(operations management) - mcdonald's analysis.pdf

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McDonalds Restaurant

STAT 2800

Survey of Operations Management

Project II

Dr. Rotimi Aderohunmu

November 15, 2004

By:

Stephanie EarleyMatt Kellond

Heather KraichEddie PhillipsRabab Sadeq

Thuy Van

Operation Management Project 2Page 1 of 36


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EXECUTIVE SUMMARY

To sustain its viability in a competitive market, the McDonalds Corporation sets

its overall goal of making its customers happy. To reach this broad goal, McDonaldsmainly focuses on competitive bases of speed, cost, and nutrition. The corporation also

recently created dramatic strategy changes to its stores internal processes by introducing

the Made for You System, and McDonalds also created a Revitalization Plan which

encompasses all areas of the business to make its customers happy.

Quality management at McDonalds is one of the major factors that make the

corporation one of the most successful fast food restaurants in the world. The corporationuses computerized information systems and strict corporate quality standards to maintain

quality at their restaurants. To enforce the standards, the corporation undertakes

exhaustive inspections on each restaurant two times per year. Also, thorough training

processes ensure that all McDonalds employees have the proper knowledge to meet thecorporations standards, which will in turn make their customers happy.

Many suppliers aid McDonalds success by supplying their raw materialsefficiently and on time. McDonalds reassures that their product is fresh by choosing

suppliers near the restaurants, to minimize transport time. To ensure quality of products

and reduce cost between the restaurants and their suppliers, the McDonalds Corporationpublishes specific guidelines to ensure that the restaurants receive the best quality

materials.

McDonalds ensures consistent products by enforcing strict standards and

frequently inspecting its suppliers. The corporation participates in a very efficient supplychain network. The corporation also takes advantage of long-term relationships with

suppliers to ensure consistent products. McDonalds also takes active steps to avoid bad

products and reduce overall costs.

Forecasting is in large part down by the corporation as their responsibility to the

franchisees and share holders. McDonalds uses qualitative forecasting methods bygathering information from customers, employees, and experts, via written surveys and

other correspondence. Forecasting has given the corporation opportunity to excel in

creating new innovations, creating localized meal selections, and generally making thecustomer happy.

In summary, the entire McDonalds corporation revolves around its goal to make

its customers happy. McDonalds works toward this broad goal with strong competitivebases, quality management, an efficient supply chain with quality products, and

continuous forecasting.

Operation Management Project 2

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TABLE OF CONTENTS

Introduction........................................................................................................................4

Operations Competitive Strategy

Main Competitive Bases..........................................................................................4Strongest Priority .....................................................................................................7Strategy Changes .....................................................................................................8

Quality Management

Speed......................................................................................................................11Quality Inspections ................................................................................................12The 5 Ps ................................................................................................................14Training..................................................................................................................15

Raw Materials

Arrival and Maintenance........................................................................................16Grade A Beef and Other Meats..........................................................................16Produce ..................................................................................................................18

Supply ChainExamination of Supply Chain................................................................................18Supply Chain Efficiency........................................................................................19Quality Along Supply Chain..................................................................................20Share Costs.............................................................................................................21

ForecastingAspects of Forecasting...........................................................................................21Listening to Customers ..........................................................................................22Forecasting Success and Failure ............................................................................23

Conclusion ........................................................................................................................24

AppendicesAppendix 1, TTL Control Chart ............................................................................25Appendix 2, KVS Control Chart............................................................................26Appendix 3, Data for Control Charts.....................................................................27Appendix 4, McDonalds Hierarchy......................................................................28Appendix 5, Process Chart for Preparing a Hamburger ........................................29Appendix 6, Illustration of a McDonalds Supply Chain ......................................31Appendix 7, Interview with Ronald Lessnau.........................................................32

Bibliography .....................................................................................................................36


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INTRODUCTION

McDonalds, founded by Ray Kroc, is now one of the most popular fast food

restaurants across the world. Theyve proudly served more than 46 million customers in

59 different countries and currently have more than 30,000 different locations worldwide

(Food Service). The fast food industry is booming at a rapid rate, especially the health

conscious food options. With this in mind, McDonalds has a strategic plan to stay on

top of their competitors by providing consumers with affordable prices, great service, and

more healthy meal options. McDonalds is competitive in many categories, including

price, quality, management and employee training. Consumers trust McDonalds

products because they use many of the same trusted brands that families buy at local

grocery stores. The only difference is that their shopping cart is a whole lot bigger. This

report details McDonalds competitive strategy, quality management, raw materials,

forecasting, and supply chain.

OPERATIONS COMPETITIVE STRATEGY

Main Competitive Bases

McDonalds Corporation competes in a challenging market segment by providing

need-satisfying products to customers. In this segment, ineffective competitors often fail

without proper strategies (Kerin). To sustain its viability, the McDonalds Corporation

employs an effective competitive strategy to make it stand out against competitors such

as other fast food restaurants. Although McDonalds competes on several bases,

including speed, cost, and nutrition, their strongest priority is making customers happy

(McDonalds Worldwide 3). The company recently made drastic changes to its


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process by introducing the Made for You system (Chase).

Speed

McDonalds competes on several bases mainly to make their customers happy by

providing speedy, affordable, and nutritious foods. Through extensive market research

and survey, the organization discovered that its customers desire speed as one of the

restaurants top priorities. Therefore, McDonalds vision aims to provide fast, friendly

and accurate service (McDonalds Worldwide 5). McDonalds realizes that specific

targets are necessary to measure the performance of speed, and continuously takes

relevant measurements to compare actual performance with desired targets Specific

measurements are detailed later in this report in the Quality Management section. To

achieve efficient service times, the company utilizes proven, standardized training

processes for its employees and new drive-thru layouts to reduce service times. Along

with speed, McDonalds also competes by offering prices at a low cost.

Cost

To offer high quality products at low cost requires efficient processes throughout

the entire McDonalds organization. Once again, this goal is built into their vision

statement when they claim that We will be the most efficient provider so that we can be

the best value to the most people (McDonalds Worldwide 5). McDonalds

incorporates several avenues to provide great value to its customers:

One strategy that the company has employed for many years is the value meal.

The value meal allows customers to buy a sandwich, french fries, and beverage at

a discount when purchased together. McDonalds restaurants offer seven to

twelve value meals, both for their lunch menu and breakfast menu.


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More recently, McDonalds began offering a dollar menu, consisting of many

individual items costing only $1.00 each. First tested in southern California, the

dollar menu has proved to be very successful and has been since incorporated to

many individual stores (Zuber 2).

Some individual franchise owners choose to offer daily specials of special menu

items, such as $0.39 hamburger Wednesdays, or other similar specials. Big

Mac Mondays are a popular regional promotion.

Nutrition

McDonalds third main competitive base is nutrition. The organization

understands that health trend is an increasingly popular trend therefore; the organization

has recently focused extraordinary efforts to promote their new nutritious choices.

Although not specifically built into the organizations vision, McDonalds has already

introduced many options to achieve this goal:

In the United States, Go-Active meals have been offered within the last few

years. These meals include a salad, bottled water, and a step-o-meter to help

customers keep track of how many steps they take a day.

Other countries have seen similar healthy options. The United Kingdom saw fresh

fruit bags, containing apples and grapes, as an alternative to french fries

(McDonalds Worldwide 12).

Not only does McDonalds care about its customers, but it is also considerate of

its employees health. In Europe, the organization worked with external

nutritionists to develop an Employee Guidebook which contains tips and

nutrition information for healthy lifestyles (McDonalds Worldwide 13).


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McDonalds has assembled their Global Advisory Council on Balanced

Lifestyles. This council consists of exercise & obesity specialists,

environmentalists, and other professionals to ensure that McDonalds takes

appropriate steps in helping its customers achieve optimal health.

The company is also utilizing technology to their advantage. The current

McDonalds website lets a user select any combination of menu items, place the

items in the online bag, and conduct a nutritional analysis on their selections. The

user can break down the analysis even further than a menu item, down to

individual condiments, including ketchup, pickles, etc. (Bag a McMeal).

Not only has the company introduced many steps to ensure nutrition, but it will

strive to continue the trend toward nutrition. McDonalds plans to: add additional healthy

menu options (fruits and vegetables); increase nutrition awareness among McDonalds

employees; and conceive new ways to deliver nutrition information to its customers, as

well as other actions (McDonalds Worldwide 13).

Strongest Priority

At McDonalds, Umaking customers happy U is what our business is allabout. And we know it takes a lot to make that happen. We work hard to

provide every customer with a choice of meals and an experience that

exceeds their expectations.

The preceding statement is the quote which introduces McDonalds Worldwide

Corporate Social Responsibility Report (2004). Although the company strives to

compete on several bases, their ambient goal is making customers happy. They reach this

goal through a variety of efforts.

McDonalds visionary goal is to continually improve their organization. To


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achieve this goal, McDonalds in-store managers conduct frequent inspections of their

store, and the corporation also conducts thorough inspections several times per year. For

long term improvement, the McDonalds Corporation introduces new ways to measure

performance and food safety. Continuous improvement is detailed in the Quality

Management section.

In summary, McDonalds strives to reach its goal of making customers happy

through their normal competitive bases of speed, price, and nutrition, and they also

ensure customer satisfaction through continual improvement of their operations.

Strategy Changes

Made for You

McDonalds organization recently underwent drastic strategy changes to better

serve their customers. Under their previous system, the company would make several

sandwiches at once, and hold the sandwiches in a warming bin until purchased by a

customer. Under this system, management had to precisely predict how much food had

to be put on hold. Precise prediction had to be used because if there were not enough

food placed on hold, this would create the problem of increase waiting times for

customers, and too much food would cause waste of expired items. McDonalds

dramatically changed their strategy in order to stay competitive with other fast food

organizations.

In 1999, McDonalds spent $181 million to introduce their Made for You system

(Chase). Under this new system, standard food items are not held in a bin until they are

sold. In the Made for You system, modern technology greatly assists McDonalds

operations. When a customer places an order, the sandwich items are immediately


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displayed on a computer monitor in the kitchen and a tone sounds to alert the kitchen

staff. Upon a new order, an employee in the kitchen will toast the bun, and assemble the

sandwich accordingly. Standard items simply list the name of the sandwich, while

customized orders list the sandwich name and the desired condiments. Once the

sandwich is assembled, it is presented to the food loading area, where a different staff

person retrieves the sandwich and completes the order by adding french fries, desserts,

etc. The system works the same for front counter orders as well as drive-thru orders

(Phillips, Kenny).

Unfortunately, the introduction of the Made for You system did not transition

smoothly. McDonalds watched its customer satisfaction drop for the three consecutive

years beginning in 1999 (Chase). After further research, they realized that although the

new system provided fresher food, it was not as quick as the previous system. Instead of

reverting back to the old system, McDonalds continues to fine tune Made for You and

add new options to help the system work faster.

Revitalization Plan

In order to cope with the first ever quarterly loss that resulted from inefficient use

of the Made for You system (Chase), McDonalds has devised a new plan to increase

profits. Previously, the corporation emphasized adding more restaurants to increase

sales, but the new plan places emphasis on increasing sales at existing restaurants. The

new plan will reduce spending, to enable more cash to shareholders through dividends

and share repurchases (Cantalupo 1). Specific goals of the revitalization plan are to:

Attract new customers

Encourage existing customers to visit more often


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Build brand loyalty

Create enduring profitable growth

The main goal is to increase sales by creating an exceptional customer experience.

McDonalds plans to achieve this goal by focusing on its people, products, places, prices,

and promotions.

Menu

Along with changes in their process strategies, McDonalds has flirted with menu

changes as well. Last year, they created a new taste menu, where they offered a new

sandwich which was offered for one week. The purpose was to offer customers a variety

of options to satisfy peoples desire for variety. However, the new taste menu proved to

be ineffective. Some customers would fall in love with an item, but it would only last

one week, and they would be frustrated that they couldnt purchase their new beloved

favorite sandwich.

More recent changes to the menu have proved effective. McDonalds realized

that many of todays customers seek healthy food options, and the corporation has

offered items accordingly. As mentioned under Competition Bases, McDonalds now

offers a wider variety of nutritious items and provides information to help its customers

as well as employees make informed healthy choices.

QUALITY MANAGEMENT

Speed

One of the major quality management control factors includes minimizing the

time that processes are done; this ensures an effective and efficient operations. Many of


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these processes are done through the use of advanced information technology, through

calculating the time of the processes or even making a database to observe procedures

and make improvement to their processes. One specific measurement is called Total

Time in Line (TTL) which calculates the total time customers spend in the McDonalds

line, from the time the customer begins ordering until the time they get their food. TTL

measurements are calculated the same way whether the customer is eating inside or

ordering through drive through. The target TTL is 90 seconds. See Appendix 1 for our

groups construction of a TTL Control Chart for a McDonalds store. (Phillips, Eddie).

Along with measuring TTLs, other programs are utilized to make the speed of the

service more efficient. The Made for You system uses the Kitchen-Video-System (KVS)

to support fulfilling speedy orders. The Made for You system allows the order taker to

enter or delete the orders on a touch screen that lists sandwiches, as well as individual

condiments, in a way that eases the data entry process for the worker. As soon as any

food is ordered, from any register, the necessary food items are displayed on a computer

monitor in the kitchen. The kitchen staff immediately begins to prepare the food, and

then erases the orders from the screen as the food is finished. Similar to TTLs, the time is

measured between when an item is first displayed on the monitor, to the time when it is

served. McDonalds continuously monitors these kitchen times in order to ensure that the

Made for You system is working as efficiently as planned. See Appendix 2 for our

groups construction of a KVS Control Chart, and Appendix 3 for the data we were

provided to construct the charts. (Phillips, Eddie).

Technology not only measures performance values within the organization, but it

also assists in the drive through area. When a drive through worker is taking an order, it


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is displayed automatically on a screen available to the customer outside, called the

Customer Order Display (COD). The customer can review the COD and correct any

mistakes, thus making the ordering process more precise. More precise orders eliminate

time wasted from correcting mistakes (Phillips, Kenny).

Maintaining the speed and accuracy of the processes in McDonalds is also done

through less technological techniques. McDonalds uses different colored packages to

help the employee recognize the different types of food; colored wrapped sandwiches

makes it easier to distinguish what is wrapped beneath. For example, a cheese burger is

wrapped in yellow colored paper and a fish fillet is wrapped in blue, while a hamburger is

wrapped in white paper. Special ordered sandwiches without standard condiments come

in red and white paper, with a paper receipt attached which details the items on the

sandwich (Phillips, Eddie).

Quality Inspections

Food safety is one of McDonalds top priorities. Every restaurant is required to

check food temperatures, expiration dates, and other food safety hazards several times

throughout each day of operation. The corporation sends a standardized Food Safety

book to every store which includes a comprehensive list of every item that needs to be

measured. Cooked food temperatures are measured to ensure that all food is cooked

properly before served. Refrigerated and frozen foods are also checked to make certain

that they do not get too warm and are not spoiled. Expiration dates are checked on foods

frequently, if the item is expired than it is discarded. Equipment is also measured to

ensure that it is functioning properly. Also included in the safety checks is the water

temperature in the restroom sinks, workers must be caution because water that is too hot


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can burn customers. Food safety checks are performed several times throughout the day

(Phillips, Eddie).

Periodic corporate inspections, both announced and unannounced, are one of the

major quality management controls at McDonalds. The McDonalds Corporation applies

two major inspections on each restaurant per year. One is called Field Operations Review

(FOR), and the second is called System Observation Review (SOR). Restaurants have

two opportunities to pass the tests. If the store fails to pass the inspections on a second

attempt, the corporation takes over the store and brings in better employees to ensure that

the proper processes and equipment are being used properly. Both inspections are

extraordinarily thorough and they are based on a point system, and points can be taken

off for many different reasons. For example, points can be reduced if the credit card

system is too slow, if the stores walls have cracks, or even if the restaurant performs

processes that slow the serving time (such as accepting personal checks for payment).

Points will also be lost if employees are not dressed according to regulations, including

wearing name tags (Phillips, Kenny). During a corporate inspection, the restaurant must

also provide a food safety log of recorded entries to ensure that proper food testing is

completed frequently and properly (Phillips, Eddie).

Along with exhaustive corporation inspections, in-store managers also personally

inspect their restaurants on a frequent basis. One example is the manager on dutys task

of completing a travel path every thirty minutes of his shift. During a travel path, the

manager personally checks every aspect of the restaurant, including: the lobby area where

customers eat; the restrooms; the grill area behind the counter; the walk-in refrigerators

and freezers; the stock area; as well as the entire perimeter outside the restaurant


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(Phillips, Eddie). During the travel path, the manager also confirms that the Food Safety

checklist has been completed and that all measurements fall within the specified range.

Through completing travel paths, management continuously checks every aspect of the

restaurant throughout the day.

The Five Ps

Even though many of the quality management processes in McDonalds are done

through the use of information technology, other quality management factors such as

maintaining the five Ps forces (People, Product, Price, Place, and Promotion) are

essential in any business. Consequently, McDonalds Corporation uses these related

forces in the sense that each P creates a chain affect on each other. The following is a list

of methods using the P forces.

The first force is the people working in the McDonalds chains, which are

represented by service, hospitality, and pride. The staff employed in McDonalds are

continuously trained and kept in the company to reduce the cost of training short-term

inexperienced workers. Moreover, the training process has been improved to include

online e-learning tools for the restaurant staff. Maintaining the workers in the company is

very important to McDonalds and the corporation rewards workers who do outstanding

services. This form of incentive is motivational to the workers (Cantalupo 4).

The second force is theproductswhich include the quality, taste, and price of the

goods sold. McDonalds is trying to establish flexibility with the changing tastes and

preferences in the market, Moreover, they are also seeing growing interest in premium

product and wholesome food choices. The quality and safety of the food is a main entity

in maintaining the quality of the food at McDonalds (Cantalupo 4).


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The third force is placewhich is represented by the clean, relevant, and modern

store environments. Whether it was in the main restaurant area, the kitchen, or even the

restrooms, the company ensures the safety and comfort for the consumers and staff

workers. The company intends on having the gold standards for cleanliness (Cantalupo

5).

The fourth factor is price, which is presented in the productivity and value. The

value of the product is increased when consumers gets high quality products for lower

costs. Therefore, McDonalds Corporation ensures that its customers receive the highest

value of food for the price they pay (Cantalupo 5).

The fifth factor is promotion which is presented in marketing, leadership, and

trust. The company has already earned its reputation for good quality food so they just

focus on customers cares. They do this through community involvement and their social

responsible towards the environment. This process will gain the trust of loyal customers

and keep them for life (Cantalupo 5).

Training

As thepeopleaspect of the 5 Ps shows, McDonalds realizes that its employees

must understand their duties in order to fulfill the organizations goals. To ensure that all

employees properly perform their assigned duties, McDonalds invests greatly in their

training program. The company continues to receive prestigious awards for their leading-

edge training, including the Employer of Choice Award from the Restaurant Business

Magazine (Restaurant Management). New crew members go through a thorough

orientation process consisting of several videos, followed by several days of direct one-

on-one training by a trainer. After employees feel comfortable with the operations, they


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may be promoted to Crew Trainers. Crew Trainers undergo further training for

specialized processes such as the grill area, front counter, drive-thru, and other areas.

Shift supervisors are the next step in the organization, followed by Second Assistant

Managers, followed by First Assistant Manager, and the top manager at each McDonalds

restaurant is the Restaurant Manager (Phillips, Eddie). For a graphical representation of a

typical McDonalds in-store hierarchy, see Appendix 4. Training never stops at

McDonalds, no matter which position an employee holds. Some current employees

describe McDonalds as the best training company in the world (Phillips, Kenny).

To improve the Made for You system, McDonalds recently introduced a strategy

called Shift into Overdrive, and this strategy focuses on helping shift managers work

more efficiently. All McDonalds restaurants are required to send at least one manager to

participate in the new training program (Phillips, Kenny). This training mainly focuses

on the human aspects of Made for You, ensuring that the system is being used as design.

Since the new system requires seamless work from several people, the entire team must

work together for the system to work quickly to provide food to customers.

Finally, to ensure the quality of the operations, McDonalds conducts surveys

periodically to get feedbacks from customers (Phillips, Eddie). As shown throughout this

section, the McDonalds Corporation has been doing a very good job at keeping the

quality of its products and services, whether it was through using computerized

equipment or to train their human resources.

RAW MATERIALS

The Arrival & Maintenance

Our group conducted an extensive interview with Ronald Lessnau, an owner of


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several McDonalds restaurants located in Denver. See Appendix 6 for the full

interview. Through the intense process of choosing and manufacturing raw materials,

McDonalds customers can be assured of a quality product. Whether arriving via truck or

train, raw materials are delivered fresh and ready to use everyday. To ensure that this

freshness is passed onto the customer, each arriving package is personally inspected for

damage during its travel. In addition, the condition of delivery trucks are also taken into

account to make sure that meat was untainted due to a filthy meat cooler. The meat

cooler should always be set at 10 degrees below zero and the meat should remain at a

constant temperature of 34 to 38 degrees. While some inspections are known, others are

random to ensure that quality is consistent from one delivery to the next.

Grade A Beef and Other Meats

All beef cooked at McDonalds is of Grade A quality and 80%-82% lean.

McDonalds not only supports humane slaughtering of animals but also refuses to

purchase dairy cows over 5 year old due to the toughness of their meat.

Upon the arrival of meat, received from Otto & Sons, Inc. in Chicago, a two hour

supply is taken directly to the grill side freezers which stand at a constant temperature of

0 degrees. Once placed on the grill, the meat is cooked at a specific temperature to assure

the meat holds the proper internal temperature to meet the requirements of food safety

and yet hot enough to hold its natural juices.

Cooked hamburger patties and other meat products are stored in a humidity

controlled cabinet until usage to ensure that patties remain hot and moist. The

preparation time of a hamburger should not take longer than 90 seconds and only 35

seconds after the hamburger bun itself has been toasted. This allows each customer to


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receive his/her meal in the timeliest fashion.

Produce

McDonalds hires agronomists which can spend up to two years assisting farmers

grow perfect russet potatoes, 6-inches long, that produce a finished french fry which is

appealing both in looks and taste. In addition, many produce items, including lettuce,

have specifications that are two pages long. With this many guidelines in place,

McDonalds can guarantee that they are delivering to their customer the best ingredients

possible. The produce delivered from Condies in Salt Lake City to the Evans and

Colorado McDonalds restaurant arrives via railroad to ensure that freshness is

maintained. Upon inspection, should any produce not meet the correct internal

temperature, the refrigerator is either immediately altered or the items are discarded.

SUPPLY CHAIN

Examination of Supply Chain

Food quality is a very important aspect at McDonald's restaurant. Further

explaining the Raw Materials section, the corporation seeks fresh lettuce and tomatoes,

quality buns and potatoes, pure ground beef, select poultry and fish and wholesome dairy

products. McDonalds ensures that their products are guaranteed to be the best quality

before serving to their customers. McDonalds has many suppliers who play a vital role

in providing quality products to McDonalds customers. Many Midwestern McDonalds

restaurants utilize the same supplier for products, including: meat, produce, dairy, and

other products.

Many McDonalds receive their raw meat from Otto & Sons Corporation, located


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in Chicago and Oklahoma (Lessnau). McDonalds take time and responsibility to conduct

extensive research on their meat. For example, the corporation announced plans that call

for its suppliers worldwide to phase-out of animal growth promotion antibiotics that are

used in human medicine. They reassure consumers that they are providing beef that

hasnt been injected with steroids. For produce, many Midwestern McDonalds locations

receive their produce from Condies, located in Salt Lake City, Utah. They receive

produce shipments as often as three to four times a week to ensure freshness.

McDonald's shakes, McFlurry Desserts and reduced-fat ice cream are made from fresh

quality cream, whole milk, skim milk and condensed skim milk, all of which are supplied

from Robinson Dairy. Robinson Dairy is located in Colorado Springs. Due to the

proximity of the Robinson Dairy to the city of Denver, many Denver McDonalds receive

dairy shipments quite often.

McDonalds gets it supply of tea and Danish pastries from Sara Lee, and they

receive their catsup from Hunts and Heinz. McCormick provides its spices and some of

their sauces, and they receive their blend of Arabica coffee beans from South America.

Although many restaurants share the same supplier, McDonalds also has many

independent suppliers which were unnamed due to confidential data. See Appendix 7

for an illustration of a McDonalds supply chain.

Supply Chain Efficiency

McDonalds enjoys a very efficient supply chain because they incorporated an

electronic Foodservice Network (eFS Network). In an eFS Network, a company which

operates an independent Business to Business (B2B) marketplace facilitates sales and

purchases to the foodservice industry. The main eFS Network, based in Chicago, is open


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to all segments of the industry - from foodservice suppliers and distributors to multi-unit

operators. It helps to maximize Internet based efficiencies and saves its participants

money across the entire supply chain. The eFS Network's neutral web-based marketplace

has helped to streamline information flow between participants as well as promote

industry-wide technology standards. It features both a public exchange that will promote

connections between participants in the foodservice industry and private exchanges that

enable confidential customer-supplier interactions. The exchange focuses on U.S and

Canadian foodservice distribution, which is a $150 billion industry. In summary,

McDonalds takes utilizes all advantages offered by the eFS network.

Quality along the Supply Chain

Recognizing the importance of the supply chain in maintaining quality is one of

McDonalds strengths, and therefore McDonald's aims to create long-term relationships

with a limited number of supplies. Suppliers are usually monitored to ensure that they can

meet McDonald's required standards. Repeat orders mean that suppliers can be confident

of survival and growth, while McDonalds consistently enjoys standardized, high quality

products. McDonald's stresses its strict standards based on quality, value and cleanliness.

McDonalds also keeps track of the origin of each product, which enables the company to

control every link in its supply chain.

As mentioned throughout this report, food safety is very important to the

company. To ensure that the restaurants serve safe food, McDonalds undertakes

extensive animal welfare audits to ensure that each of their suppliers adhere to their

rigged standards for animal treatment and care. They do this by conducting unannounced

audits, up to 100 per year, at various farms and supplier facilities. Overall, McDonalds


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creates advantageous long-term relationships with suppliers, and ensures safe food, to

fulfill its goal of making customers happy.

Share Costs

McDonalds share cost between their suppliers and the corporation is much lower

than other fast food restaurants. This is due to the fact that they have specifications and

specialist who assists the suppliers in planting or producing the raw materials before it is

shipped to the restaurants. By enforcing strict standards for food quality, McDonalds

lowers the cost between suppliers and themselves by preventing any food being shipped

which does not conform to standards. By giving attention to the suppliers and presenting

the standards ahead of time, McDonalds will reduce the share costs between them. This

planned reduction in costs helps achieve McDonalds competitive strategy of providing

low cost to the customers.

FORECASTING

Aspects of Forecasting

McDonalds continually receives information from customers, employees, and the

industry that effects short, medium, and long term decision making. Different kinds of

information are received from all levels of the corporation and are used to learn more

about the market movement and advertisement structure, including basic everyday

processes in production and packaging of goods for the targeted markets. Forecasting is

done in large by the corporation, as part of their responsibility to the franchisees and

McDonalds shareholders.

Through our interview with Mr. Lessnau, we learned details concerning the basics


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of McDonalds business and hierarchy. However, we were not able to obtain in-depth

information that is used for their budgeting, marketing, advertising, detailed forecasting,

and innovations of new products because it contains confidential contents. This is due to

the scrutiny from people looking for flaws, bad business conduct, and other degrading

allegations concerning of McDonalds. Everything we received was cleared at the

corporate level.

Forecasts are vital to McDonalds organization and significant management

decisions. Forecasts provide the basis for budgetary planning, cost control, planning new

products, process selection, capacity planning, and facility layout. Typically,

McDonalds uses a qualitative type of forecasting. The main information used in

forecasting the stability and future growth of the corporation is by the number of

customers going in and out the door and all voiced opinions.

Listening to Customers

A major component of forecasting is listening to customers. Different medians of

communication exist for customers to relay there ideas, opinions, concerns, and problems

to the McDonalds Corporation. At a particular location, a customer has access to

employees, managers, and owners to voice their opinions and concerning their likes and

dislikes about the particular restaurant. Often, McDonalds managers and owners use

open ended questions to allow customers to expand on what they want to discuss.

McDonalds offers a nationwide, toll free 800 number for customers to use when the

corporation has fallen short of their expectations or when a restaurant makes a mistake

with their order. Internationally, McDonalds has a website that is not only interactive

and informative throughout the 59 nations they supply to, but is a place for customers to


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voice their opinions and complaints. As Ronald Lessnau exclaimed, We listen!

At the corporate level, qualitative forecasting can be seen even with the limited

information we received. The McDonalds market research department records data by

talking with customers to find out how they like or feel about a particular ad campaign or

a specific commercial. The product development department uses input on developing a

new product or changing how the new product is prepared, priced, or packaged.

Forecasting Success and Failure

McDonalds has been extremely accurate in forecasting trends or needs the

customers want and request. Mr. Lessnau states, McDonalds, in the past has helped

customers deal with their changing lifestyles. An example of this is when the Egg

McMuffin, the first hand held breakfast sandwich by Herb Peterson, was introduced for

the first time. It took 10 years for breakfast to be successful at McDonalds and now

McDonalds cracks more farm fresh, grade A eggs daily than the largest institution in

the United States, the US Military. Although the corporation is usually accurate,

consumers know that McDonalds sometimes has shortcomings and is not always correct

in projections.

Even with using a qualitative forecast, the future is not always clear so see.

Twelve years ago, due to the favoring focus group survey responses for healthier

products, McDonalds developed and marketed the McLean Burger. It contained only 7%

fat and was the most tasteful low fat burger on the market, costing 53 cents a pound more

then the normal beef. Unfortunately, it did not sell. After the McLean burgers

introduction, customers decided that the product was too expensive and did not taste as

good as other sandwiches. Perhaps the failure of the McLean burger explains


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McDonalds slow reaction to the current low carbohydrate diets.

Ronald Lessnau also gave examples of when qualitative forecasting influences

how he fixes errors of past business decisions at his establishment. Decisions have been

made on information gained from surveys, interviews, history of products, and

questionnaires. One particular McDonalds restaurant has extended their hours as a result

of many comments. Also, years ago one region reduced some of the seasoning in the

chicken products, and based on interviews and focus groups that region returned back to

the original product and did not take the change national. Mr. Lessnau also described

that some Denver, Colorado locations went back to 99-cent double cheeseburgers years

ago because of feedback they received in focus groups that were conducted as part of

their normal market research. As Lessnau explained, Sometimes you can prevent a

good idea from going bad by talking to those closest to the customer, your sales people.

The data collected for these long terms and every day business decisions were from

employees as well as customers.

CONCLUSION

In conclusion, the McDonalds Corporation has successfully maintained their

reputation of being one of the most trustworthy fast food chains worldwide. As a result

of their competitive strategy, strict quality management, efficient raw materials supply

chain, and forecasting, they created an efficient operations management system. The

company continues to utilize an effective operations management processes, which in

turn helps them make their customers happy.


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Appendix 1 Total Time in Line (TTL) Control Chart


Total Time in Line (TTL) Control Chart

Hour

Seconds

0

20

40

60

80

100

120

140

160

180

7:00

AM

8:00

AM

9:00

AM

10:00AM

11:00AM

12:00PM

1:00

PM

2:00

PM

3:00

PM

4:00

PM

5:00

PM

6:00

PM

7:00

PM

Although the McDonalds restaurant providing this data is open until midnight, we were only given dataAccording to this chart, the TTLs before 9:00 AM were above the upper control limit (120 seconds). Peunderstaffed during this early morning time period, which could explain the high TTLs.


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Appendix 2 Kitchen Video System (KVS) Time Control Chart

Kitchen Video System (KVS) Control Chart

Time

Seconds

15

20

25

30

35

40

45

50

55

60

65

6:00

AM

7:00

AM

8:00

AM

9:00

AM

10:00AM

11:00AM

12:00PM

1:00

PM

2:00

PM

3:00

PM

4:00

PM

5:00

PM

6:00

PM

7:00

PM

Similarly to the TTL control chart, the KVS times were above the upper control limit (50 seconds) durinThis could also be explained by a shortage of employees. For this chart, we were only provided data fro



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Appendix 3 TTL and KVS Data Used to Construct the Control Charts

Due to protection of confidential data, we were not given more specific data than thetimes. We asked for customer count data and sales data but our requests were declineddue to confidentiality reasons.



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Appendix 4 Typical McDonalds in-store Hierarchy


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1st AssistantManager

FranchiseOwner

StoreManager

2nd AssistantManager

2nd AssistantManager

Shift

Manager

Shift

Manager

Shift

Manager

CrewTrainer

CrewTrainer

CrewTrainer

Crew TrainerCrew Trainer

CrewCrew CrewCrewCrewCrewCrew

Source: Phillips, Eddie


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Appendix 5 Process Chart

McDonalds Process ChartThe Preparation of a Hamburger

Employee

inspects the raw

material inventory

for the follow ing

day

Is there

enough

beef in

storage?


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No

Call Otto andSons Company in

Chicago and

have them send

more beef

Is there

enough

produce in

storage?

Yes

Yes

NoCall Condie's in Salt

Lake City and ask them

to send more lettuce,

tomatoes and onions

Is there

enough

condiments on

the servicecounter?

No

Call Hunt's

Ketchup for

additional

ketchup packetsto be sent

Is there

enough milk

cartons

available for

purchase?

Yes

No

Call Robinson

Dairy in Colorado

Springs for a

new supply

delivered

Employee goes

outside and greets

the truck carrying

today's supplies from

the railroad s tation.

Yes

A

A

Employee assists the

supply trucker bring

all supplies into the

restaurant's kitchen

Does any

supplies

delivered

today need

refrigeration?

No

YesPlace beef in

freezer w hile

putting the milk

and produce in

the refrigerator

Employee cleans

the preparation

counter and

prepare for

customer's orders

Employee

w aits to fill a

customer's

order

Customer enters

McDonalds and

approaches the

register

Employee

w aits to still

fill the

customer's

order

A

2

Employee enters

the kitchen area


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A

2

Customer places

order

Review orders via

computer screens.

There i s an order

for a Big Mac.

Toast hamburger

bun and place iton the

preparation

counter.

Retrieve meat

from holding tray.

Place the

hamburger patty

on the bottom

half of the bun.

Review the

computer screen

displaying orders

w aiting to befilled.

B

B

Does the

customer w ant

lettuce and

tomato on

his/her Big Mac?

Place tomato and

lettuce atop the

hamburger patty

Yes

No

Place top half on

bun on top of

hamburger

ingredients.

Place the

hamburger into a

cardboard box

designed for a

Big Mac

Review the

computer screen

displaying orders

w aiting to be

filled.

Does the

customer

w ant to dine

in the

restaurant?

Place Big Mac

into a take out

bag

Place Big Mac

box onto a

restaurant tray

Yes No

Take order to thefront service

counter

Hand Big Mac

order to the

w aiting customer


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Appendix 6 Illustration of a McDonalds Supply Chain

SERVICES

Supply Network

McCormick(Spices)

SUPPLIERS

Otto& Sons(Red Meat)

Condie's(Produce)

Robinson Dairy

(Dairy Products)

Sara Lee

(Pastries)

Tyson

(Poultry)

SERVICE SUPPORT OPERATIONS

Baltimore, MD

Chicago, IL

Bethesda, MD

Chicago, IL

Colorado Springs, CO

Salt Lake City, UT

LOCAL SERVICE P

McDonalds R

6355 E. Eva

Denver, CO

Inputs Transformation Localizatio

MANUFACTURING SUPPLIERS MANUFACTURING DISTRIBUTIO



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Appendix 7 Interview with Ronald Lessnau

What: McDonalds InterviewWhere: 3996 E Evans AveWhen: Thursday, October 28, 2004 at 1:15 p.m.

Manager Ronald Lessnau Owner

ProcessCan you take us through the process of manufacturing a McDonalds hamburger? (This consistsof every step from obtaining the raw materials from various companies to create the hamburgeritself to hand to the awaiting customer.)

McDonalds has a complex purchasing and quality assurance department. They have specialistin each area, beef, Poultry, Nutritionist, Chefs, Agronomists and so on. Our specs for raw qualityare where the purchasing and manufacturing process begins. The specifications for lettuce aretwo pages long single spaced type. When McDonalds opens a new country, they spend in excessof two years developing the supply chain. This includes everything that is used in the restaurantfrom milk to potatoes. Agronomists can spend two years to help the farmers grow a russetpotato that is six inches long and has the solid contents that are required to produce a finished fry

that looks, taste and has the mouth feel that french fries do in Colorado, Chicago or Tokyo. Icant share the ingredients or recipes, but I can tell you that our beef is 100% Grade A andMcDonalds has higher specs than the USDA.McDonalds inspectors work daily at all the beef plants that we purchase beef from inspecting themanufacturing processes and assuring quality control is in place.

McDonalds has set the industry standard in Quality control and assurance. McDonalds hasworked with the CDC to set standards for the humane slaughter of cows and no dairy cow over 5years old will be used for beef supply in the McDonalds food chain supply. The hamburgers are80 to 82% lean beef.

When the hamburger patty is formed at the plant, it is cryogenically frozen and stored at a

minimum of 10 degrees below zero.

It is ship via rail car or truck at the same temperature to different distribution systems around thecountry. Each of these centers are privately owned by independent business people who mustcomply with McDonalds quality specs for handling, storage, ordering, product rotation, (first infirst out) and inventory turn. To assure high standards are maintained during the delivery to therestaurants and proper handling of products during that process as well the driver andMcDonalds mangers check the product, as it is unloaded. They are looking for condition of thecases as they come off the truck, condition of the truck itself. Is it clean and in good repair insideand outside? Has it been cleaned before it left the yard to deliver to the restaurants? They checkthe internal temperature of the frozen meet to assure it arrives at the proper temperature. It mustbe kept at minus 10 degrees at all times. They check the temperature and condition of therefrigerated product as well. It has to meet the dame rigorous standards. It must be deliveredbetween 34 to 38 degrees.

McDonalds has quality assurance personnel who inspect the distribution systems and spot checkdeliveries as well. Some inspections are announced and some are random with no notice.

At the restaurant, once the product is received the same standards apply for product rotation,temperature and storage as the distribution centers. We check the temperature of our freezersand refrigerators twice a day and record those temperatures in a book that becomes a permanent


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record of quality control and safety for our restaurant. The restaurants are required to keep thosebooks on premise for 6o days before they can be taken to record storage.

Once the product reaches our back door we take two hour supply of frozen meat to our grill sidefreezers where the temperature is zero and the meat is grilled on our grill at a specifictemperature and time to assure a properly cooked patty that has good visual characteristics, has

the proper internal temperature for food safety and quality, is hot and maintains its naturaljuices. The cooked patties are held in a temperature can humidity controlled cabinet that keepsthe patty hot and moist. From there the patty is placed on the properly finished bun with theingredients or toppings the customer requested. The sandwich is prepared and served to thecustomer as fast as possible. From the time the bun is toasted the sandwich is finished with 35seconds. Our standard for the time the customer finishes placing their order, they should havetheir sandwich in 90 seconds or less.

We check the temperature of the toasted buns daily to assure the toaster is properly calibratedand the finished product meets the desired quality specs McDonalds set. We check the internaltemperature of all finished products, meat, chicken, filet, beverages etc twice a day to assurequality and food safety. These temperatures are recorded in the book mentioned earlier and

recorded. Any product that does not meet the internal temperature must be correctedimmediately. We check the procedures of the employees as they prepare the products to assurethey are following the correct procedures.

To maintain quality control on the restaurants my organization does inspections both announcedand unannounced to review procedures and inspect the whole process described above.McDonalds does inspections on the restaurants three times a year to review all procedures. Eachrestaurant is graded on these visits and the grades are used to determine eligibility for growth tonew franchised locations and the ability to be rewritten at the end of your franchise term. Failureto meet these requirements could result in default of your franchise agreement.

Raw MaterialsWhat companies do you receive your raw materials from?What can you tell us about the companies that supply your raw materials?What form of transportation is taken to ensure that the food arrives at your store fresh and notperished?Do you receive your raw materials from the company directly or from the McDonaldsheadquarters?

McDonalds receives its raw materials from different vendors depending what part of thecountry youre from. All vendors work off the same specifications. The meat we use in Denver isfrom Otto & Sons Inc. They have meat plants in Chicago and Oklahoma that supply meat to ourdistribution center. We receive our produce from Condies in Salt Lake City, Milk from RobinsonDairy in Colorado Springs. Sara Lee provides our tea and Danish. Hunts and Heinz providesour catsup. McCormicks provides our spices and some of our sauces. McDonalds has many

suppliers of raw products. Those are just a few.

McDonalds Corporation does not provide raw materials or products to the Licensee. Ray Krochad a basic belief that McDonalds have the highest quality specifications and hold suppliers tothose specs versus providing products to the Licensees and having a conflict between qualityand profit margins. He wanted the Company to be successful and provide the framework andprocedures for the system. He wanted the best products used at the best price and knew thatindependent business people who had their time, money and passion in something would bebetter for the system, the customer and the owner.


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Customer Service/SurveysDo you use customer feedback to improve your service? If so, how?Having you ever directly contacted a customer based on their feedback information to get abetter understanding of their comment?Who directly uses and implements customers comments?

McDonalds listens to customers in many different ways. We talk to some of our customers inthe lobby and find out whats on their mind and how they like whats going on in the restaurant.Sometimes asking an open ended question allows the customer to expand on what they want totalk about. We listen! We have an 800 number that customers use to call when we fall short oftheir expectations or when we make a mistake with their order. McDonalds has a web site thatcan be visited by customers and their they can voice their opinion, voice complaints or learnmore about what McDonalds is doing as a company in many different areas. McDonalds hasnutrition, public relations, charity work and donations, education and scholarships to mention afew.

When a customer calls about a service issue or any comment, my procedure is they will receivetwo phone calls, one from the restaurant manager and the other from one of our supervisors or

myself. We want to hear comments from our customer. It is important to the lifeblood of anybusiness. We have extended our hours as a result of many comments. We have gone back todifferent products because of customer feedback. Years ago we reduced some of the seasoning inour chicken products in a test market. Based on the interviews and focus groups that wereconducted we went back and didnt roll it out nationally. We went to all white meat nuggetsbecause of focus group studies. In Denver we went to the 99-cent double cheese years agobecause of feedback we received in focus groups that were conducted as part of our normalmarket research.

We talk to customers all the time. This may sound simple but our family and crew are customerstoo, and we ask how they feel about new products or procedures. Sometimes you can prevent agood idea from going bad by talking to those closest to the customer, your sales people. Anytimea customer calls, writes or sends an e-mail, its an opportunity to fix a problem and be responsiveto their needs and learn more about how they feel about your business. They talk to manypeople and can be an ambassador for your business or can present you in a bad light.

Customer comments are used by different departments at the corporate level, market researchwill talk to customers and find out how they like or feel about an Ad Campaign or a specificcommercial. Product development may use input on developing a new product or changing howa new product is prepared, priced or even how its packaged.

ForecastingWhat are your goals for this particular store?What do you forecast your store will be doing in the future? Introducing new products?What methods will be used to carry out these store forecasts and why? IDEAS: Better customer

attention, better products?Are the forecasting products a reflection of the individual customers desires and needs?In the past, how accurate have you been at forecasting changes in your store? Hoe do you dealwith forecasting errors?

Forecasting in the sense youre describing is done in large part by the corporation, as part of theirresponsibility to the franchisees and McDonalds shareholders. Each local restaurant forecast orproject the impact of the new product that is being marketed and / or introduced.


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The goal for my particular restaurants is to exceed the projections of new product launches. Istrive to implement all products better because of the initial capital investment required or theinvestment in training, procedures and marketing that I have to spend. Increasing the unitmovement of any product can result in increased sales and profits.

I cant share what new products McDonalds will be rolling out in the upcoming months or next

year, so that is a tough question to answer. I can say that I am always working on ways toimprove everything we do that affects the customer. Some improvements are slow and othersare subtle. Nonetheless, the grade we receive is from the customers pocket book. If we dothings right and improve, customers let us know.

When we launch a new product, such as Chicken Selects, we increase the advertising budget andfocus the marketing on specific demographics. We target the audience then the media they willmost likely use, radio early a.m. or drive time. Television is another media, now what programand what time slot? Print media is used as well, will it be outdoor billboards, newspaper ormagazines.

Next we sample the product with our employees so they know what it is and how it tastes. After

soft launch, we start the full marketing campaign and product test or give samples to ourcustomers on a specific day across the TV market.

We use radio remotes and bring product to local radio stations for them to eat so they can talkabout the product while they are reading the script for our live commercials.

After the first wave of marketing McDonalds sometimes do more focus group surveys todetermine how well the launch went. Sometimes customers tell us during these introductionperiods that the creative didnt get them interested in the product or it wasnt believable, in thosecases McDonalds may modify the creative or the commercial. Case in point was the McLeanBurger we sold 12 years ago. It had 7% fat. Was the best low fat burger on the market, cost 53cents a pound more for the meat than our normal beef? Customers told us they wanted a leanburger that was healthier. McDonalds gave them the best lean beef burger available. It didntsell! Customers voted with their pocket books and said, We want food that taste good. Fatadds flavor and eaten in moderation with a balanced diet is good for you. This is a case whereMcDonalds listened to a few customers and then listened again.

I believe this best describes how we listen, forecast and move with the trends in the market place.It best describes how we react to mistakes and how we try our best to be successful. McDonaldsowes it to its customers, licensees suppliers and its shareholders to listen, react and be aresponsible leader.

In summary, McDonalds has been extremely accurate in forecasting trends or needs thecustomers want and request. Not trying to be arrogant, but McDonalds in the past has helpcustomers deal with their changing lifestyles. The Egg McMuffin developed by Herb Peterson,

an owner operator in California introduced hand held breakfast sandwiches for the first time. Ittook 10 years for breakfast to be successful at McDonalds and now McDonalds cracks morefarm fresh, grade A eggs daily than the largest institution in the United States, the USMilitary.


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McDonalds Worldwide Corporate Responsibility Report 2004. Accessed online onOctober 26, 2004 at: .

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Restaurant Management. McDonalds Restaurant Management Careers. Accessedonline on October 27, 2004 at: http://www.mcdonalds.com/usa/work/manage.html.

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