UNIT 305 – OPERATIONS MANAGEMENT

LECTURER – DR. TONY JEWELS

TOPIC – OPERATIONS MANAGEMENT AT McDonald’s

Submission Date – 20th December 2013

Student Name – Bhupesh Mamtani

Student ID - 869805

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TABLE OF CONTENTS

Description Page No.

EXECUTIVE SUMMARY 3

1.INTRODUCTION 4-5

2. OPERATIONS MANAGEMENT 6

3.SWOT ANALYIS 6-8

4. OPERATIONS AT McDonald’s 9-11

5. QUALITY MANAGEMENT AT McDonald’s 12

6. STOCK CONTROL AT McDonald’s 13

7.CONCLUSION 14

8.REFERENCES 12

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EXECUTIVE SUMMARY

In today’s fast and modern era, fast food is one such product which never seems to be dieing.

Every individual, old or young, male or female, requires it either as a meal or snack. One giant

name in this giant industry is McDonald’s. This name has won the taste buds of majority of the

world’s population by its vast expansive business operations and excellent food products. This

report will throw some light on the working and operations of McDonald’s.

McDonald’s has earned worldwide fame through its unique taste and excellent services. It

operates through wholly owned restaurants, franchised outlets and affiliates. Its source of

revenue includes income from own restaurants and royalty from franchisees. To handle the cash

inflow from franchisees, the company has a separate dedicated department for such operation.

Operations Management is essential for a huge company like McDonald’s, with multiple

simultaneous operations running together. Operations Management enables an organization to

effectively manage its operations by embracing the best possible operating technique.

Operations Management brings order into the functioning of a business and avoids chaos and

thus avoids losses.

To sustain in this competitive market in the long run, a business has to keep innovating and

changing itself with time. It also has to devise new operating technique if the need be.

McDonalds’s has changed its strategies with changing times and needs. For e.g. , in the 1990’s,

instead of opening up new outlets rapidly, as was the trend of the company, it started renovating

its existing outlets to avoid having a stale look in the market.

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1. INTRODUCTION

McDonald’s, founded by Ray Kroc, is the world's largest chain of fast food restaurants. They

proudly serve more than 68 million customers daily in 119 different countries and currently

have more than 30,000 outlets in different locations worldwide. McDonald's primarily sells

hamburgers, cheeseburgers, chicken products, french fries, breakfast items, soft drinks,

milkshakes and desserts. It has also begun to offer salads, wraps and fruits in its menu recently.

McDonald’s has included in its many outlets, a playground for children and has started

advertising targeted at children. Some have been redesigned with a particular emphasis on

comfort, introducing lounge areas and fireplaces.

McDonald’s is a global superpower in the fast food world with daily revenues amounting to

millions of Dollars. It operates expansively with a mixture of wholly owned outlets, affiliates

and franchisees. It provides the required training and equipments to the franchisees, to maintain

the promised standard of quality. Their revenues come from the rent, royalties, and fees paid by

the franchisees, as well as sales in company-operated restaurants.

Two brothers, Richard and Maurice McDonald started the company as a barbeque restaurant in

1940, started using production line principle in 1948 and finally sold the business to a

businessman Ray Kroc, who expanded it widely. It is headquartered in Illinois, Unites States of

America.

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MISSION AND VALUES OF McDonald’s

- MISSION:

McDonald's brand mission is to be our customers' favorite place and way to eat and drink. Our

worldwide operations are aligned around a global strategy called the Plan to Win, which center

on an exceptional customer experience – People, Products, Place, Price and Promotion. We are

committed to continuously improving our operations and enhancing our customers' experience.

- McDonald’s VALUES:

We place the customer experience at the core of all we do. Our customers are the reason for our existence. We demonstrate our appreciation by providing them with high quality food and superior service in a clean, welcoming environment, at a great value. Our goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each and every time.

We are committed to our people. We provide opportunity, nurture talent, develop leaders and reward achievement. We believe that a team of well-trained individuals with diverse backgrounds and experiences, working together in an environment that fosters respect and drives high levels of engagement, is essential to our continued success.

We believe in the McDonald’s System. McDonald’s business model, depicted by our “three-legged stool” of owner/operators, suppliers, and company employees, is our foundation, and balancing the interests of all three groups is key.

We operate our business ethically. Sound ethics is good business. At McDonald’s, we hold ourselves and conduct our business to high standards of fairness, honesty, and integrity. We are individually accountable and collectively responsible.

We give back to our communities. We take seriously the responsibilities that come with being a leader. We help our customers build better communities, support Ronald McDonald House Charities, and leverage our size, scope and resources to help make the world a better place.

We grow our business profitably. McDonald’s is a publicly traded company. As such, we work to provide sustained profitable growth for our shareholders. This requires a continuous focus on our customers and the health of our system.

We strive continually to improve. We are a learning organization that aims to anticipate and respond to changing customer, employee and system needs through constant evolution and innovation. (Aboutmcdonalds.com, 2013)

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2. OPERATIONS MANAGEMENT

Operations include such activities that bring about a transformational change in inputs (materials, machines, labour, and management, capital) to produce outputs (goods and services). Operation management designs, operates and improves the productive system. It ensures that the transformation process is smooth and efficient and that the output adds value to the input. “ Activities in Operations Management include organizing work , selecting processes , arranging layouts , locating facilities , designing jobs , measuring performance , controlling quality , scheduling work , managing inventory and planning production. Operations managers deal with people, technology and deadlines”. (S.Russell and W.Taylor III, 2011)

3. SWOT ANALYSIS

SWOT analysis is a reliable and basic model which provides direction and serves as a basis for the development of marketing plans. It assesses an organizations strengths (what an organization can do) and weaknesses (what an organization cannot do) in addition to opportunities (potential favorable conditions for an organization) and threats (potential unfavorable conditions for an organization). SWOT analysis is an essential step in planning and its value is often underestimated despite the simplicity in creation. This method takes the information from the environmental analysis and separates it into internal issues (strengths and weaknesses) and external issues (opportunities and threats). Once this is completed, SWOT analysis determines if the information indicates something that will assist the firm in accomplishing its objectives (a strength or opportunity), or if it indicates an obstacle that must be overcome or minimized to achieve desired results (weakness or threat). (Ferrell, 1999)

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SWOT Analysis Of McDonald’s:

STRENGTHS

- Risk diversity: Risk relating to the operations of the business is spread across multiple

branches. Thus, failure of one outlet doesn’t succumb to great losses to the company.

- Market share: Ample number of outlets guarantees a dominant position in the market and a

large market share.

- Strong supply chain: Large distribution network enables the company to have a separate

department to handle supply of materials, thus allowing the company to have an efficient supply

chain.

- Promoting ethical conduct

- Rigorous food safety standards: Huge amount of funds at disposal allows the company to

follow food safety standards.

- Decentralized yet connected system.

- Strong brand name, image and reputation.

- Strong financial performance and position: Huge amounts of funds at disposal.

- Affordable prices and high quality products: Offerings for all sections of the economy.

- Effective presence all over the globe.

- Efficient employee training practices.

WEAKNESS

-Past controversies relating to food quality, thus creating an unhealthy image.

- Legal actions related to health issues due use of trans fat & beef oil.

- High Staff turnover resulting in inefficient operations.

- Uses such materials to make polystyrene that is contributing to ozone depletion.

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- McDonald’s doesn’t provide home delivery services in many countries, unlike its

competitors.

OPPORTUNITIES

-Growing health trends: Today’s consumer is becoming health conscious and thus demanding

healthier food products. McDonald’s has understood this and already introduced products such

as Salads. It needs to do more in this regard.

- Joint venture with complimenting businesses may benefit McDonald’s.

- High Staff turnover resulting in inefficient operations.

- Introducing new product lines such as coffee, to attract new consumer groups.

- Introducing healthier food items to the menu regularly.

- Expansion into untapped markets.

- Takeovers and mergers.

THREATS

- Medical experts allege that McDonald’s products have harmful effects on the human body.

- The relationship between corporate level McDonald's and its franchise dealers.

- Growing competition from competitors.

- Global economic recession.

- Fluctuating foreign currencies.

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4. OPERATIONS AT McDonald’s

McDonalds uses a standardized approach in all its operations all over the globe, throughout all

its stores, owned or franchised. The company tries to make the operations as efficient as

possible so as to achieve the goals of their operations management system and the overall goals

of the company.

Following are the operations the company undertakes to ensure smooth functioning of the

business:

PRODUCT PLANNING:

Products and services are the primary offerings of any business to its customers and the major

source of revenues. An organization builds its reputation on the basis of good quality products

and services. Quality products will attract and retain customers, thus great deal of time and care

should be given to the planning of such products and services. Such planning includes

designing the right quality of products with the most reasonable cost. A quality product with

good price tag helps any company to maintain a strong customer base.

McDonald’s, with such operations ensures that the best of its products are available on the

menu, competitively priced so as to maintain customer loyalty. It tries to assess the changing

needs and preferences of the consumers and ads or removes products from its menu. For eg.

Consumers now are demanding more of healthy food items, thus McDonald’s has introduced

salads and other healthy offerings.

CAPACITY PLANNING:

Another important operating decision of a company is the decision relating to its capacity.

Capacity planning and control is the task of establishing the effective capacity of the operation

so that it can respond to the demands put upon it. This operating decision determines the

capacity of production required to cater to different demand levels. Short term, medium term

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and long term capacity decisions are taken in this operation. The capacity level is then adjusted

to the estimated levels. It is also known as aggregate planning.

In case of McDonald’s, the operations manager has to determine the capacity of preparing the

food items so as to cater to the demands of the customers. All ingredients which go into the

making of different food items should be stocked in sufficient quantities or else shortage of any

material will hamper the service and annoy the customer.

LOCATION PLANNING:

This operation is one of the most critical for the operations manager, because the success of any

business depends a great deal on its location. An ideal location is the one which provides a

business with good customer inflow, proximity to raw materials, low transportation cost to

move men and materials, availability of human resource, etc... Such a location should provide

the best cost benefit to the business.

McDonald’s chooses such locations which have high customer footfall (eg. Malls) , easily

reachable , ample parking space , sufficient dining area , sufficient area to stock raw materials ,

etc ..

PROCESS PLANNING:

Once a product is developed, a business has to create the process to produce and support the

product. An operation manager has to develop such an efficient process which produces the

right quantity of products with all the desirable attributes. A company should consider both its

conventional processing methods as well as try new ones as the technology, computer power

and managerial expertise evolves.

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In case of McDonald’s , the operations manager develops and puts in place the process of

cooking food items which maintains the standard of quality along with speedy delivery. Such

processes are created which abide by the health and hygiene standards. With advancement in

technology, new equipments are introduced to add quality, pace and perfection to its products.

(Bicheno, 2002; p99)

LAYOUT DESGIN:

Layout is the arrangement of areas for different functions within a business area, so that all

functions run smoothly without hampering each other. Such areas include working areas,

service, reception, storage and administration. Various techniques are used by the operations

manager to design the layout for business. The best layout is the one which gives the highest

productivity and efficiency. Thus great amount of care should be given to the layout design.

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5. QUALITY MANAGEMENT AT McDonald’s

A business organisation produces goods and services to meet its customers’ needs. Customers

want value, and quality has become a major factor in the value of products and services. Quality

should be aimed at the needs of the consumer, present and future. Products and services are

produced with intentional differences in quality to meet the different wants and needs of

individual consumers. To make sure that products and services have the quality they have been

designed for, strategy to achieve quality throughout the organisation is required. This approach

is known as Quality Management System. (S.Russell and W.Taylor III, 2011)

McDonald’s invests great deal of time and care along with funds so as to ensure all its products

meet the highest quality standards. Quality of its products is one of the important reasons of its

success. Customers can rely on the products produced by it. McDonald’s at many locations

allows the customers to take a visit into the kitchen of its outlets, so as to announce that its food

making processes are transparent and highly hygienic.

McDonald’s expects all its suppliers to comply with their stringent food safety and quality

standards. It demands a supplier to deliver safe, consistent and quality products that meet their

specifications as well as comply with the applicable laws and regulations. McDonald’s gives its

Supplier Quality Management System based on globally recognised ISO and PAS standards, to

all its suppliers.

For eg. To ensure the safety of all their beef products, McDonald’s beef supplier (in Canada),

Cargill, has significant food safety and quality assurance programs in place. They possess a

federally registered and inspected facility.

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6. STOCK CONTROL AT McDonald’s

In any business, efficient stock management is essential. It allows the business to operate in a

responsible manner. As McDonald’s started growing rapidly, controlling stock in each outlet

started getting difficult resulting in losses and thus high cost. Thus, McDonald’s invested whole

heartedly in developing their stock control process / stock management. Stock balance strikes a

balance between keeping wastage at minimum and meeting customer demands. Accurate

forecast and stock control process helps a business reduce wastage.

In the past, stock ordering was the responsibility of individual restaurant managers. They

ordered stock using their local knowledge as well as analysis of data indicating what the store

sold the previous day, week and month. For example, if the previous week’s sales figures

showed they sold 100 units of coffee, and net sales were rising at 10% weekly, they would

have expected to sell 110 units in the present week. However, this was a very simple method

and involved no calculations to take account of factors such as national promotions or school

holidays. It took up a lot of the Restaurant Manager’s time, leaving them less time to

concentrate on delivering quality food, service and cleanliness in the restaurants. In 2004,

McDonald’s introduced a specialist central stock management function known as the

Restaurant Supply Planning Department. This team communicates with restaurant managers on

a regular basis to find out about local events. The team builds these factors into the new

planning and forecasting system - called Manugistics – to forecast likely demand of finished

menu items, for example Big Macs. The following case study looks at how McDonald’s

manages its stock through its management systems

And what benefits this brings. (What makes McDonald's, 2013)

Stock management ensures that there is sufficient stock to meet their customer requirements

along with minimizing waste. Over stocking also adds to the cost, thus a proper stock

management system is required to forecast the demand accurately and help keep costs in check.

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7.CONCLUSION

McDonald’s is the largest chain of fast food restaurants with a daily turnover of millions of

dollars, but larger the business, complex gets the operations. Thus, McDonald’s has created

separate departments for each operation and assigned qualified and competent heads to the

departments. The company has developed and embraced various cost saving techniques in each

operation, so that the customer receives the low cost benefit. The stock controlling process of

the company helps minimize waste which helps the environment in many ways by judiciously

using the society’s resources.

There are some areas where McDonald’s needs to place emphasis on for greater profitability

and service. For e.g., McDonald’s needs to start home delivery service to their customers,

which is still not available in many of their operating avenues. Also, the company should try

and make their food items even healthier by using healthier ingredients (e.g. Low cholesterol

oils) to curb the criticism it faces against its offerings, which declares it unhealthy.

To sustain in the long run, the company will have to keep innovating in terms of products and

operation techniques and keep pace with changing times and technology. It will have to avoid

becoming complacent with its success and keep variating.

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REFERENCES

Aboutmcdonalds.com. 2013. McDonald’s Mission and Corporate Values ::

AboutMcDonalds.com. [online] Available at:

http://www.aboutmcdonalds.com/mcd/our_company/mission_and_values.html [Accessed: 15

Dec 2013].

Ferrell, O. 1999. Marketing strategy. Fort Worth, TX: Dryden Press.

S.Russell, R. and W.Taylor III, B. 2011. Operations Management. 7th ed. John Wiley & Sons

Inc..

What makes McDonald's. 2013. Schools & students :: McDonalds.co.uk. [online] Available at:

http://www.mcdonalds.co.uk/ukhome/People/Schools-students.html [Accessed: 19 Dec 2013].

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