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McDonalds Supply Chain

Contents
business sector(food service)____________________________________________5
McDonalds________________________________________________________________5
McDonalds in Pakistan___________________________________________________5
Operations Management in McDonalds______________________________________6

Supply Chain Management in Pakistan__________________________________6


WHY THE PROJECT_____________________________________________________________6
Methodology Used_____________________________________________________________7

History_____________________________________________________________________7
Products________________________________________________________________________8
Types of restaurants___________________________________________________________8

Business model___________________________________________________________9

Business Model_______________________________________________________________________10

Advertising____________________________________________________________________10

Global operations_______________________________________________________11
Respect for local culture_____________________________________________________12
International Standards______________________________________________________12
Our Philosophy_______________________________________________________________12

McDonalds Global Supply Chain_______________________________________13


Supply Chain Management at McDonalds_____________________________14
Big Mac's supply chain success________________________________________15
Tracing its success path______________________________________________________16
Vital Links in McDonalds Cold Chain_______________________________________17
Cold Chain_____________________________________________________________________18
Local Sourcing________________________________________________________________18
McDonald's Challenges_____________________________________________________19
Objective______________________________________________________________________19
Platter of Services____________________________________________________________20
Key Features:_________________________________________________________________________20

Movement of Small Volumes of Perishable Items_____________________20


Fresh Rush Features________________________________________________________21

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McDonalds Supply Chain


Food Park Features_________________________________________________________21
Food Park Capacity_________________________________________________________22

The McDonalds System the Worlds Best QSR experience_________22


Purchasing____________________________________________________________________22
Logistics_______________________________________________________________________23
Logistics Standards__________________________________________________________23

One-Stop-Shopping Lean Logistics Solution________________________24


McDonalds Supply Chain Challenges__________________________________24
Freshness_____________________________________________________________________24
Innovation____________________________________________________________________24
Fluctuation in Demand_______________________________________________________25
Bull Whip effect_______________________________________________________________25
Cannibalization_______________________________________________________________25
Decentralized Structure______________________________________________________25

Conclusions______________________________________________________________26
References_______________________________________________________________27
Bibliography_____________________________________________________________27

Food service business sector


The business sector which we have selected for our supply chain
management project is FOOD SERVICE. The reason for choosing this
business sector is up growing and demanding nature of this business as
Asian people especially Pakistani people are very fond of food. The
increasing number of fast food lovers is noticeable and now people are more
knowledgeable about quality food. For this purpose we have selected
McDonalds the global leading food service retailer.

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McDonalds Supply Chain

McDonald's
Is the leading global foodservice retailer with more than 30,000 local
restaurants serving 52 million people in more than 100 countries each day.
More than 70% of McDonald's restaurants worldwide are owned and
operated by independent local men and women. Is one of the world's most
well-known and valuable brands and holds a leading share in the globally
branded quick service restaurant segment of the informal eating-out market
in virtually every country in which we do business. Serves the world some of
its favorite foods - World Famous French Fries, Big Mac, Quarter Pounder,
Chicken Nuggets and Egg McMuffin. Our rich history began with our founder,
Ray Kroc. The strong foundation that he built continues today with
McDonald's vision and the commitment of our talented executives to keep
the shine on McDonald's arches for years to come. To read more about
McDonald's history, vision and executives, click on their links in the left
menu.

McDonalds in Pakistan
Aiming to be the world's best quick service restaurant experience,
McDonald's started its operations in Pakistan in September 1998 and is a
leading fast food service retailer for its valued customers. With a strong
belief in the phrase when it's green it's growing. McDonald's Pakistan is
growing with the focus to provide friendly and quick service experience to
our customers.
Today millions of Pakistanis place their trust in McDonalds everyday to
provide them with food of a very high standard as well as good service. In
the past five years, the response to McDonalds coming to Pakistan has been
overwhelming. Today Lakson Group Companies has taken over McDonalds
Corporation, USA and a local partner making it a 100% owned and operated
Pakistani company. McDonalds located in Pakistan are currently employing
about 3,000 Pakistanis and each store is managed by Pakistani managers.

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McDonalds Supply Chain


They have also contributed in other ways than food service. McDonalds has
investment of over Rs. 30 billion in the country and payment of taxes and
duties amounting to more than Rs 10 billion Since McDonalds is doing so well
in Pakistan they will continue to grow and add more stores in more cities in
the future.

Supply Chain Management in Pakistan


These strategies determine what is to be made and what is to be purchased.
So McDonalds follow these strategies and have a just-in-time inventory
system. Which means that the orders are placed as the raw material comes
to near finish. McDonalds maintain no inventory levels for perishable goods.
The major suppliers of McDonalds in Pakistan are as follows:

Dawn Breads for Buns


Choudhry Dairy Limited for dairy products
Walls Ice Cream
Coca-Cola Ltd. for drinks
Packages for packing

WHY THE PROJECT

To strengthen our knowledge

To develop practical approach

To understand real supply chain practices

History
The business began in 1940, with a restaurant opened by siblings Dick and
Mac McDonald in San Bernardino, California. Their introduction of the
"Speedee Service System" in 1948 established the principles of the modern
fast-food restaurant. The present corporation dates its founding to the
opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on
April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased

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McDonalds Supply Chain


the McDonald brothers' equity in the company and led its worldwide
expansion.
With the successful expansion of McDonald's into many international
markets, the company has become a symbol of globalization and the spread
of the American way of life. Its prominence has also made it a frequent topic
of

public

debates

about

obesity,

corporate

ethics

and

consumer

responsibility.
199

McDonald's opens in Pushkin Square and Gorky Street, Moscow.

0
199

The first McDonald's at sea opens aboard the Silja Europa, the world's

3
199

largest ferry sailing between Stockholm and Helsinki.


Restaurants open in Bahrain, Bulgaria, Egypt, Kuwait, Latvia, Oman,

New Caledonia, Trinidad and United Arab Emirates, bringing the total

199

to over 15,000 in 79 countries on 6 continents.


McDonald's opens in Pakistan the 95th country.

Products
McDonald's predominantly sells hamburgers, various types of chicken
sandwiches and products, French fries, soft drinks, breakfast items, and
desserts. In most markets, McDonald's offers salads and vegetarian items,
wraps and other localized fare. This local deviation from the standard menu
is a characteristic for which the chain is particularly known, and one which is
employed either to abide by regional food taboos or to make available foods
with which the regional market is more familiar.

Types of restaurants
Most standalone McDonald's restaurants offer both counter service and
drive-through service, with indoor and sometimes outdoor seating. DriveThru, Auto-Mac, Pay and Drive, or McDrive as it is known in many countries,
often has separate stations for placing, paying for, and picking up orders,
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McDonalds Supply Chain


though the latter two steps are frequently combined; it was first introduced
in Arizona in 1975, following the lead of other fast-food chains. In some
countries "McDrive" locations near highways offer no counter service or
seating. In contrast, locations in high-density city neighborhoods often omit
drive-through service. There are also a few locations, located mostly in
downtown districts that offer Walk-Thru service in place of Drive-Thru.
Especially

themed

restaurants

also

exist,

such

as

the

"Solid

Gold

McDonald's," a 1950s rock-and-roll themed restaurant. In Victoria, British


Columbia, there is also a McDonald's with a 24 carat (100%) gold chandelier
and similar light fixtures.
The site of the first McDonald's to be franchised by Ray Kroc is now a
museum in Des Plaines, Illinois. The building is a replica of the original, which
was the ninth McDonald's restaurant opened.
To accommodate the current trend for high quality coffee and the popularity
of coffee shops in general, McDonald's introduced McCafs. The McCaf
concept is a caf-style accompaniment to McDonald's restaurants. McCaf is
a concept of McDonald's Australia, starting with Melbourne in 1993. Today,
most McDonald's in Australia have McCafs located within the existing
McDonald's restaurant. In Tasmania there are McCafs in every store, with
the rest of the states quickly following suite. After upgrading to the new
McCafe look and feel, some Australian stores have noticed up to a 60%
increase in sales.
As of the end of 2003 there were over 600 McCafs worldwide.
Some locations are connected to BP gas stations/convenience stores, while
others called McDonald's Express have limited seating and/or menu or may
be located in a shopping mall. Other McDonald's are located in Wal-Mart
stores. McStop is a location targeted at truckers and travelers which may
have services found at truck stops.

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McDonalds Supply Chain

Respect for local culture of Pakistan


McDonald's Pakistan has developed a special menu with vegetarian
selections to suit Pakistan tastes and preferences. McDonald's does not offer
any beef or pork items in Pakistan. Only the freshest chicken, fish and
vegetable products find their way into our Pakistan restaurants.
In addition, we've re-formulated some of our products using spices favored
by Pakistanis. Among these are McVeggie burger, McAloo Tikki burger,
Veg. Pizza McPuff and Chicken McGrill burger. We've also created eggless
sandwich sauces for our vegetarian customers. Even our soft serves and
McShakes are egg-less, offering a larger variety to our vegetarian
consumers.

International Standards
McDonald's Pakistan's local suppliers provide us with the highest quality,
freshest ingredients. Complete adherence to the Pakistan Government
regulations on food, health and hygiene is ensured, while maintaining our
own recognized international standards. Fast, friendly service - the hallmark
of McDonald's restaurants the world over is the mantra we abide by.
Stringent cleaning standards ensure that all tables, chairs, highchairs and
trays are sanitized several times each hour. Such meticulous attention to
cleanliness extends beyond the lobby and kitchen to even the pavement and
immediate areas outside the restaurant.

Basic concept of Supply Chain cycle view


We can think of the supply chain as a series of cycles of communication
occuring between each two consecutive stages. The cycles share the same
type of communication, since there will always be a buyer and a supplier.
The further we go from the customer, the bigger the scale of the
transactions.

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McDonalds Supply Chain

Supply Chain Management: cycle view The cycle that surely presents uncertainty to the supply chain is the
customer cycle, since it contains an external buyer agent(the customer).
Other risks are present when the supply chain includes several organizations,
and are strictly related with the supplier strategies. Such, for example, in the
case of bottleneck products, the risk of not being able to fullfill a demand
must be countered by securing supply sources.

Process views of a supply chain


The processes in a supply chain are divided into a series of cycles each
performed at the interface between two successive stages of a supply chain.

Cycle View of Supply Chain


There are five stages in a supply chain (Supplier Manufacturer Distributor
Retailer Customer) and four supply chain process cycles (customer order,
replenishment, manufacturing, procurement cycle).

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McDonalds Supply Chain

Manufactur
er

Supplie
r

Distribut
or

Retailer

Custom
er

McDonalds Global Supply Chain


Having a clear safety and quality policy in place and connecting all facets of
our Supply Chain partners regardless of

Country

Culture

Language

Transferring this message to all involved parties (Vendors, Transport


companies, Marketing Agencies, Supply Chain departments, Restaurants)
around the globe requires an extremely effective and complex safety
process. Support and involvement of Senior Management in all phases of the
Supply Chain is crucial for McDonald.

Supply Chain Management at McDonalds


McDonald's is committed to providing quality products while supporting other
Pakistan businesses. And so, we spent a few years setting up a unique
Supply Chain, even before we opened our first restaurant in Pakistan.
A Supply Chain is a network of facilities including - material flow from
suppliers and their "upstream" suppliers at all levels, transformation of
materials into semi-finished and finished products, and distribution of
products to customers and their "downstream" customers at all levels. So,
raw material flows as follows: supplier - manufacturer distributor retailer
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McDonalds Supply Chain


consumer. Information and money flows in the reverse direction. The balance
between these 3 flows is what a Supply Chain is all about.
When there is a balance in the finished product ordering, the Supply Chain
operates at its best. Any major fluctuation in the product ordering pattern
causes excess / fluctuating inventories, shortages / stock outs, longer lead
times, higher transportation and manufacturing costs, and mistrust between
supply chain partners. This is called the Bullwhip Effect.
Depending on the situation, the Supply Chain may include major product
elements, various suppliers, geographically dispersed activities, and both
upstream and downstream activities. It is critical to go beyond ones
immediate suppliers and customers to encompass the entire chain, since
hidden value often emerges once the entire chain is visualized. For example,
a diesel engine manufacturer may be able to integrate a GPS locator system
into its engine control system. Its immediate customer, a heavy truck
manufacturer, may see no need for this functionality. However, the
downstream customer, a trucking company with a large fleet, may be very
interested in a locator system. Understanding the value to the downstream
customer is part of the supply chain management process.
Synchronization delivers significant business benefits to both the customer
and the supply chain
Enablers
One stop shopping concept
Central file management
Inventory management
Restaurant simplification
Synchronizing the perishable Supply Chain
1.

2.

3.

Demand forecasting
Promotional + Continuous Supply
Restaurant and DC level
Supply Planning
Restaurant and DC level
Visibility and Collaboration across the chain

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McDonalds Supply Chain

Big Mac's supply chain success


The seed of McDonald's success was sown in 1990 - six years before it
started its actual operations. Traces its supply chain management played a
vital role in its growth. About two decades ago, the QSR wouldn't have meant
much to the F&B segment. Today, the acronym has been seamlessly
absorbed in the industry lingo. McDonald's, arguably, one of the first brands
that left a strong imprint on the Pakistan QSR history, has much to do with
this. And its success is credited to its well-established supply management
chain.
According to managing director and joint venture partner of McDonald's the
company invested about Rs 40 crore even before its first restaurant
commenced operations in October 1996. "We had to ensure that we had the
back-end linked up to the farm level for delivery commitment."
The company also deployed the latest state-of-the-art food processing
technology for having a sound supply chain. The transition towards the latest
technology, which has been subsequently noticed in other QSRs as well,
changed the Pakistan fast food scenario to match international standards.

Local Sourcing
McDonald's has always been committed to sourcing its requirements from
local suppliers and farmers. This assurance is rooted in the philosophy of our
company's founder, Ray Kroc. He firmly believed in mutual benefits arising
from a partnership between McDonald's and the local businesses, thus

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McDonalds Supply Chain


ensuring that McDonald's commitment to growth was mirrored by that of its
partners.
In keeping with this belief, we have carefully identified local Pakistani
businesses that take pride in satisfying customers by presenting them with
the highest quality products. Adherence to Pakistan Government regulations
on food, health and hygiene were a top priority.
McDonald's Pakistan today purchases more than 96% of its products and
supplies from Pakistan suppliers. Even our restaurants are constructed using
local architects, contractors, labour and maximum local content in materials.
The relationship between McDonald's and its Pakistan suppliers is mutually
beneficial. As McDonald's expands in Pakistan, the supplier gets the
opportunity to expand his business, have access to the latest in food
technology, get exposure to advanced agricultural practices and the ability
to grow or to export. There are many cases of local suppliers operating out of
small towns who have benefited from their association with McDonald's
Paksitan.
All suppliers adhere to Pakistani government regulations on food, health and
hygiene while continuously maintaining McDonald's recognised standards. As
the ingredients move from farms to processing plants to the restaurant,
McDonald's Quality Inspection Programme (QIP) carries out quality checks at
over 20 different points in the Cold Chain system. Setting up of the Cold
Chain has also enabled us to cut down on operational wastage

Objective
The objective at McDonald is to provide a cost effective solution to customers
ensuring product integrity throughout the supply chain.

Platter of Services

Supply Chain Structuring

Inventory Planning & Replenishment Management

Warehouse Management

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McDonalds Supply Chain

Customer Order Fulfillment

Logistics Temperature Controlled

It handles bulk transportation of temperature sensitive products.


Key Features:
1. Dedicated to cold chain movement
2. The only logistics solution provider with expertise in handling agri
produce
3. Total kilometer run per month is 7,00,000 km
4. Perishable tonnage handled per month 7,000 tons
5. Robust quality systems & processes
6. First in the country to use multi temperature vehicles
7. Use of innovative methods to ensure temperature integrity during
transit
8. Experienced staff The BEST in the industry.

Fresh Rush Features

Multi temperature products, such as Frozen (below 18C) and Chilled

(1C to 4C) can be transported


Flexibility of load movement - A minimum of 500 kgs to maximum of

5000 kgs can be transported


In transit temperature tracking
Fixed schedule of pickup and delivery
Well trained and experienced manpower
Adherence to strict hygiene standards
Consignment can be tracked through GPS system

Food Park Features

Spread over 33,000 sq meters

Multi Temperature Zones

Integrated Facility Storage and Value Addition capabilities under one


roof

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McDonalds Supply Chain

Ensured / Guaranteed Food Safety

Paradigm shift in the way food is handled in the supply chain in India

First of its kind in the region

Benchmarked against global standards

Codex / USDA / PFA compliant

Scalable

Dedicated storage for specific categories

Sanitation / Hygiene standards Trash handling

Air / Water Quality Treatment Plant / ETP

Ripening Rooms, Crate Wash Facilities, Blast Freezer, Flake Ice Machine

Value Added Services Processing of Vegetables & Fruits, Meat, Sea


Food and Poultry

Controls Building Management System (BMS)

100 % Power Back Up

Food Park Capacity

Capacity to manage over 6000 SKUs

Can store 70,000 cases with 1,700 pallet positions and over 4,000 pick
faces

Processing
o

Vegetable & Fruits 21 tonnes per day

Meat 3 tonnes per day

Fish 3 tonnes per day

Blast Freezing 6 tonnes per day

Ice Machine 2.4 tonnes per day

The McDonalds System the Worlds Best QSR


experience
McDonald is the world Market Leader in the QSR area (Quick Service
Restaurant). They have Franchise System which accounts to about 72% of

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McDonalds Supply Chain


their total franchises. They have about 1.6 million employees in their system.
Their Customers Per Day account to 47 million. They have strong focus on
Corporate Strategies

QSC&V: Quality, Service, Cleanliness and Value


Ray Kroc: None of us is as good as all of us
Plan To Win -> Successful business revitalization
Growth by getting better

Purchasing
The McDonalds has the motto of The 3 legged stool: Corporation
Franchisees Suppliers. Moreover they have the most exclusive,
certified facilities. McDonald also concentrates on the Handshake
agreements, Trust with their suppliers. Long term win partnership is
developed between all the suppliers and franchises which increase the
risk sharing. They deliver Rigorous product and service specifications
with strong focus on quality, product specification and environmental
audits.

McDonalds

have

decentralized

supplier

structure,

zone

consolidation for multinational suppliers There distributor is wholesaler


for Restaurants.

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McDonalds Supply Chain

Logistics

~100 sales items in the restaurant


~400 SKUs in the warehouse (Hubs: up to 1,500)
~200 restaurants per DC (~180 DCs globally)
Delivery frequency: ~3/wk, higher in urban areas
2-3 stops per route
Exclusive distributors (3PL)
Freight consolidation (via freight forwarders)
Long term partnerships with service providers, risk sharing
Strong quality focus (Cold Chain, HACCP, QIP)

Logistics Standards

DQMP (Distributor Quality Management Process)


Operations and Customer Relations (Operations Manual)
Quality Control (HACCP / QIP)
Cold Chain standards
Hygiene regulations
Product handling standards
Emergency and contingency plans
Risk & Crisis management
Continuous unannounced internal and 3rd party audits for DCs result in
superior quality scores regularly.

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McDonalds Supply Chain

One-Stop-Shopping Lean Logistics Solution

McDonalds Supply Chain Challenges and problems


Freshness
McDonalds have even stronger focus on freshness and quality. Because of
the nature of the product they are offering the focus on quality is a key factor
in the success of their business. So the supply chain plays an important role
in their business because without the proper supply chain they cant deliver
the fresh items required in making the items being offered at McDonalds.

Innovation
On-going product innovations are also a big challenge for the supply chain of
McDonald. The continue innovation of the products at McDonald require
them to continuously alter the supply chain and manage it accordingly. With
the ongoing introduction of new products like new burgers and items require

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McDonalds Supply Chain


them to continuously update the supply chain which requires supply chain
management to be much more extensively used.

Fluctuation in Demand
Strong customer demand fluctuations based on promotions make difficult to
manage the supply of the items. They have to continuously change the
supply of their items as per the seasons. Like in Ramadan they have to
totally drop the supply in the day and are much focused on limited items.
The high fluctuations make the forecasting difficult and supply chain
management to be very active.

Bull Whip effect


Because customer demand is rarely perfectly stable, McDonalds must
forecast demand to properly position inventory and other resources.
Forecasts are based on statistics, and they are rarely perfectly accurate.
Because forecast errors are a given, McDonalds often carry an inventory
buffer called "safety stock". Moving up the supply chain from end-consumer
to raw materials supplier, each supply chain participant has greater observed
variation in demand and thus greater need for safety stock. In periods of
rising demand, down-stream participants increase orders. In periods of falling
demand, orders fall or stop to reduce inventory. The effect is that variations
are amplified as one move upstream in the supply chain (further from the
customer).

Cannibalization
Cannibalization occurs when a McDonalds discounts a particular product. The
tendency of consumers is to buy the discounted product rather than
competing products with higher prices. When the promotion event is over
and prices return to normal, however, the effect will tend to disappear.

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McDonalds Supply Chain

Decentralized Structure
McDonalds has Change Management in almost every franchise because of
de-centralized structure. This again leads the supply of the McDonalds to be
altered as per the every franchise which again creates new challenges for
the supply chain management.

Conclusions and suggestions


Through effective Supply Chain McDonalds operates in a famously
competitive market and delivers good value for consumers.

Not by searching on the commodity market for the lowest cost

suppliers. It sources only from dedicated suppliers.


Not at the expense of safety or quality. It operates an extremely strict

auditing regime.
Not by pressurizing suppliers. It believes in a policy of paying for

performance and long term sustainability for suppliers.


The secret is a Lean and efficient chain via rigorous measurement, the
spreading of knowledge and a real sense of teamwork.

References

www.mcdonalds.com
www.mcdonalds.com.pk
www.answers.com/whatisTQM
http://www.docstoc.com/docs/
http://www.scribd.com

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