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SERVICE OPERATIONS PROJECT REPORT ON

Submitted To: Sandhya Makkar Submitted By : Sriprakash Roll Number : PG20112085

EXECUTIVE SUMMARY

McDonald's was started as a drive-in restaurant by two brothers, Richard and Maurice McDonald in California,US in the year 1937. By mid-1950s, the restaurant's revenues had reached $350,000. Ray Kroc, distributor for milkshake machines, expressed interest in the business, and he finalized a deal for franchising with the McDonald brothers in 1954. He established a franchising company, the McDonald System Inc. and appointed franchisees. In 1961, he bought out the McDonald brothers' share for $2.7 million and changed the name of the company to McDonald's Corporation. In 1965, McDonald's went public. McDonalds has grown from being a burger maker to providing other kind of fast food products. It has made its presence felt all around the world. Its successful operational performance is worth mentioning for. Maintaining healthy relations with suppliers, working hard to provide best of quality standards & efficient service to customers has been its top priority. With many competitors posing a big threat to it, McDonalds is working its way ahead in the segments like inventory management, capacity planning, supply chain, quality management.

McDonalds
Quick Service Restaurant Industry Review
The fast food industry, also known as Quick Service Restaurants (QSR), has been serving up tasty morsels for as long as people have lived in cities. The modern system of fast food franchising is believed to have started in the mid 1930s when Howard Johnson franchised his second location to a friend as a means to expand operations during the Great Depression. And oh how it has grown! As cars became commonplace, the drive-thru concept brought explosive growth to the idea of food-on-the go. Fast Food was added to the Merrion-Webster dictionary in 1951 and U.S. fast food companies are now franchised in over 100 countries. In the U.S. alone there are over 200,000 restaurant locations! Revenue has grown from $6 billion in 1970 to $160 billion last year, an 8.6% annualized rate. Fast food franchises focus on high volume, low cost and high speed product. Frequently food is preheated or precooked and served to-go, though many locations also offer seating for on-site consumption. For stands, kiosks or sit-down locations, food is standardized and shipped from central locations. Consumers enjoy being able to get a familiar meal in each location, and menus and marketing are the same in every location. There have been challenges for the fast food industry in recent years that have been pressuring profit margins. The industry as a whole has proven robust enough to withstand these challenges, though some players have done better than others. Over the last decade there has been increased focus on the quality of food served in fast food restaurants. Typically highly processed and industrial in preparation, much of the food is high in fat and has been shown to increase body mass index (BMI) and cause weight gain. Popular books such as Fast Food Nation and documentaries like Super Size Me have increased public awareness of the negative health consequences of fast food. Fast food companies have responded by adopting healthier choices and have had some measure of success, but the shadow of bad press still hangs over the industry. Rising commodity prices have also significantly crunched many fast food franchises. With food and beverage inputs making up approximately 33% of costs, higher prices for livestock, corn, wheat and more have seriously shrunk margins over the past decade. In such a fiercely competitive space it is impossible to force a price increase on customers, so profit margins are often south of 10%. The recent economic recession did lower commodity prices, but the recession brought on its own complications, and now prices for commodity inputs are on the rise again. Fast food had been thought to be largely recession proof, and indeed the industry did not suffer nearly as much as other discretionary spending sectors. In fact, there was some increase in consumer visits as people choose cheaper fast food options over fast casual or traditional restaurant choices. But overall, the recession hurt spending, and consumers overall purchased less with each trip. Fast food franchises fared reasonably well but still felt some pain. Market saturation is also a relevant issue in the fast food industry today, at least in the U.S. There is a McDonald franchise is in almost every town, and it usually sits in a row with several competitors. With so many competitors which offer similar products there are fewer customers per location. Increasingly fast food restaurants are also losing market share to fast casual, a relative newcomer in the restaurant space. Busy citizens still need quick meal options, and fast food restaurants are fighting these challenges with gusto. Now offering healthy choices to battle the stigma of unhealthy food, some quick service restaurants now focus on fresh or organic products. From franchises focused solely on salads or healthy wraps to the lower calorie options offered at traditional burger franchises such as Wendys or McDonalds, consumers are able to make better choicesif they want.

Fast food franchises are also focusing on expanding into new product lines, such as the coffee initiative in the McCafe. Intended to offer competition to Startbucks, McDonalds is luring customers back into their stores, hoping they will purchase food as well. Many franchises have been exploring other meal times such as breakfast and the mid-afternoon snack for growth opportunities and to increase real estate utilization.

Company Overview
McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized their business as a hamburger stand using production line principles. Businessman Ray Kroc joined the company as a franchise agent in 1955. He subsequently purchased the chain from the McDonald brothers and oversaw its worldwide growth. A McDonald's restaurant is operated by either a franchisee, an affiliate, or the corporation itself. The corporation's revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants. McDonald's revenues grew 27 percent over the three years ending in 2007 to $22.8 billion, and 9 percent growth in operating income to $3.9 billion. McDonald's restaurants are found in 119 countries and territories around the world and serve 58 million customers each day.McDonald's operates over 34,000 restaurants worldwide, employing more than 1.7 million people. The company also operates other restaurant brands, such as Piles Caf. Most standalone McDonald's restaurants offer both counter service and drive-through service, with indoor and sometimes outdoor seating. Drive-Thru, Auto-Mac, Pay and Drive, or "McDrive" as it is known in many countries, often has separate stations for placing, paying for, and picking up orders, though the latter two steps are frequently combined; it was first introduced in Arizona in 1975, following the lead of other fastfood chains. The first such restaurant in Britain opened at Fallowfield, Manchester in 1986. In some countries, "McDrive" locations near highways offer no counter service or seating. In contrast, locations in high-density city neighborhoods often omit drive-through service. There are also a few locations, located mostly in downtown districts, that offer Walk-Thru service in place of Drive-Thru. To accommodate the current trend for high quality coffee and the popularity of coffee shops in general, McDonald's introduced McCaf, a caf-style accompaniment to McDonald's restaurants in the style of Starbucks. McCaf is a concept created by McDonald's Australia, starting with Melbourne in 1993. Today, most McDonald's in Australia have McCafs located within the existing McDonald's restaurant. In Tasmania, there are McCafs in every store, with the rest of the states quickly following suit. After upgrading to the new McCaf look and feel, some Australian stores have noticed up to a 60% increase in sales. As of the end of 2003 there were over 600 McCafs worldwide. Some locations are connected to gas stations/convenience stores, while others called McExpress have limited seating and/or menu or may be located in a shopping mall. Other McDonald's are located in WalMart stores. McStop is a location targeted at truckers and travelers which may have services found at truck stops. McDonald's Corporation earns revenue as an investor in properties, a franchiser of restaurants, and an operator of restaurants. Approximately 15% of McDonald's restaurants are owned and operated by McDonald's Corporation directly. The remainder are operated by others through a variety of franchise agreements and joint ventures. The McDonald's Corporation's business model is slightly different from that of most other fast-food chains. In addition to ordinary franchise fees and marketing fees, which are calculated as a percentage of sales,

McDonald's may also collect rent, which may also be calculated on the basis of sales. As a condition of many franchise agreements, which vary by contract, age, country, and location, the Corporation may own or lease the properties on which McDonald's franchises are located. In most, if not all cases, the franchisee does not own the location of its restaurants. The United Kingdom and Ireland business model is different than the U.S, in that fewer than 30% of restaurants are franchised, with the majority under the ownership of the company. McDonald's trains its franchisees and others at Hamburger University in Oak Brook, Illinois. In other countries, McDonald's restaurants are operated by joint ventures of McDonald's Corporation and other, local entities or governments. As a matter of policy, McDonald's does not make direct sales of food or materials to franchisees, instead organizing the supply of food and materials to restaurants through approved third party logistics operators. According to Fast Food Nation by Eric Schlosser (2001), nearly one in eight workers in the U.S. have at some time been employed by McDonald's. (According to a news piece on Fox News this figure is one in ten. The book also states that McDonald's is the largest private operator of playgrounds in the U.S., as well as the single largest purchaser of beef, pork, potatoes, and apples.

7Ps OF McDonalds
After segmenting the market, finding the target segment and positioning itself, each company needs to come up with an offer. The 7 Ps used by McDonalds are:

Product
Product is the physical product or service offered to the consumer. Product includes certain aspects such as packaging, guarantee, looks etc. This includes both the tangible and the non tangible aspects of the product and service. McDonalds has intentionally kept its product depth and product width limited. McDonalds studied the behaviour of the Indian customer and provided a totally different menu as compared to its International offering. It dropped ham, beef and mutton burgers from the menu. India is the only country where McDonalds serve vegetarian menu. Even the sauce and cheese used in India are 100% vegetarian. McDonalds continuously innovates its products according to the changing preferences and tastes of its customers. The recent example is the introduction of the Chicken Maharaja Mac. McDonalds bring with it a globally reputed brand, world class food quality and excellent customer specific product features.

Place
The place mainly consists of the distribution channels. It is important so that the product is available to the customer at the right place, at the right time and in the right quantity. Nearly 50% of U.S.A is within a 3 minute drive from a McDonalds outlet. There is a certain degree of fun and happiness that a customer feels each time he dines at McDonalds. There are certain value propositions that McDonalds offer to its customers based on their needs. McDonalds offers hygienic environment, good ambience and great service. Now McDonalds have also started giving internet facility at their centres and they have been playing music through radio instead of the normal music. There are certain dedicated areas for children where they can play while their parents can have some quality time together.

Price
Pricing includes the list price, the discount functions available, the financing options available etc. It should also take into the consideration the probable reaction from the competitor to the pricing strategy. This is the most important part of the marketing mix as this is the only part which generates revenue. All the other three are expenses incurred. The price must take into consideration the appropriate demand-supply equation. McDonalds came up with a very catchy punch line Aap ke zamane mein ,baap ke zamane ke daam. This was to attract the middle and lower class consumers and the effect can clearly be seen in the consumer base McDonalds has now. McDonalds has certain value pricing and bundling strategies such as happy meal, combo meal, family meal and happy price menu to increase overall sales volumes.

Promotion
The various promotion channels being used by McDonalds to effectively communicate the product information are given above. A clear understanding of the customer value helps decide whether the cost of promotion is worth spending. There are three main objectives of advertising for McDonalds are to make people aware of an item, feel positive about it and remember it. The right message has to be communicated to the right audience through the right media. McDonalds does its promotion through television, hoardings and bus shelters. They use print ads and the television programmes are also an important marketing medium for promotion. Some of the most famous marketing campaigns of McDonalds are: You Deserve a break today, so get up and get away- To McDonalds Aap ke zamane mein ,baap ke zamane ke daam. Food, Folks, and Fun Im loving it.

Physical evidence
The physical appearance affects not only the impression outsiders have of a business but also the way that business functions. McDonalds focuses on clean and hygienic interiors of its out lets at the same time they are attractive. It maintains a proper decorum at its joints. Staff members dress in McDonalds Dress code with Green shirts, Blue trousers, Black caps and Customised Ronald McDonalds tie. Building maintenance

and visible cues are provided by the golden arches, the trademarks and the logos in the premises. The delivery scooters also add to the physicality of the company.

People
McDonalds understands the value of both its employees and its customers. It understands the fact that a happy employee can serve well and result in a happy customer. McDonald continuously does Internal Marketing. This is important as it must proceed external marketing. This includes hiring, training and motivating able employees. This way they serve customers well and the final result is a happy customer. The level of importance has changed to be in the following order (the more important people are at the top): 1. Customers 2. Front line employees 3. Middle level managers 4. Front line managers

Processes
McDonalds worldwide is well known for the high degree of respect for the local customs and culture. McDonalds has developed a menu especially for India with vegetarian selections to suit Indian tastes and preferences. Keeping in line with this, McDonalds does not offer any beef or pork items in India. In the last decade it has introduced some vegetarian and non-vegetarian products with local flavours that have appealed to the Indian palate. There have been continuous efforts to enhance variety in the menu by developing more such products. It is completely transparent and visible to the customers, allowing them to judge hygiene standards where the process takes place. The customers are even invited to check the ingredients used in the food. McDonalds has also re-engineered its operations repeatedly in its 11 years in India to address the special requirements of a vegetarian menu. Vegetable products are 100% vegetarian, i.e, They are prepared separately, using dedicated equipment and utensils. Only pure vegetarian oil is used as a cooking medium. Cheese and sauces are completely vegetarian and egg less. Separation of vegetarian and non-vegetarian food products is maintained throughout the various stages of procurement, cooking and serving. Food manufacturing transparent to customers across the counter. Training to the licensees about how to operate the franchise. Invented the most efficient cooking equipment with use of latest technology. New methods of food packaging and distribution are followed

STRATEGIES
POSITIONING WAR When McDonalds entered the Indian market, the concept of home delivery was still in its nascent stages. It existed only in some major cities and was restricted to delivery by the friendly neighbourhood fast food outlets. Eating out at 'branded' restaurants was more prevalent. GOING PLACES McDonalds has selected their store locations with focus on shopping malls, multiplex complexes, metro stations, highways, offices spaces not only in Tier-1 but has also extended their foot print in Tier-2 and Tier-3 cities reaching out to a larger consumer base. LOCALIZING THE MENU Since its entry into India, McDonalds introduced customized products keeping in mind the cultures and traditions of the country. For instance: In India, consuming beef is strictly prohibited, McDonalds came up with Chicken Burgers.

McDONALDS LOCAL OPERATIONS

SWOT ANALYSIS
Strength McDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11,4009 million), 5.6% sales growth. Globalization: 31,000 restaurants serving 120 countries. Of the 31,000 restaurants at least14,000 restaurants in the US Good innovation and product development. It continually innovates to retain customers in the business. The McDonalds brand offers consumers choice, reasonable value and great service Weaknesses Until recently, had very few options for eating healthy Core product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot food and burgers Quality issues across the franchise network. Opportunities Going green energy management, improving packaging efficiency, environmentally friendly refrigerants, and partnering with Greenpeace for rainforest protection Innovation: Continued adaptation to societies needs such as USDA and Supersize Me upgrade. Conservation: Researching green energies and green packaging solutions and incorporating these findings as a part of their marketing strategy and advertisements. Exploration: Create new product offerings. Continue to use technology to influence revenue strategy: possibly use text messages to deliver specials offers to individuals who sign up for such services. growing dining-out market(especially for young generations and middle age group) Joint ventures with retailers (e.g. supermarkets). Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modelling and profiles of shoppers) and prevent brand switching. Threats Current world economic standing: the company's revenue streams are diversified, but depending on the length of this "recession", they will inevitably be negatively impacted by the trickle down effect. Health professionals and consumer activists accuse McDonald's of contributing to the countrys health issue of high cholesterol, heart attacks, diabetes, and obesity. Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S.

MACRO-ENVIRONMENT OF McDONALDS Political factors The company operates separate policy and instructions of operations. The certain markets concentrate on various areas of anxiety, such as various area of health, protection of the worker, and environment. All these elements are noticed in the state control of licensing of restaurants in the corresponding states. For example, there is a legal dispute in privilege McDonalds in India where certain infringement of rights and infringement of the religious laws concerning the maintenance of meal. Meat existence in their menu in India is obviously offensive to Indian religions in the mentioned market. There are also other researches which specifies in infringement of McDonald's Stores concerning existing laws on employment in the target market. As any business enterprise, these McDonald's stores should argue with problems of procedures of employment just as their tax obligations to succeed in the foreign market. Economic factors The organizations in the fast food industry aren't excused from any disputes and problems. Branches and privileges of networks of the enterprises of fast service as McDonalds has a tendency to experience difficulty in cases where the economy of the corresponding states is amazed by inflation and changes in exchange rates. Clients hence face a survey stalemate through their separate budgets, whether they should spend more on these foreign networks of the enterprises of fast food. Hence, to these chains, possibly, it is necessary to take out problems of effects of economic environment. Especially, their problem depends on the answer of consumers to these main principles and how it could influence their general sales. In an estimation of operations of the company, food chains as McDonalds tend to import the biggest part of the raw materials to certain territory if there is a delivery lack. Exchange rate fluctuations will also play an essential role in companys operations. Socio-Cultural factors Articles about the international strategy of McDonalds, apparently, function on several areas to guarantee profitable returns for the organization. To illustrate, the organization changes to the best an establishment of positive thinking from their basic consumers. McDonalds indulges a special variety of consumers with certain types of persons. Also it has been noticed that the company has given the markets, such as the United Kingdom, a choice concerning their lunch requirements. Specified that McDonalds beginnings considerably valued set of meal which offers a reliable degree of quality for the corresponding market where it works. In addition, those who are elderly only below a bracket of thirty five as said are the most frequent consumers of McDonalds privileges. Technological factors McDonalds makes a demand for their own products. The key tool of the company for marketing is by means of TV advertisings. There are some requirements that McDonalds is inclined to interest the younger population more. Existence of game stains also toys in the meal offered by the company shows this validity. Other demonstration of such marketing strategy is obvious in

advertising they use. They use recovered descriptions of the characters as Grimace and Hamburglar. Other advertising operations employ popular celebrities to promote their products. Similar became endorsees for McDonalds all over the world loving it campaign. Besides, operations of McDonalds have considerably been infused with new technology. Elements as the system of stock and management of the value chain of companys creation consider easy payments for the suppliers and other sellers with which the person supplies in the corresponding agreement on the markets. Technology integration into operations of McDonalds tends to increase cost of their products. Basically it is shown in improvements on its chain of creation of value. Improvement of stock system just as its systems of deliveries allows the company to work in the international context. Legal factors There was a current roar against the fast food industry. It has forced McDonalds to apply more close examination on their corporate social responsibility. As a whole it has addressed to requirement of the company to generate its corporate reputation to more positive and the more socially responsible company. The reputation of McDonalds is obviously a huge question. Noticed on companys web site, seems, that they have got steps to take in hand the key social condemnation that they abused them in the last decades. The company gave to their clients the corresponding data in which they need the relation of food essence of their products. This is to attend to the arguments of obesity charged against the products of the company. In the same way consumers have provided freedom in a choice, whether they want to buy the meal. Environmental factor Social responsibility of McDonalds on the state influences to company operations. They involve charges of harm to environment. Among the reasons why they are accused of such requirements, is that the work of substances is not decomposed by microorganisms for their drinks glasses and treasury of expanded polystyrene for meal. Some civil groups in Hong Kong have made actions to make McDonalds privileges in Hong Kong aware of the rather copious use of containers of expanded polystyrene and resulting abusing by environment. Further, has specified that in 1995, McDonalds Hong Kong ran through the expanded polystyrene used by both Australia and the incorporated United States.

TRAINING & DEVELOPMENT


The Belief at McDonalds regarding training & development is to help the employees & staff refine their skills, and gradually mould them to occupy greater responsibilities. With many competitors entering the scene, it becomes important for McDonalds to keep their staff effective, efficient & motivated for improved performance on a regular basis. There are basically 4 modes of traing and development at McDonalds: Hamburger University Since its inception, training at Hamburger University has emphasized consistent restaurant operations procedures, service, quality and cleanliness. It has become the companys global center of excellence for McDonalds operations training and leadership development. In 1961, Fred Turner, McDonalds former senior chairman and Ray Krocs first grillman, founded Hamburger University in the basement of a McDonalds restaurant in Elk Grove Village, Illinois. Since 1961, more than 80,000 restaurant managers, mid-managers and owner/operators have graduated from this facility. McDonalds is the first restaurant company to develop a global training centre. Global Mobility Program McDonalds Global Mobility Program is designed to enhance the development of its leadersit gives unparalleled insight into McDonalds global operations and the impact McDonalds has on a global scale. A global assignment offers the opportunity to experience working and living in a new global location and it encourages their employees to get the most out of the experience on both a professional and personal level. Internships McDonalds offers graduates and college level students to experience the taste of corporate world by way of internship opportunities.

LOCATION PLANNING
Location planning is a significant step, critical for the success for any company planning to start operations anywhere in the vicinity. The success or failure of any company depends very much upon where it is located. McDonalds takes the following points in consideration: Large Customer Base Transport Access Availability of parking space Coverage of target segment Availability of market in case of material shortage Disposable Income of the local people.

McDONALDS SUPPLY CHAIN MANAGEMENT


A unique sense of dedication and commitment characterizes McDonald's India a commitment to be driven by the leadership of local owners. Commitment to provide quality products and fast friendly service at a real value to support other Indian businesses through local sourcing and imparting new skills and to generate local employment by being a part of the local culture. This commitment has translated into enduring benefits to the businesses at the grass root level, in the areas of introduction of new crops, new agricultural practices and food processing methods and procedures. McDonald's unique 'cold chain', on which the QSR major has spent more than six years setting up in India, has brought about a veritable revolution, immensely benefiting the farmers at one end and enabling customers at retail counters to get the highest quality food products, absolutely fresh and at great value. McDonald's, through its unique cold chain, has been able to, both cut down on its operational wastage, as well as maintain the freshness and nutritional value of raw and processed food products. This has involved procurement, warehousing, transportation and retailing of perishable food products, all under controlled temperatures.

A McDonald's burger is not just a burger but an outcome of dedicated efforts by farmers, its suppliers, distribution centre and a firm promise by McDonald's. McDonald's contributes a great back end process which enables you to enjoy your favorite burger fresh & hot, and for that, the supply chain truly acts as a

backbone of the business. The supply chain begins at the grass root level, with the suppliers receving the crop from the farmers. The crop is then processed and dispatched to the Distribution centres in special temperature controlled trucks, which ensures that the quality of the items is not compromised.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. McDonald's expectation of 'Cold, Clean, and On-Time Delivery' plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Suppliers: Maintaining Quality Standards

QUALITY MANAGEMENT AT McDONALDSS


Quality management/system at McDonald is implemented on the following:

Quality service: It is the expected level of performance of the major peripherals of McDonalds that it has put up. It can be measured under the following heads: Employees Must follow certain standard operational procedures,so that customers receive exceptional customer service. They should be properly dressed & punctual. Always make sure that the customers receive safe and clean food everytime.

Food Vegetables should be fresh & properly washed. The cooked food or fried eatables should not be raw.

Restaurant Food delivers fast , and accurate to the right person. The premises should be clean.

Quality Control McDonalds thrives on customer feedback to continuously improve quality. Continuous training to staff as well as suppliers. Quality, Service & cleanliness is the companys pledge, that defines its 100% commitment to deliver the best & safest quality to its customers. Maintaining close ties with members of scientific community on food & safety to keep up with the latest developments.

OPERATING PROBLEMS OF McDonalds


During rush hours, McDonalds fails to manage capacity. As a result, customers are found waiting for space to sit & serve themselves. Long queues could be found at most of its stores, which results in customers going to its closest competitors like KFC & Fastrax. The staff at McDonalds are not equipped with skills relating to handling multiple jobs. The size of McDonalds outlets that are present in metropolitan cities or frequently visited places like malls or market places needs to be researched upon. McDonalds has always been in the news for promoting high cholesterol & high calorie food.

SOLUTIONS McDonalds has its big sized outlets on the highways & expressways that are drive through restaurant format. It needs to come up with a revamped structure for its operations in metropolitan cities that can accommodate the rising rush. It is understood that McDonalds targets the youth, and they contribute 65% of the total countrys population. With people becoming more health conscious, their preference from Low priced products is now changing into Healthy food. Therefore, it needs to introduce healthy fast food options. It is observed that during rush hours, the staff faces issues in serving them at the lowest possible time. Additional temporary counters can be put up during rush hours. Most importantly, all employees should be trained to handle multiple jobs. The company could try out a different ordering mechanism.

REFERENCES

www.mcdonaldsindia.com www.mcspotlight.org Ucallit.wordpress.com economictimes.indiatimes.com