Operations Management: Case 1 Module 1 McDonalds Corporation

 

I.                   Introduction

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Mcdonalds is a well-known fast-food chain and is considered as America’s number one fast-food chain. Its operations was intended to guarantee the quality of the products, the sanitation and safety of the food being prepared. The McDonalds Prospectus had shown that the company already has more than 30,000 restaurants located in 100 countries as of 2006. This establishment had been serving a total of 52 million customers everyday as per the 2006 Annual report of the firm (2006, p.2) and this only shows that there are many customer around the world who recognizes and patronizes the company. The operation of Mcdonalds according to the 2006 Annual Report is more of food service. In order to determine this, a thorough investigation of the company was done. The next part of the report would show the comparison of a food service and a manufacturing business and this would clear up whether McDonalds is a food service company or a manufacturing company.

II.                Food Service or Manufacturing Business

Smith (1997), had shown 5 different criteria on the differences between service and manufacturing companies. The five different criteria include the time lag between production and consumption, tangibility, inventory and buffer, variability and lastly business components. For the time lag between production and consumption, service companies produce and what the companies produce are consumed or used immediately by its customers. On the other hand, manufacturing companies have a time lag between the time the product is produced before it is consumed by the end user. The Inventory Management Review (2006) had stated that McDonalds practices Just-In-Time methods to prepare the orders of the customers. It had been stated that when a customer had placed a specific order, that is the only time that a McDonalds crew would make the order. This is the production stage. When the customer gets his or her order, it is going to be consumed if a few minutes or a few hours after it was given by the crew. This only shows that there is almost no time lag between the production and consumption.

For Tangibility, the manufacturing sector offers very tangible products to the market, however, the service sector offers intangible items such as the attitude of the crew or staff towards the customers. In McDonalds, it is a combination of tangibility and intangibility. It can be seen that the crew of the restaurant must be friendly towards its customers so that the customers would come back again to their restaurants. The McDOnalds restaurant offers tangible items in the form of Hamburgers, and its other menu items.

For the Inventory and Buffer Stock, a manufacturing company pre-produces items in lieu of the demand in the market. The pre-produced items are distributed to the different sales channel and the surplus from the forecasted demand is put on stock inside warehouses. These are considered as safety stocks, if the demand rises, the buffer stock is given to the distribution channel. However, for service establishments, inventory on finished products is very low because when the order is ordered that is the only time the order is prepared. McDonalds can be considered as a service establishment in this criteria because food is only prepared when it is ordered and the Just-In-Time system minimizes inventory and ensures no buffer stock.

In terms of Varaibility, manufactured products are consistent all throughout because of the standards used to produce the product. On the other hand service companies are variable in terms of service because of the human attitude. Since humans have feelings and emotions, this may therefore cause the variability. McDonalds is again a mixture of both. The McDonalds food follows certain procedures. As per McDonalds Canada (2007), “All menu items at McDonald’s are prepared for our customers under a carefully monitored process using specialized equipment.” It had also been stated that the crew and the other staff are trained in Hamburger University to be experts on the field of preparing the food items in the menu list.

Lastly, the business component of a manufacturing company is only substantive. The products that the manufacturing company offers are the substantive component of the company. On the other hand, service companies offer substantial and peripheral component. The substantial component are the products or the service offered to the clients and peripheral component of the companies are the ambiance, comfort, and speed of service to the customers. Mcdonalds can be considered as a service manufacturing in these criteria because it is composed of peripheral and substantial components.

III.             Differences of McDonalds Restaurant per Country

McDonalds USA have different features in its webpage as compared to the other countries. McDonalds USA shows the new features of the products. The country also features its restaurants with wireless connection to the internet, the nutrition facts, the sports that it has sponsored, career success stories, shopping features using the McDonalds Card and its mission to save the environment.

The main difference of the McDonalds USA to other countries is the culture that it presents in its website. It can be seen that the food that USA offers is different from the other countries. USA has Asian Salad that is being offered in the market and it has also a tortilla wrapped chicken. This shows that the USA shows the different cultures of its customers in the market because there are a diverse number of customers in the country. Comparing the other webpages, McDonalds Argentina website uses the Spanish language and different products to suit the taste of the Argentinians in the country. The Japanese website uses the Japanese language and same as in McDonalds Argentina, it offers different products that suit the taste of the Japanese. If all the countries were to be compared, the national language of the country hosting the site is used in the website. Other differences includes the food offered per country. If Mcdonalds USA have Asian Salad and Tortilla wrapped sandwiches, then McDonalds Australia have Delis and McDonalds Japan have Ebi Burgers.

 

IV.             Importance of Supply Chain Management for McDonalds

Supply Chain Management is very important for McDonalds. The Inventory Review management (2005) had stated that lower costs had been experienced by McDOnalds because of the Just-In-Time Inventory method that they are currently implementing. Aside from a freshly made burger, holding costs for burger parts are lower. Before it was stated in the Inventory Review that McDonalds old system has a high cost of inventory. Unsold food which had been prepared before it was ordered were considered as spoiled. In Investing for Beginners article (2002), there are several differences between Wendy’s and McDonalds. As per the report, McDonalds Inventory turn rate is 3.79 days as compared to Wendys which is equal to 9.10 days. The supply chain of McDonalds only shows that little money is tied-up with inventory as compared to its competition and the money that could have been tied-up for the inventory can be used for more productive means.
REFERENCES

About.com. (9 February 2002). McDonalds vs. Wendy’s: An Example. Retrieved November 1, 2007 from About.com Website: http://beginnersinvest.about.com/cs/investinglessons/l/blles3mcwen.htm

Ncnamarra, C. (1997-2007). Operations Management. Retrieved November 1, 2007 from Authenticity Consulting LLC. Website: http://www.managementhelp.org/ops_mgnt/ops_mgnt.htm

Smith, J.H. (1997) . Production Strategy Concepts. Retrieved November 1, 2007 from University of New Brunswick. Website: http://www.unb.ca/jhsc/resourcectr/TME_courses/tme3113/production/m5s1-03.htm

The American Forum for Global Education.  (1996). McFastfood conquers America. Retrieved November 1, 2007 from American Forum for Global Education. Website: www.globaled.org/curriculum/ffood4.html

Inventory Management Review (2005).  Mcdonald’s a guide to the benefits of JIT Retrieved November 1, 2007 from Inventory Management Review. Website: http://www.inventorymanagementreview.org/2005/11/mcdonalds_a_gui.html

McDonalds Company. (2007) McDonalds Home. Retrieved November 1, 2007 from McDonalds Company Website: www.mcdonalds.com

2006 Annual Report of McDonalds. Retreved November 1, 2007 from McDonalds Company. Website: www.mcdonalds.com

 

 

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