McDonalds Supply Chain

Contents
Introduction...........................................................................................................................................3
History...................................................................................................................................................3
McDonalds in India..............................................................................................................................4
Supply Chain of McDonalds................................................................................................................5
Introduction.......................................................................................................................................5
Incorporating Chill Zones The McDonalds Cold Chain..................................................................6
Validation of McDonalds Cold Chain................................................................................................8
McDonalds Suppliers and Distributors............................................................................................10
Outsourcing of Ingredients..............................................................................................................12
McDonald's Supply Chain Challenges..........................................................................................19
Conclusion...........................................................................................................................................20
References...........................................................................................................................................21

Introduction
McDonald's is the leading global foodservice retailer with more than 32,000 local restaurants
serving more than 60 million people in 117 countries each day. More than 75% of
McDonald's restaurants worldwide are owned and operated by independent local men and
women.
McDonald's predominantly sells hamburgers, various types of chicken sandwiches and
products, French fries, soft drinks, breakfast items, and desserts. In most markets,
McDonald's offers salads and vegetarian items, wraps and other localized fare. This local
deviation from the standard menu is a characteristic for which the chain is particularly
known, and one which is employed either to abide by regional food taboos (such as the
religious prohibition of beef consumption in India) or to make available foods with which the
regional market is more familiar (such as the sale of McRice in Indonesia).

History
The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in
San Bernardino, California. Their introduction of the "Speedy Service System" in 1948
established the principles of the modern fast-food restaurant. The present corporation dates its
founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on
April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald
brothers' equity in the company and led its worldwide expansion.
With the successful expansion of McDonald's into many international markets, the company
has become a symbol of globalization. Its prominence has also made it a frequent topic of
public debates about obesity, corporate ethics and consumer responsibility.

McDonalds in India
McDonalds entered India in 1996 through joint ventures with two Indian entities, Hardcastle
Restaurants Pvt. Ltd. and Connaught Plaza Restaurants Pvt. Ltd. Hardcastle Restaurants Pvt.
Ltd. owns and operates McDonalds restaurants in western India through a 50-50 joint
venture with the parent company. Through a similar partnership, Connaught Plaza
Restaurants Pvt. Ltd. owns and operates McDonalds operations in northern India. The
company operates about 160 restaurants in India.
McDonald's India has developed a special menu with vegetarian selections to suit Indian
tastes and preferences. McDonald's does not offer any beef or pork items in India. Only the
freshest chicken, fish and vegetable products find their way into our Indian restaurants.
In addition, they have re-formulated some of their products using spices favored by Indians.
Among these are McVeggie burger, McAloo Tikki burger, Veg. Pizza McPuff and
Chicken McGrill burger. They have also created eggless sandwich sauces for the
vegetarian customers. Even their soft serves and McShakes are egg-less, offering a larger
variety to the vegetarian consumers.
McDonald's India's local suppliers provide them with the highest quality, freshest ingredients.
Complete adherence to the Indian Government regulations on food, health and hygiene is
ensured, while maintaining their own recognized international standards. Fast, friendly
service - the hallmark of McDonald's restaurants the world over is the mantra they abide by.
Stringent cleaning standards ensure that all tables, chairs, highchairs and trays are sanitized
several times each hour. Such meticulous attention to cleanliness extends beyond the lobby
and kitchen to even the pavement and immediate areas outside the restaurant.

Supply Chain of McDonalds

Introduction
US-based fast food giant, McDonald's success in India had been built on four pillars:

Limited menu
Fresh food
Fast service and
Affordable price

Intense competition and demands for wider menus, drive-through and sit-down meals encouraged the fast food giant to customize product variety without hampering the efficacy of
its supply chain.
Around the world (including India), approximately 85% of McDonald's restaurants were
owned and operated by independent franchisees. Yet, McDonald's was able to run the show
seamlessly by outsourcing nine different ingredients used in making a burger from over 38
suppliers spread all over India through a massive value chain.
McDonalds had been working on its supply chain even before it opened its first joint in the
country. Between 1992 and 1996, when McDonald's opened its first outlet in India, it worked
frenetically to put the perfect supply chain in place. It developed its Indian partners in such a
manner that they stayed with the company from the beginning. The success of McDonalds
India was achieved by sourcing all its required products from within the country. To ensure
this, McDonalds developed local businesses, which can supply it highest quality products.
Today, McDonalds India works with 38 different suppliers on a long term basis and several
other stand alone restaurants for its various other requirements. It trained the local farmers to
produce lettuces or potatoes to specifications and worked with a vendor to get the perfect
cold chain in place. And explained to the suppliers precisely why only one particular size of
peas was acceptable (if they were too large, they would pop out of the patty and get burnt).
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These efforts paid off in the form of joint ventures between McDonald's India (a 100%
wholly-owned subsidiary of McDonald's. McDonalds distribution centres in India came in
the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and in
Kolkata in 2007.
McDonald's entered its first distribution partnership agreement with Radha Krishna
Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. The
association goes back to July 1993, when it studied the nuances of McDonald's operations
and requirements for the Indian market. As distribution centers, the company was responsible
for procurement, the quality inspection programme, storage, inventory management,
deliveries to the restaurants and data collection, recording and reporting. Value-added
services like shredding of lettuce, re-packing of promotional items continued since then at the
centers playing a vital role in maintaining the integrity of the products throughout the entire
'cold chain'.
Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it
had spent more than six years to get the system into place. This system brought about a
veritable revolution, immensely benefiting the farmers at one end and enabling customers at
retail counters get the highest quality food products, absolutely fresh and at great value.
Through its unique cold chain, McDonalds has been able to both cut down on its operational
wastage, as well as maintain the freshness and nutritional value of raw and processed food
products. This has involved procurement, warehousing, transportation and retailing of
perishable food products, all under controlled temperatures.

Incorporating Chill Zones The McDonalds Cold Chain

A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an
uninterrupted series of storage and distribution activities which maintain a given temperature
range. It is used help extend and ensure the shelf life of products such as fresh agricultural
produce, processed foods, photographic film, chemicals and pharmaceutical drugs.
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Setting up extensive cold chain distribution system forms the lifeline of any fast food
business. In this regard, McDonald's incorporated state-of-the-art food processing technology
along with its international suppliers to pioneering Indian entrepreneurs, who are today an
integral part of the cold chain.
McDonald's finding the factor of cold room being vital ensured that even before vegetable
from farms enters the refrigerated zones, they are locked in a pre-cooling room to remove
field heat. Vegetables are placed in the pre-cooling room within half an hour of harvesting
where rapid cooling decreases the field temperature of vegetables to 2C within 90 minutes.
Then a large cold room (a refrigerated van) is used for transportation to the distribution
centers. In the van, the temperature and relative humidity of crop is maintained at 1-4C and
95 per cent, respectively and the flavors and freshness are locked at -35C. McDonalds
restaurants store products to be used on a daily basis, within a temperature range of 18C to
4C. About 52% of the food products need to be stored under these conditions before they are
used.

Validation of McDonalds Cold Chain

A cold chain can be managed by a quality management system. It should be analyzed,
measured, controlled, documented, and validated. The overall approach to validation of a
distribution process is by building more and more qualifications on top of each other to get to
a validated state. This is done by executing a Component Qualification on the packaging
components. Next, an Operational Qualification that demonstrates the process performs at the
operational extremes. The final piece is the Performance Qualification that demonstrates that
what happens in the real world is within the limits of what was demonstrated in the
Operational Qualification limits.
All suppliers adhere to Indian government regulations on food, health and hygiene while
continuously maintaining McDonald's recognized standards. As the ingredients move from
farms to processing plants to the restaurant, McDonald's Quality Inspection Programme
(QIP) carries out quality checks at over 20 different points in the Cold Chain system.

Ingredients

Supplier

Cheese

Dynamix Dairy Industries Ltd., Pune

Dehydrated onions

Jain Foods, Jalgaon

Iceberg lettuce

Trikaya Agriculture, Pune

Chicken patty

Vista Foods, Taloja

Veg.
Patty,
Veg.
Pineapple/Apple pie

nuggets,
Kitran Foods, Taloja

Chicken (dressed)

Riverdale, Talegaon

Buns

Cremica Industries, Phillaur

Eggless mayonnaise

Quaker Cremica Pvt. Ltd., Phillaur

Sesame seeds

Ghaziabad

Iceberg lettuce

Meena Agritech, Delhi

Fish fillet patties

Amalgam Foods Ltd., Kochi.

Iceberg lettuce

Ooty Farms & Orchards, Ooty

Vegetables for the patties

Finns Frozen Foods & Jain Foods (Nasik,

Jalgaon)

Mutton and mutton patties

Al Kabeer, Hyderabad

Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that
emphasizes prevention within McDonalds suppliers' facility and restaurants rather than
detection through inspection of illness or presence of microbiological data. Based on HACCP
guidelines, control points and critical control points for all McDonald's major food processing
plants and restaurants in India have been identified. The limits have been established for
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those followed by monitoring, recording and correcting any deviations. The HACCP
verification is done at least twice in a year and certified.

McDonalds Suppliers and Distributors

Suppliers are proclaimed to be the backbone of any good business as they are the individual
units that build supply chain. On them depends the health of the overall business cycle.
McDonald's sourced ingredients from all parts of India. Some of these are tabulated below.
In 1996, when McDonald's entered India, it was looking for a distribution agent who would
act as a hub for all its vendors. Mumbai-based Radhakrishna Foodland Private Limited
(RFPL) was chosen for the job as it was already a distributor for its sister concern,
Radhakrishna Hospitality Services, a catering unit supplying to offshore institutions. The
iceberg lettuce from Ooty, mutton patties from Hyderabad and sesame seed buns from Punjab
were all delivered to RFPL's distribution centre (cold storage) in its refrigerated vans.
RFPL stored the products in controlled conditions in Mumbai and New Delhi and supplied
them to McDonald's outlets on a daily basis. By transporting the semi-finished products at a
particular temperature, the cold chain ensured freshness and adequate moisture content of the
food. The specially designed trucks maintained the temperature in the storage chamber
throughout the journey. Drivers were instructed specifically not to switch off the chilling
system to save electricity, even in the event of traffic jam.
FJ Walker of Australia, a McDonald's partner, helped RFPL build a cold storage in Thane.
Another cold storage with equipment worth about Rs.75 lakh was built in Delhi in 1998.
RFPL also handled McDonald's inventory management. It had to anticipate future
requirements and contingencies and plan for optimum utilization of the refrigerated vehicles.
Meeting McDonald's "cold, clean, on-time" delivery standards was no easy task considering
that there were 30 suppliers situated all over the country. AFL Logistics Ltd (ALL), a joint
venture between and Coughlin of the US, and RFPL was responsible for ensuring these
standards. Coughlin's task was to make sure that McDonald's had the proper amount of
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supplies and materials at each restaurant. The challenge was the physical movement of
material and inventory control in a country with bad roads and basic infrastructure
bottlenecks.
To meet McDonald's high standards, Coughlin ensured that quality, temperature and
packaging requirements were met. At the same time, unused capacity in the vehicles was used
to transport goods from other vendors. This helped Coughlin deliver the lowest cost with the
highest quality. RFPL also handled in-city distribution to restaurants.
The restaurants were not supposed to stock more than three days of inventory, the time limit
for distribution centres or warehouses was a stringent 14 days to minimize costs and optimize
quality control. This required round-the-clock monitoring of pick-ups and truck movements.
Since most of the items were perishable, McDonald's standards covered the entire delivery
schedules.
For in-city delivery, the truck was monitored from the time it left the distribution centre till
the time it reached the restaurant. Not just that, the time taken in offloading was noted too.
The products were transported from the suppliers' end to the distribution centre in refrigerated
and insulated vehicles through a system of consolidation to ensure better utilization of vehicle
capacity. While the temperature in the reefers ranged from -18 to -22, that in chilled trucks
ranged from 1 to 4
RFPL was also responsible for cleanliness (including the personal hygiene of the drivers),
and the packing and temperature control of the food (digital probes were inserted into items
selected at random) it transported. There were also data logs to track the movement of each
batch. This meant that in the case of a complaint from a restaurant, the batch could be
identified, isolated, and dumped. To perfect the system, the RFPL team travelled to a number
of countries, including Turkey, the Philippines, Australia, and the US. AFLL also followed
similarly detailed procedures.
McDonald's insisted on standardization by its suppliers. Vista Processed Foods & Kitran
Foods (Vista & Kitran Foods), which supplied the pies, nuggets, vegetable, and chicken
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patties, commissioned a new facility for the purpose in 1996, complete with insulated panels,
temperature control, and chill rooms. McDonald's also assisted its suppliers with
improvements. For instance, it helped Trikaya Agriculture develop a variety of iceberg
lettuces (which is a winter crop) that would grow all year round. And for quality control,
Trikaya's post-harvest facilities included a cold chain consisting of a pre-cooling room to
remove field heat, a large cold room, and a refrigerated van with humidity controls.
Details of the suppliers and how they operated to meet McDonalds standards are given in the
following pages.

Outsourcing of Ingredients
The following suppliers, who build up the major supply chain of McDonalds, reveal how the
Cold Chain works and contributes towards the efficiency of McDonalds.

Dynamix Dairy Industries (Supplier of Cheese)

Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up
a network of milk collection centres equipped with bulk coolers. Easy accessibility has
enabled farmers augment their income by finding a new market for surplus milk. The factory
has:

Fully automatic international standard processing facility.

Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose,
casein & whey protein and humanized baby food.

Stringent quality control measures and continuous Research & Development

From farm two degrees Celsius in 90 minutes is the first step to quality. For example, the Rs
262-crore Dynamix Dairy Industries, located in Baramati in Pune district of Maharashtra,
manufactures cheese slices for McDonalds at 10 metric tonnes per month. Dynamix has
helped set up 15 bulk cooling centres throughout the district from which it purchases milk.
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Each cooling centre, which is equipped with modern measuring and testing equipment and a
large cooling tank, is not more than a few kilometres away from local dairy farms. A farmer
can deliver milk even twice a day on his bicycle and get a printed receipt on the spot, which
also lists the quality of the milk supplied by him as per fat content, colour and solids content.
If the milk is sub-standard or adulterated, it is rejected on the spot. A batch of milk can vary
from one litre to 10 litres, or more. Each batch is mixed in one large stainless steel cooler and
chilled immediately to two degrees Celsius to stop bacterial growth and preserve freshness.
From this point onwards, until just before the burger is actually served in a McDonalds
restaurant hundreds of kilometres away, the temperature is never allowed to increase. When
the refrigerated milk arrives at the Dynamix plant at Baramati, the milk in every single tanker
is thoroughly tested and rejected if found sub-standard, adulterated or contaminated. The
sophisticated testing lab can check fat content with an accuracy of 0.1 per cent. It can even
detect minute traces of pesticides or antibiotics administered to cows. This instant feedback
and the rejection of the entire tanker-load forces farmers to follow the best practices in terms
of animal husbandry, use proper feeds, cut down on the indiscriminate use of pesticides and
animal medicines and completely stop even the slightest attempts at adulteration.

Trikaya Agriculture (Supplier of Iceberg Lettuce)

Implementation of advanced agricultural practices has enabled Trikaya to successfully grow
specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm
infrastructure features:

A specialized nursery with a team of agricultural experts.

Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant.

Pre-cooling room and a large cold room for post harvest handling.

Refrigerated truck for transportation.

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Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such
enterprise that is an intrinsic part of the cold chain. Exposure to better agricultural
management practices and sharing of advanced agricultural technology by McDonald's has
made Trikaya Agriculture extremely conscious of delivering its products with utmost care and
quality. Initially lettuce could only be grown during the winter months but with McDonald's
expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is now able to
grow this crop all the year round. McDonald's has provided assistance in the selection of high
quality seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a
refrigerated transportation system allowing a small agri-business in Maharashtra to provide
fresh, high-quality lettuce to McDonald's urban restaurant locations thousands of kilometres
away. Post harvest facilities at Trikaya include a cold chain consisting of a pre-cooling room
to remove field heat, a large cold room and a refrigerated van for transportation where the
temperature and the relative humidity of the crop is maintained between 1 C and 4 C and
95% respectively. Vegetables are moved into the pre-cooling room within half an hour of
harvesting. The pre-cooling room ensures rapid vacuum cooling to 2 C within 90 minutes.
The pack house, pre-cooling and cold room are located at the farms itself, ensuring no delay
between harvesting, pre-cooling, packaging and cold storage. With this cold chain
infrastructure in place, Trikaya Agriculture has also a plan to export this high value product to
other international markets, especially to McDonald's Middle East and Asia Pacific
operations. McDonald's expertise in packaging, handling and long-distance transportation has
helped Trikaya to do trial shipments to the Gulf successfully. In addition to export,
McDonald's assistance has enabled Trikaya Agriculture to supply this crop to a number of
star-rated hotels, clubs, flight kitchens and offshore catering companies all over India.

Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products
including Fruit Pies)
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A joint venture with OSI Industries Inc., USA, McDonald's India Pvt. Ltd. and Vista
Processed Foods Pvt. Ltd., produces a range of frozen chicken and vegetable foods. A world
class infrastructure at their plant at Taloja, Maharashtra, has:

Separate processing lines for chicken and vegetable foods.

Capability to produce frozen foods at temperature as low as -35 Degree Celsius to

retain total freshness.

International standards, procedures and support services.

Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the chicken and vegetable range of
products, is another important player in this cold chain. Technical and financial support
extended by OSI Industries Inc., USA and McDonalds India Private Limited have enabled
Vista to set up world-class infrastructure and support services. This includes hi-tech
refrigeration plants for manufacture of frozen food at temperatures as low as - 35 C. This is
vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is
maintained. The frozen product is immediately moved to cold storage rooms. With continued
assistance from its international partners, Vista has installed hi-tech equipment for both the
chicken and vegetable processing lines, which reflect the latest food processing technology
(de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the
latest vegetable mixers and blenders are in operation. Also, keeping cultural sensitivities in
mind, both processing lines are absolutely segregated and utmost care is taken to ensure that
the vegetable products do not mix with the non-vegetarian products. Now, at Vista, a very
wide range of frozen and nutritious chicken and vegetable products is available. Ongoing
R&D, both locally and in the parent companies, work towards innovation in taste, nutritional
value and convenience. These products, besides being supplied to McDonald's, are also
offered to institutions like star-rated hotels, hospitals, project sites, caterers, corporate
canteens, schools and colleges, restaurants, food service establishments and coffee shops.
Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai)

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An integral part of the Radhakrishna Group, Foodland specializes in handling large volumes,
providing the entire range of services including procurement, quality inspection, storage,
inventory management, deliveries, data collection, recording and reporting. Salient strengths
are :

A one-stop shop for all distribution management services.

Dry and cold storage facility to store and transport perishable products at temperatures
upto -22 Degree Celsius.

Effective process control for minimum distribution cost.

McDonald's local supply networks through Radhakrishna Foodland, which operates

distribution centres (DCs) for McDonald's restaurants in Mumbai and Delhi. The DCs have
focused all their resources to meet McDonald's expectation of 'Cold, Clean, and On-Time
Delivery' and plays a very vital role in maintaining the integrity of the products throughout
the entire 'cold chain'. Ranging from liquid products coming from Punjab to lettuce from
Pune, the DC receives items from different parts of the country. These items are stored in
rooms with different temperature zones and are finally dispatched to the McDonald's
restaurants on the basis of their requirements. The company has both cold and dry storage
facilities with capability to store products up to -22 C as well as delivery trucks to transport
products at temperatures ranging from room temperature to frozen state.
Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts)
Amrit Food, an ISO 9000 company, manufactures widely popular brands Gagan Milk and
Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh.
The factory has:

State-of-the-art fully automatic machinery requiring no human contact with product,

for total hygiene.

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Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High
Temperature) processed milk and milk products.

Strict quality control supported by a fully equipped quality control laboratory.

This relationship between McDonald's and its Indian suppliers is mutually beneficial. As
McDonald's expands in India, the supplier gets the opportunity to expand his business, have
access to the latest in food technology, exposure to advanced agricultural practices and the
ability to grow or to export. There are many cases of local suppliers operating out of small
towns who have benefited from their association with McDonald's India.
McDonald's convinced its suppliers to set up two separate production lines for chicken and
vegetable patties, keeping in the mind the link between food and religion in India. This was in
sharp contrast with its global practice, where McDonald's suppliers produced all types of
patties from the same line. These two production lines were housed in two different rooms
and the only way a worker could cross over from one line to the other was by passing through
the shower room. This eliminated all chances of contamination. However, from a supplier's
point of view, more lines meant a reduction in capacity utilisation and high cost of
production. To minimise costs, McDonald's helped Vista & Kitran Foods produce derivatives
of chicken and vegetable nuggets (not based on McDonald's recipe) for Indian hotels and
restaurants and thereby reach new markets. Vista & Kitran's higher margin and higher
capacity utilization for non-McDonald's products helped it remain cost competitive.
McDonald's philosophy had been 'one world, one burger' i.e. the McDonald's burger should
be consistent in terms of cost and quality throughout the world. To ensure this, all of
McDonald's suppliers followed the internationally acclaimed HACCP systems wherein both
inputs and finished goods were subjected to chemical and microbiological tests.
This kept food fresh and free from contamination. Apart from this, the entire production line
was automated using sophisticated technology, barring only the final compilation of the bun,
cheese and patty - which was done by hand.
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18

McDonald's Supply Chain Challenges

Full Supply Chain responsibility

Multi Temp. Products - Over 65 % temperature controlled
Stores as far as 500 1000 kms
Drops per month - Over 1000
Movement mainly by road
Regular movement of perishables by air
Routing Challenges
No margin for error Operations critical client
No Stock Outs at store
On time delivery record above 97 %
Clean delivery record above 99 %
Unfailing inbound supply chain
Bull whip effect
Cannibalization
Order and Inventory Management
Product innovations

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The most important challenge in the supply chain is its integration. Mc Donald has managed
it in a very diligent way.

Conclusion
As a result on the efficient supply chain, gross margin improved by more than 15%. The reduction in
raw material wastage was achieved to the extent of 30%. So did the average inventory. The store
transfers and the order time also reduced to half. Hence we see that optimizing the supply chain can
increase the efficiency of a company in multiple ways.

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References

http://www.icmrindia.org/free%20resources/casestudies/McDonald%20food

%20chain-7.htm
http://www.articlesbase.com/marketing-articles/mcdonalds-india-supply-chain-

729402.html
www.expresshospitality.com/20070315/management06.shtml
www.mcdonaldsindia.com
www.nrf.com/Attachments.asp?id=9504

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