Operations of McDonalds - Case Study Example

Operations of McDonalds of Table of Contents Strategy of the Company 3 Forecasting 4 Product and Service Design 5 Capacity Planning 6 Process Design 6 Location 7 Quality Management 7 Conclusion 8 References 10 Background McDonalds is the largest fast food chain in the world which is holds a market share of 21.7% in the US market. Apart from that the company also holds the highest brand valuation in the global fast food industry, which has been recorded as $85,706 million (Statista, 2014b). The company operates in around 120 nations and with more than 35,000 outlets. The company was founded in the year 1940 by Richard and Maurice McDonald along with Ray Croc. During its inception McDonalds was positioned as a hamburger stand, however over the years the firm got recognized as a fast food chain with extended product portfolio and wide geographic diversification. The company mostly runs its overseas business by franchisee operations, which as a result allows it to reduce the operational risk of business. The global fast food industry is characterized by the presence of several well established firms like the Starbucks, Subway, KFC, Pizza hut, etc. These firms offer almost identical products that allows which as a result increases the competiveness of the industry. The global fast food market is growing at a steady pace with a CAGR of 4.4% and the industry has been evaluated at a net worth of $477.1 billion as of year 2013 (Statista, 2014a). The constant growth has increased the attractiveness of the industry thereby attracting several companies to enter. Each of the firm tries to seek out new ways to increase its market share in the industry. This is mostly conducted by employing aggressive marketing strategies in terms of promotional activities and product development as well as geographic diversification. Strategy of the Company The strategy or the mission of McDonalds is to hold its position in the leadership status and create a value addition for the customers by offering high value for money fast food items and high quality services. The service quality is one of the key uniqueness of McDonalds which allows the company to create a differentiation from other rival brands. Owing to the high service quality the customers does not have to wait in long queues or worry about in store hygiene. The pricing strategy of McDonalds is competitive in nature which as a result allows it to face the steep competition against the market rivals. The prices of the products are almost identical or in some cases are marginally less than that of the rivals. This as a result allows the company to attract customers in by offering high quality food at an attractive price (Paul and Roy, 2014). The employee management of the company is highly efficient and McDonalds also conduct performance assessments of the employees so that it can ensure that they are performing at the desired manner. The productivity of the employees is measured in terms of the number of number of satisfied customers that leave the outlet. Moreover, the fast response time also indicates that they are quite efficient in delivering order and which is reflected in short queues and short waiting time. The measurement of productivity is also important to isolate any ongoing issues, so that they can be solved quickly. Forecasting The process of market forecasting allows the company to measure the consumption pattern and demand trend of the market. There are several forecasting methods used by firms to determine the future trends of the market. These approaches are, assessing buyers’ intention, business intelligence and previous sales data. Assessing the buyers’ intention allows the firm to assess the behavior of the consumer, thereby enabling them to forecast any change in the market scenario. The consumers’ need is dynamic in nature and always keeps on changing. This as a result makes it imperative for the markets to know exactly what the consumers are looking for at the moment or what are their hidden needs (Aaker, 2010). Business intelligence can be generated by CRM software that tracks on the purchase behavior of the customers and generates intelligence relating to the popularity of the products. This allows the firm to assess which product is going to have higher or lower sale in the near future. It also allows the firms to detect any change in the preference among the consumers which allows them to develop new products to adapt to their changing needs. Previous sales data also allows the firms to conduct future market forecasts. The sales data gives clear over view of the popularity level of different products in the past. This historical data is utilized by the marketers to predict the future sales volume. However, the historical may not be the most accurate way to make market forecasts. McDonalds mostly uses the method of collecting raw data of consumers’ behavior and derive the necessary information of required to make forecasts of the market. It allows the firm to ensure that the consumers are offered the right products which are in line to their changing preferences of the consumers. McDonalds often engage in new product development based on the ongoing trend in the fast food industry or what the customers prefer. The company operates in several overseas locations and it collects behavioral data of the respective locations. Based on the collected data the company designs its product offering so as to ensure that the products are perfectly compatible with the ongoing trend of the country (Paul and Roy, 2014). Product and Service Design The product and service design of McDonalds is the key feature that distinguishes the company from the rest in the industry. The product offering of the company is mostly a range of fast food products partly burgers of different kind. The signature product of McDonalds is the Big Mac. Most of the products of the company is non-vegetarian in nature and is based on beef or ham. The company also offers a series of beverages such as soft drinks or smoothies. The product portfolio of McDonalds is not standardized and varies across nations depending on the consumption trend of that country. This as a result allows the firm to cater to a wide range of customers all across the world and meeting their existing needs. McDonalds always ensure that the products do not conflict with the social and cultural trend of the host country. Thus the market research process of the company is utilized to figure out the consumer behaviour and depending on which the products are developed (Clark, 2014). The service offering of the company is mostly standardized all across the world. The service quality acts as a distinguishing factor that helps the customers to break the clutter and have a high brand recall. The service design is mostly focused on proper workflow of the outlets that never fails to meet the ongoing demand of the customers. The service design also allows the company to ensure that the servicescape or the in-store ambience of the outlet is properly maintained to deliver the brand identity to the customers. This clearly indicates that the strategy of the company to “think global, act local” is clearly being followed by its product and service design (Vignali, 2001). Based on the service and product offering of McDonalds, it can be positioned as a fast food company which caters to the mass market by offering high quality food and services. By targeting at the mass market McDonalds can cater at wide customer base thereby increasing its revenue generation and brand awareness. The rise of the revenue generation of the company clearly indicates that McDonalds is at its growth phase of the product life cycle. This clearly suggests that the company is most likely to grow in the near future. Capacity Planning The capacity planning of a firm can be defined as the firm’s ability to plan its capacity according to the current demand. If the capacity of production is less than the market demand then it will not able to meet the demands of the customer and in turn will lose brand equity. On the other if the firm’s capacity of production exceeds the existing demand of the company then it will have to faces added cost of inventory and revenue leakage. Thus there must be a perfect balance between the firm’s capacity and demand (Kotler and Keller, 2009). McDonalds’ capacity planning should be based on predicting the number of units of each food items that is going to sell. The planning process of McDonalds involves taking into account the purchasing trend of the customers. Thus a particular outlet is able to predict which item will sell more and which item will sell less. This prediction is based on the previous sales data. Following the purchase trend of the customers also allows the company to figure out which days of the week will bring more sales and which ones will bring lower sales. Depending on this data, McDonalds is able to plan its capacity. In a fast food business, make the right planning is essential to ensure that there are no excess productions. Since, the food products offered by the company are perishable in nature so the any excess product will lead to loss making of the company. Process Design The process design of McDonalds is mostly a combination of circular and linear process design where the supply chain management starts from procurement of raw materials form trusted suppliers. The raw materials are then transferred to the outlets depending on the level of daily demands. The raw materials are converted to semi finished products, whose numbers of units are based on the ongoing demand of the customers. Whenever an order is made by a customer, the semi finished products undergoes another set of processing to yield final food product that the customer has ordered for (Gale, 2006). The data collected from the subsequent purchases is used to determine the demand level for the day, depending on which the production of the semi finished goods are controlled. The daily order quality is also assessed and depending on which the supply of raw materials is controlled. This clearly indicates that McDonalds’ process design is based on the purchase trend collected from the previous sale records. This allows the company to perfectly balance the supply and demand (McDonalds, 2015b). McDonalds has been successfully been able to design and follow its process flowchart which allows it efficiently cater to the customers with a faster response time, thereby adding more value to the customers. Following this design also helps company to reduce the revenue leakage and utilize the human work force more efficiently. This process work flow is almost similar in all of the company’s outlets throughout the world. This in turn has allowed McDonalds to create a standardization of service provision and product quality. Location McDonalds is headquartered in Oak Brooks, Illinois, US. However, the business operation of the company is not based on one particular location only. McDonalds operate in more than 120 countries. Thus it can be clearly stated that the company operates in a global perspective and not just in one location (Paul and Roy, 2014). The wide geographical presence of the firm allows it to cater to a wide range of customers. However, the choice of market development is based on the current trend of in the fast food industry of the host nation. The company also chooses its location of the outlets strategically which is based on the proximity to the target customers. During its incepting McDonalds opened its stores on busy high ways and high traffic areas to attract the ongoing traffic. Current apart from highways the company has mostly opened its stores near offices, colleges, universities and other high traffic areas. The overseas location has been chosen based on the current position of the industry in the industry life cycle. The company has targeted the nations in which the fast food industry is either in its infancy stage and has prospect for future growth, or the industry is at rapid growth stage. This as a result has allowed the company to successfully diversify its business in several locations successfully. The location strategy of the company which is focused on the “think global, act local” which is perfectly in line with the location strategy of the company (Vignali, 2001). Quality Management The quality management of a firm allows it to ensure that its products, services and its operational activities are of desired quality and that the quality is maintained consistently over the years. If the quality of the products or service is not maintained at the desired level then the customers will lose brand preference, thereby leading to brand rejection and low footfall. The quality control management of McDonalds is a holistic network of processes that allows the company to ensure quality throughout its supply chain. The quality management of McDonalds starts from procuring high quality raw materials and high quality food processing and delivery. The company only procures from designated suppliers who are best known for their quality assurance. The raw ingredients are regularly checked for freshness and quality, and are only treated with permitted amount of fertilizers and pesticides. The suppliers of livestock always ensure that the livestock are well maintained and free from contaminations and are treated with permitted level of anti-biotics only (McDonalds, 2015a). The food processing techniques also go through a series of quality control procedures. Every step is been thoroughly monitored and supervisioned to ensure hygiene and freshness. The entire production process goes through a strict time and temperature control. This as a result allows the company to adhere to the compliance of microbiological standard. The company has developed a system called Effective Hazard Analysis and Critical Control Point (HACCP) that allows it to prevent any hazardous incident by establishing critical control points which acts as bench marks (Gale, 2006). The quality control also encompasses the maintenance of hygiene in the outlet and ensures high standards of pest control particularly in the food processing unit. This as a result allows the company to ensure that the service quality for which the company is best known for is being consistently maintained. Conclusion McDonalds has successfully managed to hold the leadership position in the industry. This is mostly because the McDonalds have been able to implement its marketing strategies and its product and process design successfully to add value for the stakeholders. It is recommended for the companies that in order to further strengthen its competitive positioning in the industry; it must increase its product portfolio and must not be dependent on one single product category. This as a result will help the company to target a wide variety of customers. The company can also reduce the threat of rivalry by going through a series of mergers and acquisitions which will help to pacify the level of competition. The strategy followed by the company is most based on the concept of “think global, act local”, this is one of the most sought after strategies which McDonalds have successfully implemented. This strategy has allowed the company to successfully internationalize its business in several overseas locations. This strategy has also allowed the company to meet the existing needs of the customers by redesigning its product portfolio according to their consumption pattern. Thereby allowing the company to gain consumer preference and at the same time allows it to communicate a global brand image among its customers. References Aaker, D. (2010) Strategic Market Management: Global Perspectives. 6th ed. Oxford: Blackwell Publishing. Clark, W. (2014). Product Development Strategy for McDonalds. Retrieved from http://smallbusiness.chron.com/product-development-strategy-mcdonalds-12207.html Gale, S.F. (2006). McDonald’s USA: A Golden Arch of Supply Chain Food Safety. Retrieved from http://www.foodsafetymagazine.com/magazine-archive1/februarymarch-2006/mcdonalds-usa-a-golden-arch-of-supply-chain-food-safety/ Kotler, P., and Keller, K. (2009) Marketing Management. 14th ed. New Jersey: Pearson International Edition. McDonalds. (2015a). How Do We Control Our Quality? Retrieved from http://www.mcdonalds.com.hk/en/food/learn-more-about-mcdonalds-food/how-much-do-you-know-about-our-food/how-do-we-control-our-quality.html McDonalds. (2015b). Mission & Values. Retrieved from http://www.aboutmcdonalds.com/mcd/our_company/mission_and_values.html Paul, R. and Roy, S. K. (2014). Case Study 11: Marketing of Services: The McDonald’s Way. In Marketing Cases from Emerging Markets. 99-112. Statista. (2014a). Market share of leading brands in the United States fast food industry in 2013. Retrieved from http://www.statista.com/statistics/196611/market-share-of-fast-food-restaurant-corporations-in-the-us/ Statista.(2014b). Brand value of the 10 most valuable fast food brands worldwide in 2014 (in million U.S. dollars). Retrieved from http://www.statista.com/statistics/273057/value-of-the-most-valuable-fast-food-brands-worldwide/ Vignali, C. (2001). McDonald’s: “think global, act local” – the marketing mix. British Food Journal, 103 (2). 97 – 111 Read More