McDonald’s Supply Chain

SUPPLY CHAIN MANAGEMENT

FINAL PROJECT

Supply Chain Cycle

Of McDonald’s

Presented by:

Salman Malik 2093051

Saira Rehman 2093039
Sumra Nusrat 2093031
Reema Islam 2093222

Presented to:

Sir Sikanded Aziz

Date of Presentation: 21th April '11

National college of business administration & economics

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ACKNOWLEGEMENT

We feel great pleasure in expressing our deep

heartiest and sincere gratitude to our respectable project
advisor Sir Sikandar Aziz for his encouraging attitude,
kind dealing and his keen interest in preparing this report.

Contents

business sector(food service)______________________________________________________5

McDonald’s___________________________________________________________________5

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McDonald’s in Pakistan__________________________________________________________5
Operations Management in McDonalds__________________________________________________6
Supply Chain Management in Pakistan_____________________________________________6
WHY THE PROJECT___________________________________________________________________6
Methodology Used__________________________________________________________________7
History_______________________________________________________________________7
Products___________________________________________________________________________8
Types of restaurants_________________________________________________________________8
Business model________________________________________________________________9
Business Model__________________________________________________________________________10
Advertising________________________________________________________________________10
Global operations_____________________________________________________________11
Respect for local culture_____________________________________________________________12
International Standards______________________________________________________________12
Our Philosophy_____________________________________________________________________12
McDonald’s Global Supply Chain_________________________________________________13
Supply Chain Management at McDonalds__________________________________________14
Big Mac's supply chain success___________________________________________________15
Tracing its success path______________________________________________________________16
Vital Links in McDonald’s Cold Chain___________________________________________________17
Cold Chain________________________________________________________________________18
Local Sourcing_____________________________________________________________________18
McDonald's – Challenges_____________________________________________________________19
Objective_________________________________________________________________________19
Platter of Services__________________________________________________________________20
Key Features:____________________________________________________________________________20

Movement of Small Volumes of Perishable Items____________________________________20

Fresh Rush – Features_______________________________________________________________21
Food Park – Features________________________________________________________________21
Food Park – Capacity________________________________________________________________22
The McDonald’s System – the World’s Best QSR experience____________________________22
Purchasing________________________________________________________________________22
Logistics__________________________________________________________________________23

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Logistics Standards__________________________________________________________________23
“One-Stop-Shopping “Lean Logistics Solution_______________________________________24
McDonald’s Supply Chain Challenges______________________________________________24
Freshness_________________________________________________________________________24
Innovation________________________________________________________________________24
Fluctuation in Demand______________________________________________________________25
Bull Whip effect____________________________________________________________________25
Cannibalization____________________________________________________________________25
Decentralized Structure______________________________________________________________25
Conclusions___________________________________________________________________26
References___________________________________________________________________27
Bibliography__________________________________________________________________27

Food service business sector

The business sector which we have selected for our supply chain management project is FOOD
SERVICE. The reason for choosing this business sector is up growing and demanding nature of
this business as Asian people especially Pakistani people are very fond of food. The increasing
number of fast food lovers is noticeable and now people are more knowledgeable about quality
food. For this purpose we have selected McDonald’s ‘the global leading food service retailer’.

McDonald's
Is the leading global foodservice retailer with more than 30,000 local restaurants serving 52
million people in more than 100 countries each day. More than 70% of McDonald's restaurants
worldwide are owned and operated by independent local men and women. Is one of the

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world's most well-known and valuable brands and holds a leading share in the globally branded
quick service restaurant segment of the informal eating-out market in virtually every country in
which we do business. Serves the world some of its favorite foods - World Famous French Fries,
Big Mac, Quarter Pounder, Chicken Nuggets and Egg McMuffin. Our rich history began with our
founder, Ray Kroc. The strong foundation that he built continues today with McDonald's vision
and the commitment of our talented executives to keep the shine on McDonald's arches for
years to come. To read more about McDonald's history, vision and executives, click on their
links in the left menu.

McDonald’s in Pakistan
Aiming to be the world's best quick service restaurant experience, McDonald's started its
operations in Pakistan in September 1998 and is a leading fast food service retailer for its
valued customers. With a strong belief in the phrase when it's green it's growing. McDonald's
Pakistan is growing with the focus to provide friendly and quick service experience to our
customers.
Today millions of Pakistanis place their trust in McDonald’s everyday to provide them with food
of a very high standard as well as good service. In the past five years, the response to
McDonalds coming to Pakistan has been overwhelming. Today Lakson Group Companies has
taken over McDonalds Corporation, USA and a local partner making it a 100% owned and
operated Pakistani company. McDonalds located in Pakistan are currently employing about
3,000 Pakistanis and each store is managed by Pakistani managers. They have also contributed
in other ways than food service. McDonalds has investment of over Rs. 30 billion in the country
and payment of taxes and duties amounting to more than Rs 10 billion Since McDonalds is
doing so well in Pakistan they will continue to grow and add more stores in more cities in the
future.

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Supply Chain Management in Pakistan

These strategies determine what is to be made and what is to be purchased. So McDonalds
follow these strategies and have a just-in-time inventory system. Which means that the orders
are placed as the raw material comes to near finish. McDonalds maintain no inventory levels for
perishable goods.
The major suppliers of McDonald’s in Pakistan are as follows:
 Dawn Breads for Buns
 Choudhry Dairy Limited for dairy products
 Walls Ice Cream
 Coca-Cola Ltd. for drinks
 Packages for packing

WHY THE PROJECT

 To strengthen our knowledge
 To develop practical approach
 To understand real supply chain practices

History
The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in
San Bernardino, California. Their introduction of the "Speedee Service System" in 1948
established the principles of the modern fast-food restaurant. The present corporation dates its
founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April
15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald
brothers' equity in the company and led its worldwide expansion.
With the successful expansion of McDonald's into many international markets, the company
has become a symbol of globalization and the spread of the American way of life. Its
prominence has also made it a frequent topic of public debates about obesity, corporate ethics
and consumer responsibility.

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1990 McDonald's opens in Pushkin Square and Gorky Street, Moscow.

1993 The first McDonald's at sea opens aboard the Silja Europa, the world's largest ferry
sailing between Stockholm and Helsinki.
1994 Restaurants open in Bahrain, Bulgaria, Egypt, Kuwait, Latvia, Oman, New Caledonia,
Trinidad and United Arab Emirates, bringing the total to over 15,000 in 79 countries
on 6 continents.
1996 McDonald's opens in Pakistan – the 95th country.

Products
McDonald's predominantly sells hamburgers, various types of chicken sandwiches and
products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald's
offers salads and vegetarian items, wraps and other localized fare. This local deviation from the
standard menu is a characteristic for which the chain is particularly known, and one which is
employed either to abide by regional food taboos or to make available foods with which the
regional market is more familiar.

Types of restaurants

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 fast-food chains. 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.
Especially themed restaurants also exist, such as the "Solid Gold McDonald's," a 1950s rock-
and-roll themed restaurant. In Victoria, British Columbia, there is also a McDonald's with a 24
carat (100%) gold chandelier and similar light fixtures.

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The site of the first McDonald's to be franchised by Ray Kroc is now a museum in Des Plaines,
Illinois. The building is a replica of the original, which was the ninth McDonald's restaurant
opened.
To accommodate the current trend for high quality coffee and the popularity of coffee shops in
general, McDonald's introduced McCafés. The McCafé concept is a café-style accompaniment
to McDonald's restaurants. McCafé is a concept of McDonald's Australia, starting with
Melbourne in 1993. Today, most McDonald's in Australia have McCafés located within the
existing McDonald's restaurant. In Tasmania there are McCafés in every store, with the rest of
the states quickly following suite. After upgrading to the new McCafe 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 McCafés worldwide.
Some locations are connected to BP gas stations/convenience stores, while others called
McDonald's Express have limited seating and/or menu or may be located in a shopping mall.
Other McDonald's are located in Wal-Mart stores. McStop is a location targeted at truckers and
travelers which may have services found at truck stops.

Respect for local culture of Pakistan

McDonald's Pakistan has developed a special menu with vegetarian selections to suit Pakistan
tastes and preferences. McDonald's does not offer any beef or pork items in Pakistan. Only the
freshest chicken, fish and vegetable products find their way into our Pakistan restaurants.
In addition, we've re-formulated some of our products using spices favored by Pakistanis.
Among these are McVeggie™ burger, McAloo Tikki™ burger, Veg. Pizza McPuff™ and Chicken
McGrill™ burger. We've also created eggless sandwich sauces for our vegetarian customers.
Even our soft serves and McShakes™ are egg-less, offering a larger variety to our vegetarian
consumers.

International Standards
McDonald's Pakistan's local suppliers provide us with the highest quality, freshest ingredients.
Complete adherence to the Pakistan Government regulations on food, health and hygiene is

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ensured, while maintaining our own recognized international standards. Fast, friendly service -
the hallmark of McDonald's restaurants the world over is the mantra we abide by.
Stringent cleaning standards ensure that all tables, chairs, highchairs and trays are sanitized
several times each hour. Such meticulous attention to cleanliness extends beyond the lobby
and kitchen to even the pavement and immediate areas outside the restaurant.

Basic concept of Supply Chain cycle view

We can think of the supply chain as a series of cycles of communication occuring between each
two consecutive stages. The cycles share the same type of communication, since there will
always be a buyer and a supplier.

The further we go from the customer, the bigger the scale of the transactions.

Supply Chain Management: cycle view -

The cycle that surely presents uncertainty to the supply chain is the customer cycle, since it
contains an external buyer agent(the customer). Other risks are present when the supply chain
includes several organizations, and are strictly related with the supplier strategies. Such, for
example, in the case of bottleneck products, the risk of not being able to fullfill a demand must
be countered by securing supply sources.

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Process views of a supply chain

The processes in a supply chain are divided into a series of cycles each performed at the
interface between two successive stages of a supply chain.

Cycle View of Supply Chain

There are five stages in a supply chain (Supplier Manufacturer Distributor Retailer Customer)
and four supply chain process cycles (customer order, replenishment, manufacturing,
procurement cycle).

Supplier Manufacturer Distributor Retailer Customer

McDonald’s Global Supply Chain

Having a clear safety and quality policy in place and connecting all facets of our Supply Chain
partners regardless of
 Country
 Culture
 Language

Transferring this message to all involved parties (Vendors, Transport companies, Marketing
Agencies, Supply Chain departments, Restaurants) around the globe requires an extremely

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effective and complex safety process. Support and involvement of Senior Management in all
phases of the Supply Chain is crucial for McDonald.

Supply Chain Management at McDonalds

McDonald's is committed to providing quality products while supporting other Pakistan
businesses. And so, we spent a few years setting up a unique Supply Chain, even before we
opened our first restaurant in Pakistan.
A Supply Chain is a network of facilities including - material flow from suppliers and their
"upstream" suppliers at all levels, transformation of materials into semi-finished and finished
products, and distribution of products to customers and their "downstream" customers at all
levels. So, raw material flows as follows: supplier - manufacturer – distributor – retailer –
consumer. Information and money flows in the reverse direction. The balance between these 3
flows is what a Supply Chain is all about.
When there is a balance in the finished product ordering, the Supply Chain operates at its best.
Any major fluctuation in the product ordering pattern causes excess / fluctuating inventories,
shortages / stock outs, longer lead times, higher transportation and manufacturing costs, and
mistrust between supply chain partners. This is called the Bullwhip Effect.
Depending on the situation, the Supply Chain may include major product elements, various
suppliers, geographically dispersed activities, and both upstream and downstream activities. It
is critical to go beyond one’s immediate suppliers and customers to encompass the entire
chain, since hidden value often emerges once the entire chain is visualized. For example, a
diesel engine manufacturer may be able to integrate a GPS locator system into its engine
control system. Its immediate customer, a heavy truck manufacturer, may see no need for this
functionality. However, the downstream customer, a trucking company with a large fleet, may
be very interested in a locator system. Understanding the value to the downstream customer is
part of the supply chain management process.
Synchronization delivers significant business benefits to both the customer and the supply chain
Enablers
One stop shopping concept

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Central file management

Inventory management
Restaurant simplification
Synchronizing the perishable Supply Chain
1. Demand forecasting
 Promotional + Continuous Supply
 Restaurant and DC level
2. Supply Planning
 Restaurant and DC level
3. Visibility and Collaboration across the chain

Big Mac's supply chain success

The seed of McDonald's success was sown in 1990 - six years before it started its actual
operations. Traces its supply chain management played a vital role in its growth. About two
decades ago, the QSR wouldn't have meant much to the F&B segment. Today, the acronym has
been seamlessly absorbed in the industry lingo. McDonald's, arguably, one of the first brands
that left a strong imprint on the Pakistan QSR history, has much to do with this. And its success
is credited to its well-established supply management chain.
According to managing director and joint venture partner of McDonald's the company invested
about Rs 40 crore even before its first restaurant commenced operations in October 1996. "We
had to ensure that we had the back-end linked up to the farm level for delivery commitment."
The company also deployed the latest state-of-the-art food processing technology for having a
sound supply chain. The transition towards the latest technology, which has been subsequently
noticed in other QSRs as well, changed the Pakistan fast food scenario to match international
standards.

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Local Sourcing
McDonald's has always been committed to sourcing its requirements from local suppliers and
farmers. This assurance is rooted in the philosophy of our company's founder, Ray Kroc. He
firmly believed in mutual benefits arising from a partnership between McDonald's and the local
businesses, thus ensuring that McDonald's commitment to growth was mirrored by that of its
partners.
In keeping with this belief, we have carefully identified local Pakistani businesses that take pride
in satisfying customers by presenting them with the highest quality products. Adherence to
Pakistan Government regulations on food, health and hygiene were a top priority.
McDonald's Pakistan today purchases more than 96% of its products and supplies from Pakistan
suppliers. Even our restaurants are constructed using local architects, contractors, labour and
maximum local content in materials.
The relationship between McDonald's and its Pakistan suppliers is mutually beneficial. As
McDonald's expands in Pakistan, the supplier gets the opportunity to expand his business, have
access to the latest in food technology, get exposure to advanced agricultural practices and the
ability to grow or to export. There are many cases of local suppliers operating out of small
towns who have benefited from their association with McDonald's Paksitan.
All suppliers adhere to Pakistani government regulations on food, health and hygiene while
continuously maintaining McDonald's recognised standards. As the ingredients move from
farms to processing plants to the restaurant, McDonald's Quality Inspection Programme (QIP)
carries out quality checks at over 20 different points in the Cold Chain system. Setting up of the
Cold Chain has also enabled us to cut down on operational wastage

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Objective
The objective at McDonald is to provide a cost effective solution to customers ensuring product
integrity throughout the supply chain.

Platter of Services
 Supply Chain Structuring
 Inventory Planning & Replenishment Management
 Warehouse Management
 Customer Order Fulfillment
 Logistics – Temperature Controlled

It handles bulk transportation of temperature sensitive products.

Key Features:

1. Dedicated to ‘cold chain’ movement

2. The only logistics solution provider with expertise in handling agri – produce
3. Total kilometer run per month is – 7,00,000 km
4. Perishable tonnage handled per month – 7,000 tons
5. Robust quality systems & processes
6. First in the country to use multi temperature vehicles
7. Use of innovative methods to ensure temperature integrity during transit
8. Experienced staff – The BEST in the industry.

Fresh Rush – Features

 Multi temperature products, such as Frozen (below –18ºC) and Chilled (1ºC to 4ºC) can
be transported
 Flexibility of load movement - A minimum of 500 kgs to maximum of 5000 kgs can be
transported
 In transit temperature tracking
 Fixed schedule of pickup and delivery

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 Well trained and experienced manpower

 Adherence to strict hygiene standards
 Consignment can be tracked through GPS system

Food Park – Features

 Spread over 33,000 sq meters
 Multi Temperature Zones
 Integrated Facility – Storage and Value Addition capabilities under one roof
 Ensured / Guaranteed Food Safety
 Paradigm shift in the way food is handled in the supply chain in India
 First of its kind in the region
 Benchmarked against global standards
 Codex / USDA / PFA compliant
 Scalable
 Dedicated storage for specific categories
 Sanitation / Hygiene standards – Trash handling
 Air / Water Quality – Treatment Plant / ETP
 Ripening Rooms, Crate Wash Facilities, Blast Freezer, Flake Ice Machine
 Value Added Services – Processing of Vegetables & Fruits, Meat, Sea Food and Poultry
 Controls – Building Management System (BMS)
 100 % Power Back Up

Food Park – Capacity

 Capacity to manage over 6000 SKUs
 Can store 70,000 cases with 1,700 pallet positions and over 4,000 pick faces
 Processing
o Vegetable & Fruits – 21 tonnes per day
o Meat – 3 tonnes per day
o Fish – 3 tonnes per day
 Blast Freezing – 6 tonnes – per day

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 Ice Machine – 2.4 tonnes per day

The McDonald’s System – the World’s Best QSR experience

McDonald is the world Market Leader in the QSR area (Quick Service Restaurant). They have
Franchise System which accounts to about 72% of their total franchises. They have about 1.6
million employees in their system. Their Customers Per Day account to 47 million. They have
strong focus on Corporate Strategies
 QSC&V: Quality, Service, Cleanliness and Value
 Ray Kroc: “None of us is as good as all of us”
 Plan To Win -> Successful business revitalization
 Growth by getting better

Purchasing
The McDonalds has the motto of “The 3 legged stool”: Corporation – Franchisees –
Suppliers. Moreover they have the most exclusive, certified facilities. McDonald also
concentrates on the Handshake agreements, Trust with their suppliers. Long term win
partnership is developed between all the suppliers and franchises which increase the
risk sharing. They deliver Rigorous product and service specifications with strong focus
on quality, product specification and environmental audits. McDonalds have
decentralized supplier structure, zone consolidation for multinational suppliers There
distributor is wholesaler for Restaurants.

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Logistics
 ~100 sales items in the restaurant
 ~400 SKUs in the warehouse (Hubs: up to 1,500)
 ~200 restaurants per DC (~180 DCs globally)
 Delivery frequency: ~3/wk, higher in urban areas
 2-3 stops per route
 Exclusive distributors (3PL)
 Freight consolidation (via freight forwarders)
 Long term partnerships with service providers, risk sharing
 Strong quality focus (Cold Chain, HACCP, QIP)

Logistics Standards
 DQMP (Distributor Quality Management Process)
 Operations and Customer Relations (Operations Manual)
 Quality Control (HACCP / QIP)
 Cold Chain standards

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 Hygiene regulations
 Product handling standards
 Emergency and contingency plans
 Risk & Crisis management
 Continuous unannounced internal and 3rd party audits for DCs result in superior quality
scores regularly.

“One-Stop-Shopping “Lean Logistics Solution

McDonald’s Supply Chain Challenges and problems

Freshness
McDonalds have even stronger focus on freshness and quality. Because of the nature of the
product they are offering the focus on quality is a key factor in the success of their business. So
the supply chain plays an important role in their business because without the proper supply

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chain they can’t deliver the fresh items required in making the items being offered at
McDonalds.

Innovation
On-going product innovations are also a big challenge for the supply chain of McDonald. The
continue innovation of the products at McDonald require them to continuously alter the supply
chain and manage it accordingly. With the ongoing introduction of new products like new
burgers and items require them to continuously update the supply chain which requires supply
chain management to be much more extensively used.

Fluctuation in Demand
Strong customer demand fluctuations based on promotions make difficult to manage the
supply of the items. They have to continuously change the supply of their items as per the
seasons. Like in Ramadan they have to totally drop the supply in the day and are much focused
on limited items. The high fluctuations make the forecasting difficult and supply chain
management to be very active.

Bull Whip effect

Because customer demand is rarely perfectly stable, McDonalds must forecast demand to
properly position inventory and other resources. Forecasts are based on statistics, and they are
rarely perfectly accurate. Because forecast errors are a given, McDonalds often carry an
inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw
materials supplier, each supply chain participant has greater observed variation in demand and
thus greater need for safety stock. In periods of rising demand, down-stream participants
increase orders. In periods of falling demand, orders fall or stop to reduce inventory. The effect
is that variations are amplified as one move upstream in the supply chain (further from the
customer).

Cannibalization
Cannibalization occurs when a McDonalds discounts a particular product. The tendency of
consumers is to buy the discounted product rather than competing products with higher prices.

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When the promotion event is over and prices return to normal, however, the effect will tend to
disappear.

Decentralized Structure
McDonalds has Change Management in almost every franchise because of de-centralized
structure. This again leads the supply of the McDonalds to be altered as per the every franchise
which again creates new challenges for the supply chain management.

Conclusions and suggestions

Through effective Supply Chain McDonald’s operates in a famously competitive market and
delivers good value for consumers.
 Not by searching on the commodity market for the lowest cost suppliers. It sources only
from dedicated suppliers.
 Not at the expense of safety or quality. It operates an extremely strict auditing regime.
 Not by pressurizing suppliers. It believes in a policy of paying for performance and long
term sustainability for suppliers.
 The secret is a Lean and efficient chain via rigorous measurement, the spreading of
knowledge and a real sense of teamwork.

References

 www.mcdonalds.com
 www.mcdonalds.com.pk
 www.answers.com/whatisTQM
 http://www.docstoc.com/docs/
 http://www.scribd.com

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