Mcdonald’s India: Optimizing the French Fries

Supply Chain
BY GROUP 8
CHINMAY BAJAJ 180103068
KESHAV SINGH BHADORIA 180101129
SHREYASH GYAN 180103207
PARTHSARTHY SINHA CHOUDHARY 180101061
VISHWENDRA SINGH 180101122
AKSHAYA BHUVANESWARAN 180102011
Q1. What were the pitfalls of the initial attempts by McDonald’s India
to create its’ French fry supply chain?
 While India was third largest producer of potato in the world, less than 1% of the
potatoes were process grade
 McDonald’s had to create backward linkages all the way to the farm level, hence
spending over $100mn even before the stores were opened, thus having to absorb all
the supply chain cost
 In order to supply French fries, McDonalds's initially created joint venture between
International French fry Supplier Lamb Weston and India based Tarai foods
 The joint venture’s agricultural techniques were unable to produce potatoes of right
size and containing ideal amount of solids, which produced oily and limp fries
 To avoid the delay in opening of stores, McDonald's realized importing frozen fries
was the best option for the time being
 Pitfalls of the initial attempts by McDonald’s India to create its’
French fry supply chain
 But problems continued as the process for obtaining an import license was
complex and time consuming
 After 6 months, the Indian government allowed the imports, but the import
quantity was restricted up to 800 metric tonnes of french fries
 Import duties were very high- 56%
 Lead time of import from US was very high- 60 days
 Seeing the restrictions, McDonald's invited another international supplier, McCain
so that it can also import 800metric tonnes of frozen fries
 Factors which enabled McCain’s success

 McCain India’s first employee was an agronomist and its second employee was a supply
chain manager thus giving them a better understanding of agronomy
 McCain had to bring in potato germplasm( a collection of genetic resources that could be
used to grow suitable potatoes locally)
 McCain learned that cultivating potato seeds in high elevations was ideal, so its instituted
a Shepody potato seed multiplication valley in 13000 –foot high Spiti Valley
 Vista food’s excess capacity helped McCain with enough potato volume to build up small
businesses with local farmers and build their trust
 The patty supplier Vista’s excess capacity was utilized , McCain was able to test the Indian
market with small-scale production, and McDonald's found a route for developing local
supplies of French fries making it a win-win situation for all
Q2.How did farmer collaboration and capability building help
promote McDonald’s growth and quality objectives?

 Regional trials helped to locate ideal growing area and the best type of potato, resulted
in Gujarat selected as prime growing area
 McCain established on-acre demonstration farm which helped the farmers to fully
understand how to grow the crop
 Close relationship with farmers and diverse supply base helped ensure a secure supply
 Farmers got a much better price in comparison to selling in the local mandi, so they
ensured that the quality of the potato is up to the mark
 Guaranteed sales, increase in yield with better agricultural equipment's and practices
provided by McCain and reduction in water consumption made life easier for the
farmers
 By 2011, 75% of Mcdolnald’s India supply was manufactured locally
Q3.Risks in Macfry Supply Chain model

 Natural calamities like droughts, hailstorms or improper rainfall can destroy the crops
 Indian farmers still rely predominantly on monsoon for irrigation
 Irregularity in output from various farmers
 Risk of spoilage of raw potatoes and processed frozen fries while transit
 Risks involving proper storage of the frozen fries
 Improper forecast of supplies requirement
 Excess output will also have to be bought by Mcdonald’s
 How can McDonald’s address the competitive threats

 By incentivizing the farmers better than other firms

 Long term contracts with big farmers so that they don’t switch to serving other competitors
 By keeping the research results of ideal potato variant confidential and asking the farmers to
do the same
Q4.Is it better to push for 100% localization using one supplier
or to use a multi supplier strategy by continuing to import some
supply?

 A multi supplier strategy would be more preferable as Indian farm outputs gets hit
badly in case of natural calamities or failed monsoons
 Having multiple suppliers keeps the bargaining power in hand of the company
 Continuing to import supplies from international suppliers will help maintain
relations and increase import in adverse situations
 Q5.Would vertical integration strengthen McDonald's ability to
have assured supply, or weaken it?

 Vertical integration would strengthen McDonald's assured supply as the farmers would
have assurance of their output being brought by McDonalds
 Diversified supply will ensure failure of one or two farmers won’t make much of a
difference in overall supplies
 However, McDonald's shouldn’t totally rely on local suppliers and should be open
towards relation with other suppliers
Thank You