THE MCDONALDS INDIA

O P T I M I Z I N G T H E F R E N C H F R I E S S U P P LY
CHAIN

GROUP 1
A B H I N AV
J AT I N O B E R O I
NAMAN TULI
PIYSUH JHA
V I C K Y S U R YAWA N S H I
YA S H A G A R WA L
 McDonald
• Founded in 1955 by Ray Kroc
• First store in Des Plains, Illinois
• In 2010, the net income was $4.9 Billions
• In 2011, 33,000 restaurant serving 64 million
customer in 119 countries every day
• McDonalds India, joint venture between
McDonald’s corp. and 2 Indian businessmen,
Amit Jatia and Vikram Bakshi.
OVERVIEW
McCain
• Founded in 1957
• World’s largest producer of frozen French fries
and potato specialities
• Produce 33% of all French fries in the world
• 3rd largest potato grower of potatoes
• 50 manufacturing facilities, 3200 grower
partners and $6 billion in net sales
• Processing facility in Ahmedabad, Gujarat for
supply to McDonalds.
PITFALLS IN LOCAL SUPPLY CHAIN

Climate limited the

Less than 1% of locally
growth period to winters- Outdated farming and
produced potato were of
Growing season is irrigation practices.
process grade.
between 90 to 100 days.

Poor transportation Lack of proper storage

Lack of cold supply chain.
infrastructure. lead to lower shelf life.
LAMB WESTON AND TARAI FOODS
• Joint venture between Lamb Weston and Tarai foods.
• Invested $10 million in land ,plant and machinery.
• Venture focused on identifying and growing a suitable breed of potato.
• Lamb Weston petitioned to allow import of fries.
• Government allowed import of frozen French fries in 1996 under restricted category.
• Import duties levied was 56%.
• Lead time was around 60 days(40 for shipping and 20 for handling and custom clearance).
• Unfavorable exchange rate meant the fries would remain expensive item on the menu.
 MCCAIN`S SUCCESS
• McDonalds`s gave localizing French fries another go with McCain in 1998.

• McCain understood that getting the right potato was key to success.

• They imported germplasm as importing raw potatoes was not allowed.

• Instituted Shepody potato seed multiplication program at 13,000 foot.

• Building up business and relationship with local farmers to produce wedges and patties.

• Conducted regional trials to identify regions, types of potato and best combination of growing
practices.

• Cutting the middlemen from supply chain.

BENEFITS OF FARMER
COLLABORATION:
• It helped creating a 75% local supply for MacFry
– Cultivating the Process grade variety of seeds
– Seeds were planted in farms with higher accessibility
– Frozen Fries sent to 3PL storage facilities & shipped to restaurants
• Establishment of a Sturdy supply chain
• High Loyalty of farmers helped ensure a secure supply & assurance of Product quality
• Mcdonald’s produced fries at 30% lower cost than before
• There was no exposure to fluctuating exchange rate (Saved additional 19% on Import costs)
• Average inventory reduced from 15 days to 6 days
• Better risk management & contingency planning due to reduction in shipping time
• Assuring the desired quality because of volume increase.

• Rising Inflation rates, leading to increase in the prices.

RISKS
ASSOCIATED
• Increase in supply chain cost because of growing demand and
changing cost structure with the restaurant. WITH
• Competition from other international food companies like
MACFRY
PepsiCo.
SUPPLY
• Limited cold storage technology, resulting in storage time for
6 to 8 months
CHAIN
• Develop a better and long standing relationship with the
farmers so as to have them under confidence.
• Develop better cold storage facilities, so that large TACKLING
quantities of potatoes can be stored for a longer duration.
• Optimise the supply chain network to adjust for the rising
COMPETITIVE
inflation rates. THREATS
• Removing commission agent in their multi channel potato
value chain by using model 4 or 5 in exhibit 6.
 STRATEGIES TO MEET DEMAND
• Investing in cold storage technology.
• Reduce quantity in each serving but keep the price same.
• Identify more ideal growing areas to increase supply.

100% Localization
• Lower cost structure- around 30%.
• No impact of macroeconomic factor like exchange rate.
• Lower inventory level needed.(From 15 days to 6 days)
• Reduced transport time.( 60 days from USA to a day)
• Relationship with farmers ensured stable supply
 VERTICAL INTEGRATION-
STRENGTHEN OR WEAKEN
• Challenges faced by McDonald to have
assured supply
– Quality maintenance while increasing the
quantity
– Serving everyday value without increasing cost
– Keeping up production needs without
increasing supply chain costs
– Competition from supply from other
international food companies
• Advantages of Vertical integration
– Quality assurance can be built to the system
– Transaction costs are low throughout supply
chain
Should they do Vertical Integration-
No
Why
• The investment needed to Vertically integrate will
take a hit on the business like McCain had in
1990’s
• The challenges remain same if McCain, MacD or
any other company who takes up the production
• Climate conditions
• Inflation rate
• Cold storage availability
• The problems which is faced currently to have
assured supply wont be solved if vertically
integrated, the advantages are limited to
• Lower cost structure
• Higher quality