McDonald's India Submitted to:

Optimizing McDonald's Supply chain of French Fries Prof. Dr. Rehaf Hassan
 
Submitted By:
• Mohamed Hassan Elleithy
• Mohamed Nour Eldeen
• Mohamed Mohamed Abd Alraheem
• Hedaya Hussein Ahmed Alshabory
• Waleed Mohamed Ahmed Omar
AGENDA:
1) Overview & History
2) Building a Supply Chain From Scratch
3) Demand & Supply in India
4) Building Blocks of a Local Approach
5) Potato and Farmer matters
6) Making a Structural Change
7) French Fries Win-Win Challenge
8) Optimizing Supply Chain Network
9) Conclusion
Building A Supply Chain From
Scratch
 Not All Potatoes Are Equal

• To Qualify For French Fry Production:

• A Potato Must Have High Solids
• Low Sugars
• A Large Oblong Shape
• Disease Resistance
• Long Dormancy

• 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.
• Outdated Farming And Irrigation Practices Limited Yields As Well.
• Storage Was Also A Problem.
 Mcdonald’s India Demand And Supply In The 1990s
(Demand)
• The Country Had The Second-largest Overall Population In The World Next To China.
• The Country Had 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 80 Percent Of The Population And Pork Is Not Commonly
Eaten.
• The Company Built A Menu That Was 60 Percent Vegetarian
 McDonald's India Demand And Supply In The 1990s
(Supply)
• Supply Chain Inefficiencies Such As Poor Cold Storage, And Poor Warehousing And Distribution Infrastructure.
• Agriculture Practices Were Outdated Compared To Developed Economies.
• Water And Electricity Were Wasted In The Farming Process, And There Were No Facilities At The Farm 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

• 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.
 McDonald's India Demand And Supply In The 1990s
(Supply)
• 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.
• Despite Challenges With Obtaining Local Supplies Of Ingredients, The Company Planned To
Use Local Sources For Ingredients To The Fullest Extent Possible. Sourcing From Within The
Country Was Particularly Important In India, Given Steep Import Duties.
 The Building Blocks Of A Local Approach

• The Company Wanted To Have Partners That Understood Indian Operating Conditions And Indian
Consumers. The Company Also Wanted To Build A Local Supply Chain.
• With The India Supply Chain, The Company Used A Mix Of International Suppliers, Local Supplies
And Joint Ventures.
• In Some Cases, Mcdonald’s Could Rely On 100 Percent Domestic Sources, Such As With Fish
Patties, Dairy Mixes And Buns. Where Local Sources Or Partnerships Could Not Satisfy
Mcdonald’s Needs, The Company Resorted To Imports.
• The Company Spent Over $100 Million To Develop The Supply Chain Before Stores Were Opened.
 Potato and Farmers Matter

• McDonald’s helped create a joint venture between international french fry supplier Lamb Weston and India-based Tarai
Foods. The joint venture focused on identifying and growing a suitable variety of potato for making MacFries.
• The joint venture’s agricultural techniques were not successful in developing a potato that contained the ideal amount of
solids and the desired size.
• After failing to develop a local potato supply, the company realized that importing frozen fries was the best option to get
fries quickly.
• The lead time for importing fries from the U.S. to India was around 60 days; 40 days of shipping plus time for handling and
customs clearance. It was becoming clear that imports would not be a longterm solution to satisfy the demand for MacFries
• Given McDonald’s aggressive growth plans and limitations on import quantities under one license, McDonald’s invited
another one of its international suppliers, McCain, to augment the import supply.
 Making a Structural Change

 McDonald’s cooperated with McCain to produce French-fries locally in India.

 McCain conducted root-cause analysis.
• McCain understood that growing the right potato was the key.

 McCain India’s first step:

 First employee is an agronomist.
 Second was a supply Chain Manager
 Structuring Supply Chain

McCain India’s Second step:

 Cooperate with Vista Foods in wedges and patties.
 Build up some business with local farmers.

McCain India’s third step:

 Building a $25 million manufacturing facility

Seeds were planted in Manufacturing Facility McDonald’s McDonald’s

Gujarat Capacity =40000 tons Distribution Centers Restaurants
 French Fries Win-Win Challenge

McCain Goals: Potatoes Framers Goal:

1- Potatoes with high quality. 1- Possibility of McCain goals.
2- Reliable Supply. 2- Sustainable Demand, Not Just One
3- Best Storing Protocol. Time.
3- Good Price.
 Steps To Win-Win Situation

 McCain established one acre farm for learning & Training on

growing new crop.
 Farmers got training on new irrigation techniques, fertilizers,
row planting, mechanical picking and type of seeds.

 Farmers started to believe in McCain goals.

 “Seeing is believing” Narayanan.
 Win-Win Situation

 McCain Benefits:  Farmers Benefits:

1- Avoid currency exchange rate risk.
2- Low inventory levels (From 15 days to 6 days).
3- Reliable Potatoes supply with accepted quality.
4- Increased French Fries local production from
30% on 2008 to reach 75% on 2010.
5- Reduction of lead time (From 60 days to less
than one day)
1- Guaranteed sales of farm output.
2- Avoid price fluctuation in market .
3- Getting subsidies from government for drip
irrigation.
4- Avoiding selling to a middle man increased the
profit.
 Why does McDonald’s’ want to go through the Indian market?

 How do they Start?

 Obstacles and solutions?

 Why did McDonald’s’ want to go through the Indian market?

-Ranking 5th largest in the world.

-Consumer expenditure on food was growing.

 The Start

Implementing their strategic planning of the Indian market entry by,

 Positioning themselves as a family restaurant.

 Targeting the low to middle-class market to capture this market.

 McDonald’s adjusted their pricing strategies to provide prices lower than USA’s Prices.
 Obstacles & Solutions

MacDonald's was faced with local resistance from health activists and environmentalists.

 Use corporate social responsibility techniques to change the negative perception

Demography within India is highly diverse.20 Major languages

 At least 8 languages were used for national launches

Social Cultural differences between MC USA and MC India are substantial.

 MC had to re-design its core products.

 Supply Chain

MC Spent approximately 12 Million on setting up a supply network distribution center and logistics

support.
MC Identified its suppliers and helped them improve their quality to meet the quality and hygiene

standards.
By 1999 MC was sourcing 98% of the ingredients and paper products from India.
 SWOT Analysis

Strength:

Quality Meals & Product Innovation.

Reliable Suppliers

Strong Captured Marketing& Promotional Advertisement

Quick & Fast Delivery System

Pricing Range
 SWOT Analysis

Weaknesses:
Low Number Of Outlets

Franchise Related Issue

Operational Difficulties
 SWOT Analysis

Opportunity:

Low-Calorie Menu

Demographic Changes

Consumer Expenditure.

Lower Inflation Rate

 SWOT Analysis

Threats:
Direct And Indirect Competition

Regulated Pressures

High Cost of expenses