1. An Analysis of How McDonalds Delivers its Products and ServicesManaging Operations3/18/2010Nicole Dixon<br />Contents<br />1.0 Executive summary2<br /> Introduction3<br /> McDonald’s overview 3<br /> Market shares 3<br /> Current market trends 3<br /> Report objectives 4<br /> Analysis 5<br /> Lean Production at McDonalds 5<br />Elimination of waste 5<br />Involvement of everyone 6<br />Continuous improvement 7<br /> Managing the Supply Chain 7<br />Objectives 7<br />Purchasing and supply management 8<br /> Corporate social responsibility 8<br /> Conclusions and recommendations 9<br /> References 10<br /> Appendices 11<br />Introduction<br />Overview<br />McDonald’s Restaurants UK Limited, a wholly owned subsidiary of the US based McDonald’s Corporation, currently boasts over 1200 restaurants operating in the UK. With the first of these being established in Woolwich in 1974, the UK market now represents 4% of the global portfolio and contributes to approximately 7% of the overall profits. <br />Market Share<br />The fast food chain has reportedly benefitted greatly from consumers trading down in recent times, amidst the economic downturn. This goes some way in understanding why they currently hold the greatest share of the UK market at 39.6%, rivaled only by KFC and Burger King at 23.6% and 19.7% respectively. However, in the wider informal eating out market, Subway has experienced rapid expansion and now has more outlets than both KFC and Burger King.<br />Current trends in the market<br />According to Mintel’s Chicken and Burger Bar UK report (2008), burgers continue to dominate the market. However, fried chicken outlets such as KFC have experienced the most significant growth in recent years. This may be in part due to consumers increasingly turning to chicken outlets as a relatively healthy alternative to red meat, particularly on the back of recent government campaigns and concerns over the nutritional content of fast food. McDonalds have responded to this threat by expanding their menu to include more chicken varieties, as well as healthy snacks, salads and ‘Deli’ sandwiches.<br />Key objectives of the report<br />This report seeks to investigate, in depth, the position of McDonald’s Restaurants UK Ltd in terms of their day- to-day operations. More specifically, it shall focus upon their implementation of lean philosophy and how the quality & supply chain is managed. We will also assess how corporate social responsibility impacts service delivery to the customer. The research shall be focused on McDonalds UK as a whole, whilst also drawing on the experience of a local branch. This method will help identify the actual working practices beyond the generic designs of the overall company. <br />Analysis<br />Lean Production at McDonalds<br />Increasingly fierce competition and consumer demand for quality and value within the fast food market has had a significant impact on every aspect of the McDonalds organisation. At the same time, the recession has amplified the mutual need to reduce costs (dailymail.com, 2010). McDonalds have set about achieving this by adopting an increasingly ‘lean’ focus (Ridpath, 2008). <br />The concept of ‘lean’ manufacturing was developed extensively by the Toyota Motor Company in the late 1970s, resulting in a set of key practices which shape the whole approach (Slack et al, 2007). By examining each of these in turn, we can determine how successfully McDonalds have utilised this approach to deliver its services to the customer. <br />Elimination of Waste<br />At the heart of lean philosophy (or just-in-time as it is often called) is the quest towards ‘meeting demand instantaneously, with perfect quality and no waste’ (Bicheno, 1991). Thus, Toyota identified seven sources of waste which the lean business must strive to eliminate; overproduction, waiting time, transport, process, inventory, motion and defectives. <br />Overproduction<br />Historically, McDonalds would prepare finished sandwiches in large batches ahead of time and keep them heated in warming bins ready for sale. Whilst this ensured a quick & reliable service, it also earned them a poor reputation for quality and waste (Bloomberg, 1998). As market share began to diminish, a new system was introduced. Now, a limited stock of patties, salad ingredients and sides is pre-prepared but the restaurant only combines them into finished sandwiches as they are ordered. The duration of this process is less than 3 minutes in total, which enables a quick response to any unexpected change in demand (thereby reducing the risk of overproduction). <br />Modern technology has facilitated the ‘made to order’ process by slashing waiting times, both in terms of production and for the customer. A computer based system communicates the customer’s order directly to the production staff, and the modern cooking equipment can prepare a batch of hamburger patties in less than one minute (makeupyourownmind.co.uk).Waiting Time<br />Figure 1 - Food production area at McDonalds<br />McDonalds have a multi-skilled workforce, so they can also assemble other parts of the order during this time. These factors enable the restaurant to adopt a lean strategy whilst providing a fast service – a key performance measure within the industry.<br />Transport, Process & Motion<br />Transport waste occurs as a result of excess handling of goods around the operation (Slack et al, 2007). As depicted in figure 1 (above), McDonalds have become pioneers of the fast-food kitchen layout which lends itself well to this aspect of lean philosophy. The ‘Speedy System’ originally designed by the McDonald brothers (and based on a car assembly line) is still in place today. This system unites the entire operation so that all preparation facilities are linked in order of the assembly line in which each worker has a specific task. Being in close proximity to the counter itself keeps transport waste to a minimum. This ties in with the idea of process and motion waste; the assembly line eliminates any unnecessary processes and each task is simplified to ensure that value is added throughout. <br />Inventory<br />According to Toyota, the lean organisation should ultimately eliminate all inventory, as holding stock often incurs an opportunity cost and wastage. However, McDonalds must also be able to meet demand at all times. Therefore in addition to the processes detailed above, a sophisticated stock control system exists to manage this process throughout the supply chain-see ‘supply chain management’ for further discussion.<br />Defectives<br />Lean production relies upon getting things right first time, with zero defects (Slack et al, 2007). McDonalds invests heavily in staff training and motivating them to achieve the highest standards. Simplified tasks also help reduce the amount of defective goods. The restaurant also has a policy of ‘first in, first out’, ensuring that the customer receives fresh food every time.<br />Involve Everyone<br />Toyota’s seven forms of waste underline the importance of total employee involvement in a lean organisation. McDonalds place a huge emphasis on working as a team and involves everyone from suppliers (see supply chain management) to crew members in order to foster a lean culture throughout the business. The assembly line system fosters a high degree of personal responsibility for each task, whilst multi-skilling enables staff to learn every stage of the operation.<br />Continuous Improvement (Kaizen)<br />Lean philosophy is fundamentally based on a set of ideals such as ‘perfect quality’ and ‘no waste’. It would be unrealistic to suggest that McDonalds has achieved them in full, however the belief is that the organisation should strive to get closer to them over time (Slack et al, 2007). Therefore continuous (as opposed to transitory) improvement is a vital element on which the company places a constant focus via regular audits and sharing best practice.<br />