|Case study; McDonald’s Corporation|
The main aim of this report is to explain the meaning of operational management and how some aspects of operational management have played a significant role in the management of McDonald’s corporation from when it was founded. McDonald’s is a company that was founded in 1950 and has grown over the years to become the largest fast food company in the world, and is still growing. The company has established itself by managing its operations and making sure that the right services and products are provided to customers and making available resources for workers.
Ray Kroc saw the future of the business and knew how successful it will become if they focused on operations and that was why he decided to create franchises. The company today operates in about 118 countries and is the world’s most known brand in the food industry.
Over the years, the company has increased its profits and in 2008 made a net profit of over $4.3 billion. With a good operations management, the company has the opportunity to further expand to different countries and locations and still provide the same quality it provides to its customers the world over. With a concept of providing the best services in terms of time, flexibility and food quality, the company has created a strong competitive advantage that is very difficult for competitors to beat.
The focus on operational management has resulted to good positioning in the minds of its customers and has also made McDonald’s a strong brand name.
Operations management is concerned with producing goods and services and ensuring that the business operations are efficiently and effectively carried out using the company’s resources to meet customers’ requirements (Krajewski and Ritzman, 1990; Slack et al, 2004). This includes managing the whole process that converts inputs such as labour, raw materials and energy into the final product (Krajewski and Ritzman, 1990; Slack et al, 2004).
This report will be giving an overview of operational management with the main focus on various aspects of this field, and also focusing on McDonald’s Corporation in general.
It will start by explaining the different methods of research, which are mainly secondary research and interviews. A brief history of McDonald’s will be provided as an overview of the company and how managing its operations has led to its being the largest fast food chain in the world.
The three main areas of operational management this report will be focusing on will include: product and service, operations strategy, and competitive priority and key management challenges. The report will look at the ‘Just-in-time’ technique used by McDonald’s to produce good food and services to its customers and how beneficial this technique is. This report will be looking at some operational strategies such as managing the work force, technology, facilitation and others that are used by the company to meet competitive priorities such as time, low cost, flexibility and quality. An explanation of the key management challenges will be given, and also an analysis of how the company faces these challenges with the main focus on new management’s paradigms, challenge to face new business strategies, challenge to lead change, and challenge to manage it. The question here is this: how important is operational management to McDonald’s?
The research for this report will be carried out in two ways. The first is through secondary research by getting information from books and articles written about the company, and also from the company’s own website. This research will be important in order to analyse the topic.
The second method of research is through a personal interview of an assistant manager, Caroline Stupulup, from one of the restaurants operating in London. Caroline has been an assistant manger for the restaurant for six months be has been working with McDonald’s for the last 4 years gaining experience in grilling and drive-thru.
This interview was brief because Caroline did not have enough time for the set time of the interview.
In 1940, Dick and Mac McDonalds started a Bar-B-Que restaurant in San Bernardino, California leading to the creation of the largest hamburger and fast food company in the world today (McDonalds.com, 2009; breitbart.com, 2008). Eight years later, the brothers closed down their business to start a new menu with nine items with a self services drive in restaurant (McDonalds.com, 2009). After looking at the impressive operations of the restaurant, Ray Kroc decided to open a franchise in 1955 which later grew to 700 restaurants, in the United States alone, by the year 1965 making him the founder of the company (McDonalds.com, 2009). The company was a drive through restaurant until 1962 when it set its first indoor seating in Denver, Colorado and was in the stock exchange in 1965 (McDonalds.com, 2009).
The company went international by opening its first international restaurant in Canada and Puerto Rico and has opened restaurants in a total of 118 countries (McDonalds.com, 2009). The company has grown over the years by creating signature meals like the Big Mac, Quarter Pounder, the Happy Meal, and the Egg McMuffins, therefore giving the company a good positioning the market (McDonalds.com, 2009).
McDonalds has a profile of restaurant that are operated by franchisees, affiliates and corporation themselves and the corporation gets most of its income from its fees and royalties paid by franchisees, rents and sales from the corporation’s restaurants (McDonalds.com, 2009).
Just-in-time (JIT) inventory is crucial in the competitive business environment of today and is an important way of reducing time wasted and cost. Just-in-time is when resources are organised for operations in such a way that they are used ‘just’ when they are needed (Waters, 1999). McDonald’s is an example of a company that practices Just-in-time operations: in a McDonald’s restaurant, customers’ orders are only cooked or prepared only after the orders have been placed by the customers (Atkinson, 2005). This was not the case before where customers would only get food from McDonald’s that was pre prepared and just heated up. The use of advance technology to prepare hamburgers has facilitated the process and made is possible for customers to wait for their meals to be prepared because it is faster and more efficient (Atkinson, 2005). This is advantageous for the company as it helps it to provide quality food (fresh food) to its customers.
The JIT process comes with high customer service. The workers at McDonald’s are always prepared to make sure that customers are provided with what they ordered, or else, the concern is, the customers may stop ordering altogether. They try to meet time frames set for the food to be ready in order to represent the aim of the restaurants, which is fast food at high quality.
Another benefit gained by McDonald’s by using this system is that it lowers cost. Burgers are likely to become inedible after fifteen minutes and this is likely to happen when they are pre-made. JIT helps the company to reduce the amount of wastage and helps to solve problems such as unreliability, poor quality and the wasting of time (Waters, 1999; Slack et al, 2004). This helps the organisation to cover the space between supply and demand. Implementing JIT is a simplified process and allows employees to carry out more responsibilities by providing the best service therefore reducing set up time and providing better scheduling (Walters, 1999; Slack et al, 2004).
One of the greatest challenges faced by the process is communication and commitment from workers, which will be discussed in detail under challenges faced by management
Operations strategy is reconciliation between what customers require and expect and the company resources to meet this requirements by coming up with plans that will compound resources and make the company distinct from its competitors (Slack and Lewis, 2002). Operational strategies comprise of how to make strategies concerning the work force, control, technology, facilitation and capacity in order to meet competitive priorities such as low cost, quality, flexibility and time frame (Slack and Lewis, 2002).
One of McDonald’s capacity strategies is to grow and expansion in other countries using franchisees and making all its facilities look alike and recognisable by customers, although some localisation of menus in important too. As a fast food company, the company uses high technology to meet its competitive priorities. By also using JIT to operate in their restaurants, they create long term relationships with their suppliers because with JIT, turnover is high and therefore the company is able to pay back its suppliers on time. The company provides extensive training to its franchisees as well as employees. In an interview with Caroline Stupulup in one of the restaurants in London, she describes the learning process as never-ending and creative (Caroline, 2009). She also went on to describe one of the duties of the managers as ‘Caring for the company they work for’. In this process, the manager has to take a ‘Travel path’ after every 30 minutes to check all the areas in the restaurant and make sure everything is how it is supposed to be: a version of ‘management by walking around’ it seems. Every restaurant has to send at least one of their managers for training organised by the corporation (Caroline, 2009). McDonalds training is carried out in a way where employees are trained in different specialities like in grilling, drive-thru and front counter (Caroline, 2009). Managers and employees also undergo health and safety training organised by the company, and every employee has to undergo this training before working in a McDonald’s restaurant: the company has to comply with UK law in this, of course.
The competitive priorities and reasons for implementing such strategies by McDonald’s are to achieve low cost, high quality, flexibility and time. By providing training and specialisation, the company provides food for its customers on time. The tool used for timing is called Total-time-in-line (TTIL) which calculates how much time is spent by a customer waiting, from the time they make their order to when their order is delivered (Caroline, 2009). TTIL has been set on an average of four minutes for the eat-in restaurant (Caroline, 2009). High quality is achieved through training and supervision by the managers and the company as a whole. One of the priorities for McDonald’s is to produce at low cost by using high technology. This reduces the cost of assembling large cookers and training operators for them.
There are so many challenges faced by companies today, especially one that is operating in an industry that has a high level of competition. McDonalds is a company that operates in a highly competitive industry with competitors such as KFC, Burger King and other local fast food take away restaurants, plus newer competitors such as Subway which promote themselves as a healthier alternative to hamburgers and fries. There are different challenges faced by management today; these include;
- Management’s New Paradigms which is in an era where management style is changing and the way management approach employees and customers is different from that in the early 20th century (Drucker, 2007). This new challenge is as a result of organisations changing their management style from using a top-down and hierarchical structure to a more flexible and empowering structure (Drucker, 2007). Management in McDonald’s is facing this challenge because they have empowered the employees with the duty of meeting their top competitive priorities. This challenge can be met by building trust and confidence in the employees. The company has to ensure the employees are well trained and carry out training programs frequently to improve on the quality of the service.
- The second type of challenge is to face new business strategies as a result of changes that occur in the environment such as: new definition of good performance, global competition and increased need for innovation (Drucker, 2007). There are a lot of competitors in the fast food industry and their success is determined by their ability to provide services on time and with high quality. Management faces this challenge because they have to come out with strategies that will best suit their goal. The fear is that these strategies could either work or not, and the management would be responsible for them. It is not especially easy in the food industry because it concerns direct consumption. They face challenges in creating new meals that will attract customers to their restaurants. This challenge can be faced by employing a highly qualified and experienced work force.
- The ability to lead change in the organisation is another challenge companies are facing today (Drucker, 2007). The decision as to how to lead changes in the company is always being faced. This challenge can be met by training franchisees that will be responsible for ensuring that their restaurants prepare the new menus according to the standard required by the company (Caroline, 2009). McDonald’s also face this challenge by making use of the most recent and efficient technology.
- The final key challenge is the ability for companies to manage themselves (Drucker, 2007). This includes identifying strengths and weakness, when to ‘add value’ and take responsibility (Drucker, 2007). A company like McDonald’s faces such challenges by introducing attractive and standardised meals and offers, but also by adapting menus in different countries according to local tastes. They know their product life cycle for every meal and aim to know when to introduce a specific meal that will attract more customers.
This report has given a clear view about operations management and how this has been an advantage for companies like McDonald’s to use to achieve a competitive advantage in the market and thereby achieve growth. Operations management has been explained as combining resources to meet customers’ requirements.
A brief history about the company to be studied was given by showing how it has grown over the years from 1950 to today to become the largest fast food company in the world today. Three main focuses of operations management were made by considering products and services, operations strategies and competitive priorities and key management challenges. These focuses have been explained to help understand how operations management has been carried out by McDonald’s and how it has been beneficial to the company as a whole. The report also discussed how the company has used its operational strategies to create competitive advantage such as time, flexibility, low cost and quality. Techniques used by the company include Just-in-time (JIT) to provide good service and food to its customers and also Total-time-in-line to measure how much time customers spend waiting for their orders.
Despite the continued success of the company, the report stated four main challenges faced by the company and how these could be overcome using strategies and available resources.
In conclusion, operational management is highly important for companies that provide fast goods and services to their customers. A company that manages its operations especially well tends to create a good competitive advantage in terms of time frame, quality and cost. Efficient management of operations in McDonald’s is essential for the company because it has given them the opportunity to expand all over the world and gain a prominence in the food industry that its competitors have never achieved, though they are still trying to. The company has faced and overcome a lot of challenges and its operations management has played a key role in this.
- Atkinson, Charles (2005). JIT Inventory management review; McDonald’s, a guide to the benefits of http://www.inventorymanagementreview.org/2005/11/mcdonalds_a_gui.html Accessed 29/08/2009
- com (2008). McDonald’s posts sizzling 80% profit rise in 2008 http://www.breitbart.com/article.php?id=CNG.aec4920fe8094fdd0baaeab2ed126bf1.741&show_article=1 Accessed 28/08/2009
- Caroline Stupulup, Assistant Manager (2009). Personal Interview. McDonald’s London
- Drucker, Peter (2007). Management Challenges for the 21st 2nd edition. Butterworth-Heinemann
- Krajewski, LJ and Ritzman, LP (1990). Operations management: strategy and analysis. Addison Wesley Publishing Company
- Com (2009). McDonalds’s History. http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html Accessed 28/08/2009
- Slack, N et al (2004). Operations Management. 4th London, Pitman.
- Slack, Nigel and Lewis, Michael (2002) Operational Strategy. Pearson Education
- Waters, Donald (1999). Operations Management; the fast track MBA series. Kogan Page Publisher