When we say McDonald’s, what’s the first thing that pops into your mind? For most of us, it's crispy, salty, crunchy, French Fries. Yum. And you just can’t stop at one, can you?! But have you ever wondered how McDonald’s manages to get those piping hot fries right, just the way you like it, every time? One of the reasons for this is the company’s impeccable and sustainable operations and supply chain management. If you aspire to get into operations and supply chain post MBA, it’s necessary for you to know how chains like McDonald’s operate. Solve this case study, brought to you by InsideIIM in association with ABGLP and show off how well you know your operations management curriculum!
Interesting Fact About ABG
Hindalco industries, owned by Aditya Birla group, they became the world’s largest rolled-aluminium producer, after they acquired the Canadian company Novelis for US$6 billion, on 15 May 2007. Hindalco makes alumina chemicals, primary aluminium, rolled products, alloy wheels, roofing sheets and several other products.
And now onto the case study!
Introduction - Our Protagonist
McDonald’s is one of the largest fast-food chains in the USA and the world. There are more than 32,000 McDonald’s restaurants serving in more than 119 countries. More than 75% of McDonald’s restaurants all over the world are owned and operated by independent owners, serving more than 42 million customers daily.
McD’s aims to be the most loved quick service restaurant in the world. They aim at providing outstanding quality, cleanliness, service and value to their consumers. Their core competencies include providing quick and efficient service to customers at the drop of a hat, especially when people need fast food at competitive prices, thus providing the best value for the customer’s money.
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They basically aim at focusing on quality, production of food and use of raw materials all over the world. When McDonald’s entered India, they were able to gain a large portion of the market share and dominate the competition successfully. Other fast food chains like Subway, Burger King, etc are still playing catch up. The question is, how did McDonald’s, an American fast food chain make such an impact on the Indian psyche? How did McDonald’s become a market leader in the Indian fast food market? Let’s have a look at McD’s India strategy, especially their operations and supply chain arm, to understand this.
McDonald’s India Entry
McDonald’s India entry was divided into 4 main stages:
- Building the Supply Chain
- Aggressive Growth
In 1993, McD’s entered India through a 100% subsidiary, MIPL (McDonald’s India Private Limited) which formed 50:50 joint ventures with Vikram Bakshi of Connaught Plaza Restaurants to manage the North and East zones, and Amit Jatia of Hardcastle Restaurants to manage West and South zones. The staff were trained in India, USA as well as Indonesia to understand the intricacies of the business.
There were a few challenges McDonald’s faced when entering the Indian market. These involved adapting the McDonald’s menu to the Indian palate, being perceived as a mass brand that was accessible to people of all economic classes, as well as catering to India’s vegetarian population and the non-beef eating population too!
For this, McDonald’s came up with vegetarian options on the menu, burgers with chicken instead of beef, and they also championed competitive pricing with lots of offers.
Streamlining Operations At McDonald’s Outlets
A restaurant management system (RMS) was created for efficient order management. Separate food lines for vegetarian and non vegetarian options were maintained at the outlets. The kitchens too were kept separate.
Supply Chain Management At McDonald’s
- To operationalise its globally practised QSCV (quality, service, cleanliness and value) ideology.
- To provide and enjoy flexible pricing for products.
- To launch new products when necessary.
McDonald's gets a supply of raw materials and local products from local and small scale farmers. These are the indirect suppliers for McD’s. These suppliers are sourced by distinctive sourcing carried out by various small scale and mid-scale raw material suppliers themselves. These are McDonald’s direct suppliers. From them the raw materials are stored at McD’s warehouses. Finally, they’re distributed to stores from here.
Problems Faced By The Supply Chain
Despite having various processes in place, McDonald’s dd face certain issues when it came to their supply chain. Poor transportation and storage infrastructure was a serious issue. Lower quality of agricultural products was also a problem for the chain.
To battle these, McDonald’s initiated a few programs:
Local sourcing: By 2014, McDonald’s was sourcing 50,000 metric tonnes of potatoes from McCain Foods India Pvt. Ltd. McCain has been working with more than 800 farmers on approximately 4000 acres of land across Gujarat under contract farming potatoes.
Keeping Spending Down: McDonald’s managed to keep their prices down by strategies like bulk buying, long term vendor contracts and manufacturing efficiencies.
Logistics play a huge role in the home deliveries segment that McDonald’s operated in. Which is why, the first outlets were opened only within a 500km radius of their distribution centers.
All of these lead to a direct result in McDonald’s revenues and profits as brand perception and sales skyrocketed. With more and more McD’s outlets popping up in Tier 2 and 3 cities as well, we can say that the company managed to achieve their objectives successfully.
Based on the above case study, answer the following questions:
1. How can McDonald’s strengthen their in store operations?
2. How can McDonald’s streamline their supply chain operations to derive maximum benefit?
3. Which strategies do you think McD’s use to achieve sustainability and be seen as an environmentally aware company?
4. If you were the COO at a zonal HQ at McD’s, how would you change your supply chain and operations to better benefit your vendors and suppliers?
Share your responses to this case study on this thread.
This is a part of a series called Learning #IRL, brought to you by InsideIIM in association with ABGLP. Read on to find out more…
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In this series, we bring you 4 fun things. Basically, instead of reading boring textbooks, or trawling through search pages on Google, here’s your shortcut to learning with fun.
- Quiz: Solve a quiz based on management concepts in marketing, HR, finance and operations. Test your conceptual clarity and know how! Basically learn with fun.
- Case Study: Solve a sector-wise case study every month! Don’t all interview prep experts tell you to sharpen your logical thinking and practise cases?! Well now, you can practise a case every month and find out how well you know various concepts! Check out the July Case Study On Operations Management for an OTT platform like Disney here. Check out the August Case Study On IKEA India here.Check out the September Case Study On HR Strategy here. Check out the September Case Study On IT Services Companyhere. Check out the October Case Study On Venezuela's Oily Hyperinflation Story here. Check out the November Case Study On The Dream Car That Failed To Scale here. Check out the December Case Study On HR- How To Retain Talent here. Check out the January Case Study On McDonald's Supply Chain here.
- Video: Check out this unique explainer video laying out the facts and figures for you. Whether it’s the 7 Ps of marketing or the Jidoka model in supply chain and operations, these videos tell you all. Have a specific concept you wish to understand? Let us know and we’ll help you comprehend it! Check out July explainer Video on an Operations Management concept called Hub & Spoke here. Check out August explainer Video on The Science Behind Marketing Promotions here. Check out October explainer Video on HR Concepts & The Meaning Of Life here. Check out November explainer Video on Joint Stock Companies here. Check out December explainer Video on Brand Amitabh Bachchan's Revitalisation here
- Comic Strip: Reading reams of pages can be so boring. Now read comic strips and find out what’s what in your b - school curriculum! Wondering about Time Value of Money? Or perhaps HR strategies and tools? These comic strips will help you understand the same old concepts in new and refreshing ways. Check out July explainer Comic Strip on an Operations Management concept called Jidoka here. Check out the August Comic Strip on Marketing Concepts Made Easy here. Check out the September Comic Strip on HR Theories Deconstructed here.