Decision Sciences

PROFIT MAXIMIZATION MODEL FOR MCDONALDS

REVIEWED BY
SHRI. SAYAN MUKHERJEE

Submitted by:
Jayanth | 20L117
Paul Thomson | 20L120
Usha | 20L133
Vineel Kumar| 20L134
Vishwas | 20L20L135
Contents:

S. No Title Page No

1 Introduction 2

2 About the Company 2

3 Problem statement 3

4 Problem Formulation 3

5 Results and Managerial implications 5

6 Limitations 10

7 Conclusion 10

8 Sources and References 11

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1.Introduction
Linear programming is a management tool used in small or big industries that have a
limited supply of their resources. It deals with optimization of objective function with
decision variables subject to set of linear equations and/or inequalities known as
constraints. For McDonalds, integer programming method is used to determine the right
product mix based on the availability of raw material and to optimize the machine
minutes and labor minutes available.

McDonalds offers different product range but the four which are generally in demand are
Burger, French Fries, Coke and Coffee. Specific designed machines are used to prepare
these products in the store with the help of trained labors.

Linear programming based on product mix and machine/labor time optimization will help
McDonalds in attaining optimum use of productive factors, give a clear picture of the
relationships between the basic equations, inequalities or constraints which give a better
idea and highlighting about the problem and its solution.

One of the reasons for the popularity of fast food restaurants to customers has been that
through economies of scale in purchasing and producing food, the companies can
deliver food to consumers at a very low cost. Despite this, many of the operators are not
realizing optimal efficiencies that would result from high capacity utilization of machines
that produce their products. Analyzing food equipment vis-à-vis the daily productions is
hardly done, but when done will result into more effectiveness. This research will proffer
some solutions based on our case study of McDonalds which can be useful to other
similar organizations.

2.About the Company

 McDonald's Corporation is an American fast food company, founded in 1940 as a
restaurant in San Bernardino, California, United States but later moved its global
headquarters to Chicago in June 2018
 McDonald's is the world's largest restaurant chain by revenue, serving over 69
million customers daily in over 100 countries across 38000 plus outlets
 Although the restaurant chain is famous for its burgers and French fries, they
feature chicken products, breakfast items, soft drinks, milkshakes, wraps, and
desserts
 McDonald's is the world's second-largest private employer with 1.7 million
employees (behind Walmart with 2.3 million employees)
 Serving size and pricing is done based on consumer expectations and
differs(varies) based on region.

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3.Problem Statement
 The McDonalds outlet considered here to model is situated in Canara Mall,
Manipal
 The outlet operates for 11 hours per day and caters to around 700 customers
daily
 McDonalds outlet provides variety of items of which the most demanded are
burgers, french fries, coke and coffee
 Decision to be made is to determine the right product mix based on raw material
availability and to optimize the available machine and labor time thereby
maximizing the profit for McDonalds

3.1 Product Portfolio

Burger – It is one of the most demanded products at McDonalds. Machine time
required to prepare a burger is 1 min and 3 mins of labor time which includes various
processes like initiator, batch cook and assembly. The raw material available for a day is
650 units.

French Fries – French fries is a snack/side item very famous among young
people. Machine time required to prepare is 3 mins and 2 mins of labor time. The
process includes batch cook and assembly. Raw material available for a day is 300
units.

Coke – Coca Cola is an aerated side drink bought mostly with burger or fries.
Machine time required to prepare is 1 min and 2 mins of labor. The process includes
initiator and assembly. Raw material available for a day is 350 units.

Coffee – Coffee is also a preferred drink in McDonalds. Machine time required

for preparation is 2 mins and 1 min of labor time. Raw material available for a day is 150
units.

4.Problem Formulation
The first model consists of data given by the store manager of McDonalds and was
classified into product mix and machine/labor mins in order to establish a standard linear
program.

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4.1 Objective Coefficient
The profit per unit is 30% of the final price of the product (Objective Coefficient)

Product Profit/Unit (Rs.)

Burger 45.0
French Fries 18.0
Coke 20.4
Coffee 43.5

4.2 Decision Variables

X1 Number of burgers sold

X2 Number of french fries sold
X3 Number of cokes sold
X4 Number of coffees sold

4.3 Objective Function

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Maximize Z = ∑ x i p i
i=1

Where,

xi – Quantity of burgers sold

pi – Profit per unit of product

4.4 Constraints
The linear function of the variables are subject to certain constraints

Raw material availability – Availability of raw materials for a day required to

make each product

 Burger: X1 <= 650

 French Fries: X2 <= 300
 Coke: X3 <= 350
 Coffee: X4 <= 150

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 Machine time availability – There are specific machines used to prepare each
product which runs for 9 hrs. per day. Therefore, total machine minutes available
per day is 540(9 X 60) per product.

 Burger: X1 <= 540

 French Fries: 3X2 <= 540
 Coke: X3 <= 540
 Coffee: 2X4 <= 540

Labor time available – Total laborer’s working in the outlet at the counters are
10 and they work for 8 hours per day. Therefore, total labor minutes available for
a day is 4800(8 X 60 X 10).

3X1 + 2X2 + 2X3 + X4 <= 4800

Non – negativity and Integer Constraint

X1, X2, X3, X4 >= 0 and should be integer values

5.Results and Managerial Implications

Excel Solver Model – 1
Model Burger French Fries Coke Coffee
Unit Profit 45 18 20.4 43.5
Quantities 540 180 350 150
Profit 24300 3240 7140 6525
Total Profit 41205

Constraints Burger French Fries Coke Coffee Usage Sign Availability Remaining
Sales - Burger (Raw Material Constraint) 1 540 <= 650 110
Sales - French Fries (Raw Material Constraint) 1 180 <= 300 120
Sales - Coke (Raw Material Constraint) 1 350 <= 350 0
Sales - Coffee (Raw Material Constraint) 1 150 <= 150 0
Machine Minutes - Burger 1 540 <= 540 0
Machine Minutes - French Fries 3 540 <= 540 0
Machine Minutes - Coke 1 350 <= 540 190
Machine Minutes - Coffee 2 300 <= 540 240
Labour Minutes Available 3 2 2 1 2830 <= 4800 1970

From the solver model - 1, the values of decision variables are

X1 = 540, X2 = 180, X3 = 350, X4 = 150

By substitution these values in the objective function, we get

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Total Profit = Max Z = (540 X 45) + (180 X 18) + (350 X 20.4) + (150 X 43.5)

= Rs. 41205

Inferences from Excel Solver Model – 1

 Raw material inventory of burgers and French fries are not fully utilized due to
constraints with machine time available as the total available machine time is
utilized fully. Hence, machine time for each of them can be increased
 Raw material inventory for coke and coffee are utilized fully, but machine time
available is not utilized fully. Hence, raw material inventory can be increased if
necessary
 Labor minutes are not utilized fully which shows that labor minutes are available
for use

Excel Solver Model -2

As we see that labor minutes available is very high and the demand of products are
pretty good in the area. An introduction of a new product like a dessert of any kind to the
product portfolio of McDonalds will help us in understanding how optimally the available
labor minutes can be utilized thereby increasing the profit of the outlet.

Preparation of dessert requires a new machine which is an investment on the outlet and
requires 4 mins of machine time and 2 mins of labor time per unit.

Problem Formulation for Model – 2 is given below

Objective Coefficient
The profit per unit is 30% of the final price of the product (Objective Coefficient)

Product Profit/Unit (Rs.)

Burger 45.0
French Fries 18.0
Coke 20.4
Coffee 43.5
Dessert 22.8

Decision Variables
X1 Number of burgers sold
X2 Number of french fries sold
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X3 Number of cokes sold
X4 Number of coffees sold
X5 Number of desserts sold
Objective Function
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Maximize Z = ∑ x i p i
i=1

Where,

xi – Quantity of burgers sold

pi – Profit per unit of product

Constraints
The linear function of the variables are subject to certain constraints

Raw material availability – Availability of raw materials for a day required to

make each product

 Burger: X1 <= 650

 French Fries: X2 <= 300
 Coke: X3 <= 350
 Coffee: X4 <= 150
 Dessert: X5 <= 150

Machine time availability – There are specific machines used to prepare each
product which runs for 9 hrs. per day. Therefore, total machine minutes available
per day is 540(9 X 60) per product.

 Burger: X1 <= 540

 French Fries: 3X2 <= 540
 Coke: X3 <= 540
 Coffee: 2X4 <= 540
 Coffee: 4X5 <= 540

Labor time available – Total laborer’s working in the outlet at the counters are
10 and they work for 8 hours per day. Therefore, total labor minutes available for
a day is 4800(8 X 60 X 10).

3X1 + 2X2 + 2X3 + X4 + 2X5<= 4800

Non – negativity and Integer Constraint

X1, X2, X3, X4, X5 >= 0 and should be integer values

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Results of the Excel Solver model -2 is as shown below

Model Burger French Fries Coke Coffee Dessert

Unit Profit 45 18 20.4 43.5 22.8
Quantities 540 180 350 150 135
Profit 24300 3240 7140 6525 3078
Total Profit 44283

Constraints Burger French Fries Coke Coffee Dessert Usage Sign Availability Remaining
Sales - Burger (Raw Material Constraint) 1 540 <= 650 110
Sales - French Fries (Raw Material Constraint) 1 180 <= 300 120
Sales - Coke (Raw Material Constraint) 1 350 <= 350 0
Sales - Coffee (Raw Material Constraint) 1 150 <= 150 0
Sales - Dessert (Raw Material Constraint) 1 135 <= 150 15
Machine Minutes - Burger 1 540 <= 540 0
Machine Minutes - French Fries 3 540 <= 540 0
Machine Minutes - Coke 1 350 <= 540 190
Machine Minutes - Coffee 2 300 <= 540 240
Machine Minutes - Dessert 4 540 <= 540 0
Labour Minutes Available 3 2 2 1 2 3100 <= 4800 1700

From the solver model - 2, the values of decision variables are

X1 = 540, X2 = 180, X3 = 350, X4 = 150, X5 = 135

By substitution these values in the objective function, we get

Total Profit = (540 X 45) + (180 X 18) + (350 X 20.4) + (150 X 43.5) + (135 X 22.8)

= Rs. 44283

Inferences from Excel Solver Model – 2

 The above findings show that the use of labor minutes has significantly increased
with the launch of a new product

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  The idea behind the launch of a new product is to make full use of the available
minutes of labor, and dessert is an example of this. Every new product that will
have a strong demand at the outlet should be launched, which will help to allow
better use of working time and machine time and therefore raise profit

Excel Solver Model -3

From solver model 1, we can see that due to machine hour constraints, the raw
materials available for burger and french fries are not used to the maximum. Thus, what
we are attempting to demonstrate in Model 3 is that increasing machine time for burgers
by 60 minutes(as an example) by investing in a more efficient machine which can run for
10 hours per day would help to use the raw material left over and therefore improve the
outlet revenue.

Model Burger French Fries Coke Coffee

Unit Profit 45 18 20.4 43.5
Quantities 600 180 350 150 Raw material left over is reduced by 60
Profit 27000 3240 7140 6525 units by adding 60 mins of machine
time
Total Profit 43905

Constraints Burger French Fries Coke Coffee Usage Sign Availability Remaining
Sales - Burger (Raw Material Constraint) 1 600 <= 650 50
Sales - French Fries (Raw Material Constraint) 1 180 <= 300 120
Sales - Coke (Raw Material Constraint) 1 350 <= 350 0
Sales - Coffee (Raw Material Constraint) 1 150 <= 150 0
Machine Minutes - Burger 1 600 <= 600 0
Machine Minutes - French Fries 3 540 <= 540 0
Machine Minutes - Coke 1 350 <= 540 190
Machine Minutes - Coffee 2 300 <= 540 240
Labour Minutes Available 3 2 2 1 3010 <= 4800 1790

Inferences from Excel Solver Model – 3

 Increase in machine minutes by 60 mins helps to utilize the remaining raw

material for burger efficiently
 Available labor time is also utilized in an efficient way
 Same model can be applied to other products were raw material is not utilized
fully due to machine hour constraint which will thereby add more profit to the
outlet

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6.Limitations
 The model is created by considering few products which have high demand in
the outlet. Mc Donald’s offers many other product verities. Additional labor time
remaining will be utilized in preparation of these products based on customer
order
 Efficiency of employees cannot be achieved at 100% throughout the day
 The store experiences varying demand, majorly during weekends and holidays
which is not considered in this model
 Procuring new machines with higher efficiency will require additional investment
which may not be possible as the outlet is small compared to stores in major
cities

7.Conclusion
 From model 1, we can see that raw material for burger and french fries are not
utilized fully because of machine time constraints and hence our solution was to
add machine hours which can be done by increasing the efficiency of machine
 Labor time was not utilized efficiently for which in model 2 we introduced a new
product which will help in utilizing the available labor time more efficiently and
generate more revenue
 Combo plans can be introduced so that more of coke and french fries and can be
sold together with burger for which inventory needs to be increased and finally
result in better profits

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8.Sources and References:
 Stevenson,W.J & Ozgur, C (2007) Introduction to Management Science with Spreadsheets, Tata McGraw Hill., 6 Ed. NY
 Chat from Mc Donald’s operation head Mr. Raja from Manipal.
 https://en.wikipedia.org/wiki/Operations_research -- Wikipedia
 https://en.wikipedia.org/wiki/McDonald%27s --Wikipedia
 https://www.mcdonaldsindia.com/ --McDonalds India official portal

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