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1.

INTRODUCTION
1.1

BRIEF HISTORY

In 1954, Ray Kroc met Dick and Mac McDonalds. They produced a limited menu of fries,
burgers and beverages which allowed them to focus on quality and quick service. In 1955,
Ray Kroc founded McDonalds system, Inc. (a predecessor of McDonalds Corporation) and
six years later bought the exclusive rights to the McDonalds name. Ray had a vision of
creating McDonalds restaurants all over the US that would be famous for providing food of
consistently high quality, uniform methods of preparation and identical taste. To achieve this,
he designed the supply chain philosophy for McDonalds, which is named the three-legged
stool (Fig. 1). One leg was McDonalds franchisees, the second was McDonalds suppliers
and third was McDonalds employees (McDonalds, 2015).

Figure 1.

McDonalds Three Legged Stool

1.2

MCDONALDS AND THE GLOBAL FAST FOOD INDUSTRY

McDonalds is a world leading global food service retailer with 36,000 locations in over 100
countries serving approximately 69 million customers each day. Her favourites include Bigmac, Quarter Pounder, Famous fries and chicken Mc Nuggets. (Dow Jones and company,
2007). It has a 19% market share in the global Fast food industry (Fig. 2) and runs 1200
restaurants across United Kingdom and Northern Ireland.

Figure 2.

1.3

Market Share of McDonalds and other Fast Food Corporations

OVERVIEW OF THE SUPPLY CHAIN

McDonalds UK supply chain has been rated highly by the food industry, with over 17,500
farms as third-tier suppliers, ~20 second-tier suppliers of raw materials, processed and
finished stock and 1 first tier supplier providing warehousing and logistics solutions to 1200
restaurants (Wallop, 2014; Haire, 2013), it has seen continuous improvement and change
over the last decade. McDonalds China operates a similar supply chain structure and has over
2000 restaurants. It forecasted revenue of $7.23 billion for its third quarter of 2014, but this

was not to be, as in July 2014 McDonalds patty supplier Shanghai Husi (a US owned
company) was closed down after reports and video footage from its factory floor showed that
expired meat was being mixed with fresh meat. In addition to this, footage showed factory
workers picking up raw meat and patties from the floor and returning same into the
production line (Jourdan and Baertlein, 2014). China, being McDonalds 3rd biggest market
saw a 9.9 % drop in regional sales, a 3% drop in global sales and a 2% drop in share prices in
the same quarter (CBSN, 2014). From investigations carried out these problems were related
to poor Quality control, Quality assurance and poor Food handling within the Supply Chain.

1.4

MCDONALDS SUPPLY CHAIN STRATEGY

Globally, McDonalds corporate strategy consists of 5 objectives supported by 8 supply chain


strategies (Table 1).
In the UK it sources all its beef, eggs, milk, potatoes and other ingredients locally whereas in
China 95% of its produce is locally sourced.
In China, McDonalds receives supply of its raw materials and processed goods from a range
of suppliers within and outside the country, raw materials for its products are obtained from a
range of suppliers within and outside its field of control (Jenkins, 2008; Christopher, 1994).
Off-shore raw materials sourcing has resulted in periods of shortage of key produce such as
vegetables and patties (Burkitt, 2014). It trains staff using its China Leadership Program (a
group by group training system which does not differ significantly from its company
leadership programs elsewhere in the world). However, the individuals trained have low
levels of know-how due to the language barrier and cultural background.

Table 1.
Corporate

McDonalds Corporate Objectives and Supply Chain Strategy


Supporting supply chain strategy

Outputs /Products

QUALITY (Q):

Quality Assurance and Control

Consistently high standards,

Raw materials,

Downstream and value added

Dependability, Customer

Objectives

Finished goods

services

retention, Brand leadership.

Supplier Management
Inventory management (Just-intime)
CLEANLINESS

Personnel management

Clean decorum and Hygienic

Quality Assurance and Control

food preparation and


consumption.

CUSTOMER

Speed and flexibility

Emotional attachment, Brand

SERVICE &

Downstream and value added

publicity, Customer retention,

VALUE

services
Supplier Management

Dependability, Speed, and


added experience

Inventory management
SOCIAL
RESPONSIBILITY

Waste reduction, Emission


management and Community

Legal satisfaction, Unique


selling point.

development
RETURNS ON

Total Cost Management

INVESTMENT

Increased shareholder value


and Stable pricing of its
products

*Strategies in red indicate areas where improvement could be made

This strategy is brought together by an integration of the supply chain using web-based
record keeping and inventory management (Fig. 3)

Figure 3.

Supply Chain Integration at McDonalds UK

2. DESCRIPTION OF THE SUPPLY CHAIN STRATEGIES


2.1

QUALITY ASSURANCE AND CONTROL

McDonalds UK operates a buy in-shore policy for 90 % of its raw materials and processed
goods. It is able to do this by establishing quality standards across the whole supply chain,
due to its position as the supply chain channel leader. Standards for beef, chicken, potatoes,
buns, coffee and all its other products are laid down by McDonalds. Inspection of processing
facilities and routine product sampling is done to ensure skilled, fully equipped and hygienic
practises are employed at processing facilities and farms. For instance, during Patty
production (Fig. 4) forty quality tests are carried out before final consumption (Royle, 2000;
Zeng et al, 2015).

Figure 4.

2.2

Patty Production Process Flow

DOWNSTREAM AND VALUE ADDED SERVICES

Final product freshness is managed using a push and pull strategy/ Just-In-Time assembly at
outlets, while information sharing, web-enabled inventory management and cold chain
logistics assists between restaurant and suppliers (Gaiardelli, 2009). On-line, toll-free and
drive-in services are also rendered. Summed together with consistent quality these services
enable McDonalds to provide quick, safe and tasty food, which is its order winning criteria.

2.3

PERSONNEL MANAGEMENT

McDonalds provides formal training for 82% of its workforce in catering, cleaning and
customer service (McDonalds Europe, 2011), by consolidating this with its supply chain
success it is able to satisfy customers.

2.4 WASTE

REDUCTION,

EMISSION

MANAGEMENT

AND

COMMUNITY DEVELOPMENT
McDonalds UK purchases from suppliers practising within EU established sustainability
regulations (Vitasek, 2014). At present McDonalds UK recycle 90% of all their cooking oil
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into bio-fuel used for its vehicles. It rates, monitors and awards it suppliers by grading their
annual usage for energy, water and waste. 97% of its food components used in Europe is
sourced from within and this supports its objective to promote local farming and economic
development (Lee et al, 2015; McDonalds Europe, 2011).

2.5

TOTAL COST MANAGEMENT

The use of single sourcing for most of its raw materials and processed goods helps
McDonalds utilize economies of scale in its purchasing. Joint planning takes place across the
supply chain continuously in order to take into consideration transportation cost, restaurant
owner cost and all costs incurred, to ensure restaurants sell products at the same price
profitably. Also, its cost sharing system charges equal transport delivery levies to all
restaurant owners (Fristedt et al, 2013). All these practises combine to ensure profitability for
each of the supply chain partners and consistent pricing of finished products.

2.6

SPEED AND FLEXIBILITY

Queuing in store is done on first-in first-out basis. McDonalds uses drive-through


management to ensure a 90-second average service time for its drive through customers.
Using their Family and Friends contract, McDonalds allows family workers in the same
branch to cover each others shifts (without prior notice) hence, extreme flexibility is gained
in workforce management without reducing service quality (Department of Works and
Pensions, 2012). Flexibility in the supply chain is also achieved through collaboration and
trust gained through its long term relationships with its suppliers.

2.7

SUPPLIER MANAGEMENT

McDonalds operates single sourcing with most of its 2nd-tier suppliers. This gives their
products the feeling of exclusivity (hence higher brand appeal). It also gives their suppliers
more integration into McDonalds supply chain, which reduces the total lead time (Murphy
and Li, 2015). Key suppliers also receive funding for key expansion projects from
McDonalds, which builds more co-operation and trust needed for Fast food chain
management.

2.8

INVENTORY MANAGEMENT

Logistics and warehousing solutions in China and UK are provided through one service
operator who provides point to point delivery for all outlets. Logs from McDonalds EProcurement model (Roni et al, 2015) (Fig. 4), which forecasts demand using an algorithm of
data from previous year sales, present promos, special events and a final adjustment from the
restaurant manager. This final information can be simultaneously accessed by the logistics
provider, giving the supply chain transparency to all supply chain partners. This information
is generated into orders across all suppliers and deliveries are made 2-3 times per week to
insure against stock-outs.

Figure 5.

3.

McDonalds E-Procurement Model

AREAS WHERE CHANGES NEED TO BE MADE AND HOW


THEY CAN BE IMPLEMENTED SUSTAINABLY WHILE
OVERCOMING THE POSSIBLE BARRIERS

3.1

QUALITY ASSURANCE & CONTROL (MCDONALDS CHINA)

3.1.1 IMPROVEMENT OPPORTUNITY


The number of Quality control tests carried out during the transformation of some of its
components such as raw meat (into patties) are too few, local managers and shop floor
workers lacking training and sincerity are common, this provides entry points for
mishandling and fraud. It should be addressed.

3.1.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE
SUSTAINED
We would initiate an audit every four months (as opposed to present annual audit). During
this, re-evaluation of the raw materials, processed goods and processing facilities would be
carried out by a team of reliable food scientists, manufacturing consultants and In-house
technologists. During such an exercise, investigations on entry points for substandard/
contaminated products would be identified and analysed. Critical control points would be
introduced at these points and quality control tests would be implemented at same.
We would increase the minimum standard of raw materials used.
Long term solutions to this problem would be to train shop floor workers within its supply
chain. This could be assisted by transferring trusted and competent factory managers
within its supply chain to China in order to raise staff standards at factories.
We would also need to clearly state to our suppliers that the most important requirement is
quality, not cost and inform them that we are willing to pay premium for quality. This
would prevent suppliers from using cheap labour or raw material and greatly deter fraud.
3.1.3 BENEFITS
Frequent audits would produce accountability in the supply chain. Analysis of critical control
points would reduce the number of entry points for contamination and increase the reliability
of the supply chain. Training of staff within the supply chain would raise operating standards
while the willingness to pay premium for our raw materials would encourage suppliers to
make the necessary investments into their production facilities. All these changes would lead
to greater confidence from government and consumers. This would lead to increased regional
sales.

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3.1.4 BARRIERS
The barriers to this solution would be staff reluctance, costs incurred, language barrier,
change management and transferring competent managers within the supply chain to China.
Before such a transformation project is carried out, staff involved in fraudulent practises
would need to be identified and most likely ejected from the system. After this, staff would
need to be addressed of the challenge before them and made to understand its possible effects
throughout the system. This would encourage commitment and create the mental energy
necessary to drive the project. Any necessary infrastructure costs will need to be shared
between suppliers and McDonalds, this will ensure that both parties have a stake in the
failure or success of the upgrade hence encourage teamwork amongst both parties. Language
barrier could be addressed by searching globally for reputable Mandarin speaking supply
chain managers and being willing to pay premium for their transfer to China. Work process
documents in China, such as SOPs and HACCP plans will also need to be reviewed and a
system that monitors them on a regular basis will be put in place.

3.2 WASTE

REDUCTION,

COMMUNITY

EMISSION

DEVELOPMENT

MANAGEMENT

(MCDONALDS

UK

AND
AND

MCDONALDS CHINA)
3.2.1 IMPROVEMENT OPPORTUNITY
McDonalds operates in a mature and saturated market meaning that investments have longer
pay-off times and higher risks. There is a need to gain clear market leadership using a
sustainability approach to achieve more return on investment.
3.2.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE
SUSTAINED
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We would distance ourselves from competition through patenting, copyrights, trademarks and
Intellectual property (IP). We would employ this in waste reduction (where we already have a
leading market position) by using novel compostable, re-usable and recyclable materials
within our supply chain. This would be done by purchasing IP rather than setting up an R&D
department.
3.2.3 BENEFITS
This would improve McDonalds brand globally and provided that all factors are kept
constant, it would increases sales.
3.2.4 BARRIERS
Research capability would be needed in the implementation of this project. Hence, the
sustainability department would need to develop its capability in IP and waste reduction
technology. It would also need to hire experts on a contract basis to provide a solid knowhow and this could be an added cost which will be managed so as not to be detrimental.

3.3 SPEED AND FLEXIBILITY (MCDONALDS CHINA AND


MCDONALDS UK)
3.3.1 IMPROVEMENT OPPORTUNITY
During peak hours, long queues are common and customers expect that the service rendered
by the crew is faster than usual. This waiting time could be minimized to reduce the no. of
customers who walk away after waiting.

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3.3.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE
SUSTAINED
Self-service: Customers would pay a fixed fee for different grades of foods and then serve
themselves from a buffet like setting within McDonalds restaurants.
Long task & short task: The managers can separate order into long tasks and short tasks,
which means that normally the long task food will take longer time to cook compared with
the short task food. If the customer order both short task and long task food, they will get
the short task food along with a Kanban with the name of the long task food and a number.
A beeper system would be designed to alert the customer when the long task food is ready
(Pourmohammad et al, 2015)
3.3.3 BENEFITS
Self-service would lead to increased speed and flexibility during peak periods and would
foster consumer engagement. Long & short task division would lead to more flexibility in
providing on-queue customers with quick and fast service. In total this would increase sales
and customer satisfaction
3.3.4 BARRIERS
Pilot tests would need to be done to test the effectiveness of Self-service in its ability to
reduce the length of the queues. Self-service would need to be assisted by humans to help
persons who are unable to use them. Investment costs and Staff training for self-service and
long & short task will be needed.

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3.4 INVENTORY MANAGEMENT (MCDONALDS UK AND


MCDONALDS CHINA)

3.4.1 IMPROVEMENT OPPORTUNITY


Difficulties in forecasting customer demand results in bullwhip effect along the supply chain
and occasional unavailability of a particular product in McDonalds restaurants. Though this
may not be solved totally it could be reduced to a further minimum (Interview with
McDonalds manager, Castle Marina, Nottingham branch).
3.4.2 CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE
SUSTAINED

Planning the capacity: Capacity planning is determining the capacity of product needed to
meet changing demands. We would make more effort to distinguish between ingredients
which require short, medium and long-term stock. This would be done by analysing
ingredients using cost, level of importance, packing space, supplier, country of origin and
average lead time. This data would be used to determine which ingredients require buffer and
which ingredients should be kept at minimum.

3.4.3 BENEFITS OF THE CHANGE

With the help of capacity planning, we would be able to respond quickly to consumer
demand in seasons of fluctuation while minimizing inventory.

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3.4.4 BARRIERS

It is difficult to plan the accurate capacity needed because of fluctuations in consumer


demand. Hence, we would utilize marketing, promotion and enhanced consumer studies to
support capacity planning.

3.5

PERSONNEL MANAGEMENT (MCDONALDS CHINA)

3.5.1 IMPROVEMENT OPPORTUNITY


Employees within the supply chain are frequently rotated due to high level of flexibility.
This sometimes produces undertrained staff, resulting in lack of expertise at raw material
processing and the final stage of assembly. This can be changed.
Low levels of know-how in food safety and hygiene lead to poor food preparation
practises and cases of physical contamination of final products. This can be reduced.
3.5.2

CHANGES WE WOULD MAKE & HOW WE WOULD ENSURE THEY ARE


SUSTAINED

Staff training for this type of flexible workforce will need to be a continuous training
program where staff could undergo training as they are hired without waiting for a fixed
number of persons to begin training sessions. In addition to in-house training, we would
source the services of a food consulting company with expertise in food quality and a good
understanding of the Chinese market.
Basic requirements for employment in restaurants and supplier factories within China
would include certifications in food safety and manufacture, to ensure screening of
applicants without minimal food safety understanding. Also contracts to all personnel
involved in food handling would include clauses stating that court and/or financial
sanctions would be placed on staff that are involved in food safety related offences.
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3.5.3 BENEFITS
Continuous training would provide a flexible training scheme for the flexible workforce and
minimise the total opportunities for defects within the supply chain. Increasing minimum
qualification would reduce the potential of unskilled labour gaining entry into the supply
chain while imposing sanctions on defaulting staff would increase the level of attention
placed on food safety.
3.5.4 BARRIERS
Cost of training could increase as a continuous training program might be more expensive
than a batch training process. We would need to verify if it is lawful within China to have
employment contracts that hold scandalized employees liable and suable in the event of food
safety issues.

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CONCLUSION
The supply chain of McDonalds within the UK has been seen to be more developed than its
counterpart in China. This write-up shows that even where supply chains are working at the
highest levels (McDonalds UK) significant improvement can still be attained. It shows that
supply chain improvement in markets where it is the leader is important in order to distance
itself from competition and gain more market share.
The problems at Shanghai Husi have also shown that global companies doing business in
China, need to maintain their high standards within China. This write-up has shown that
when food service businesses are operating global franchising they should not fully transfer
responsibility for Quality control (QC) and Food safety to the regional offices, rather frequent
audits and inspections should be done by central to monitor the QC and Food safety practises,
while benchmarking of countries with best practise should be carried out simultaneously.

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