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Marketing Channels
of McDonald’s

Sripriya Mehta
30/043
Marketing Mix Strategies
Submitted to Dr. Ranjit Kaur
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Structure of supply chain

Structuring the supply chain network of Mc Donald’s requires understanding of demand

patterns, service level requirements, distance considerations, cost factors , and other related
factors . Moving of material inward is upstream and outward is downward.

The upward activities are divided into tiers of suppliers. A supplier that sends material
directly to the operations is first tier suppliers, one sending the materials to the first tier
supplier is a second tier supplier, and one sending the materials to the second tier supplier is a
third tier supplier and so it continues till it reaches to the original source. In the similar way,
the customers are also divided into tiers, in which one that gets product directly from the
operations is the first-tier customer and so on to the final customers.

Similarly, in the case of Mc Donald’s it deals with different suppliers for its different
products and aims to provide the great taste and with an affordable price. McDonald’s has
been working in partnerships with household brands like Tropicana, Coca Cola , Buxton ,
which acts as a second tier supplier as they supply products to Keystone Distributors who is
working as First tier supplier for McDonald’s . There are number of other suppliers such as
Sun Valley and Moy Park which supplies Mc Donald’s with Chicken Products and they work
as a second tier supplier for Mc Donald’s .Ecsa who are the makers of the beef patties who
are also supplying their products to Mc Donald’s First tier Supplier ( Keystone
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Distributors ) . All the different supplier deals with keystone distributor , who sends the
materials directly to Mc Donald’s to run the business smoothly by providing affordable prices
, delivering products on time , and also helping in outward movement of orders ,and receiving
payments from customers . Keystone as a first-tier supplier plays an important role in the
structure of supply chain for making upward and downward activity successful.

Managing the Supply chain

It is the responsibility of First Tier supplier to provide perfect service and product every time
they need and also to coordinate the requirements of hundreds of Mc Donald’s. They work
along the supply chain pipeline ensuring the quality and reliability is kept while passing
delivery to restaurant. In order to achieve this Keystone uses the latest technology and
software to work closely with Mc Donald’s marketing and business plan. Keystone carries
five days inventory in their stores and delivers three to four times per week inventory in each
restaurant. To meet their goal, they make use of 300 vehicles, tractors and trailers which helps
them to run these logistics operations. The biggest challenge they face is to ensure that the
vehicles arrives the restaurants at time and containing everything being ordered and meeting
100 percent quality of product including frozen , chilled or dry .

Mc Donald’s Supply chain is based on three concept which are as follows:

Suppliers Company
Franchise

Mc Donald’s took few years setting up the cold chain which is very necessary to maintain the
integrity of food products and retain the freshness and nutritional value.

They also make use of E-Procurement (electronic procurement) which is the purchase and
sale of supplies, work and services through the internet as well as other information
enterprises resource planning.

E-Mac Digital is E-Procurement website which is jointly owned by Mc-Donald’s and Accel-
KKR Internet Co.

This procurement Hub was launched in 2001 which allows all of Mc Donald’s franchisees
across the globe to buy everything needed to run their restaurants, which includes uniforms as
well as Ham burger.

Procurement site also allows business owners to buy supplies and materials at a discounted
price which reduces the costs for Mc Donald’s.

E-Procurement allows 85% cut in costs according to the McDonald’s supply chief.

Mc Donald’s works with two types of suppliers which includes Major and small suppliers
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Suppliers

1) Dynamix Dairy Industries ( Supplier of cheese )

Fully automatic international standard processing facility

Network of milk collection centres equipped with bulk

coolers Dedicated quality program

Dedicated R and D centre

2) Trikaya Agriculture ( Supplier of Iceberg

Lettuce ) Specialized nursery with a team of
agricultural experts

Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant

The pack house, pre-cooling and cold room are located at the farms itself to ensure no
delay

3) Vista Processed Food Pvt Ltd (Supplier of Chicken and vegetable

products ) World class Infrastructure and support services

Separate processing lines for chicken and vegetable foods

Hi-Tech refrigeration’s plants for manufacture of frozen food at temperature as low as -35
c

4) Amrit food
Supplier of long life UHT Milk and Milk products for frozen desserts

Logistics

AFL Logistics a 50:50 JV between Airfreight and FX Coughlin of USA –Mc Donald’s
International logistics partner

-100 Sales items in the restaurant

-400 SKUs in the warehouse
-200 restaurants per DC (~180 DCs globally)
-Delivery frequency: ~3/wk,higher in urban areas
-2-3 stops per route
-Exclusive distributors
-Strong quality focus (cold chain, HACCP, QIP)
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Transportation

The distribution centre receives items from different parts of the country and the items
are stored in rooms with different temperature zone and are finally dispatched to the
Mc Donald’s restaurants on the basis of their requirements.
It has both cold as well as dry storage facilities with capability to store products up to
-22’ C as well as delivery trucks to transport the products at Temperatures ranging
from the room temperature to frozen state.

The specially designed trucks maintained the temperature in the storage chamber
throughout the journey.

Distribution

Matching supplier production with deliveries to meet the schedule and restaurant needs
It emphasis on the economics of scale and high storage volumes. Apart from this they
also conduct a Quality Inspection Program (QIP).

Mc Donald’s uses three types of distribution systems:

1) Franchising
2) Licensing
3) Joint Ventures

Push and Pull Process Followed in Mc Donald’s

Pull Process are initiated by a customer order while the push process is initiated by the
anticipation of customer order.

Mc Donald’s uses both pull as well as push process, the products will be pushed to the
restaurants and the customers demand for that products creates a pull process.

Mc Donald’s Inventory Management Problem

One of the major challenges that Mc Donald’s face is to manage the Inventory. Inventory
Management involves creating a balance between the customer’s needs while at the same
time minimizing the waste. Waste is reduced by the following ways:

1) Accurate forecasting of demand so that the products do not have to be thrown away as
often
2) Accurate Inventory control of raw materials.
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How to?

Meet customer
Minimize Waste
needs

Inventory management as a term says involves creating a balance between meeting

customer’s needs while at the same time also minimizing the waste. This is very difficult task
as the customer’s taste change, Mc Donald’s needs to increase the range of new products it
offers, so the challenge of reducing the waste becomes even more greater.

McDonald’s US Supply Chain Management

McDonald’s U.S. Supply Chain Management (SCM) is a unique, dis-integrated system. In

serving nearly 27 million U.S. customers each day, the company does not produce,
warehouse, or transport any of its equipment, food, packaging or other supplies; all of its
supply chain is outsourced. Suppliers are independently owned and operated to keep the
relationship at arm’s length and to allow each company the ability to focus on and leverage
its area of expertise. The supply chain is built on a balance of demonstrated results and long-
term relationships, with suppliers that are flexible, responsive, and willing to invest for the
long-term benefit of the relationship. SCM is responsible for managing these relationships
and the performance of the supply chain system.
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Specific Locations of MCD

The McDonald's supply chain is a complex network of direct and indirect suppliers that are
subject to clear quality and efficiency standards. The company uses direct suppliers who
coordinate purchasing and distribution to restaurants. In comparison, indirect suppliers
operate facilities such as grain mills and slaughterhouses. Farms and ranches raise livestock
or grow wheat, lettuce and other essential ingredients.
The distribution centres also coordinate purchasing and distribution to restaurants. The products
are transported to the restaurants in special vehicles equipped with temperature control
mechanisms. McDonald's only accepts products that are transported under ideal conditions.

Distribution centres:

An integral part of the Radhakrishna Group, Foodland specializes in handling large

volumes, providing the entire range of services including procurement, quality inspection,
storage, inventory management, deliveries, data collection, recording and reporting. Salient
strengths are: A one-stop shop for all distribution management services. Dry and cold
storage facility to store and transport perishable products at temperatures up to -22 Degree
Cel.

McDonald’s warehouses management runs with separate areas for dry, refrigerated and frozen
foods. In each area, a specific temperature is maintained so the products are not spoiled
because of weather and climate changes. The same goes for distribution – McDonald’s has
the same three distribution channels through which they efficiently deliver food to restaurants
while maintaining the correct product temperature.
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Channels of Distribution: McDonald's: -

Producer Wholesaler Retailer Customer

Intensive Distribution:

Distribution arrangements tend to be long term in nature. Because of this time horizon,
channel decisions are usually classed as strategic, rather than tactical or operational ones.
Many of McDonald’s restaurants are open 24 hours per day which satisfies the customer’s
needs and wants, especially for exists their hunger. This kind of distribution strategy is called
"intensive distribution", means marking the product available for sale through all possible
channels of distribution. As defined by Kotler (et al., 2001, p. 487), "intensive distribution is
stocking the product in as many outlets as possible." In addition, this strategy must be
designed to reach the consumer wants at anytime and anywhere.

As distribution centres, the company is responsible for:

 procurement,

 quality inspection programme,

 storage,

 inventory management,

 deliveries to the restaurants and

 data collection,

 recording and reporting.

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McDonald Supply Chain in India

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Retail stores around the world:

North America South America European markets Africa Asian &

Oceanic
Markets
Canada Argentina Austria Egypt Australia
Costa Rica Bolivia Azerbaijan Morocco Bahrain
El Salvador Brazil Belarus South Africa Brunei
Dominican Chile Belgium Tunisia Mainland China
Republic Colombia Bosnia & Fiji Islands
Herzegovina
Honduras Curacao / Aruba Bulgaria Hong Kong
Mexico Ecuador Croatia India
Nicaragua Guadeloupe Cyprus Indonesia
Panama Guatemala Czech Republic Israel
Puerto Rico Guyana Denmark Japan
Sint Maarten Martinique Estonia Jordan
United States Paraguay Finland Kuwait
Peru France Lebanon
Suriname Georgia Malaysia
Trinidad & Germany Mauritius
Tobago Greece New Zealand
Uruguay Hungary Oman
Venezuela Ireland Pakistan
Italy Philippines
Kazakhstan Qatar
Latvia Saudi Arabia
Lithuania Singapore
Luxembourg South Korea
Malta Sri Lanka
Moldova Taiwan
Netherlands Thailand
Norway Turkey
Poland United Arab
Portugal Emirates
Romania Vietnam
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Russia
San
Marino
Serbia
Slovakia
Slovenia
Spain
Sweden
Switzerlan
d Ukraine
United Kingdom

Retail stores in India

In India, McDonald's is a joint-venture company managed by two Indians. While Amit Jatia,
M.D. Hardcastle Restaurants Pvt. Ltd. owns and spearheads McDonalds in west & south
India, McDonald’s restaurants in North & East India are owned and managed by Vikram
Bakshi’s Connaught Plaza Restaurants Private Limited. McDonald’s entered Indian market,
in 1996, with their first restaurant opening up in Delhi. Currently there are more than 300
outlets in India which are available across India in all states.

Thus, McDonald’s Supply Chain is quite uniquely handled with the least number of
employees on McDonald’s payroll. The control over outsourced entities is commendable.
With an ever-growing business of fast food McDonald’s has laid down its systems efficiently
and expanding at enormous speed. The model can be replicated in other sectors as well.
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Competitive Priority

 The advantage of competition is determined by the presence of intelligent and

discerning intentions. Business organizations need to have strong strategies that use
their vital energy as a way to achieve a quality economy.

 The business plan of an organization should be based on operational efficiency. In

addition, successful organizations strive to create an environment in which they can
achieve their critical goals through powerful business processes and activities.

 Organizations need to be able to effectively use strategies that can take advantage
of new opportunities. In addition, they should be able to respond to complex
situations in an effective and efficient way.

 McDonald’s is an industry leader in the fast food industry. Its key competitive
advantages include nutrition, ease of use, accessibility, innovation, quality,
hygiene, and value-added services. The success of an organization has been its
ability to harness its key strengths in overcoming weaknesses.

 MCD strive to be cost leaders and offer their food at prices that cannot be matched by
their competitors. In order to do this, they keep the stores efficient and everyday
operations costs as low as possible. Doing so, they allow their stores to be superior to
other fast food restaurants and can serve the food at lower prices than any other fast
food company.

 Another important competitive priority that they have here at McDonald’s is the
speedy delivery of their food.

 Burger King and KFC are two of the organisation's competitors. Burger King was
successful because it was able to focus on product differentiation, reliable customer
service, and continuous innovation. KFC has been successful because of its emphasis
on high quality food and great restaurants that offer great prominence to its
customers.
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 MCD’s unique supply chain model is based on an exceptional set of operating

principles that create long-term wealth and competitive advantage for everyone
involved by mitigating costs, preventing safety issues, and producing quality and
innovative products that delight customers in a uniquely McDonald’s way. The result
is increased customer value, better brand health and stronger business performance.

 Also, In 2016, Gartner’s named McDonald's Supply Chain System # 2 in the Major
Supply Chains. One of the main reasons McDonald's supply chain is successful is the
legitimate interest model. It's a model where suppliers get bigger chunks of the
proverbial pie by doing business with McDonalds.

 Engaging suppliers with a plan to help them make more profit and steady growth
McDonalds can ensure the supplies they need and keep costs low while making their
own profit. For example, suppliers do not have to worry about asking for price
increases for products that are already in the contract. Just as restaurants do well, so
do suppliers. Rather than seeing producers as mere suppliers, they are seen as
business partners and employees.