014

McDonald’s Supply
Chain Management

Submitted to: Prof. Keshav Kr. Sharma

Submitted by: Nitin Goyal

Joshil sharma
Nishi Kumari
Simran Kharwal
Swati Suman
McDonald’s History

“
Raymond Albert Kroc”

“The birth of McDonald's began with Raymond Albert Kroc”

“Ray Kroc was the exclusive distributor of a milk shake maker called the Multimixer. Meanwhile, two
brothers, Richard and Maurice McDonald owned and ran a hamburger restaurant in San Bernardino,
California, in the 1950s. Ray Kroc heard how well the McDonald brothers were doing using his
Multimixers to serve their customers. He met up with them and acquired the franchising right from
them to run McDonald's restaurants. A great success story was in the making. In 1955, Ray Kroc
founded the McDonald's Corporation and opened the first restaurant in Des Plaines, Illinois. In 1961,
he bought out the McDonald brothers”

‘And the rest, as they say, is history. McDonald's grew into the largest restaurant organization in the
world. Today, there are more than 34,000 McDonald's restaurants serving 69 million customers each
day in over 119 countries. Ray Kroc died in 1984 but his legacy is very much alive. His success story
continues with McDonald's families of employees, franchisees and suppliers. His commitment,
dedication and achievements continue to live on at McDonald's restaurants across the world.”
“McDonald’s Statement”
“Vision Statement”
“To be the best and leading fast food provider around the globe.”

“Mission Statement”
“McDonald's mission is to be our customers' favorite place and way to eat with inspired people who
delight each customer with unmatched quality, service, cleanliness and value every time. We invite
you to be the part of this winning team and give yourself an opportunity to grow with the family of
people striving to create smiles on the faces of millions of people every day.”

“McDonald’s Values”

“Being a responsible corporate citizen, McDonald’s firmly believes in giving back to the communities
it operates in. We love to provide support and encouragement to the people who need it the most. All
our restaurants contribute to their local community and every year we help set up and support
numerous educational, sporting and charity programs designed to help a wide range of people.”

“McDonald's has a proactive approach to charities and sponsorships. We believe these helps inspire
and support the people of Pakistan, especially the underprivileged ones, to live a better life. We are
dedicated to delivering great experiences through our ongoing community support programs.”

 “We place the customer experience at the core of all we do. Our customers are the reason
for our existence. We demonstrate our appreciation by providing them with high quality food
and superior in a clean, welcoming environment, at a great value. Our goal is quality, service,
cleanliness and value (QSC&V) for each and every customer, each and every time. “
 “We are committed to our people. We provide opportunity, nurture talent, develop leaders and
reward achievement. We believe that a team of well-trained individuals with diverse backgrounds
and experiences, working together in an environment that fosters respect and drives high levels of
engagement, is essential to our continued success.”

 “We believe in the McDonald’s System. McDonald’s business model, depicted by our “three-
legged stool” of owner/operators, suppliers, and company employees, is our foundation, and
balancing the interests of all three groups is a key.”

 “We operate our business ethically. Sound ethics is good business. At McDonald’s, we hold
ourselves and conduct our business to high standards of fairness, honesty, and integrity. We are
individually accountable and collectively responsible.
 “We give back to our communities. We take seriously the responsibilities that come with being
a leader. We help our customers build better communities, support Ronald McDonald House
Charities, and leverage our size, scope and resources to help make the world a better place.”

 “We grow our business profitably. McDonald’s is a publicly traded company. As such, we work
to provide sustained profitable growth for our shareholders. This requires a continuous focus on
our customers and the health of our system.”

 “We strive continually to improve. We are a learning organization that aims to anticipate and
respond to changing customer, employee and system needs through constant evolution and
innovation.”

“McDonald’s Products”
“McDonald’s Target Market”
“McDonald’s wants to attract as many customers as it can. But the main targets of the efforts by
McDonald’s are following groups:”

 “Parent visit McDonald’s to give the children a treat.”

 “Children want to visit McDonald’s as it is a fun place to eat.”
 “A business customer visits McDonald’s during the day as service is quick, the food tastes great
and can be eaten in the car without affecting a busy work schedule.”
 “Teenagers are attracted by the Saver Menu which is affordable, and the internet access.”

“Supply Chain Management in Fast Food Sector”

 “There are two key components to the fast food industry supply chain;”
1. “Raw materials are essential to the ultimate product - value added component.”
2. “Quick, convenient, and quality food.”
 “The most important aspect of the industry supply chain is that it is driven by the consumer.”
 “The consumer has what seems to be an endless amount of fast food chains to choose from every
day.”
 “McDonalds' main goal of their marketing is to make the consumer drive that extra two blocks
past the competitor to eat at their chain.”
“McDonald’s Supply Chain Management”

 “Supply chain is extensive and complex.”

 “Efficient, safe and quality food at an affordable price.”
 “Large number of direct suppliers – companies that make or deliver final products to their
restaurants.”
 “Large number of indirect suppliers – companies and farms that grow or process the ingredients
that are eventually delivered to their direct suppliers.”
“McDonald’s E-Procurement”
 “In the process of procuring a product, a typical McDonald’s franchise restaurant places an order
throughE-MAC digital website.”
 “The order is sent to the suppliers. Suppliers order is processed and managed by the logistics.”
 “The logistics sends the order of the products to the franchise restaurants. It is the responsibility
of the E-MAC and logistics that the products are sent to the restaurant.”
 “All the above, steps are handled and executed by the E-MAC digital.”
“McDonalds’ Suppliers”

“Following are the McDonald’s suppliers of food;””

 “Gavina Gourmet Coffee: Our 25-year relationship with Gavina has delivered countless cups of
delicious coffee.”

 “Lopez Foods: McDonald’s 100% pure beef patties are produced to the highest quality
standards.”

 “Keystone Foods: Innovation and Chicken McNuggets”

 “100 Circle Farms: The potatoes for our World-Famous Fries are grown with efficiency,
precision and heart.”
 “Jiangsu Dingneng Foods Co. Ltd: Dehydrated onions”

“Following are the McDonald’s suppliers of equipment and other items;”

 “Zhengzhou Kerry Machinery Equipment Co., Ltd.”

 “Guanxing (Shanghai) Import & Export Co., Ltd.”

 “Guanxing (Shanghai) Import & Export Co., Ltd.”

 “Guangzhou Maibao Package Co., Ltd.”

 “Zhengzhou Shuliy Machinery Co., Ltd.”

 “Shantou Eastoys Factory”

 “Shantou Kai Dongfan Plastic Toy Factory”

 “Wenzhou Xiangou Foreign Trade Corporation”

 “Shanghai Tianwan Food & Beverage Equipment Co., Ltd.”

 “Shanghai Xinrui Catering Equipment Co., Ltd.”

 “Wuhan Xinhengyue Industry And Trade Co., Ltd.”

“McDonald’s Logistics”

Inbound Logistics

operations

Outbound Industry

“Logistics is the management of flow of resources between their point of origin and their point of
destination so as to meet some requirements.”
“McDonald’s - the largest fast food chain in the world selected Venus Pakistan as its logistic partner
after careful and thorough evaluation. We are responsible for the procurement, imports, clearing,
warehousing and distribution of all products to all McDonald’s restaurants in Pakistan.”

“In McDonalds logistic involves 3 phases”

 “Inbound logistic”
 “Operations”
 “Outbound logistic
“Inbound logistic”
“It is the movement of materials from suppliers and vendors in to production processes and storage
facilities. Every McDonald’s burger has nine different ingredients, which are sourced, from suppliers
across the country before it reaches the consumer. McDonald's has a global package design for there
to-go bags and fountain drink cups. All the inputs are imported from different countries like Saudi
Arabia, South Africa, UAE and Malaysia; only the buns used in burgers are procured locally from
Dawn Bread. Based on the demand forecast by the Restaurant Manager, the First Assistant orders the
Venus Distributors on daily basis. Venus Distributors (supplier of McDonalds) is independent to
acquire the raw material from wherever it desires but it remains limited only by the strict
specifications of materials by McDonald's. Venus Distributors stores all the raw materials, in its own
cold stores and delivers only one-day material to the restaurant. Venus group companies providing
different facilities to McDonalds like:”

 “Providing McDonalds Pakistan the most comprehensive range of Specialized & Customized
Services”
 “Warehousing, Storage/Cold Storage, and Sole Distribution”
 “Services starting right from Pick-up at Sea Port to Delivery at all McDonalds Restaurants in
Pakistan – everything is handled with maximum efficiency.”
 “Central Inventory Management of Venus Pakistan dedicated to handling every aspect of
McDonalds inventory.”
 “Quality Inspection Process (QIP) Units at Venus Pakistan especially operates to look after
McDonalds Logistics Operations.”

“With a proven track record of having served the Logistics needs of McDonalds, Venus Pakistan
established its dedicated McDonalds Logistics Operations in 1997. It also received the DQMP
(Distribution, Quality, and Management Process) Certification from McDonalds USA Audit Team
after they visited and inspected our facilities and certified us as such (which makes us the only one to
receive any such Certification from McDonalds USA). Main Boulevard Branch has its own cold
storage facility, which is used to store the daily-procured raw material, so that the raw materials
remain fresh and nutritious up till they are delivered in the form of finished goods (burgers, French
fries, ice cream, etc.) to the customers. There are only two products buns and Cokes, which are sent
directly to the restaurants. Buns have a limited shelf life, hence they are sent directly to the outlets,
while Coca Cola is also sent directly to ensure quick dispatch of its products. The buns are packed in
plastic crates to ensure their quality. These crates have to go back to the bakery, that’s when return
logistics takes place. Venus Pakistan has full-fledged facilities to pack locally manufactured products
in sachets such as sugar, tomato ketchup, toothpicks, etc., and supply these to Institutions (Restaurants,
Cafes, Hotels, 5-Star Hotels, Hospitals, etc.), through its own Distribution Network and Logistics
support. Being responsible for McDonald’s supply chain, the company had to import lettuce from
Europe.”

“The logistics involved in handling the product at the airports late night forced the directors to think of
alternate ways to manage this business. The company with the assistance of advisors from the
agricultural university and experts from china set up a pilot farm in Lahore. After experimenting for
one year the group decided to setup an agriculture division. Today lettuce is farmed in Lahore on 100
acres during the winters and on 3 parcels of 25 acres each in Abbotabad and man sera.
Production/yield is approximately 5000 kg (5 tons) per week. The farm is experimenting with romaine.
The farm management has plans to grow exotic vegetables in the future and tap/develop the export
market in Dubai.”

“The transportation of McDonald’s has been completely outsourced and since 80 percent is in
refrigerated truck movement. The products are transported in a dedicated fleet of refrigerated trucks to
the company’s Distribution Centres. Multi-temperature and single temperature trucks then transport
the fast food swiftly to the McDonald’s restaurants across the country.”

“Cold Chain logistics”

“A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted

series of storage and distribution activities which maintain a given temperature range. It is used help
extend and ensure the shelf life of products such as fresh agricultural produce, processed food.
McDonalds’ entire network supply-chain consists of movement of goods through a cold chain.
Suppliers are also a part of this cold chain. McDonalds have the largest refrigerated movement of
products. An interesting and innovative feature of this cold chain is that the same truck can carry
products at different temperatures ranging from:”

 “Frozen products at -18C to -25C,”

 “Chilled products from 1C-4C”
 “Dry products at ambient temperatures”

“Venus Custom Bonded Warehouse/Carrier owned by The Venus Group of Companies and operated
by the parent company Venus Pakistan is the ONLY Company in Pakistan that enjoys the exclusive
distinction of having its own refrigerated Custom Bonded Warehouse/Carrier License issued by
Pakistan Customs. This means that Venus Pakistan is capable of providing frozen storage services to
its customers without paying duties to Customs. Customers can simply pay the duties/taxes to Customs
only for the quantity required from the Bonded Warehouse operated by Venus Pakistan. McDonald’s
expects its distribution partner to meet its standards of ‘cold, clean and on-time delivery.”

“Outbound logistic”

“Outbound logistics is the process related to the storage and movement of products from the end of the
production line to the users end. When customers enter the restaurant, they go to the counter, give their
order, which they are served within a single minute. Now customers take away the tray in which the
order is served, and take their seats themselves, in the big hall with a sitting capacity of 200 persons.”

“McDonald’s Operation”
“The cooking procedure and recipe is documented so that the products become standardized and
customers get the similar taste, quantity and quality to whichever restaurant they go. It is the policy of
McDonald's to throw away any burger if they remain on heated grill for 15 minutes. All the utensils
and equipment used in cooking are washed at the closing of restaurant every night, with anti-microbial
fluid. Kitchen, floor, washrooms and all other restaurant areas are cleaned after every half an hour.”

“McDonald’s Transportation”
 “The distributors receive items from different parts of the country.”
 “The items are stored in rooms with different temperature zones and are finally dispatched to the
McDonalds restaurants on the basis of their requirements.”
 “The company has both cold and dry storage facilities with capability to store products up to -22º
C as well as delivery trucks to transport products at temperatures ranging from room temperature
to frozen state.”
 “The specially designed trucks maintained the temperature in the storage chamber throughout the
journey.”
 “Matching supplier production with deliveries to meet schedules and restaurant needs.”
 “Centralized distribution centers.”
 “Emphasis on economies of scale – High storage volumes.”
 “QIP (Quality Inspection Program).”
 “HACCP (Hazard Analysis Critical Control Point) – Food safety standards emphasizing
prevention of faults rather than detection through inspection.”
 “No Knife in restaurants.”
“McDonalds Distribution systems”
“McDonald uses three types of Distribution strategy”

 “Franchising
 “Licensing”
 “Joint venture”

“McDonald’s has a successful franchise business model wherein all restaurants are operated
either by the company or by franchisees, including conventional franchisees under franchise
arrangements and developmental licensees and foreign affiliated markets under license
agreements. The company’s operations are designed to assure consistency and high quality at
every restaurant. When granting franchises or licenses, the company is selective and generally
does not franchise to passive investors.”

“McDonald’s has franchised about 80% of its restaurants, while the remainder is owned and
operated by the company. Each of the company’s franchisees usually has a standard 20-year
franchise license. A franchise license is an authorization granted by either a company or a
government body to an individual or a group that enables them to perform specific commercial
activities. For McDonald’s, the franchise model has led to years of profitability, growth, and risk
mitigation.”

“McDonalds Forecasting”
“McDonald’s is a well-known worldwide franchise and has been around since the 1950s. Serving
customers for over 50 years successfully entails a strong inventory and operations management
system. “McDonald's is the world's # 1 fast-food company by sales, with more than 33,500
restaurants serving burgers and fries in 119 countries”.”

“To maintain and continue a successful franchise operation, quality food items, and highly
successful sales continue to increase its efforts to “raise the bar” and offer items that cater to all
types of consumers. Whether it is McDonald’s famous hamburger, chicken nuggets or salad and
a latte, McDonald’s has it. Striving to continue to be the # 1 franchise, McDonald’s obtains its
forecasting data from consumers, employees, and the industry itself. Combining both expert
judgment and market research, McDonald’s continues to rely on putting the customer first
when it comes to the future and success of McDonald’s.”
“Qualitative Forecasting”
“Expert Opinion and Market Research McDonald’s uses qualitative forecasting methods to help
aide in predicting the future growth of the organization. Developing a strong customer focus,
McDonald’s relies heavily upon gathering information from customers, employees, and other
experts in the field to assist in the decision-making process. Within the qualitative approach,
McDonald’s focuses attention on utilizing expert judgment. Expert judgment is important
because it provides significant insight into different aspects of the organization. When seeking
expert’s opinions, a technique known as Delphi is used to ensure quality opinions are formed.
The Delphi technique allows McDonald’s to gather expert’s opinions on predictions of future
behaviour.”
“McDonald’s Competitors”

 “Subway”

 “Kentucky Fried Chicken (KFC)”

 “Mr. Burger”

 “Burger King”
“McDonald’s Market Share in Pakistan”
Market Share

15%

25
%
5% McDonalds
KFC
Subway
10%
Mr. Burger
Burger King
Othe
15%
30%
“McDonald’s SWOT Analysis”
“”McDonalds is a growing and striving business. It has successfully managed to turn out huge
amounts of profits every year therefore it has ample number of investors. These investors contribute in
monetary form and allow McDonalds to maintain its competitive advantage. McDonalds is a well and
high financed company that has the ability to charge excessively low on its products and turn out a
high profit. Other firms that are limited on funds cannot charge low, as they have to meet their costs.””

“”Strengths”
 “Praised and ranked high in many food magazines for quality of service and food. Therefore,
McDonalds has a reputed name amongst various companies.”
 “The McDonalds logo according to many experts has been termed to be the most recognizes logo
in various countries, amongst children.”
 “McDonalds has established its branches in all important locations including; airports, railways
and bus stops.”

 “McDonald takes cleanliness and food hygiene very seriously; therefore it has one the most
awards.”
 “McDonalds was one of the first few restaurants which started to show all nutritional values on
their menus.”
 “McDonalds has the ability to easily adapt to various cultures, hence it has been successful in
most of the countries.”
 “McDonald is engaged in many corporate social activities during the year.
 “They have an assembly line system which ensures that the cost of production is always kept
low.”
 “Provides professional training for all employees, to ensure high and consistent quality to all the
customers.”

Weakness”
 “McDonalds over the years has attracted negative press due to selling junk food at very low
prices. Many organizations and companies have sued McDonalds on various issues.”
 “McDonalds lacks the ability to create innovative advertisements to attract children.”
 “McDonald’s service is no longer the same in all locations due to the ample franchising
contracts.”
 “McDonalds has a high set up cost.”
 “McDonalds’ tends to lose out on sales when the economy fluctuates because people use their
disposable income to purchase fast food. When their disposable income is changed their spending
also changes, hence McDonalds loses out on sales.”
 “McDonalds only offers processed and inorganic food line.”
 “McDonalds’ has a high employee turnover.”
 “McDonalds has an extensive training program which often lowers the total revenue.”
“Opportunities
 “McDonalds’ can expand or enter into the organic food industry because now people are
becoming very health conscious.”
 “McDonalds’ could provide more services such as free delivery in various countries, to capture
more market share.”
 “McDonalds’ could expand its menu to cater to all the individuals.”
 “McDonalds’ could attract attention by keeping or sponsoring various events for adults and
children.”
 “McDonalds’ could add more services, such as free internet to attract and retain its customers.”
 “McDonalds’ could engage in various promotions and season discounts to beat the competitors.”
 “Expand more intensively into other countries or launch in new locations to cover the untapped
areas.”

“Threats”
 “In many countries, McDonalds has been known to advertise and incite children in to consuming
their products with toys other events. Many companies and agencies are observing and are
considering taking actions.”
 “McDonalds’ sales and revenue are very dependent on the economic conditions of a country.
Therefore, countries that do not perform well tend to also have a negative impact on McDonalds
sales and revenue.”
 “McDonalds’ is facing immense competition from the fast food places and organic restaurants.”
 “The negative press could have a significant impact on McDonald if corrective actions are not
taken.”
 “The increase in health awareness can also have an impact on McDonalds as people would not
want to consume junk food, once they know its side effects.
“McDonald’s Quality Assurance”

“The Homely Touch of the Highest Quality Standards at McDonald’s”

“At McDonald’s it’s always like coming home. We make sure that the warmth of our homely touch
reaches your highest expectations. Be it food, service or the ambiance, we keep elevating our quality
standards to new levels. McDonald’s has implemented rigorous food safety standards called “from
farm to restaurants”. Here food is not just meant for thought. Food means quality by all means. That is
why McDonald’s is served to you and your loved ones with all our heart and soul.”

“Meat With 100% Purity”

“100% purity is the reason why all our beef sandwiches taste so delicious. They are made from 100%
halal beef cuts with no additives or preservatives. Chicken that we serve is carefully deboned breast
meat only, with seasoned batter and a choice of sauce portions, while our Spicy McCrispy Chicken
Deluxe uses only muscle cuts. All relevant authorities monitor our high-quality standards of 100%
halal chicken.”

“High Quality Baked Buns”

“We source our buns from suppliers who use only high-quality wheat. All the buns are subject to strict
quality and safety controls all through the production process.”

“Crunchy Farm-Fresh Vegetables”

“We select the best of the best vegetables that are continually monitored for freshness, high nutrients
and safety, to maintain top quality standards. We use regional/local suppliers to ensure that the
freshness and high quality are delivered to you in all our products.”

“No Compromise”

“At McDonald’s we give high importance to the smallest of the detail, from meat to spices, and
everything is standardized. That is because we follow our global set quality standards with no
compromise, right from the farm to the restaurant till the time it is served to you.”
“Recommendation for McDonalds”
“Market Development”

“As we know there is increasing trend in fast food industry and people are more conscious about their
health. Similarly, McDonald international should open as many branches in other cities of Pakistan
like Multan, Gujranwala, Hyderabad, and other cities like these because this step will not only reduce
their business risk but also improvement in their profitability. In the said cities there is a lot of
potential for the fresh investment in the fast food industry. So, it should develop the market for its
products, only in this way it can maintain its competitive advantage over its competitors like KFC and
Pizza Hut.”

“Diversification”

“Currently McDonald is importing Potatoes from abroad, this makes the product cost so high, so it
becomes very difficult for it to capture the middle-income people. By diversification we suggest that
McDonald should go for backward integration because Pakistan is an agricultural country and it also
exports potatoes to other countries of the world. By growing potatoes in Pakistan McDonald’s can
maintain the same quality at lower cost of operations. Similarly, McDonald’s should go for its own
cattle farm in Pakistan so it will reduce its input cost and it will lead to lower market price of its
products as compared to its competitors. In this way the sales of McDonald can be increased by at
least 50% of current sales volume by doing this backward integration McDonald’s can avoid the
problems like Govt. heavy duties on inputs imported from other countries and similarly it can avoid
the problems of continuous devaluation and exchange rate.”

“Product Development”

McDonald’s, it should introduce all the time new products that make it differentiated and it must
sustain it so that no other competitor can copy their products and there should be lesser chances of
product imitation. For this it may altogether change the whole product and can bring a new product or
sometimes any major modification in the existing products. So, we recommend that McDonald should
apply the Product Development at all times whenever the need arises.”