The presentation covers all the aspects of the Mc Donald's Operations Strategy case study

1. Abhishek Puri
Shikhar
Neha saini
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2. McDonald’s
 World's largest chain of fast food restaurants.
 The Golden Arches—the corporate emblem ,symbolized
pleasant, fast service and tasty, inexpensive food.
 Serve around 68 million customers daily in 119
countries.
 Operates over 34,000 restaurants worldwide, employing
more than 1.7 million people.
 Between 1990 and 1991, sales per unit had slowed down.
 Reasons:
 Consumers were changing
management to wonder whether the company’s
operating system, suited to the new circumstances the
company faced
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3. CHALLENGES
 To what extent should McDonald’s change its operations
strategy to accommodate the growing need for flexibility and
variety in products. Was it merely tweaking—or a dramatic
change—which would support the company’s volume growth
objectives?
 To what extent would environmental concerns compromise
McDonald’s traditional strengths and complicate an already
challenging competitive situation?
 Finally, could the lessons learned in the recent collaboration
with the EDF help McDonald’s as it sought solutions to the
continuing competitive challenge?
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4. The Speedee Service System
 Dick and Mac McDonald opened their first drive-in restaurant in 1941.
 Carhops used to take orders from patrons parked in the restaurant’s large
lot.
 In 1948, introduced self-service windows and standardized their preparation
methods with exact product specifications and customized equipment.
 Ray Kroc, became a national franchise agent for the brothers, and founded
the McDonald’s chain and performed :
To make sure McDonald’s products were of consistently high quality.
To establish a unique operating system, and
To build a special set of relationships between the McDonald’s
corporation, its suppliers, and its franchisees
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5. Getting it Right - Again and Again
 McDonald’s operating system concentrated on four areas:
 improving the product;
 developing outstanding supplier relationships;
 improving equipment; and
 training and monitoring franchisees.
 McDonald’s revolutionized the entire supply chain .
 Fred Turner, Senior Chairman of McDonald’s, stressed the
critical importance of menu size.
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6.  Turner developed the operations manual, including detailed
preparation of items; proper temperature, food quantity, etc.
 Turner was the first corporate employee to visit and evaluate
each restaurant, and, as early as 1957.
 Evaluations by assigning a letter grade to a restaurant’s
performance in three categories: quality, service, cleanliness
and Value.
Getting it Right - Again and Again
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7. Suppliers
 Kroc brought a supplier loyalty that the restaurant business had
never seen.
 The established suppliers refused to accept McDonald’s concepts
and specifications .
 Only small, fledgling suppliers were willing to take orders.
 Reasons:
Respect for Suppliers
They didn’t chisel on price and were always concerned with
suppliers making a fair profit .
suppliers were guaranteed future volumes .
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8. Franchisees
 Philosophy of McDonald’s franchise by Ray Kroc :
―partners‖ would make money before the company did, and
insisted that corporate revenue come not from initial franchise
fees but from success of the restaurants themselves.
 Franchise owners developed products such as the Filet-O-Fish
sandwich and the Egg McMuffin and the McDLT.
 Franchisees also formed powerful regional cooperatives for
both advertising and purchasing.
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9. Cooking Up Products
 French fries gave MacDonald’s an identity and exclusiveness.
 At first the company simply monitored the way French fries were
cooked in its restaurants.
 They discovered, however, that temperature settings on the fryers
had little connection to the temperature of the oil in the vat once
cold potatoes were dropped in.
 McDonald’s researchers discovered, the fries were always
perfectly cooked when the oil temperature rose three degrees
above the low temperature point . And designed a new Fryer.
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10. Cooking Up Products
 Simplot gave an idea of converting from fresh to frozen potatoes.
 Simplot’s organization grew to a $650 million frozen potato
processing giant.
 Ralph Weimer, designed a V- shaped aluminum scoop with a
funnel at the end that enabled operators to fill a french-fry bag in
one motion.
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11. Cooking Up Products
BREAKFAST
 In June 1976, McDonald’s franchisees introduced BREAKFAST
MEAL.
 Egg McMuffin, hotcakes, scrambled eggs, sausage and Canadian
style bacon.
 McDonald’s had again distinguished itself from competitors.
Chicken McNuggets
 Fred Turner suggested that Arend , the Chef, substitute bite-sized
chunks of deep-fried chicken instead of onions.
 Keystone, one of McDonald’s meat suppliers: find an efficient way to
cut chicken into bite-sized, boneless chunks.
 Arend developed four sauces to accompany the nuggets.
 McDonald’s was deriving 7.5% of domestic sales from its newest
product.
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12. New Competition
 McDonald’s most menacing competition no longer came from
Burger King, Wendy’s, or Kentucky Fried Chicken—the
traditional rivals.
 Chili’s and Olive Garden : Menus offered a wide variety of foods,
yet prices remained competitive with those at McDonald’s.
 Sonic and Rally’s, two hamburger chains , offered drive-through
service only and specialized in delivering burgers fast.
 Taco Bell shifted food preparation to outside suppliers, reduced
kitchen space in its outlets, and used a cost-based strategy to
compete—prices were always kept low.
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13. Early Responses from McDonald’s
 McDonald’s had introduced salads, chicken, and muffins.
 It developed the first-ever 91% fat-free burger, McLean Deluxe.
 McDonald’s engineers had invented a pizza oven that could cook
McDonald’s Pizza in under five minutes.
 High-tech temperature and moisture controlled cabinets—that
would allow parts of a product to be prepared ahead of time
without detracting from food quality.
 Cutting prices an average 20%.
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14. Flexibility and Growth
 McDonald’s success formula:
 Limited Menu,
 Low Prices and
 Fast Service.
 To meet changing customer demands and divergent
customer needs they have to explore new dimensions.
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15. Changes Made
 Developing of new building prototypes, i.e. from drive
through to small cafés.
 Menu extension, including items such as lasagne, corn on
the cob, fruit cups etc.
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16. Problems Faced
 Increased variation in the supply chain.
 Due to extended menu problems regarding the
uniformity, quality control and speed of service were the
major concerns.
 Complicated preparation processes for the items such as
spaghetti.
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17. Further Problems
 They wanted to include the dinner menu in the restaurant.
 For that they had to come up with complete menu.
 They had a fear that their recipes would be copied by the
competitors.
 Finally the problem related to protecting the environment.
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18. Stepping into the Future-The EDF
 Taking initiatives in recycling and solid waste management.
 Environment Defence Fund (EDF) and McD joined hands
together to work upon environmental issues.
 The Waste Reduction Task Force was formed having
members from both the organisations.
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19. Waste Reduction Task Force
 In all 6 members, 4 senior managers from McDonald’s and 2
scientists and an economist from EDF in August 1990.
 Three things were kept in mind: Reduction, Reuse and
Recycle.
 Introduction of reusable shipping containers, substantial
packaging material, use of unbleached paper and employee
training.
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20. Changes made
 Brown Bag: 100% recycled, made from unbleached material and
looked brown.
 Initially people were tepid but later accepted the change gladly.
 Corrugated Boxes: Earlier these were made up of 21% recycled
material but McDonald’s mandated it to 34% recycled material.
 Mc Recycle USA: A $100 million annually program in which 350
new restaurants were opened by using recycled equipment's and
1000 others were remodelled.
 Over 500 suppliers and manufacturers registered and
participated for this program.
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21.  Sandwich Packaging: McDonald’s abandoned the use of
polystyrene and shifted to quilted wraps.
 Reducing the volume of waste by 90% and volume of
shipping by 80%.
 Packaging had to perform the following: Provide
insulation, Breathability, Handling ability and Standards of
appearance.
Changes made
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22. Packaging
 Tests for quality were conducted.
 Set of procedures for wrapping the food was developed.
 Packaging was judged by the content of reusability and
recycled material.
 They introduced thinner paper based wrap consisting of 3
layers of tissue, polystyrene and sheet of paper.
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23. Advantages of Layered Wrap
 Less volume than its polystyrene counterpart.
 Less industrial pollution.
 Lower in volume so promised to reduce the impact of waste
disposal.
 90% reduction in deposited waste as compared to 40-50% in
case of polystyrene.
 Wrap required 85% less energy, 40% less air emission, 80%
less water discharge and 65% less solid waste.
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24. Planning for the Future
 No doubt they faced criticism from suppliers and they
have to drop a few of them also.
 But the team brought a huge success in terms of providing
flexibility and providing the solutions for environmental
crisis.
 Their main business is still hamburgers but not only they
took environmental initiatives but also maintained their
food quality that too at low prices.
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25. McDonald’s Sustained Prosperity
 The Secret of McDonald’s success is its willingness to
innovate, even while striving to achieve consistency in the
operations of its many outlets. For example, its breakfast
menu, salads, Chicken McNuggets, and the McLean Deluxe
sandwich were all examples of how the company tried to appeal
to a wider range of customers.
 The company has also made convenience its watchword, not
only through how fast it serves customers, but also in the
location of its outlets. Freestanding restaurants are positioned
so that you are never more than a few minutes away by foot in
the city or by car in the suburbs, Plus McDonald’s is tucking
restaurants in schools, stores and more.
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26. Key Threats
 The key threat to McDonald’s domestically is the lack of growth
opportunities.
1. The market is well saturated and it would difficult to achieve
double digit growth.
2. Other concerns are a newfound emphasis on healthier
eating.
3. Most of the McDonald’s popular food items probably in
small way contributes to the increasing incidence of
cancer, heart disease and diabetes among the population
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27. Key Threats
 McDonald’s are everywhere. The dining experience is never
special.
1. As baby Boomers age and become more affluent, it is likely
that they will leave behind their fast food ways, if only to
step up to moderately priced restaurants like Olive
Garden, Bennigans and Pizzeria Uno.
2. These chains have the added advantage of serving high
margin alcoholic drinks.
3. McDonald’s meanwhile, has to continually battle Burger
King and Wendy’s which leads to an erosion of margins for
everyone.
4. Every alliances with toy manufacturers, while popular with
customers, do little for the bottom line because the cost to
run these promotions can be quite expensive.
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28. Conclusion
 McDonald’s faces some difficult challenges that can only be
overcome through following ways..
1. Key to its future success will be maintaining its core
strengths – an unwavering focus on quality and consistency
- while carefully experimenting with new options.
2. These innovative initiatives could include launching higher-
end restaurants under new brands that wouldn’t be saddled
with McDonald’s fast food image.
3. The company could also look into expanding more
aggressively abroad where the prospects for significant
growth are greater
 The company’s environment effects, while important, should not
overshadow its marketing initiatives, which are what the company
is all about. 28

29. Questions
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30. Q1
Which characteristics of McDonald's production system have
been most important in building its record of success and
growth in the industry?
 Characteristics of McDonald’s are:
1. Their uniform operating system, taste and service in every
McDonald’s outlets at every time.
2. McDonald’s is very particular in quality of the raw materials
they used and very concerned with their suppliers.
3. Their concern over the franchises and make them to feel as
one of their partner and to work towards prospective..
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31. Q2
What are the primary new challenges McDonald's
faces in the 1990s?
 McDonald’s. the long time leader in the fast food wars, faced a
crossroads in the early 1990s.
 Domestically, sales and revenues were flattening as competitors
like on its domain.
 In addition to its traditional rivals – Burger King, Wendy’s and
Taco Bell, the firm encountered new challenges.
 Sonic and Rally’s competed using a back - to – basics approach
of quickly serving up burgers, just burgers, for time-less
consumers.
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32. Q2
What are the primary new challenges McDonald's
faces in the 1990s?
 On the higher end, Olive garden and Chili’s had become potent
competitors in the quick service field, taking dollars away from
McDonald’s which was firmly entrenched in the fast-food arena
and hadn’t done anything with its dinner menus to accommodate
families looking for a more upscale dinning experience.
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33. Q3
How would you adapt the system to accommodate
these changes in the U.S.?
 Usage of eco friendly packaging, ensuring efficient solid waste
disposal.
 Necessary changes in ambience space as per requirement
 Allocation of budget for Research & Development (R &D).
 Elasticity in operational time.
 Streamlining of menu.
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34. Q4
How can McDonald’s lay the basis for future
growth?
 McDonald’s have o keep innovating the products
 Developing outstanding supplier relationship.
 Improving the equipment.
 Training and monitoring the franchises.
 Use advance ERP and data centers.
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35. THANK YOU
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