Post-Graduate Programme in Management(PGPM: 2009-11) Section: A/BTerm: IV (17 Jun – 11 Sep, 2010)

Management Development Institute - Gurgaon

Supply Chain Management

Case 01

The McDonald’s Way

ID Name

1 09P121 Abhik Sarkar

2 09P156 Priyak Purkayastha

3 09P165 Rudranil Dutta

4 09P168 Saurabh Agrawal

5 09P177 Tigmanshu Dubey

6 09P214 Narayanan N

7 09P237 Vaibhav Berwal

SCMCase

Presentation

Presentation Date: 6th July, 2010

Themes of the Benchmark Supply Chain

Supplier Development

Backup Chain

Quality Assurance

Symbiotic Partnership

UltimateSupply Chain

Global Supply Chain

Single Sourcing

McDonald’s Supply Chain

Economies of Scale

McDonald’s Indian Supply Chain

Tier 2 Suppliers

Tier 1 Suppliers

Processing Centres DCs Golden Arch

Outlets

Trikaya

Dynamix

Vista

Radhakrishna

Mrs. Sectors

NOIDA

THANE

RKFL

Vista

Own processing centres

RKFL

Why is it the Benchmark SC?

Type of Investment

Level of Integration

Grassroots Focus

Backward Costing

Specialization of SC

components

• 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 supplier’s 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

Individual Supply Chain – Iceberg Lettuce

Magnitude of business: McDonald’s 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: McDonald’s guides and subsequently monitors Trikaya’s pest management and temperature

management methods.

Yield Maximization is the key for Trikaya, something that it has learnt from McDonalds.

1

Trikaya DCs Golden Arch Outlets

RKFL

Processing CentresMcDonalds

Characteristics

Individual Supply Chain – Processed Foods2

Vista, RKFL DCs Golden Arch Outlets

RKFL

Farmers, Suguna, Dynamix (Cheese)

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

products to McDonald’s.

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.

Characteristics

Individual Supply Chain – Potatoes

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.

3

McCain Foods DCs Golden Arch

Outlets

RKFL

Characteristics

Farmers, Suguna

Individual Supply Chain – Cheese, Sauces and Buns4 5

Raj Foods/Cremica Agro Foods, Mrs Sectors Specialty

Foods

DCs Golden Arch Outlets

RKFL

Product Differentiation: Separate product lines for Brittania and McDonald’s 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.

Characteristics

Network Model of SC

Trikaya Processing CentresMcDonalds

Vista, RKFLFarmers, Suguna, Dynamix (Cheese)

McCain Foods

Farmers, Suguna

Raj Foods/Cremica Agro Foods, Mrs Sectors Specialty

Foods

DCsGolden Arch

Outlets

Lett

uce

Chic

ken/

Veg

Patt

yW

edge

sFr

ench

Frie

sBu

ns, C

hees

eSa

uce

RKFL

Final Product: Burger +

French Fries

Assembling and

Packing

Cost Reduction InitiativesHow is production of the Rs 35 burger with 50 % profit margin

possible?

Minimum Possible Costs

Activity based

Costing

DC inventory

levels

Economies of Scale

Innovation for >

Efficiency

Flexibility in

Logistics

Reduce Rejection

Key Learnings Supplier Development: McDonald’s 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: McDonald’s 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??

THANK YOU..