COMPANY PROFILE

McDonald's is the world's leading global food service retailer with over
36,000 locations serving approximately 69 million customers in over 100
countries each day. More than 80% of McDonald's restaurants worldwide are
owned and operated by independent local business men and women.
Our Strategic Direction
The strength of the alignment among the Company, its franchisees and
suppliers (collectively referred to as the "System") has been key to
McDonald's long-term success. By leveraging our System, we have been able
to identify, implement and scale ideas that meet customers' changing needs
and preferences. In addition, our business model enables McDonald's to
consistently deliver locally-relevant restaurant experiences to customers and
be an integral part of the communities we serve.
Our overall vision is for McDonald's to become a modern, progressive burger
company delivering a contemporary customer experience. Modern is about
getting the brand to where we need to be today and progressive is about
doing what it takes to be the McDonald's our customers will expect
tomorrow. To realize this commitment, we are focused on delivering great
tasting, high-quality food to our customers and providing a world-class
experience that makes them feel welcome and valued.

Reporting Segments
The business was managed as distinct geographic segments through June
30, 2015, that included the U.S., Europe, Asia/Pacific, Middle East and Africa
(APMEA) and Other Countries & Corporate (OCC) including Canada, Latin
America and Corporate.
Beginning July 1, 2015, McDonalds started operating under a new
organizational structure with the following four segments that combine
markets with similar characteristics, challenges, and opportunities for
growth:

U.S. - the Companys largest segment, accounting for more than 40%
of the Companys 2014 operating income;

International

Lead

Markets -

established

markets

including

Australia, Canada, France, Germany, and the UK, which operate within
similar

economic

and

competitive

dynamics,

offer

similar

growth

opportunities and collectively represented about 40% of the Companys 2014

operating income;

High Growth Markets - markets with relatively higher restaurant

expansion and franchising potential including China, Italy, Poland, Russia,
Korea, Spain, Switzerland and the Netherlands. Together these markets
accounted for about 10% of the Companys 2014 operating income; and

Foundational Markets & Corporate - the remaining markets in the

McDonalds system, each of which has the potential to operate under a
largely franchised model. Corporate activities will also be reported within this
segment.
In conjunction with these changes, the Company will provide recast financial
information for the years 2010 to 2014 and quarters ended March 31, 2014
to June 30, 2015 by the end of September 2015.
Restaurant Ownership
We view ourselves primarily as a franchisor and believe franchising is
important to delivering great customer experiences and driving profitability.
At year-end 2014, more than 80% of McDonalds restaurants were
franchised. Of the total McDonalds restaurants worldwide:

Over 57% are conventional franchisees

Approximately 24% are licensed to foreign affiliates or developmental

licensees

Over 18% are Company-operated

COMPANY BACKGROUND
McDonald's is the world's largest chain of hamburger fast food restaurants,
serving around 68 million customers daily in 119 countries across 35,000
outlets.[5][6] Founded in the United States in 1940, the company began as a
barbecue restaurant operated by Richard and Maurice McDonald. In 1948,
they reorganized their business as a hamburger stand using production line
principles. Businessman Ray Kroc joined the company as a franchise agent in
1955. He subsequently purchased the chain from the McDonald brothers and
oversaw its worldwide growth.
A McDonald's restaurant is operated by either a franchisee, an affiliate, or
the corporation itself. The McDonald's Corporation revenues come from the
rent, royalties, and fees paid by the franchisees, as well as sales in company-

operated restaurants. In 2012, the company had annual revenues of $27.5

billion and profits of $5.5 billion. According to a 2012 BBC report, McDonald's
is the world's second largest private employerbehind Walmartwith 1.9
million employees, 1.5 million of whom work for franchises.
McDonald's

primarily

fries, breakfast items,

sells hamburgers, cheeseburgers, chicken, french

soft, milkshakes,

and desserts.

In

response

to

changing consumer tastes, the company has expanded its menu to

include salads, fish, wraps, smoothies, fruit, and seasoned fries.
The business began in 1940, with a restaurant opened by brothers Richard
and Maurice McDonald at 1398 North E Street at West 14th Street in San
Bernardino, California (at34.1255N 117.2946W). Their introduction of the
"Speedee

Service

System" in

1948

furthered

the principles

of

the

modern fast-food restaurant that the White Castle hamburger chain had
already put into practice more than two decades earlier. The first McDonalds
with the arches opened in Phoenix in March 1953. The original mascot of
McDonald's was a man with a chef's hat on top of a hamburger-shaped head
whose name was "Speedee". By 1967, Speedee was eventually replaced
with Ronald McDonald when the company first filed a U.S. trademark on a
clown-shaped man having puffed-out costume legs.
On May 4, 1961, McDonald's first filed for a U.S. trademark on the name
"McDonald's" with the description "Drive-In Restaurant Services", which
continues to be renewed through the end of December 2009. On September

13 that same year, the company filed a logo trademark on an overlapping,

double-arched "M" symbol. By September 6, 1962, this M-symbol was
temporarily disfavored, when a trademark was filed for a single arch, shaped
over many of the early McDonald's restaurants in the early years. Although
the "Golden Arches" logo appeared in various forms, the present version as a
letter "M" did not appear until November 18, 1968, when the company
applied for a U.S. trademark.
The

present

corporation

dates

its

founding

to

the

opening

of

a franchised restaurant by businessman Ray Kroc in Des Plaines, Illinois on

April 15, 1955, the ninth McDonald's restaurant overall; this location was
demolished in 1984 after many remodels. Kroc later purchased the McDonald
brothers' equity in the company and led its worldwide expansion, and the
company became listed on the public stock markets ten years later. Kroc was
also noted for aggressive business practices, compelling the McDonald
brothers to leave the fast-food industry. Kroc and the McDonald brothers all
feuded over control of the business, as documented in both Kroc's
autobiography and in the McDonald brothers' autobiography. The San
Bernardino restaurant was demolished in 1976 (1971, according to Juan
Pollo) and the site was sold to the Juan Pollo restaurant chain. This area now
serves as headquarters for the Juan Pollo chain, as well as a McDonald's and
Route

66

museum.[13] With

international

markets,

the

the

expansion
company

of

McDonald's

has

become

into
a

many
symbol

of globalization and the spread of the American way of life. Its prominence

has also made it a frequent topic of public debates about obesity, corporate
ethicsand consumer responsibility.
Products
McDonald's

predominantly

sells hamburgers,

various

types

of chicken,

chicken sandwiches, French fries, soft drinks, breakfast items, and desserts.
In most markets, McDonald's offers salads andvegetarian items, wraps and
other localized fare. On a seasonal basis, McDonald's offers the McRib
sandwich. Some speculate the seasonality of the McRib adds to its appeal.
[16]

Various countries, especially in Asia, are currently serving soup. 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 inIndonesia, or Ebi (prawn) Burger in Singapore).
In Germany and other Western European countries, McDonald's sells beer.
In New Zealand, McDonald's sells meat pies, after the local affiliate partially
relaunched the Georgie Pie fast food chain it bought out in 1996. In the
United States, after limited regional trials, McDonald's plans to offer
breakfast whenever its restaurants are open. Eggs cannot be cooked at the
same time on the same equipment as hamburgers due to different
temperature requirements.

SUPPLY CHAIN STRATEGY

Suppliers need to be brought into the corporate

sustainability discussion in real ways, not just as P.R. frosting.
McDonalds
From my perspective, the heart of an outstanding supply chain is trust and transparency, features
that contribute to natural resilience and provide a level of nimbleness not possible in more guarded
systems, says Kurt James, V.P. of supply chain, McDonalds Japan.

James said the McDonalds supply chain is designed to be efficient, adaptive and collaborative,
traits that have enabled the company to enter new markets at a scale and pace that is unmatched
by its competitors. We talk about the supply chain at McDonalds as a shared system, rather than as
our system. This mentality of joint ownership allows us to work as one efficient organization with
our suppliers, planning for the future and adapting to the present in a cohesive and integrated way,
James adds.
Traditional supply chains can crack under the pressure of unforeseen political, environmental, or
competitive changes, but the McDonalds three-legged stool philosophy and cooperative approach
can absorb the shocks produced by the unforeseen while quickly adapting to frequently changing
demands, specifications, and volumes. James said its flexibility and resilience based on trust.
McDonalds deeply-ingrained culture for long-term, win-win relationships with suppliers dates back
to its inception, when founder Ray Kroc established a culture of trust and loyalty.
In May McDonalds issued its Best of Sustainable Supply 2014, which honored 36 suppliers and 51
projects that represent real innovation toward a more sustainable supply chain. McDonalds
received 585 submissions, nearly 40 percent more than for the previous Best of report.
McDonalds executives and industry experts recognized sustainable accomplishments across eight
platforms: Climate Change and Energy; Water; Waste; Land and Biodiversity; Human Health and
Welfare; Animal Health and Welfare; Community Impact and Economics.

Photo courtesy of Institute for Human Rights and Business

Innovation is key to our CSR and sustainability journey, and McDonalds suppliers have an
impressive track record of innovating for what we call sustainabilitys three Es: ethics, environment,
and economics, said Jose Armario, executive vice president, McDonalds Global Supply Chain,
Development & Franchising. McDonalds approaches supply chain management through the three
Esand they are the theme of McDonalds 2012-2013 corporate social responsibility & sustainability
report: Our Journey Together For Good.
We are committed to working toward a tomorrow where quality food and balanced choices are
accessible and affordable to all. Where the food we serve is sustainably sourced from thriving farms.
Where environmental protection and efficiency are universal. Where people from all walks of life are

valued for their unique contributions to a shared global community, says Don Thompson,
McDonalds president and CEO, in the report.
These are not mere words:

100 percent of the fisheries that McDonalds sources whitefish from are verified sustainable.

99 percent of supplier facilities signed the companys Supplier Code of Conduct.

Sustainable sourcing is vitally important to McDonalds and its supply chain. The CSR report says: By
sourcing our ingredients and packaging sustainably, we aim to create value for our business and
society. We are committed to doing what we can to help protect oceans and other valuable
ecosystems, promote resource efficiency, and support the economic viability of farming, fishing and
responsible land management so that resources are adequately available for generations to come.
In addition, the company oversees the three Es at each level of its supply chain: raw material
production, processing, and distribution. Among other things, this means working with suppliers to
innovate and implement best practices for sustainable ingredients, requiring that our suppliers
protect human rights in the workplace, and safeguarding food quality and safety through best
practices in animal health and welfare.
Innovating sustainabilitys 3-Es:
ethics, environment, and economics.
Steps that McDonalds has taken to strengthen supply chain sustainability, include partnerships with
nongovernment organizations (NGCs), a Supplier Code of Conduct, and increasing supplier capacity
in emerging economies. It has initiated supply chain goals and protocols for measuring, identifying
and scaling sustainable beef production; sustainable logistics through system-wide continuous
improvements in logistics efficiency, including the increased use of biofuels; promoting
environmental best practices at supplier facilities through a Global Supplier Performance Index and
the Supplier Code of Conduct.

The Performance Index tool includes corporate social responsibility and sustainability
along with innovation, contingency planning, business strategy and other topicsand helps
McDonalds evaluate suppliers on a variety of measures including environmental, social and other
metrics. This helps clarify what is meant by CSR & Sustainability leadership. The formal evaluation,
which takes place every 1 to 3 years, is complemented by quarterly reviews.

The Supplier Code of Conduct is the cornerstone of McDonalds Supplier Workplace

Accountability program and sets clear guidelines that help suppliers understand its expectations
and how to live up to them. Every supplier is required to sign the Code. In November 2012,
McDonalds launched an enhanced Supplier Code of Conduct, the result of a two-year process that
included benchmarking with a number of organizations that lead in this area, consultation with
external experts in supplier workplace accountability, a human rights gap analysis and dialogue
with suppliers.
The resulting system is one of unparalleled connection, collaboration, and mutuality. What is
noteworthy along the McDonalds CSR path is not sustainability goals this year or next, and what the

companies can do by themselves: its about sharing vision and collaboration to achieve a long-term
culture of sustainable social and environmental changeand how they go about it with their
partners.

OPERATIONS MANAGEMENT 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 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. 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). 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 happyU is what our business is all about. 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

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 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 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 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 Operation Management Project 2 Page 11 of 36 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)