. Instead of reverting back to the old system. an employee in the kitchen will toast the bun. but the new plan places emphasis on increasing sales at existing restaurants. it is presented to the food loading area. Unfortunately. to enable more cash to shareholders through dividends and share repurchases (Cantalupo 1). Kenny). McDonald’s has devised a new plan to increase profits.

Build brand loyalty Create enduring profitable growth The main goal is to increase sales by creating an exceptional customer experience. products. and promotions. places. More recent changes to the menu have proved effective.” McDonald’s now offers a wider variety of nutritious items and provides information to help its customers as well as employees make informed healthy choices. they created a “new taste menu. As mentioned under “Competition Bases. the new taste menu proved to be ineffective. McDonald’s realized that many of today’s customers seek healthy food options. Menu Along with changes in their process strategies. QUALITY MANAGEMENT Speed One of the major quality management control factors includes minimizing the time that processes are done. but it would only last one week. McDonald’s has flirted with menu changes as well. Last year. and the corporation has offered items accordingly. However. prices.” where they offered a new sandwich which was offered for one week. The purpose was to offer customers a variety of options to satisfy peoples’ desire for variety. and they would be frustrated that they couldn’t purchase their new beloved favorite sandwich. Many of Operation Management Project 2 Page 10 of 36 . McDonald’s plans to achieve this goal by focusing on its people. this ensures an effective and efficient operations. Some customers would fall in love with an item.

See “Appendix 1” for our group’s construction of a TTL Control Chart for a McDonald’s store. The Made for You system uses the Kitchen-Video-System (KVS) to support fulfilling speedy orders. As soon as any food is ordered. other programs are utilized to make the speed of the service more efficient. Eddie). McDonald’s continuously monitors these kitchen times in order to ensure that the Made for You system is working as efficiently as planned. Technology not only measures performance values within the organization. and “Appendix 3” for the data we were provided to construct the charts. as well as individual condiments. Similar to TTLs. and then erases the orders from the screen as the food is finished. The Made for You system allows the order taker to enter or delete the orders on a touch screen that lists sandwiches. Eddie). One specific measurement is called Total Time in Line (TTL) which calculates the total time customers spend in the McDonald’s line. TTL measurements are calculated the same way whether the customer is eating inside or ordering through drive through. to the time when it is served. See “Appendix 2” for our group’s construction of a KVS Control Chart. the necessary food items are displayed on a computer monitor in the kitchen. from the time the customer begins ordering until the time they get their food. Along with measuring TTLs. (Phillips. (Phillips. through calculating the time of the processes or even making a database to observe procedures and make improvement to their processes. from any register. the time is measured between when an item is first displayed on the monitor. The target TTL is 90 seconds. The kitchen staff immediately begins to prepare the food. When a drive through worker is taking an order. it Operation Management Project 2 Page 11 of 36 . but it also assists in the drive through area. in a way that eases the data entry process for the worker.these processes are done through the use of advanced information technology.

Quality Inspections Food safety is one of McDonald’s top priorities. Maintaining the speed and accuracy of the processes in McDonald’s is also done through less technological techniques. Eddie). thus making the ordering process more precise.is displayed automatically on a screen available to the customer outside. For example. The customer can review the COD and correct any mistakes. Special ordered sandwiches without standard condiments come in red and white paper. Every restaurant is required to check food temperatures. and other food safety hazards several times throughout each day of operation. called the Customer Order Display (COD). More precise orders eliminate time wasted from correcting mistakes (Phillips. Kenny). colored wrapped sandwiches makes it easier to distinguish what is wrapped beneath. Equipment is also measured to ensure that it is functioning properly. Refrigerated and frozen foods are also checked to make certain that they do not get too warm and are not spoiled. while a hamburger is wrapped in white paper. workers must be caution because water that is too hot Operation Management Project 2 Page 12 of 36 . with a paper receipt attached which details the items on the sandwich (Phillips. Expiration dates are checked on foods frequently. Cooked food temperatures are measured to ensure that all food is cooked properly before served. expiration dates. Also included in the safety checks is the water temperature in the restroom sinks. a cheese burger is wrapped in yellow colored paper and a fish fillet is wrapped in blue. if the item is expired than it is discarded. The corporation sends a standardized Food Safety book to every store which includes a comprehensive list of every item that needs to be measured. McDonald’s uses different colored packages to help the employee recognize the different types of food.

If the store fails to pass the inspections on a second attempt. Along with exhaustive corporation inspections. the restrooms. the stock area. as well as the entire perimeter outside the restaurant Operation Management Project 2 Page 13 of 36 .can burn customers. Food safety checks are performed several times throughout the day (Phillips. the corporation takes over the store and brings in better employees to ensure that the proper processes and equipment are being used properly. The McDonald’s Corporation applies two major inspections on each restaurant per year. One is called Field Operations Review (FOR). the walk-in refrigerators and freezers. the manager personally checks every aspect of the restaurant. Both inspections are extraordinarily thorough and they are based on a point system. For example. Eddie). if the store’s walls have cracks. During a corporate inspection. the restaurant must also provide a food safety log of recorded entries to ensure that proper food testing is completed frequently and properly (Phillips. are one of the major quality management controls at McDonald’s. both announced and unannounced. points can be reduced if the credit card system is too slow. During a travel path. Restaurants have two opportunities to pass the tests. Eddie). including wearing name tags (Phillips. Points will also be lost if employees are not dressed according to regulations. Periodic corporate inspections. One example is the manager on duty’s task of completing a “travel path” every thirty minutes of his shift. including: the lobby area where customers eat. in-store managers also personally inspect their restaurants on a frequent basis. or even if the restaurant performs processes that slow the serving time (such as accepting personal checks for payment). the grill area behind the counter. and the second is called System Observation Review (SOR). Kenny). and points can be taken off for many different reasons.

Consequently. Moreover. Eddie). other quality management factors such as maintaining the five P’s forces (People. the training process has been improved to include online e-learning tools for the restaurant staff. The first force is the people working in the McDonald’s chains. Maintaining the workers in the company is very important to McDonald’s and the corporation rewards workers who do outstanding services. Place. The Five P’s Even though many of the quality management processes in McDonald’s are done through the use of information technology. and pride. Price. taste. The second force is the products which include the quality. and price of the goods sold. During the travel path. McDonald’s is trying to establish flexibility with the changing tastes and preferences in the market. which are represented by service. The following is a list of methods using the P forces. the manager also confirms that the Food Safety checklist has been completed and that all measurements fall within the specified range. they are also seeing growing interest in premium product and wholesome food choices. The quality and safety of the food is a main entity in maintaining the quality of the food at McDonald’s (Cantalupo 4). hospitality. and Promotion) are essential in any business. The staff employed in McDonald’s are continuously trained and kept in the company to reduce the cost of training short-term inexperienced workers. management continuously checks every aspect of the restaurant throughout the day. This form of incentive is motivational to the workers (Cantalupo 4). McDonald’s Corporation uses these related forces in the sense that each P creates a chain affect on each other.(Phillips. Operation Management Project 2 Page 14 of 36 . Product. Through completing travel paths. Moreover.

They do this through community involvement and their social responsible towards the environment. The company continues to receive prestigious awards for their leadingedge training. relevant. followed by several days of direct oneon-one training by a trainer.The third force is place which is represented by the clean. This process will gain the trust of loyal customers and keep them for life (Cantalupo 5). The fourth factor is price. including the “Employer of Choice Award” from the Restaurant Business Magazine (“Restaurant Management”). McDonald’s invests greatly in their training program. leadership. Training As the people aspect of the 5 P’s shows. they Operation Management Project 2 Page 15 of 36 . The company intends on having the gold standards for cleanliness (Cantalupo 5). the company ensures the safety and comfort for the consumers and staff workers. Therefore. The company has already earned its reputation for good quality food so they just focus on customers cares. The value of the product is increased when consumers gets high quality products for lower costs. After employees feel comfortable with the operations. which is presented in the productivity and value. The fifth factor is promotion which is presented in marketing. and modern store environments. To ensure that all employees properly perform their assigned duties. New crew members go through a thorough orientation process consisting of several videos. and trust. Whether it was in the main restaurant area. McDonald’s realizes that its employees must understand their duties in order to fulfill the organization’s goals. or even the restrooms. the kitchen. McDonald’s Corporation ensures that its customers receive the highest value of food for the price they pay (Cantalupo 5).

and other areas. the McDonald’s Corporation has been doing a very good job at keeping the quality of its products and services.” Training never stops at McDonald’s. This training mainly focuses on the human aspects of Made for You. and the top manager at each McDonald’s restaurant is the Restaurant Manager (Phillips. McDonald’s recently introduced a strategy called “Shift into Overdrive. whether it was through using computerized equipment or to train their human resources. followed by First Assistant Manager. Some current employees describe McDonald’s as the “best training company in the world” (Phillips. Eddie). Kenny). To improve the Made for You system. to ensure the quality of the operations. front counter. All McDonald’s restaurants are required to send at least one manager to participate in the new training program (Phillips. For a graphical representation of a typical McDonald’s in-store hierarchy. Kenny). Crew Trainers undergo further training for specialized processes such as the grill area. followed by Second Assistant Managers. ensuring that the system is being used as design. RAW MATERIALS The Arrival & Maintenance Our group conducted an extensive interview with Ronald Lessnau. the entire team must work together for the system to work quickly to provide food to customers.’ and this strategy focuses on helping shift managers work more efficiently.may be promoted to Crew Trainers. As shown throughout this section. see “Appendix 4. an owner of Operation Management Project 2 Page 16 of 36 . Since the new system requires seamless work from several people. Eddie). Finally. McDonald’s conducts surveys periodically to get feedbacks from customers (Phillips. Shift supervisors are the next step in the organization. drive-thru. no matter which position an employee holds.

the condition of delivery trucks are also taken into account to make sure that meat was untainted due to a filthy meat cooler. Grade “A” Beef and Other Meats All beef cooked at McDonald’s is of Grade “A” quality and 80%-82% lean. See “Appendix 6” for the full interview. raw materials are delivered fresh and ready to use everyday. McDonald’s customers can be assured of a quality product. The preparation time of a hamburger should not take longer than 90 seconds and only 35 seconds after the hamburger bun itself has been toasted. Upon the arrival of meat. Whether arriving via truck or train. While some inspections are known. This allows each customer to Operation Management Project 2 Page 17 of 36 . a two hour supply is taken directly to the grill side freezers which stand at a constant temperature of 0 degrees. the meat is cooked at a specific temperature to assure the meat holds the proper internal temperature to meet the requirements of food safety and yet hot enough to hold its natural juices. Through the intense process of choosing and manufacturing raw materials. The meat cooler should always be set at 10 degrees below zero and the meat should remain at a constant temperature of 34 to 38 degrees. Cooked hamburger patties and other meat products are stored in a humidity controlled cabinet until usage to ensure that patties remain hot and moist. In addition. received from Otto & Sons.several McDonald’s restaurants located in Denver. Inc. in Chicago. McDonald’s not only supports humane slaughtering of animals but also refuses to purchase dairy cows over 5 year old due to the toughness of their meat. Once placed on the grill. others are random to ensure that quality is consistent from one delivery to the next. each arriving package is personally inspected for damage during its travel. To ensure that this freshness is passed onto the customer.

select poultry and fish and wholesome dairy products. the refrigerator is either immediately altered or the items are discarded. SUPPLY CHAIN Examination of Supply Chain Food quality is a very important aspect at McDonald's restaurant. In addition. dairy. McDonald’s has many suppliers who play a vital role in providing quality products to McDonald’s customers. Upon inspection. including lettuce. Many McDonald’s receive their raw meat from Otto & Sons Corporation. including: meat. the corporation seeks fresh lettuce and tomatoes. McDonald’s ensures that their products are guaranteed to be the best quality before serving to their customers. many produce items. Produce McDonald’s hires agronomists which can spend up to two years assisting farmers grow perfect russet potatoes. McDonald’s can guarantee that they are delivering to their customer the best ingredients possible. With this many guidelines in place. 6-inches long. quality buns and potatoes. pure ground beef. that produce a finished french fry which is appealing both in looks and taste. and other products. Further explaining the “Raw Materials” section. The produce delivered from Condie’s in Salt Lake City to the Evans and Colorado McDonald’s restaurant arrives via railroad to ensure that freshness is maintained. located Operation Management Project 2 Page 18 of 36 . should any produce not meet the correct internal temperature. have specifications that are two pages long. Many Midwestern McDonald’s restaurants utilize the same supplier for products.receive his/her meal in the timeliest fashion. produce.

Utah. Robinson Dairy is located in Colorado Springs. many Denver McDonald’s receive dairy shipments quite often. Although many restaurants share the same supplier.in Chicago and Oklahoma (Lessnau). McCormick provides its spices and some of their sauces. the corporation announced plans that call for its suppliers worldwide to phase-out of animal growth promotion antibiotics that are used in human medicine. For produce. whole milk. The main eFS Network. See “Appendix 7” for an illustration of a McDonald’s supply chain. McDonald’s also has many independent suppliers which were unnamed due to confidential data. For example. skim milk and condensed skim milk. Due to the proximity of the Robinson Dairy to the city of Denver. all of which are supplied from Robinson Dairy. based in Chicago. a company which operates an independent Business to Business (B2B) marketplace facilitates sales and purchases to the foodservice industry. many Midwestern McDonald’s locations receive their produce from Condie’s. McDonald's shakes. They receive produce shipments as often as three to four times a week to ensure freshness. and they receive their blend of Arabica coffee beans from South America. McDonald’s take time and responsibility to conduct extensive research on their meat. and they receive their catsup from Hunts and Heinz. McDonald’s gets it supply of tea and Danish pastries from Sara Lee. is open Operation Management Project 2 Page 19 of 36 . Supply Chain Efficiency McDonald’s enjoys a very efficient supply chain because they incorporated an electronic Foodservice Network (eFS Network). In an eFS Network. located in Salt Lake City. They reassure consumers that they are providing beef that hasn’t been injected with steroids. McFlurry Desserts and reduced-fat ice cream are made from fresh quality cream.

and therefore McDonald's aims to create long-term relationships with a limited number of supplies. It features both a public exchange that will promote connections between participants in the foodservice industry and private exchanges that enable confidential customer-supplier interactions.to all segments of the industry . up to 100 per year. McDonald’s undertakes In summary. which enables the company to control every link in its supply chain. value and cleanliness. They do this by conducting unannounced audits. McDonald’s also keeps track of the origin of each product. As mentioned throughout this report. The exchange focuses on U. which is a $150 billion industry.S and Canadian foodservice distribution.from foodservice suppliers and distributors to multi-unit operators. McDonald's stresses its strict standards based on quality. McDonald’s Operation Management Project 2 Page 20 of 36 . while McDonald’s consistently enjoys standardized. To ensure that the restaurants serve safe food. Repeat orders mean that suppliers can be confident of survival and growth. at various farms and supplier facilities. The eFS Network's neutral web-based marketplace has helped to streamline information flow between participants as well as promote industry-wide technology standards. McDonald’s takes utilizes all advantages offered by the eFS network. extensive animal welfare audits to ensure that each of their suppliers adhere to their rigged standards for animal treatment and care. Suppliers are usually monitored to ensure that they can meet McDonald's required standards. Quality along the Supply Chain Recognizing the importance of the supply chain in maintaining quality is one of McDonald’s strengths. It helps to maximize Internet based efficiencies and saves its participants money across the entire supply chain. food safety is very important to the company. high quality products. Overall.

McDonald’s will reduce the share costs between them. Through our interview with Mr. as part of their responsibility to the franchisees and McDonald’s shareholders. we learned details concerning the basics Operation Management Project 2 Page 21 of 36 . Different kinds of information are received from all levels of the corporation and are used to learn more about the market movement and advertisement structure. medium. This is due to the fact that they have specifications and specialist who assists the suppliers in planting or producing the raw materials before it is shipped to the restaurants. By giving attention to the suppliers and presenting the standards ahead of time. and ensures safe food. and the industry that effects short. and long term decision making. Share Costs McDonald’s share cost between their suppliers and the corporation is much lower than other fast food restaurants.creates advantageous long-term relationships with suppliers. This planned reduction in costs helps achieve McDonald’s competitive strategy of providing low cost to the customers. Forecasting is done in large by the corporation. including basic everyday processes in production and packaging of goods for the targeted markets. to fulfill its goal of making customers happy. Lessnau. employees. By enforcing strict standards for food quality. McDonald’s lowers the cost between suppliers and themselves by preventing any food being shipped which does not conform to standards. FORECASTING Aspects of Forecasting McDonald’s continually receives information from customers.

This is due to the scrutiny from people looking for flaws. and owners to voice their opinions and concerning their likes and dislikes about the particular restaurant. Listening to Customers A major component of forecasting is listening to customers.of McDonald’s business and hierarchy. detailed forecasting. Internationally. marketing. bad business conduct. McDonald’s managers and owners use open ended questions to allow customers to expand on what they want to discuss. but is a place for customers to Operation Management Project 2 Page 22 of 36 . toll free 800 number for customers to use when the corporation has fallen short of their expectations or when a restaurant makes a mistake with their order. concerns. capacity planning. Forecasts provide the basis for budgetary planning. corporate level. McDonald’s has a website that is not only interactive and informative throughout the 59 nations they supply to. Typically. Often. Different medians of communication exist for customers to relay there ideas. Forecasts are vital to McDonald’s organization and significant management decisions. a customer has access to employees. and facility layout. we were not able to obtain in-depth information that is used for their budgeting. and other degrading allegations concerning of McDonald’s. At a particular location. McDonald’s offers a nationwide. planning new products. McDonald’s uses a qualitative type of forecasting. However. process selection. and innovations of new products because it contains confidential contents. managers. Everything we received was cleared at the The main information used in forecasting the stability and future growth of the corporation is by the number of customers going in and out the door and all voiced opinions. cost control. opinions. and problems to the McDonald’s Corporation. advertising.

Perhaps the failure of the McLean burger explains Operation Management Project 2 Page 23 of 36 . Unfortunately. or packaged. It contained only 7% fat and was the most tasteful low fat burger on the market. due to the favoring focus group survey responses for healthier products. McDonalds developed and marketed the McLean Burger. was introduced for the first time. “McDonald’s. After the McLean burger’s introduction.voice their opinions and complaints. Lessnau states. Mr. The McDonald’s market research department records data by talking with customers to find out how they like or feel about a particular ad campaign or a specific commercial. “It took 10 years for breakfast to be successful at McDonald’s and now McDonald’s cracks more farm fresh. Forecasting Success and Failure McDonald’s has been extremely accurate in forecasting trends or needs the customers want and request. costing 53 cents a pound more then the normal beef. it did not sell. customers decided that the product was too expensive and did not taste as good as other sandwiches. the first hand held breakfast sandwich by Herb Peterson. Twelve years ago. grade “A” eggs daily than the largest institution in the United States. The product development department uses input on developing a new product or changing how the new product is prepared. the US Military.” Although the corporation is usually accurate. Even with using a qualitative forecast. As Ronald Lessnau exclaimed.” An example of this is when the Egg McMuffin. consumers know that McDonald’s sometimes has shortcomings and is not always correct in projections. the future is not always clear so see. “We listen!” At the corporate level. in the past has helped customers deal with their changing lifestyles. qualitative forecasting can be seen even with the limited information we received. priced.

One particular McDonald’s restaurant has extended their hours as a result of many comments. the McDonald’s Corporation has successfully maintained their reputation of being one of the most trustworthy fast food chains worldwide. interviews. history of products.” The data collected for these long terms and every day business decisions were from employees as well as customers. Also. Ronald Lessnau also gave examples of when qualitative forecasting influences how he fixes errors of past business decisions at his establishment. and based on interviews and focus groups that region returned back to the original product and did not take the change national. Mr. “Sometimes you can prevent a good idea from going bad by talking to those closest to the customer. your sales people. As a result of their competitive strategy. strict quality management. As Lessnau explained. and forecasting. Colorado locations went back to 99-cent double cheeseburgers years ago because of feedback they received in focus groups that were conducted as part of their normal market research. years ago one region reduced some of the seasoning in the chicken products. which in turn helps them make their customers happy. Operation Management Project 2 Page 24 of 36 . and questionnaires. Decisions have been made on information gained from surveys. efficient raw materials supply chain. Lessnau also described that some Denver. The company continues to utilize an effective operations management processes. they created an efficient operations management system.McDonald’s slow reaction to the current low carbohydrate diets. CONCLUSION In conclusion.

we were only given data from 7:00 AM to 7:00 PM. Operation Management Project 2 Page 25 of 36 2: 0 3: 0 4: 0 5: 0 0 0 PM . which could explain the high TTL’s. Perhaps the store was understaffed during this early morning time period.Appendix 1 – Total Time in Line (TTL) Control Chart Total Time in Line (TTL) Control Chart 180 160 140 120 Seconds 100 80 60 40 20 0 Average Order Time per Hour Average Daily Time Upper Control Limit Lower Control Limit M A M A M A M M PM A A 12 :0 0 PM PM PM PM PM PM 0 6: 0 7: 0 00 00 0 0 0 0 0 0 0 7: 0 8: 0 9: 0 10 : 11 : 1: 0 Hour Although the McDonald’s restaurant providing this data is open until midnight. According to this chart. the TTL’s before 9:00 AM were above the upper control limit (120 seconds).

This could also be explained by a shortage of employees.Appendix 2 – Kitchen Video System (KVS) Time Control Chart Kitchen Video System (KVS) Control Chart 65 60 55 50 45 40 35 30 25 20 15 A M A M A M M M A M PM PM PM PM PM PM PM A A 00 5: 00 6: 00 1: 00 2: 00 3: 00 4: 00 7: 00 00 00 0 0 0 0 PM Seconds Average KVS Time per Hour Average Daily Time LCL UCL 6: 0 7: 0 8: 0 9: 0 10 : 11 : 12 : Time Similarly to the TTL control chart. For this chart. the KVS times were above the upper control limit (50 seconds) during the early morning hours. Operation Management Project 2 Page 26 of 36 . we were only provided data from 6:00 AM until 7:00 PM.

We asked for customer count data and sales data but our requests were declined due to confidentiality reasons. Operation Management Project 2 Page 27 of 36 . we were not given more specific data than the times.Appendix 3 – TTL and KVS Data Used to Construct the Control Charts Due to protection of confidential data.

Appendix 4 – Typical McDonald’s in-store Hierarchy Franchise Owner Store M anager 1st Assistant M anager 2nd Assistant M anager 2nd Assistant M anager Shift M anager Shift M anager Shift M anager Crew Trainer Crew Trainer Crew Trainer Crew Trainer Crew Trainer Crew Crew Crew Crew Crew Crew Crew Source: Phillips. Eddie Operation Management Project 2 Page 28 of 36 .

tomatoes and onions Yes Employee w aits to fill a customer's order Is there enough condiments on the service counter? No Call Hunt's Ketchup for additional ketchup packets to be sent Customer enters McDonalds and approaches the register Yes Is there enough milk cartons available for purchase? No Call Robinson Dairy in Colorado Springs for a new supply delivered Employee w aits to still fill the customer's order Yes Employee goes outside and greets the truck carrying today's supplies from the railroad station. A 2 A Operation Management Project 2 Page 29 of 36 .Appendix 5 – Process Chart Employee enters the kitchen area McDonalds Process Chart The Preparation of a Hamburger A Employee inspects the raw material inventory for the follow ing day Employee assists the supply trucker bring all supplies into the restaurant's kitchen Is there enough beef in storage? No Call Otto and Sons Company in Chicago and have them send more beef Does any supplies delivered today need refrigeration? Yes Place beef in freezer w hile putting the milk and produce in the refrigerator No Yes Employee cleans the preparation counter and prepare for customer's orders Is there enough produce in storage? No Call Condie's in Salt Lake City and ask them to send more lettuce.

Place the hamburger into a cardboard box designed for a Big Mac Retrieve meat from holding tray. Take order to the front service counter B Hand Big Mac order to the w aiting customer Operation Management Project 2 Page 30 of 36 . No Place top half on bun on top of hamburger ingredients. Place the hamburger patty on the bottom half of the bun.A 2 B Customer places order Does the customer w ant lettuce and tomato on his/her Big Mac? Yes Place tomato and lettuce atop the hamburger patty Review orders via computer screens. Yes Place Big Mac box onto a restaurant tray Does the customer w ant to dine in the restaurant? No Place Big Mac into a take out bag Review the computer screen displaying orders w aiting to be filled. Toast hamburger bun and place it on the preparation counter. Review the computer screen displaying orders w aiting to be filled. T here is an order for a Big Mac.

IL Tyson (Poultry) Bethesda. IL Robinson Dairy (Dairy Products) Colorado Springs. UT MANUFACTURING SUPPLIERS MANUFACTURING DISTRIBUTION CUSTOMERS Operation Management Project 2 Page 31 of 36 . MD Otto & Sons (Re d Me at) Chicago.Appendix 6 – Illustration of a McDonald’s Supply Chain SERVICES SUPPLIERS Inputs SERVICE SUPPORT OPERATIONS Transformation LOCAL SERVICE PROVIDER Localization CUSTOMERS Output McCormick (Spices) Baltimore. MD Supply Network McDonalds Restaurant 6355 E. CO 80222 Sara Lee (Pastries) Chicago. Evans Ave Denver. CO Condie's (Produce ) Salt Lake City.

Chefs. 2004 Manager Ronald Lessnau at 1:15 p. They have specialist in each area. To assure high standards are maintained during the delivery to the restaurants and proper handling of products during that process as well the driver and McDonald’s mangers check the product. Some inspections are announced and some are random with no notice. At the restaurant. The hamburgers are 80 to 82% lean beef. This includes everything that is used in the restaurant from milk to potatoes. I can’t share the ingredients or recipes. temperature and storage as the distribution centers. Chicago or Tokyo. they spend in excess of two years developing the supply chain. McDonald’s inspectors work daily at all the beef plants that we purchase beef from inspecting the manufacturing processes and assuring quality control is in place. It has to meet the dame rigorous standards. McDonald’s has quality assurance personnel who inspect the distribution systems and spot check deliveries as well. McDonald’s has worked with the CDC to set standards for the humane slaughter of cows and no dairy cow over 5 years old will be used for beef supply in the McDonald’s food chain supply. Poultry.) McDonald’s has a complex purchasing and quality assurance department. It must be kept at minus 10 degrees at all times. storage. When McDonald’s opens a new country. Each of these centers are privately owned by independent business people who must comply with McDonald’s quality specs for handling. We check the temperature of our freezers and refrigerators twice a day and record those temperatures in a book that becomes a permanent Operation Management Project 2 Page 32 of 36 . The specifications for lettuce are two pages long single spaced type.m. as it is unloaded. it is cryogenically frozen and stored at a minimum of 10 degrees below zero. but I can tell you that our beef is 100% Grade A and McDonald’s has higher specs than the USDA. It must be delivered between 34 to 38 degrees. Nutritionist. taste and has the mouth feel that french fries do in Colorado. They are looking for condition of the cases as they come off the truck.Appendix 7 – Interview with Ronald Lessnau “What: McDonald’s Interview Where: 3996 E Evans Ave When: Thursday. beef. Agronomists can spend two years to help the farmers grow a russet potato that is six inches long and has the solid contents that are required to produce a finished fry that looks. Our specs for raw quality are where the purchasing and manufacturing process begins. condition of the truck itself. product rotation. ordering. Owner Process Can you take us through the process of manufacturing a McDonald’s hamburger? (This consists of every step from obtaining the raw materials from various companies to create the hamburger itself to hand to the awaiting customer. Agronomists and so on. (first in first out) and inventory turn. October 28. It is ship via rail car or truck at the same temperature to different distribution systems around the country. Is it clean and in good repair inside and outside? Has it been cleaned before it left the yard to deliver to the restaurants? They check the internal temperature of the frozen meet to assure it arrives at the proper temperature. They check the temperature and condition of the refrigerated product as well. once the product is received the same standards apply for product rotation. McDonald’s has set the industry standard in Quality control and assurance. When the hamburger patty is formed at the plant.

the customer and the owner. beverages etc twice a day to assure quality and food safety. We check the internal temperature of all finished products. The meat we use in Denver is from Otto & Sons Inc. We check the temperature of the toasted buns daily to assure the toaster is properly calibrated and the finished product meets the desired quality specs McDonald’s set. He wanted the Company to be successful and provide the framework and procedures for the system. He wanted the best products used at the best price and knew that independent business people who had their time. Each restaurant is graded on these visits and the grades are used to determine eligibility for growth to new franchised locations and the ability to be rewritten at the end of your franchise term. McDonald’s Corporation does not provide raw materials or products to the Licensee.record of quality control and safety for our restaurant. filet. Failure to meet these requirements could result in default of your franchise agreement. These temperatures are recorded in the book mentioned earlier and recorded. Milk from Robinson Dairy in Colorado Springs. chicken. The sandwich is prepared and served to the customer as fast as possible. has the proper internal temperature for food safety and quality. The cooked patties are held in a temperature can humidity controlled cabinet that keeps the patty hot and moist. Any product that does not meet the internal temperature must be corrected immediately. To maintain quality control on the restaurants my organization does inspections both announced and unannounced to review procedures and inspect the whole process described above. Hunts and Heinz provides our catsup. money and passion in something would be better for the system. is hot and maintains its natural juices. Raw Materials What companies do you receive your raw materials from? What can you tell us about the companies that supply your raw materials? What form of transportation is taken to ensure that the food arrives at your store fresh and not perished? Do you receive your raw materials from the company directly or from the McDonald’s headquarters? McDonald’s receives its raw materials from different vendors depending what part of the country you’re from. Ray Kroc had a basic belief that McDonald’s have the highest quality specifications and hold suppliers to those specs versus providing products to the Licensee’s and having a conflict between quality and profit margins. Once the product reaches our back door we take two hour supply of frozen meat to our grill side freezers where the temperature is zero and the meat is grilled on our grill at a specific temperature and time to assure a properly cooked patty that has good visual characteristics. From there the patty is placed on the properly finished bun with the ingredients or toppings the customer requested. We receive our produce from Condie’s in Salt Lake City. McCormick’s provides our spices and some of our sauces. Our standard for the time the customer finishes placing their order. Operation Management Project 2 Page 33 of 36 . McDonald’s does inspections on the restaurants three times a year to review all procedures. meat. McDonald’s has many suppliers of raw products. From the time the bun is toasted the sandwich is finished with 35 seconds. They have meat plants in Chicago and Oklahoma that supply meat to our distribution center. We check the procedures of the employees as they prepare the products to assure they are following the correct procedures. The restaurants are required to keep those books on premise for 6o days before they can be taken to record storage. Those are just a few. Sara Lee provides our tea and Danish. they should have their sandwich in 90 seconds or less. All vendors work off the same specifications.

as part of their responsibility to the franchisee’s and McDonald’s shareholders. We talk to some of our customers in the lobby and find out what’s on their mind and how they like what’s going on in the restaurant. McDonald’s has nutrition. Customer comments are used by different departments at the corporate level. We want to hear comments from our customer. When a customer calls about a service issue or any comment. This may sound simple but our family and crew are customers too. education and scholarships to mention a few. We went to all white meat nuggets because of focus group studies. In Denver we went to the 99-cent double cheese years ago because of feedback we received in focus groups that were conducted as part of our normal market research. They talk to many people and can be an ambassador for your business or can present you in a bad light. voice complaints or learn more about what McDonald’s is doing as a company in many different areas. your sales people. Operation Management Project 2 Page 34 of 36 . Based on the interviews and focus groups that were conducted we went back and didn’t roll it out nationally. We talk to customers all the time.Customer Service/Surveys Do you use customer feedback to improve your service? If so. how accurate have you been at forecasting changes in your store? Hoe do you deal with forecasting errors? Forecasting in the sense you’re describing is done in large part by the corporation. charity work and donations. Product development may use input on developing a new product or changing how a new product is prepared. Forecasting What are your goals for this particular store? What do you forecast your store will be doing in the future? Introducing new products? What methods will be used to carry out these store forecasts and why? IDEAS: Better customer attention. public relations. market research will talk to customers and find out how they like or feel about an Ad Campaign or a specific commercial. It is important to the lifeblood of any business. it’s an opportunity to fix a problem and be responsive to their needs and learn more about how they feel about your business. We have gone back to different products because of customer feedback. writes or sends an e-mail. priced or even how it’s packaged. my procedure is they will receive two phone calls. We listen! We have an 800 number that customers use to call when we fall short of their expectations or when we make a mistake with their order. and we ask how they feel about new products or procedures. one from the restaurant manager and the other from one of our supervisors or myself. We have extended our hours as a result of many comments. better products? Are the forecasting products a reflection of the individual customers’ desires and needs? In the past. Sometimes asking an open ended question allows the customer to expand on what they want to talk about. McDonald’s has a web site that can be visited by customers and their they can voice their opinion. Each local restaurant forecast or project the impact of the new product that is being marketed and / or introduced. Anytime a customer calls. Years ago we reduced some of the seasoning in our chicken products in a test market. Sometimes you can prevent a good idea from going bad by talking to those closest to the customer. how? Having you ever directly contacted a customer based on their feedback information to get a better understanding of their comment? Who directly uses and implements customer’s comments? McDonald’s listens to customers in many different ways.

It best describes how we react to mistakes and how we try our best to be successful. It took 10 years for breakfast to be successful at McDonald’s and now McDonald’s cracks more farm fresh. If we do things right and improve. When we launch a new product. will it be outdoor billboards. customers let us know.The goal for my particular restaurants is to exceed the projections of new product launches. We target the audience then the media they will most likely use. We use radio remotes and bring product to local radio stations for them to eat so they can talk about the product while they are reading the script for our live commercials. I can say that I am always working on ways to improve everything we do that affects the customer. McDonald’s owes it to its customers. I strive to implement all products better because of the initial capital investment required or the investment in training.” Fat adds flavor and eaten in moderation with a balanced diet is good for you. Some improvements are slow and others are subtle. It had 7% fat. Was the best low fat burger on the market. After soft launch. but McDonald’s in the past has help customers deal with their changing lifestyles. Case in point was the McLean Burger we sold 12 years ago. It didn’t sell! Customers voted with their pocket books and said. In summary. “We want food that taste good. Nonetheless. Next we sample the product with our employees so they know what it is and how it tastes. so that is a tough question to answer. such as Chicken Selects. grade “A” eggs daily than the largest institution in the United States. McDonald’s has been extremely accurate in forecasting trends or needs the customers want and request. I believe this best describes how we listen. newspaper or magazines. I can’t share what new products McDonald’s will be rolling out in the upcoming months or next year. the US Military. cost 53 cents a pound more for the meat than our normal beef? Customers told us they wanted a lean burger that was healthier. or drive time. procedures and marketing that I have to spend. Sometimes customers tell us during these introduction periods that the creative didn’t get them interested in the product or it wasn’t believable. the grade we receive is from the customer’s pocket book.” Operation Management Project 2 Page 35 of 36 .m. licensee’s suppliers and its shareholders to listen. we start the full marketing campaign and product test or give samples to our customers on a specific day across the TV market. in those cases McDonald’s may modify the creative or the commercial. The Egg McMuffin developed by Herb Peterson. now what program and what time slot? Print media is used as well. After the first wave of marketing McDonald’s sometimes do more focus group surveys to determine how well the launch went. we increase the advertising budget and focus the marketing on specific demographics. radio early a. an owner operator in California introduced hand held breakfast sandwiches for the first time. forecast and move with the trends in the market place. Television is another media. react and be a responsible leader. McDonald’s gave them the best lean beef burger available. Not trying to be arrogant. Increasing the unit movement of any product can result in increased sales and profits. This is a case where McDonald’s listened to a few customers and then listened again.

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