In an increasingly fierce competitive environment where innovative products and services are hard to come by, organisations are forced to persistently seek out opportunities to maintain their competitive advantages over others. This report aims to explore McDonald's product operations and capabilities allowing for strategic recommendations aimed to exploit areas for growth and sustainability, with the intention of solidifying a competitive advantage. The first subsection will analyse the current process dimensions of the fast food products at McDonalds; investigating process dimensions of the output and comparing to Burger King's (BK) fast food production. The second will distinguish quality characteristics (QC) utilised by the companies in relation to their products, and discuss how such differentiators affect their competitive advantage in the fast-food industry. Finally, after identifying McDonald's current position in the supply chain – the prospect of movement within the supply process can be explored, considering factors that may facilitate or hinder such efforts.
Since 1948, the McDonalds Corporation has been one of the largest fast food establishments in the world (McDonalds, 2017). Originating as a small drive through hamburger stand in the USA, McDonalds have grown exponentially to the point where they are currently providing fast food to over 58million customers worldwide daily. Their competitor, BK founded in 1954, is also a well renowned fast food company which specializes in comparable goods (BURGER KING®, 2016). With both businesses constantly trying to out compete one another in terms of product - there is a divide in market share. This level of competition validates the need for new initiatives in terms of organisational processes and supply chain management (SCM) to create a competitive advantage.
1. Process Dimensions
Operations processes aim to transform inputs, e.g. raw materials into a product which satisfies consumer expectations. One method of distinguishing process variations amongst businesses producing the same product is via the “Four V's” framework. the Four V's aim to assess the Volume, variety, variation and visibility of a company's operations (Slack et al DATE).
The volume dimension is going to be discussed in terms of the fast food production in restaurants. McDonald's is Illustrious for its high-volume production of hamburgers. Originally, McDonalds employed specialist chefs to provide quality burgers at speed, over the years the system has evolved. Mcdonalds transitioned away from skilled chefs - towards employing a team of unskilled kitchen staff for whom they provided training for their highly-systemised burger making routine. The simple, repeatable steps allowed McDonalds to mass produce products and with the justified addition of improved kitchen appliances significantly enhanced the process and allowed them to serve millions of worldwide customers daily. ‘Reengineering' with a combination of improved technology and low skilled labour allowed for increases in product volume without sacrificing quality in line with McDonald's vision (Hammer & Champy, 1993). McDonalds are advanced in terms of restaurant processes leaving minimal room for error whilst maintaining high volume production of core and only a few items requiring the made to order process resulting in higher efficiency and low costs (Slack et al. DATE). BK are slightly less efficient in terms of volume, products are often made after the order is placed due to lower levels of standardisation ranking them below McDonalds for volume dimension.
Originally, mcdonalds focused predominantly on burger, fries and drink products, however over the years they expanded their menu through franchising (https://www.mcdonalds.com/us/en-us/about-us/our-history.html). Today, mcdonalds provide an extensive menu with seasonal and geographical promotions to satisfy the growing customer base. McDonalds predominately creates products using locally sourced raw materials such as Chicken, Beef and Fish (low variety) for their standard dishes (BigMac, McChicken sandwich and fish fillets) and alters vegetables and condiments to provide variety to suit the consumer's taste. As the company matured, they introduced vegetarian options, a breakfast menu, McCafe and desserts which added greater variety. This is costly, however by sticking to the standardized and lean process theme – kitchen staff are still able to produce quality products at speed regardless of product enhancements. BK offer slightly less product variety, with a consistent menu and fewer promotional product allowing for lower operating cost. However, this puts BK at a disadvantage providing products to suit more diverse tastes. In response, they have found ways to exploit the product variety that mcdonalds offers, while taking a back seat in terms of innovation – they can observe the success of new products releases. If a new product succeeds in the market, BK aim to replicate at an advantage as mentioned earlier (BK BBQ Rib). ‘Satisfries' are an example of a concept aimed to directly challenge mcdonalds' recent healthy eating initiative. With all of this considered BK would achieve an advantage, yet McDonalds' forward thinking approach to operations allows them to maintain both speed and quality regardless of increased product variety.
Promotional products create the variation dimension within the company. With certain products and offers (Monopoly) being exclusive at different times of the year, the consumer demand fluctuates. In addition to promotional offers, the demand for consistent products are subject to change seasonally; e.g. the demand for ice cream and cold drinks is likely to increase during summer and the call for McCafe products is expected to rise during winter. In 2004, McDonalds initiated the implementation of a Restaurant Supply Planning Department to deal with such demand oscillation, using Manugistics to monitor store inventory to cope with changes in demand (McDonald's Corporation, 2008). The programme allows managers to forecast future demand trends and maintain a reliable supplier network. In addition to this method of inventory control – all mcdonalds restaurants has an emergency supply of raw materials to ensure that they are never short. In the event of having to use the emergency supply, an order is immediately sent to their suppliers to replenish the reserve. The raw materials are then transported from any of their 16 main suppliers, to their distribution centres from which they are shipped to the necessary store encouraging the lean process and lowering inventory costs. BK on the other hand have a deligated sourcing approach to their SCM, comparable to McDonald's multiple sourcing. This means that BK have outsourced Restaurant Services Inc (RSI) to control their SCM for food, packaging and other supplies required to run a successful restaurant https://www.rsiweb.com/Net/public/GeneralInformation/AboutRSI.aspx. Deligative sourcing passes the responsibility of making SCM decisions and forecasting the variation of consumer demand to specialists, thus taking the pressure away from the company so that they can focus on other important aspects of the business http://www.acornlive.com/demos/pdf/E1_EO_Chapter_6.pdf .
Visibility - the magnitude of which a process can be seen by customers (Slack et al, YEAR PLS). McDonalds restaurants provide a public facing service using customer processing, providing high-visibility in terms of the ordering procedure. One challenge that presents itself with high-visibility operations is the customers' perception of time that it should take to produce the product, therefore mcdonalds have enforced a key performance indicator (KPI) >90 seconds drive through rule to ensure customer satisfaction in speed. To attract new customers and encourage loyalty, McDonalds have made the decision to suitably expose details of their larger scale operations and supply chain through marketing. Due to the internal visibility, questions started to arise surrounding the external ‘less visible' factors of the company. McDonald's are often criticised about the legitimacy of raw materials, thus urging them to create a trusting consumer-producer relationship through increasing the transparency of the supply chain. McDonalds originally displayed this transparency through an advertising campaign in (DATE), in which they featured some of their suppliers and farm workers who disputed rumours; thus, challenging the public's perception with the intention of rectifying and improving the brand image. A more recent initiative was generated in 2016 when a virtual reality (VR) campaign was released to further expose their supply chain in turn alter perceptions of the farming sector (Roderick, L. 2017). In addition to media promotion to aid visibility, they have also worked alongside greener agricultural set ups to put back into the ecosystem and create and portray a more environmentally friendly network. http://www.mcdonalds.co.uk/ukhome/Ourworld/Environment/Packaging.html
High-visibility operations may be costly, but in the long run; increased demographic and consumer relationships are lucrative assets to the company as the new qualities associated with McDonalds visibility will attract customers who were previously hesitant. BK on the other hand have low visibility processes, thus putting them at a slight cost advantage. As mentioned earlier, McDonalds have received negative press in terms of sourcing, however this has never been the case with BK – therefore the need for supply chain and process transparency is less important. Lower visibility results in lower cost for the company therefore BK are typically spending less on operational costs allowing them to be at an expenditure advantage (BURGER KING®, 2016).
Performance objectives can be prioritised and used as a means of highlighting the success of the organisational processes. (DIAGRAM 1)
2. Key Quality Characteristics (QC)
The 6 QC identified as a method of assessing a business' productivity:
Mcdonalds products are typically functional due to their high speed, systemised production that meets the expected quality requirements of a fast food restaurant. Consumers expect a high quality, variety of food at a low price which can be achieved due to the low operating costs. BK's has similar success in functionality however, mcdonalds are usually more forward thinking and BK tend imitate their products for example the ‘Big King sandwich' their own version of the famous BigMac – whilst not being detrimental to their functionality they are often slightly delayed in terms of product. The same method of imitation however, can be advantageous as they replicated McRib (BK BBQ Rib) at a much lower price of $1.
As chains within a fast food industry, customers have realistic expectations of the appearance of their food products. BK and McDonalds both use visual menu's demonstrating the ‘Goldstandard' burger, the actual products may not be identical to the image but this allows consumers to generate expectations. Low cost production allows for low customer price, quality and speed which typically win the trade off when put up against the aesthetical aspect of fast food products.
McDonald's and BK both have a collection of constant menu items which are mass produced daily. This repetitive, simple and systemised process adopted by both companys allows for consistent products with ensured quality over time - implying that customers can be confident that they can receive the same product experience time and time again.
Both companies provide food that is required for on the day consumption with little efforts to preserve the product. In terms of packaging, mcdonalds and BK use recyclable paper bags and cardboard to insulate the product in the event of ‘takeaways' however this is not a direct attempt at improving product durability.
McDonalds and BK have experienced large scale product challenges over the years and successfully redeemed themselves. For example McDonalds' negative associations with obesity and raw material sources – as mentioned earlier in addition to marketing strategies, they also improved their product using only 100% beef and publicly displaying their nutritional values to promote healthy eating which is a current trend. On a smaller scale, both companies are very efficient in terms of correcting product errors with efforts to rectify and replace mistakes quickly and at no cost to the consumer.
BK currently has an advantage in terms of contact, with both companys providing face to face contact, as well as a drive through automated contact, BK have advanced their methods and have established a delivery service to some parts of the UK. This works using online communication via the BK website. This is an area that mcdonalds have not tapped into in the UK, however this is because it isn't a priority in terms of growth.
vii. Quality Characteristics and competitive advantage
QC allow CEO's to assess their own competitive advantage compared to other companies and come up with ways to increase this in their favour. For them to do this efficiently, they must first prioritise the consumers demands and use the trade-off method wisely to suit their market and create perceived quality. Although there is currently very little to differentiate McDonald's and BK's products – McDonalds is displaying signs of a competitive advantage with an extremely prominent brand image ‘the golden arches' and consumer-base leads. Another way that mcdonalds maintains its position as a market leader is through innovative qualities. From operations and supply chains through to the product, mcdonald's persistently work towards exploiting new opportunities and constantly seeks to increase their customers range through both attractive marketing and product quality.
3) Evaluate your current position in the supply chain. Also evaluate the options of moving upstream, downstream, vertical integration in the supply chain. List the factors that will hinder and/or facilitate the proposed move. (40 marks)
Mcdonalds have built an empire that regularly out competes rivals to stay close to the top of the fast food industry. This success is owed to the constant improvement of effective processes and SCM that has been developed over time, with particular concentration on creating lean production chains across the board they have created a superior system from the farming stages through to the final stages of their high quality products reaching their customers (McDonalds, 2017).
Movement within a supply chain can occur upstream and downstream as a result of vertical integration.
i. Vertical Integration
Vertical integration is defined as the amount of control that a company has over its supply network (Slack et al DATE). McDonalds are currently at the retail customer relationship end of the supply chain, with little ownership over their networks. They tend to outsource raw materials in order to purchase high quality, local and sustainable supplies at the lowest cost possible to fit with their vision and brand image. Although mcdonalds do not currently appear to vertically integrate, they do have alliances and strong relationships with suppliers, for example coca cola, who will produce their supplies at a lower cost in return for the exclusivity of their beverages at the McDonald's chains which is beneficial to the success of a network.
The prospect of a downstream movement for McDonalds would allow them to have more autonomy over their own supply network. Benefits of vertical integration include the reduction of transport costs as a result of more localised suppliers and the ability to source or gain access to channels that may not be available without downstream movements. Integration also allows for the opportunity to take more risks and have more control over the production of ideas which outsourced suppliers may disregard. Negative effects of integration can also occur, particularly if mcdonalds were to move into the farming area of the supply chain, this move may lower costs in terms of raw materials however any maintaining suppliers may see them as new competition thus being reluctant to continue trading for supplies that still need to be outsourced.
McDonalds restaurants are currently at the end of their supply chain, thus moving upstream isn't feasible in terms of company improvements. An alternative to this could be to franchise remaining company owned restaurants to further increase margins.
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