ON-CAMPUS Academic Session 2021/2022 September 2021 Semester

ASSIGNMENT

BLCP201/03 – INTRODUCTION TO LOGISTICS & SCM

INSTRUCTIONS TO CANDIDATES:

1. This assignment is the case study.

2. This assignment consists of ONE (1) section with THREE questions. Answer All
questions.

3. You are allowed a maximum of one (1) attempt to submit your assignment.

4. Completed assignment must be submitted by 29th Oct 2021, Sunday (23:59).

 McDonald’s French Fries Supply Chain
Before opening its first store in India in 1996, McDonald's spent six years building its supply
chain. During those six years, the company worked to source as many ingredients as possible
from India, and their efforts were successful. However, Mac Fries, as McDonald's French fries
were popularly known, were a particularly tough product to source locally—and importing fries
was undesirable for both cost and availability reasons.

Not All Potatoes Are Created Equal

While India was the third-largest producer of potatoes in the world, less than 1 percent were
process grade. To qualify for French fry production, a potato must have high solids, low sugars,
large, oblong shape, disease resistance and a long dormancy. Ideally, a French fry potato needs a
growing season of 120 to 150 days, long daylight when photosynthesis takes place, and cool
nights, when potato bulking takes place. Sandy-loam soil is ideal, and the potatoes grow better
with controlled.

In India, ideal potato growing, and storage conditions simply do not exist. The Indian climate
allows growth only in the winter versus the long summers in parts of the U.S. and Europe. This
limited the number of days those potatoes could be harvested. Outdated farming and irrigation
practices limited yields as well. Typical Indian potatoes have high sugars, low solids, and are
small not a good fit for long French fries. When a normal Indian table potato is sliced into a
French fry and put into oil, due to high moisture levels, the result is an oily, soggy mass of
potatoes rather than crispy golden fries.

McDonald's India Demand and Supply

India had the second-largest overall population in the world next to China and a fast-growing
middle class which now had more discretionary spending power. To cater to the Indian
consumer, McDonald's worked on developing a completely new menu geared to local tastes. It
developed a vegetarian menu and focused on fish and chicken products since beef is not eaten by
most Hindus, who represented around 50 percent of the population, and pork is not commonly
eaten.
In 1990, when McDonald's began investigating entry into India, the company observed very
outdated farming and irrigation practices in the country. Water and electricity were wasted in the
farming process, and there were no facilities at the finish level to store post-harvest produce.
Most raw materials such as wheat flour, milk and potatoes did not meet McDonald's target
specifications. Logistics and distribution were real challenges as well. Roads were extremely
poor, and a cold chain barely existed. There were only 200 refrigerated trucks in the entire
country. Temperature controlled warehouses for products like potatoes were not available. The
quality of food processing was quite low. McDonald's could not buy processed chickens, as India
had mostly a live bird market. There was no deboning facility available. Vegetable processing
was very rare, as most Indians used fresh vegetables purchased at the local market. It was clear
that the company had a lot of work to do to develop the supply chain it needed to deliver food to
customers that met McDonald's specifications.

The Building Blocks of a Local Approach

McDonald's local approach to doing business shaped its entry into India. The company wanted to
have partners that understood Indian operating conditions and Indian consumers. The company
also wanted to build a local supply chain to drive agricultural growth, generate employment and
show the Indian government the company's commitment to development.
With the India supply chain, the company used a mix of international suppliers, local supplies,
and joint ventures. This was critical since all the elements, from the menu, cost structure and
overall economics were very different from their counterpart’s m the U S. The joint venture
model, where McDonald's corporate partnered with local entities, was typical of how
McDonald's operated in many international markets. Many items, from sandwich sauces, chicken
and vegetable patties to distribution center services were developed through joint ventures
between local suppliers and an international McDonald's supplier. In some cases, McDonald's
could rely on 100 percent domestic sources, such as with fish patties, dairy mixes, and buns. If
100% were local sources or partnerships could not satisfy McDonald' s needs, the company
resorted to imports.

McDonald's opened its restaurants in Delhi and Mumbai in 1996, only after years of developing
the supply chain and knowledge of the Indian market. The company focused on four key
principles: quality, service, cleanliness, and value. In the Indian market, the quality of ingredients
was the big challenge. Most agricultural products were grown for home consumption, so they did
not conform to standards required for processing. After years of setting up the foundation,
McDonald's fumed its focus to building food, safety and quality standards, meeting service
standards, and clearing bottlenecks in the supply chain. Growth accelerated compounded annual
growth was around 31 to 35 percent from 2003 to 2011. McDonald's began to focus more
attention on filling capacity needs, adjusting supply and service models, and localizing its
products.

Potato Farmer Matters

French fries were way popular with Indian customers, and the supply of Mac Fries was critical to
the company's success in India. Fry are something that Indian consumers absolutely love at
McDonald's, and they expect for affordable price.

In the early 1990s McDonald's helped create a joint venture between international French fries’
supplier Lamb Weston and India-based Tami Foods. The joint venture invested 10 million
dollars to set up the first French fries line in the country. This money was invested in land, plant
and machinery. Given the challenges around raw material quality and storage conditions, the
joint venture focused on identifying and growing a suitable variety of potato for making Mac
Fries. New storage facilities were created to help store potatoes in the right conditions. However,
the huge investment of time and money to produce Mac Fries had failed because the company
could not grow the right variety of potato. McDonald's could not open its first store without Mac
Fries on the menu.

At this point, the company realized that importing frozen fries was the best option to get fries
quickly. Lamb Weston petitioned the Indian government to allow imports of fries into India. The
process for obtaining an import license approval took almost six months to add frozen French
fries into the customs classification, so that Lamb Weston could Import fries. The Indian
government imposed restricted import quantity up to 800 metric tons only, additional import
duties were 56 percent. The lead time for importing fries from the U. S. to India was around 60
days.
Given McDonald's aggressive growth plans and limitations on import quantities under one
license, McDonald's invited another one international suppliers, McCain, to double the import
supply. McCain was also allowed to import 800 metric tons of frozen French fries, which it
sourced from its plants in the U.S., New Zealand and Europe. Both Lamb Weston and McCain
were then helping Import French fries to serve the growing demand for McDonald' s in India. By
1999, the quantity restriction was removed by the government. However, the steep import duties
and unfavorable exchange rate meant that fries would continue to be an expensive item unless
localized. Relying on imports was not a tenable strategy.

Making a Structural Change

Though the initial attempt to localize French fries had failed, McDonald's decided to fry again in
1998 with McCain. In India, the raw potatoes were not allowed to be imported. So, McCain had
to bring in only the suitable potato genetic resources. The local supply strategy was an exercise
in risk management. If Indian licensing requirements changed in the future, McDonald's may not
have a license to import fries. Given import duties levied on foreign agricultural products in
many countries, having a local strategy was often an advantage.

The first big focus would have to be cultivating the appropriate variety of potato where other
suppliers had failed. McCain learned that cultivating potato seeds in high elevations was ideal
because seeds grown at high altitude had high vigor, enabling a commercial crop planted with
those seeds to have higher yield and larger-sized potatoes. Second, farmers would need to grow
the potatoes in a suitable, more accessible location than the Himalayas. At the same tune,
McCain had to test its production capabilities in India. Vista Foods, which supplied McDonald' s
with patties, puffs and pies, had some excess capacity in India, McDonald's helped McCain get
access to this excess capacity without a huge investment for McCain had to bring in equipment to
produce potato wedges and patties, while the rest of the infrastructure was provided by Vista
Foods. This gave McCain enough potato product volume to build up some business with local
farmers. With the patty supplier Vista's excess capacity was utilized, McCain was able to test the
Indian market with small-scale production, and McDonald's had found a route to developing a
local supply of French fries. Knowing that they would have McDonald's commitment to buy
fries, McCain then decided to build a $25 million (Canadian) manufacturing facility dedicated to
processing French fries. The plant had the capacity to process 40,000 potatoes. Once they were
processed, fries were frozen and sent to third-party logistics storage facilities or to McDonald's
distribution centers. From there, they were shipped to restaurants.

Partnering with Farmers to Improve Quality and Build Quantity: A Win-Win

McCain conducted regional trials to locate the ideal growing area and experimented with 13
types of potatoes to pinpoint the right variety. They also conducted management trials to identify
the best combination of growing practices, and storage trials to figure out the best protocol for
storing potatoes. The new drip irrigation techniques used 33 percent less water than traditional
flood irrigation. By 2011, around 100,000 acres were under drip or sprinkler irrigation compared
with just 67 acres in 2002. The company transformed storage practices by applying a potato
sprout suppressant in combination with using controlled temperature storage. This helped to
avoid deterioration in potato quality during storage. Local government also subsidy farmer to
buy drip irrigation system.

Key agricultural breakthroughs were demonstrated to farmers growing potatoes for McCain.
These Included shifting from traditional row planting to mechanical field preparation, shifting
from hand picking of potatoes to mechanical and planting in double rows to utilize space better
and reduce water consumption.

In 2007, McCain was finally able to produce fries that met McDonald's specifications. McCain
doing what everyone said was not possible. Most potato-growing experts McDonald' s had
consulted in the past said that India could never grow the one of potato needed to make a Mac
Fries. But against all odds, and after years of effort, McCain made this happen. By 2008, 30
percent of McDonald's India's supply was being manufactured locally and grown to 75% by
2010. McDonald's benefited from using local fries with 30 percent lower cost structure and no
exposure to the fluctuating exchange rate.

McDonald's India and McCain India had come a long way and had discovered that close
collaboration with farmers was essential to their collective success. Given the pressure of food
inflation, reducing reliance on imports was becoming even more critical. The company's close
collaboration with farmers over many years would help them address the current challenge of
cost control. But the question remained: Could McDonald's ever achieve 100 percent local
supply and stay there amidst growing demand?

-End of case study-

The case study is adopted and adapted from Pontifical Xavierian University (2015). Student can
watch YouTube to understand about McDonald’s French Fries Supply Chain.

This Is How McDonald's Perfect French Fries Are Actually Made

https://www.youtube.com/watch?v=ibH2fyiGWLg

1. Elaborate the challenges and opportunities that McDonald’s and its suppliers face
in India market to develop the French Fries Supply Chain.

[ 40 marks]

The challenges and opportunities that McDonalds and its suppliers face in India market to
develop the French Fries Supply Chain are such as McDonald's helped create a joint
venture between international French fries’ supplier Lamb Weston and India-based Tami
Foods in the early of 1990’s. The joint venture invested 10 million dollars to set up the
first French fries line in the country. This money was invested in land, plant and
machinery. The challenges around raw material quality and storage conditions, the joint
venture focused on identifying and growing a suitable variety of potato for making Mac
Fries. New storage facilities were created to help store potatoes in the right conditions.
However, the huge investment of time and money to produce Mac Fries had failed
because the company could not grow the right variety of potato. McDonald's could not
open its first store without Mac Fries on the menu.
At this point, the company realized that importing frozen fries was the best option to get
fries quickly. Lamb Weston petitioned the Indian government to allow imports of fries
into India. The process for obtaining an import license approval took almost six months
to add frozen French fries into the customs classification, so that Lamb Weston could
Import fries. The Indian government imposed restricted import quantity up to 800 metric
tons only, additional import duties were 56 percent. The lead time for importing fries
from the U. S. to India was around 60 days.

Given McDonald's aggressive growth plans and limitations on import quantities under
one license, McDonald's invited another one international suppliers, McCain, to double
the import supply. McCain was also allowed to import 800 metric tons of frozen French
fries, which it sourced from its plants in the U.S., New Zealand and Europe. Both Lamb
Weston and McCain were then helping Import French fries to serve the growing demand
for McDonald' s in India. By 1999, the quantity restriction was removed by the
government. However, the steep import duties and unfavorable exchange rate meant that
fries would continue to be an expensive item unless localized. Relying on imports was
not a tenable strategy.

Though the initial attempt to localize French fries had failed, McDonald's decided to fry
again in 1998 with McCain. In India, the raw potatoes were not allowed to be imported.
So, McCain had to bring in only the suitable potato genetic resources. The local supply
strategy was an exercise in risk management. If Indian licensing requirements changed in
the future, McDonald's may not have a license to import fries. Given import duties levied
on foreign agricultural products in many countries, having a local strategy was often an
advantage. The first big focus would have to be cultivating the appropriate variety of
potato where other suppliers had failed. McCain learned that cultivating potato seeds in
high elevations was ideal because seeds grown at high altitude had high vigor, enabling a
commercial crop planted with those seeds to have higher yield and larger-sized potatoes.

Second, farmers would need to grow the potatoes in a suitable, more accessible location
than the Himalayas. At the same tune, McCain had to test its production capabilities in
 India. Vista Foods, which supplied McDonald' s with patties, puffs and pies, had some
excess capacity in India, McDonald's helped McCain get access to this excess capacity
without a huge investment for McCain had to bring in equipment to produce potato
wedges and patties, while the rest of the infrastructure was provided by Vista Foods. This
gave McCain enough potato product volume to build up some business with local
farmers. With the patty supplier Vista's excess capacity was utilized, McCain was able to
test the Indian market with small-scale production, and McDonald's had found a route to
developing a local supply of French fries. Knowing that they would have McDonald's
commitment to buy fries, McCain then decided to build a $25 million (Canadian)
manufacturing facility dedicated to processing French fries. The plant had the capacity to
process 40,000 potatoes. Once they were processed, fries were frozen and sent to third-
party logistics storage facilities or to McDonald's distribution centers. From there, they
were shipped to restaurants.

In 2007, McCain was finally able to produce fries that met McDonald's specifications.
McCain doing what everyone said was not possible. Most potato-growing experts
McDonald' s had consulted in the past said that India could never grow the one of potato
needed to make a Mac Fries. But against all odds, and after years of effort, McCain made
this happen. By 2008, 30 percent of McDonald's India's supply was being manufactured
locally and grown to 75% by 2010. McDonald's benefited from using local fries with 30
percent lower cost structure and no exposure to the fluctuating exchange rate.

2. Describe the options that McDonald’s and its suppliers can pursue to overcome the
challenges of French Fries Supply Chain.
[ 30 marks]
McDonald’s and its suppliers can pursue to overcome the challenges of French Fries
Supply Chain by cultivate the correct variety of potato where other suppliers failed.
McCain learned that by cultivating the potato seeds, it helps the seeds to grow at high
altitude had high vigor, and enabling a commercial crop planted with those seeds to have
higher yield and larger-sized potatoes. Second, farmers would need to grow the potatoes
 in a suitable, more accessible location than the Himalayas. At the same time, McCain had
to test its production capabilities in India, so Vista Foods, which supplied McDonald' s
with patties, puffs and pies, had some excess capacity in India McDonald's helped
McCain get access to this excess capacity without a huge investment for McCain had to
bring in equipment to produce potato wedges and patties, while the rest of the
infrastructure was provided by Vista Foods. This gave McCain enough potato product
volume to build up some business with local farmers. With the patty supplier Vista's
excess capacity was utilized, McCain was able to test the Indian market with small-scale
production, and McDonald's had found a route to developing a local supply of French
fries, because, In India, the raw potatoes were not allowed to be imported. So, McCain
had to bring in only the suitable potato genetic resources. The local supply strategy was
an exercise in risk management. If Indian licensing requirements changed in the future,
McDonald's may not have a license to import fries. Given import duties levied on foreign
agricultural products in many countries, having a local strategy was often an advantage.

3. Recommend the supply chain strategies or technologies that McDonald’s and its
suppliers could adopt to grow in India market.
[ 30 marks]
The supply-chain network of McDonald’s is of its own kinds: 100 percent outsourced
Lean with no back-up staff and no frills. The company is enjoying growth of 30-40
percent every year in India. The credit goes to the proper research work done before
launching McDonald’s in India. The experts set together and coordinated groundwork
was done to ensure the successful functioning of its demand and supply system. It was
from 1990 onwards, expert teams happened to be in India to check the strength of India’s
logistics industry, the reliability of its transport sector, and resource availability. The
result was an extremely effective supply-chain at optimal level in place despite of India’s
weak infrastructure. In context to Indian market special menus with religious and cultural
sentiments were designed and in six years’ time the company was ready with its entire
supply chain. McDonald’s which is known for its beef burgers free of beef and pork in
Indian subcontinent. The McDonald’s supply chain is both critical and multi-layered.
There are two categories in food ingredients supply; Tier-I and Tier-2 suppliers as
reflected from figure 1. In Tier-I there are 14 core suppliers-provide processed products
for example Vegetable and chicken patties comes from Vista Processed foods Pvt Ltd.
French fries, potato wedges and hash browns by McCain Foods India Pvt. Ltd. And so
on. In Tier-2 suppliers there are growers and processors who provide lettuce and potato,
poultry items and coating systems that are used for coating the chicken and vegetable
patties. The flow of ingredients is from Tier-2 to Tier-I suppliers who process them. Now,
the fleet of refrigerated trucks transport these processed foods to the company’s
Distribution Centers(DC‟s). These trucks have been specifically maneuvered for
variability of McDonald’s products. These are Multi-temperature and single temperature
trucks into practice where 250 McDonald’s Indian restaurants are provided on time fast
delivery. This is not unidirectional, it also includes the significant aspect of return
logistics. Hence the empty bottles and racks are available for further processing. Plastic
crates are used for buns to ensure their quality. With four Distribution Centers across the
country all 250 restaurants are served effectively. And every new outlet addition is
capably handled by these DCs within in ten days in the country. The Noida and Mumbai
DCs are primary Distribution Centers owned by the company. The other two Distribution
Centers are in Bengaluru and Kolkata are housed in leased properties. The system that is
used to manage link between Restaurant and DCs is a hub-and-spoke model where the
DCs act as hubs. McDonald’s transportation has been completely outsourced and since 80
percent is refrigerated truck movement, the company has a dedicated fleet which
transports their goods.
References
Chegg. (2020). Question: QUESTION Recommend the supply chain strategies or technologies .
Retrieved from Chegg: https://www.chegg.com/homework-help/questions-and-
answers/question-recommend-supply-chain-strategies-technologies-mcdonald-s-
suppliers-could-adopt-g-q85905519

Sharma, Kshitiz. (2013). A CASE STUDY ON MCDONALD’S SUPPLY-CHAIN IN INDIA.

Asia Pacific Journal of Marketing & Management Review. 2. 112-120.