Management Development Institute - Gurgaon

Supply Chain Management

Case 01

The McDonalds Way

SCM Case Presentation
1 2 3 4 5 6 7

ID
09P121 09P156 09P165 09P168 09P177 09P214 09P237

Name
Abhik Sarkar Priyak Purkayastha Rudranil Dutta Saurabh Agrawal Tigmanshu Dubey Narayanan N Vaibhav Berwal

Presentation Date: 6th July, 2010

Post-Graduate Programme in Management

(PGPM: 2009-11) Section: A/B
Term: IV (17 Jun 11 Sep, 2010)

Themes of the Benchmark Supply Chain

Supplier Development

Single Sourcing

Symbiotic Partnership

Backup Chain

McDonalds Supply Chain

Ultimate Supply Chain

Quality Assurance

Economies of Scale

Global Supply Chain

McDonalds Indian Supply Chain

Tier 2 Suppliers Tier 1 Suppliers
Processing Centres

DCs

Golden Arch Outlets

Trikaya

RKFL THANE

Dynamix

Vista

Vista

Radhakrishna

NOIDA

Mrs. Sectors

Own processing centres

RKFL

Why is it the Benchmark SC?

Type of Investment Level of Integration
Investing not only money but also time and effort Five years before India operations to build perfect supply chain Building expertise and quality control measures for suppliers Partnership relationship with suppliers adopting a win-win model Tight integration enables greater control over suppliers quality process Tight integration also enables low inventory levels due to better forecasting Focus on minute details of suppliers operational capabilities Evidences of Diameter of pea, Quality of Lettuce and water content in potatoes are examples of meticulous focus on raw material quality In most products the pricing happens by adding a premium to the costs At McDonalds the price is fixed at Rs 35, now supply chain has to reduce costs to provide sufficient margin McDonalds follows an advisory role in enabling to achieve specialization RKFL learnt to employ flexible refrigeration model in trucks save costs Suppliers learn to achieve high quality low rejection model of business

Grassroots Focus
Backward Costing Specialization of SC components

Individual Supply Chain Iceberg Lettuce

1
RKFL

McDonalds

Trikaya

Processing Centres

DCs

Golden Arch Outlets

Characteristics

Magnitude of business: McDonalds procures 150 tonnes of Iceberg Lettuce from Trikaya Agriculture

Risk and dependency: Lettuce is highly vulnerable to weather conditions. It has to be maintained at the precise temperature of 2 degrees for maximum shelf life. Nurturing of Supplier: McDonalds guides and subsequently monitors Trikayas pest management and temperature management methods.
Yield Maximization is the key for Trikaya, something that it has learnt from McDonalds.

Individual Supply Chain Processed Foods

2
RKFL

Farmers, Suguna, Dynamix (Cheese)

Characteristics

Vista, RKFL

DCs

Golden Arch Outlets

Magnitude of business: Vista, a joint venture, caters to 20-30% of the supply of processed foods to McDonalds. Supplies 12 products to McDonalds.

Meticulous Quality Control: Vista implements quality control to the extent of having precision diameter of peas and colour, taste and texture of the final patty.
Minimizing Wastage and Cost: Raw material and intermediate products are checked for aberrations at every level to minimize rejections late in the supply chain

Automation and Differentiation of Veg/Non-Veg Processes are maintained so as to maintain separate and standardised quality levels.

Individual Supply Chain Potatoes

3
RKFL

Farmers, Suguna

McCain Foods

DCs

Golden Arch Outlets

Characteristics

No compromise Quality: Two Gujrat towns are the only source of potatoes for the whole country because of their agronomy. Indicates zero tolerances on quality. Imports continued: French Fries are made using potatoes imported from New Zealand. Again indicates no compromise on quality levels.

Individual Supply Chain Cheese, Sauces and Buns

4
RKFL 5

Raj Foods/Cremica Agro Foods, Mrs Sectors Specialty Foods

Characteristics

DCs

Golden Arch Outlets

Product Differentiation: Separate product lines for Brittania and McDonalds as far as cheese is concerned. Customization based on requirement.

All the suppliers are trying to expand their product portfolio based on expertise based on McDonald operations.
Regional sourcing for the buns: Separate suppliers for North and West.

Network Model of SC
Lettuce

McDonalds

Trikaya

Processing Centres

Chicken/ Veg Patty

Farmers, Suguna, Dynamix (Cheese) Farmers, Suguna

Vista, RKFL DCs

Golden Arch Outlets

Assembling and Packing

Wedges French Fries

McCain Foods

Buns, Cheese Sauce

Raj Foods/Cremica Agro Foods, Mrs Sectors Specialty Foods

Final Product: Burger + French Fries

RKFL

Cost Reduction Initiatives

How is production of the Rs 35 burger with 50 % profit margin possible?

Economies of Scale

Innovation for > Efficiency

Activity based Costing

Minimum Possible Costs

Reduce Rejection

DC inventory levels

Flexibility in Logistics

Key Learnings

Supplier Development: McDonalds nurtures its suppliers and helps them grow stronger with continuous guidance to achieve the highest quality in its final product i.e the burger. Winning commitment: McDonalds has been capable of winning the dedication and loyalty of its suppliers and distributors by sticking to just one/few vendors.

Cost Cuts with High Volume: The suppliers indulge in their own endeavor to cut costs and increase efficiencies since they operate on the large volumes of orders.

QUESTIONS??
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