McDonalds Restaurant

STAT 2800
Survey of Operations Management
Project II
Dr. Rotimi Aderohunmu


November 15, 2004

By:
Stephanie Earley
Matt Kellond
Heather Kraich
Eddie Phillips
Rabab Sadeq
Thuy Van



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EXECUTIVE SUMMARY



To sustain its viability in a competitive market, the McDonalds Corporation sets
its overall goal of making its customers happy. To reach this broad goal, McDonalds
mainly focuses on competitive bases of speed, cost, and nutrition. The corporation also
recently created dramatic strategy changes to its stores internal processes by introducing
the Made for You System, and McDonalds also created a Revitalization Plan which
encompasses all areas of the business to make its customers happy.

Quality management at McDonalds is one of the major factors that make the
corporation one of the most successful fast food restaurants in the world. The corporation
uses computerized information systems and strict corporate quality standards to maintain
quality at their restaurants. To enforce the standards, the corporation undertakes
exhaustive inspections on each restaurant two times per year. Also, thorough training
processes ensure that all McDonalds employees have the proper knowledge to meet the
corporations standards, which will in turn make their customers happy.

Many suppliers aid McDonalds success by supplying their raw materials
efficiently and on time. McDonalds reassures that their product is fresh by choosing
suppliers near the restaurants, to minimize transport time. To ensure quality of products
and reduce cost between the restaurants and their suppliers, the McDonalds Corporation
publishes specific guidelines to ensure that the restaurants receive the best quality
materials.

McDonalds ensures consistent products by enforcing strict standards and
frequently inspecting its suppliers. The corporation participates in a very efficient supply
chain network. The corporation also takes advantage of long-term relationships with
suppliers to ensure consistent products. McDonalds also takes active steps to avoid bad
products and reduce overall costs.

Forecasting is in large part down by the corporation as their responsibility to the
franchisees and share holders. McDonalds uses qualitative forecasting methods by
gathering information from customers, employees, and experts, via written surveys and
other correspondence. Forecasting has given the corporation opportunity to excel in
creating new innovations, creating localized meal selections, and generally making the
customer happy.

In summary, the entire McDonalds corporation revolves around its goal to make
its customers happy. McDonalds works toward this broad goal withstrong competitive
bases, quality management, an efficient supply chain with quality products, and
continuous forecasting.


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TABLE OF CONTENTS

Introduction........................................................................................................................4

Operations Competitive Strategy
Main Competitive Bases..........................................................................................4
Strongest Priority.....................................................................................................7
Strategy Changes.....................................................................................................8

Quality Management
Speed......................................................................................................................11
Quality Inspections................................................................................................12
The 5 Ps................................................................................................................14
Training..................................................................................................................15

Raw Materials
Arrival and Maintenance........................................................................................16
Grade A Beef and Other Meats..........................................................................16
Produce..................................................................................................................18

Supply Chain
Examination of Supply Chain................................................................................18
Supply Chain Efficiency........................................................................................19
Quality Along Supply Chain..................................................................................20
Share Costs.............................................................................................................21

Forecasting
Aspects of Forecasting...........................................................................................21
Listening to Customers..........................................................................................22
Forecasting Success and Failure............................................................................23

Conclusion ........................................................................................................................24

Appendices
Appendix 1, TTL Control Chart............................................................................25
Appendix 2, KVS Control Chart............................................................................26
Appendix 3, Data for Control Charts.....................................................................27
Appendix 4, McDonalds Hierarchy......................................................................28
Appendix 5, Process Chart for Preparing a Hamburger ........................................29
Appendix 6, Illustration of a McDonalds Supply Chain......................................31
Appendix 7, Interview with Ronald Lessnau.........................................................32

Bibliography.....................................................................................................................36

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INTRODUCTION
McDonalds, founded by Ray Kroc, is now one of the most popular fast food
restaurants across the world. Theyve proudly served more than 46 million customers in
59 different countries and currently have more than 30,000 different locations worldwide
(Food Service). The fast food industry is booming at a rapid rate, especially the health
conscious food options. With this in mind, McDonalds has a strategic plan to stay on
top of their competitors by providing consumers with affordable prices, great service, and
more healthy meal options. McDonalds is competitive in many categories, including
price, quality, management and employee training. Consumers trust McDonalds
products because they use many of the same trusted brands that families buy at local
grocery stores. The only difference is that their shopping cart is a whole lot bigger. This
report details McDonalds competitive strategy, quality management, raw materials,
forecasting, and supply chain.

OPERATIONS COMPETITIVE STRATEGY
Main Competitive Bases
McDonalds Corporation competes in a challenging market segment by providing
need-satisfying products to customers. In this segment, ineffective competitors often fail
without proper strategies (Kerin). To sustain its viability, the McDonalds Corporation
employs an effective competitive strategy to make it stand out against competitors such
as other fast food restaurants. Although McDonalds competes on several bases,
including speed, cost, and nutrition, their strongest priority is making customers happy
(McDonalds Worldwide 3). The company recently made drastic changes to its

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process by introducing the Made for You system (Chase).
Speed
McDonalds competes on several bases mainly to make their customers happy by
providing speedy, affordable, and nutritious foods. Through extensive market research
and survey, the organization discovered that its customers desire speed as one of the
restaurants top priorities. Therefore, McDonalds vision aims to provide fast, friendly
and accurate service (McDonalds Worldwide 5). McDonalds realizes that specific
targets are necessary to measure the performance of speed, and continuously takes
relevant measurements to compare actual performance with desired targets Specific
measurements are detailed later in this report in the Quality Management section. To
achieve efficient service times, the company utilizes proven, standardized training
processes for its employees and new drive-thru layouts to reduce service times. Along
with speed, McDonalds also competes by offering prices at a low cost.
Cost
To offer high quality products at low cost requires efficient processes throughout
the entire McDonalds organization. Once again, this goal is built into their vision
statement when they claim that We will be the most efficient provider so that we can be
the best value to the most people (McDonalds Worldwide 5). McDonalds
incorporates several avenues to provide great value to its customers:
One strategy that the company has employed for many years is the value meal.
The value meal allows customers to buy a sandwich, french fries, and beverage at
a discount when purchased together. McDonalds restaurants offer seven to
twelve value meals, both for their lunch menu and breakfast menu.

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More recently, McDonalds began offering a dollar menu, consisting of many
individual items costing only $1.00 each. First tested in southern California, the
dollar menu has proved to be very successful and has been since incorporated to
many individual stores (Zuber 2).
Some individual franchise owners choose to offer daily specials of special menu
items, such as $0.39 hamburger Wednesdays, or other similar specials. Big
Mac Mondays are a popular regional promotion.
Nutrition
McDonalds third main competitive base is nutrition. The organization
understands that health trend is an increasingly popular trend therefore; the organization
has recently focused extraordinary efforts to promote their new nutritious choices.
Although not specifically built into the organizations vision, McDonalds has already
introduced many options to achieve this goal:
In the United States, Go-Active meals have been offered within the last few
years. These meals include a salad, bottled water, and a step-o-meter to help
customers keep track of how many steps they take a day.
Other countries have seen similar healthy options. The United Kingdom saw fresh
fruit bags, containing apples and grapes, as an alternative to french fries
(McDonalds Worldwide 12).
Not only does McDonalds care about its customers, but it is also considerate of
its employees health. In Europe, the organization worked with external
nutritionists to develop an Employee Guidebook which contains tips and
nutrition information for healthy lifestyles (McDonalds Worldwide 13).

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McDonalds has assembled their Global Advisory Council on Balanced
Lifestyles. This council consists of exercise & obesity specialists,
environmentalists, and other professionals to ensure that McDonalds takes
appropriate steps in helping its customers achieve optimal health.
The company is also utilizing technology to their advantage. The current
McDonalds website lets a user select any combination of menu items, place the
items in the online bag, and conduct a nutritional analysis on their selections. The
user can break down the analysis even further than a menu item, down to
individual condiments, including ketchup, pickles, etc. (Bag a McMeal).

Not only has the company introduced many steps to ensure nutrition, but it will
strive to continue the trend toward nutrition. McDonalds plans to: add additional healthy
menu options (fruits and vegetables); increase nutrition awareness among McDonalds
employees; and conceive new ways to deliver nutrition information to its customers, as
well as other actions (McDonalds Worldwide 13).
Strongest Priority
At McDonalds, Umaking customers happyU is what our business is all
about. And we know it takes a lot to make that happen. We work hard to
provide every customer with a choice of meals and an experience that
exceeds their expectations.

The preceding statement is the quote which introduces McDonalds Worldwide
Corporate Social Responsibility Report (2004). Although the company strives to
compete on several bases, their ambient goal is making customers happy. They reach this
goal through a variety of efforts.
McDonalds visionary goal is to continually improve their organization. To
achieve this goal, McDonalds in-store managers conduct frequent inspections of their
store, and the corporation also conducts thorough inspections several times per year. For
long term improvement, the McDonalds Corporation introduces new ways to measure
performance and food safety. Continuous improvement is detailed in the Quality
Management section.
In summary, McDonalds strives to reach its goal of making customers happy
through their normal competitive bases of speed, price, and nutrition, and they also
ensure customer satisfaction through continual improvement of their operations.
Strategy Changes
Made for You
McDonalds organization recently underwent drastic strategy changes to better
serve their customers. Under their previous system, the company would make several
sandwiches at once, and hold the sandwiches in a warming bin until purchased by a
customer. Under this system, management had to precisely predict how much food had
to be put on hold. Precise prediction had to be used because if there were not enough
food placed on hold, this would create the problem of increase waiting times for
customers, and too much food would cause waste of expired items. McDonalds
dramatically changed their strategy in order to stay competitive with other fast food
organizations.
In 1999, McDonalds spent $181 million to introduce their Made for You system
(Chase). Under this new system, standard food items are not held in a bin until they are
sold. In the Made for You system, modern technology greatly assists McDonalds
operations. When a customer places an order, the sandwich items are immediately

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displayed on a computer monitor in the kitchen and a tone sounds to alert the kitchen
staff. Upon a new order, an employee in the kitchen will toast the bun, and assemble the
sandwich accordingly. Standard items simply list the name of the sandwich, while
customized orders list the sandwich name and the desired condiments. Once the
sandwich is assembled, it is presented to the food loading area, where a different staff
person retrieves the sandwich and completes the order by adding french fries, desserts,
etc. The system works the same for front counter orders as well as drive-thru orders
(Phillips, Kenny).
Unfortunately, the introduction of the Made for You system did not transition
smoothly. McDonalds watched its customer satisfaction drop for the three consecutive
years beginning in 1999 (Chase). After further research, they realized that although the
new system provided fresher food, it was not as quick as the previous system. Instead of
reverting back to the old system, McDonalds continues to fine tune Made for You and
add new options to help the system work faster.
Revitalization Plan
In order to cope with the first ever quarterly loss that resulted from inefficient use
of the Made for You system (Chase), McDonalds has devised a new plan to increase
profits. Previously, the corporation emphasized adding more restaurants to increase
sales, but the new plan places emphasis on increasing sales at existing restaurants. The
new plan will reduce spending, to enable more cash to shareholders through dividends
and share repurchases (Cantalupo 1). Specific goals of the revitalization plan are to:
Attract new customers
Encourage existing customers to visit more often

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Build brand loyalty
Create enduring profitable growth
The main goal is to increase sales by creating an exceptional customer experience.
McDonalds plans to achieve this goal by focusing on its people, products, places, prices,
and promotions.
Menu
Along with changes in their process strategies, McDonalds has flirted with menu
changes as well. Last year, they created a new taste menu, where they offered a new
sandwich which was offered for one week. The purpose was to offer customers a variety
of options to satisfy peoples desire for variety. However, the new taste menu proved to
be ineffective. Some customers would fall in love with an item, but it would only last
one week, and they would be frustrated that they couldnt purchase their new beloved
favorite sandwich.
More recent changes to the menu have proved effective. McDonalds realized
that many of todays customers seek healthy food options, and the corporation has
offered items accordingly. As mentioned under Competition Bases, McDonalds now
offers a wider variety of nutritious items and provides information to help its customers
as well as employees make informed healthy choices.

QUALITY MANAGEMENT
Speed
One of the major quality management control factors includes minimizing the
time that processes are done; this ensures an effective and efficient operations. Many of
these processes are done through the use of advanced information technology, through
calculating the time of the processes or even making a database to observe procedures
and make improvement to their processes. One specific measurement is called Total
Time in Line (TTL) which calculates the total time customers spend in the McDonalds
line, from the time the customer begins ordering until the time they get their food. TTL
measurements are calculated the same way whether the customer is eating inside or
ordering through drive through. The target TTL is 90 seconds. See Appendix 1 for our
groups construction of a TTL Control Chart for a McDonalds store. (Phillips, Eddie).
Along with measuring TTLs, other programs are utilized to make the speed of the
service more efficient. The Made for You system uses the Kitchen-Video-System (KVS)
to support fulfilling speedy orders. The Made for You system allows the order taker to
enter or delete the orders on a touch screen that lists sandwiches, as well as individual
condiments, in a way that eases the data entry process for the worker. As soon as any
food is ordered, from any register, the necessary food items are displayed on a computer
monitor in the kitchen. The kitchen staff immediately begins to prepare the food, and
then erases the orders from the screen as the food is finished. Similar to TTLs, the time is
measured between when an item is first displayed on the monitor, to the time when it is
served. McDonalds continuously monitors these kitchen times in order to ensure that the
Made for You system is working as efficiently as planned. See Appendix 2 for our
groups construction of a KVS Control Chart, and Appendix 3 for the data we were
provided to construct the charts. (Phillips, Eddie).
Technology not only measures performance values within the organization, but it
also assists in the drive through area. When a drive through worker is taking an order, it

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is displayed automatically on a screen available to the customer outside, called the
Customer Order Display (COD). The customer can review the COD and correct any
mistakes, thus making the ordering process more precise. More precise orders eliminate
time wasted from correcting mistakes (Phillips, Kenny).
Maintaining the speed and accuracy of the processes in McDonalds is also done
through less technological techniques. McDonalds uses different colored packages to
help the employee recognize the different types of food; colored wrapped sandwiches
makes it easier to distinguish what is wrapped beneath. For example, a cheese burger is
wrapped in yellow colored paper and a fish fillet is wrapped in blue, while a hamburger is
wrapped in white paper. Special ordered sandwiches without standard condiments come
in red and white paper, with a paper receipt attached which details the items on the
sandwich (Phillips, Eddie).
Quality Inspections
Food safety is one of McDonalds top priorities. Every restaurant is required to
check food temperatures, expiration dates, and other food safety hazards several times
throughout each day of operation. The corporation sends a standardized Food Safety
book to every store which includes a comprehensive list of every item that needs to be
measured. Cooked food temperatures are measured to ensure that all food is cooked
properly before served. Refrigerated and frozen foods are also checked to make certain
that they do not get too warm and are not spoiled. Expiration dates are checked on foods
frequently, if the item is expired than it is discarded. Equipment is also measured to
ensure that it is functioning properly. Also included in the safety checks is the water
temperature in the restroom sinks, workers must be caution because water that is too hot

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can burn customers. Food safety checks are performed several times throughout the day
(Phillips, Eddie).
Periodic corporate inspections, both announced and unannounced, are one of the
major quality management controls at McDonalds. The McDonalds Corporation applies
two major inspections on each restaurant per year. One is called Field Operations Review
(FOR), and the second is called System Observation Review (SOR). Restaurants have
two opportunities to pass the tests. If the store fails to pass the inspections on a second
attempt, the corporation takes over the store and brings in better employees to ensure that
the proper processes and equipment are being used properly. Both inspections are
extraordinarily thorough and they are based on a point system, and points can be taken
off for many different reasons. For example, points can be reduced if the credit card
system is too slow, if the stores walls have cracks, or even if the restaurant performs
processes that slow the serving time (such as accepting personal checks for payment).
Points will also be lost if employees are not dressed according to regulations, including
wearing name tags (Phillips, Kenny). During a corporate inspection, the restaurant must
also provide a food safety log of recorded entries to ensure that proper food testing is
completed frequently and properly (Phillips, Eddie).
Along with exhaustive corporation inspections, in-store managers also personally
inspect their restaurants on a frequent basis. One example is the manager on dutys task
of completing a travel path every thirty minutes of his shift. During a travel path, the
manager personally checks every aspect of the restaurant, including: the lobby area where
customers eat; the restrooms; the grill area behind the counter; the walk-in refrigerators
and freezers; the stock area; as well as the entire perimeter outside the restaurant

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(Phillips, Eddie). During the travel path, the manager also confirms that the Food Safety
checklist has been completed and that all measurements fall within the specified range.
Through completing travel paths, management continuously checks every aspect of the
restaurant throughout the day.
The Five Ps
Even though many of the quality management processes in McDonalds are done
through the use of information technology, other quality management factors such as
maintaining the five Ps forces (People, Product, Price, Place, and Promotion) are
essential in any business. Consequently, McDonalds Corporation uses these related
forces in the sense that each P creates a chain affect on each other. The following is a list
of methods using the P forces.
The first force is the people working in the McDonalds chains, which are
represented by service, hospitality, and pride. The staff employed in McDonalds are
continuously trained and kept in the company to reduce the cost of training short-term
inexperienced workers. Moreover, the training process has been improved to include
online e-learning tools for the restaurant staff. Maintaining the workers in the company is
very important to McDonalds and the corporation rewards workers who do outstanding
services. This form of incentive is motivational to the workers (Cantalupo 4).
The second force is the products which include the quality, taste, and price of the
goods sold. McDonalds is trying to establish flexibility with the changing tastes and
preferences in the market, Moreover, they are also seeing growing interest in premium
product and wholesome food choices. The quality and safety of the food is a main entity
in maintaining the quality of the food at McDonalds (Cantalupo 4).

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The third force is place which is represented by the clean, relevant, and modern
store environments. Whether it was in the main restaurant area, the kitchen, or even the
restrooms, the company ensures the safety and comfort for the consumers and staff
workers. The company intends on having the gold standards for cleanliness (Cantalupo
5).
The fourth factor is price, which is presented in the productivity and value. The
value of the product is increased when consumers gets high quality products for lower
costs. Therefore, McDonalds Corporation ensures that its customers receive the highest
value of food for the price they pay (Cantalupo 5).
The fifth factor is promotion which is presented in marketing, leadership, and
trust. The company has already earned its reputation for good quality food so they just
focus on customers cares. They do this through community involvement and their social
responsible towards the environment. This process will gain the trust of loyal customers
and keep them for life (Cantalupo 5).
Training
As the people aspect of the 5 Ps shows, McDonalds realizes that its employees
must understand their duties in order to fulfill the organizations goals. To ensure that all
employees properly perform their assigned duties, McDonalds invests greatly in their
training program. The company continues to receive prestigious awards for their leading-
edge training, including the Employer of Choice Award from the Restaurant Business
Magazine (Restaurant Management). New crew members go through a thorough
orientation process consisting of several videos, followed by several days of direct one-
on-one training by a trainer. After employees feel comfortable with the operations, they

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may be promoted to Crew Trainers. Crew Trainers undergo further training for
specialized processes such as the grill area, front counter, drive-thru, and other areas.
Shift supervisors are the next step in the organization, followed by Second Assistant
Managers, followed by First Assistant Manager, and the top manager at each McDonalds
restaurant is the Restaurant Manager (Phillips, Eddie). For a graphical representation of a
typical McDonalds in-store hierarchy, see Appendix 4. Training never stops at
McDonalds, no matter which position an employee holds. Some current employees
describe McDonalds as the best training company in the world (Phillips, Kenny).
To improve the Made for You system, McDonalds recently introduced a strategy
called Shift into Overdrive, and this strategy focuses on helping shift managers work
more efficiently. All McDonalds restaurants are required to send at least one manager to
participate in the new training program (Phillips, Kenny). This training mainly focuses
on the human aspects of Made for You, ensuring that the system is being used as design.
Since the new system requires seamless work from several people, the entire team must
work together for the system to work quickly to provide food to customers.
Finally, to ensure the quality of the operations, McDonalds conducts surveys
periodically to get feedbacks from customers (Phillips, Eddie). As shown throughout this
section, the McDonalds Corporation has been doing a very good job at keeping the
quality of its products and services, whether it was through using computerized
equipment or to train their human resources.

RAW MATERIALS
The Arrival & Maintenance
Our group conducted an extensive interview with Ronald Lessnau, an owner of

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several McDonalds restaurants located in Denver. See Appendix 6 for the full
interview. Through the intense process of choosing and manufacturing raw materials,
McDonalds customers can be assured of a quality product. Whether arriving via truck or
train, raw materials are delivered fresh and ready to use everyday. To ensure that this
freshness is passed onto the customer, each arriving package is personally inspected for
damage during its travel. In addition, the condition of delivery trucks are also taken into
account to make sure that meat was untainted due to a filthy meat cooler. The meat
cooler should always be set at 10 degrees below zero and the meat should remain at a
constant temperature of 34 to 38 degrees. While some inspections are known, others are
random to ensure that quality is consistent from one delivery to the next.
Grade A Beef and Other Meats
All beef cooked at McDonalds is of Grade A quality and 80%-82% lean.
McDonalds not only supports humane slaughtering of animals but also refuses to
purchase dairy cows over 5 year old due to the toughness of their meat.
Upon the arrival of meat, received from Otto & Sons, Inc. in Chicago, a two hour
supply is taken directly to the grill side freezers which stand at a constant temperature of
0 degrees. Once placed on the grill, the meat is cooked at a specific temperature to assure
the meat holds the proper internal temperature to meet the requirements of food safety
and yet hot enough to hold its natural juices.
Cooked hamburger patties and other meat products are stored in a humidity
controlled cabinet until usage to ensure that patties remain hot and moist. The
preparation time of a hamburger should not take longer than 90 seconds and only 35
seconds after the hamburger bun itself has been toasted. This allows each customer to

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receive his/her meal in the timeliest fashion.
Produce
McDonalds hires agronomists which can spend up to two years assisting farmers
grow perfect russet potatoes, 6-inches long, that produce a finished french fry which is
appealing both in looks and taste. In addition, many produce items, including lettuce,
have specifications that are two pages long. With this many guidelines in place,
McDonalds can guarantee that they are delivering to their customer the best ingredients
possible. The produce delivered from Condies in Salt Lake City to the Evans and
Colorado McDonalds restaurant arrives via railroad to ensure that freshness is
maintained. Upon inspection, should any produce not meet the correct internal
temperature, the refrigerator is either immediately altered or the items are discarded.

SUPPLY CHAIN
Examination of Supply Chain
Food quality is a very important aspect at McDonald's restaurant. Further
explaining the Raw Materials section, the corporation seeks fresh lettuce and tomatoes,
quality buns and potatoes, pure ground beef, select poultry and fish and wholesome dairy
products. McDonalds ensures that their products are guaranteed to be the best quality
before serving to their customers. McDonalds has many suppliers who play a vital role
in providing quality products to McDonalds customers. Many Midwestern McDonalds
restaurants utilize the same supplier for products, including: meat, produce, dairy, and
other products.
Many McDonalds receive their raw meat from Otto & Sons Corporation, located

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in Chicago and Oklahoma (Lessnau). McDonalds take time and responsibility to conduct
extensive research on their meat. For example, the corporation announced plans that call
for its suppliers worldwide to phase-out of animal growth promotion antibiotics that are
used in human medicine. They reassure consumers that they are providing beef that
hasnt been injected with steroids. For produce, many Midwestern McDonalds locations
receive their produce from Condies, located in Salt Lake City, Utah. They receive
produce shipments as often as three to four times a week to ensure freshness.
McDonald's shakes, McFlurry Desserts and reduced-fat ice cream are made from fresh
quality cream, whole milk, skim milk and condensed skim milk, all of which are supplied
from Robinson Dairy. Robinson Dairy is located in Colorado Springs. Due to the
proximity of the Robinson Dairy to the city of Denver, many Denver McDonalds receive
dairy shipments quite often.
McDonalds gets it supply of tea and Danish pastries from Sara Lee, and they
receive their catsup from Hunts and Heinz. McCormick provides its spices and some of
their sauces, and they receive their blend of Arabica coffee beans from South America.
Although many restaurants share the same supplier, McDonalds also has many
independent suppliers which were unnamed due to confidential data. See Appendix 7
for an illustration of a McDonalds supply chain.
Supply Chain Efficiency
McDonalds enjoys a very efficient supply chain because they incorporated an
electronic Foodservice Network (eFS Network). In an eFS Network, a company which
operates an independent Business to Business (B2B) marketplace facilitates sales and
purchases to the foodservice industry. The main eFS Network, based in Chicago, is open

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to all segments of the industry - from foodservice suppliers and distributors to multi-unit
operators. It helps to maximize Internet based efficiencies and saves its participants
money across the entire supply chain. The eFS Network's neutral web-based marketplace
has helped to streamline information flow between participants as well as promote
industry-wide technology standards. It features both a public exchange that will promote
connections between participants in the foodservice industry and private exchanges that
enable confidential customer-supplier interactions. The exchange focuses on U.S and
Canadian foodservice distribution, which is a $150 billion industry. In summary,
McDonalds takes utilizes all advantages offered by the eFS network.
Quality along the Supply Chain
Recognizing the importance of the supply chain in maintaining quality is one of
McDonalds strengths, and therefore McDonald's aims to create long-term relationships
with a limited number of supplies. Suppliers are usually monitored to ensure that they can
meet McDonald's required standards. Repeat orders mean that suppliers can be confident
of survival and growth, while McDonalds consistently enjoys standardized, high quality
products. McDonald's stresses its strict standards based on quality, value and cleanliness.
McDonalds also keeps track of the origin of each product, which enables the company to
control every link in its supply chain.
As mentioned throughout this report, food safety is very important to the
company. To ensure that the restaurants serve safe food, McDonalds undertakes
extensive animal welfare audits to ensure that each of their suppliers adhere to their
rigged standards for animal treatment and care. They do this by conducting unannounced
audits, up to 100 per year, at various farms and supplier facilities. Overall, McDonalds

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creates advantageous long-term relationships with suppliers, and ensures safe food, to
fulfill its goal of making customers happy.
Share Costs
McDonalds share cost between their suppliers and the corporation is much lower
than other fast food restaurants. This is due to the fact that they have specifications and
specialist who assists the suppliers in planting or producing the raw materials before it is
shipped to the restaurants. By enforcing strict standards for food quality, McDonalds
lowers the cost between suppliers and themselves by preventing any food being shipped
which does not conform to standards. By giving attention to the suppliers and presenting
the standards ahead of time, McDonalds will reduce the share costs between them. This
planned reduction in costs helps achieve McDonalds competitive strategy of providing
low cost to the customers.

FORECASTING

Aspects of Forecasting

McDonalds continually receives information from customers, employees, and the
industry that effects short, medium, and long term decision making. Different kinds of
information are received from all levels of the corporation and are used to learn more
about the market movement and advertisement structure, including basic everyday
processes in production and packaging of goods for the targeted markets. Forecasting is
done in large by the corporation, as part of their responsibility to the franchisees and
McDonalds shareholders.
Through our interview with Mr. Lessnau, we learned details concerning the basics

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of McDonalds business and hierarchy. However, we were not able to obtain in-depth
information that is used for their budgeting, marketing, advertising, detailed forecasting,
and innovations of new products because it contains confidential contents. This is due to
the scrutiny from people looking for flaws, bad business conduct, and other degrading
allegations concerning of McDonalds. Everything we received was cleared at the
corporate level.
Forecasts are vital to McDonalds organization and significant management
decisions. Forecasts provide the basis for budgetary planning, cost control, planning new
products, process selection, capacity planning, and facility layout. Typically,
McDonalds uses a qualitative type of forecasting. The main information used in
forecasting the stability and future growth of the corporation is by the number of
customers going in and out the door and all voiced opinions.
Listening to Customers
A major component of forecasting is listening to customers. Different medians of
communication exist for customers to relay there ideas, opinions, concerns, and problems
to the McDonalds Corporation. At a particular location, a customer has access to
employees, managers, and owners to voice their opinions and concerning their likes and
dislikes about the particular restaurant. Often, McDonalds managers and owners use
open ended questions to allow customers to expand on what they want to discuss.
McDonalds offers a nationwide, toll free 800 number for customers to use when the
corporation has fallen short of their expectations or when a restaurant makes a mistake
with their order. Internationally, McDonalds has a website that is not only interactive
and informative throughout the 59 nations they supply to, but is a place for customers to

Operation Management Project 2
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voice their opinions and complaints. As Ronald Lessnau exclaimed, We listen!
At the corporate level, qualitative forecasting can be seen even with the limited
information we received. The McDonalds market research department records data by
talking with customers to find out how they like or feel about a particular ad campaign or
a specific commercial. The product development department uses input on developing a
new product or changing how the new product is prepared, priced, or packaged.
Forecasting Success and Failure
McDonalds has been extremely accurate in forecasting trends or needs the
customers want and request. Mr. Lessnau states, McDonalds, in the past has helped
customers deal with their changing lifestyles. An example of this is when the Egg
McMuffin, the first hand held breakfast sandwich by Herb Peterson, was introduced for
the first time. It took 10 years for breakfast to be successful at McDonalds and now
McDonalds cracks more farm fresh, grade A eggs daily than the largest institution in
the United States, the US Military. Although the corporation is usually accurate,
consumers know that McDonalds sometimes has shortcomings and is not always correct
in projections.
Even with using a qualitative forecast, the future is not always clear so see.
Twelve years ago, due to the favoring focus group survey responses for healthier
products, McDonalds developed and marketed the McLean Burger. It contained only 7%
fat and was the most tasteful low fat burger on the market, costing 53 cents a pound more
then the normal beef. Unfortunately, it did not sell. After the McLean burgers
introduction, customers decided that the product was too expensive and did not taste as
good as other sandwiches. Perhaps the failure of the McLean burger explains

Operation Management Project 2
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McDonalds slow reaction to the current low carbohydrate diets.
Ronald Lessnau also gave examples of when qualitative forecasting influences
how he fixes errors of past business decisions at his establishment. Decisions have been
made on information gained from surveys, interviews, history of products, and
questionnaires. One particular McDonalds restaurant has extended their hours as a result
of many comments. Also, years ago one region reduced some of the seasoning in the
chicken products, and based on interviews and focus groups that region returned back to
the original product and did not take the change national. Mr. Lessnau also described
that some Denver, Colorado locations went back to 99-cent double cheeseburgers years
ago because of feedback they received in focus groups that were conducted as part of
their normal market research. As Lessnau explained, Sometimes you can prevent a
good idea from going bad by talking to those closest to the customer, your sales people.
The data collected for these long terms and every day business decisions were from
employees as well as customers.

CONCLUSION
In conclusion, the McDonalds Corporation has successfully maintained their
reputation of being one of the most trustworthy fast food chains worldwide. As a result
of their competitive strategy, strict quality management, efficient raw materials supply
chain, and forecasting, they created an efficient operations management system. The
company continues to utilize an effective operations management processes, which in
turn helps them make their customers happy.

Operation Management Project 2
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Appendix 1 Total Time in Line (TTL) Control Chart
Operation Management Project 2
Page 25 of 36

Total Time in Line (TTL) Control Chart
Hour
S
e
c
o
n
d
s
0
20
40
60
80
100
120
140
160
180
7
:
0
0

A
M
8
:
0
0

A
M
9
:
0
0

A
M
1
0
:
0
0

A
M
1
1
:
0
0

A
M
1
2
:
0
0

P
M
1
:
0
0

P
M
2
:
0
0

P
M
3
:
0
0

P
M
4
:
0
0

P
M
5
:
0
0

P
M
6
:
0
0

P
M
7
:
0
0

P
M
Average Order Ti me
per Hour
Average Daily Time
Upper Control Limit
Lower Control Li mit
















Although the McDonalds restaurant providing this data is open until midnight, we were only given data from 7:00 AM to 7:00 PM.
According to this chart, the TTLs before 9:00 AM were above the upper control limit (120 seconds). Perhaps the store was
understaffed during this early morning time period, which could explain the high TTLs.
Appendix 2 Kitchen Video System (KVS) Time Control Chart


Kitchen Video System (KVS) Control Chart
Time
S
e
c
o
n
d
s
15
20
25
30
35
40
45
50
55
60
65
6
:
0
0

A
M
7
:
0
0

A
M
8
:
0
0

A
M
9
:
0
0

A
M
1
0
:
0
0

A
M
1
1
:
0
0

A
M
1
2
:
0
0

P
M
1
:
0
0

P
M
2
:
0
0

P
M
3
:
0
0

P
M
4
:
0
0

P
M
5
:
0
0

P
M
6
:
0
0

P
M
7
:
0
0

P
M
Average KVS Time
per Hour
Average Daily
Time
LCL
UCL














Similarly to the TTL control chart, the KVS times were above the upper control limit (50 seconds) during the early morning hours.
This could also be explained by a shortage of employees. For this chart, we were only provided data from 6:00 AM until 7:00 PM.

Operation Management Project 2
Page 26 of 36
Appendix 3 TTL and KVS Data Used to Construct the Control Charts





















Due to protection of confidential data, we were not given more specific data than the
times. We asked for customer count data and sales data but our requests were declined
due to confidentiality reasons.
Operation Management Project 2
Page 27 of 36

Appendix 4 Typical McDonalds in-store Hierarchy






Operation Management Project 2
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1st Assi stant
Manager
Fr anchise
Owner
Store
Manager
2nd Assistant
Manager
2nd Assi stant
Manager
Shift
Manager
Shift
Manager
Shift
Manager
Crew
Tr ainer
Crew
Trainer
Cr ew
Trai ner
Crew Tr ainer Crew Trai ner
Crew Crew Crew Crew Cr ew Crew Crew





































Source: Phillips, Eddie
Appendix 5 Process Chart
McDonalds Process Chart
The Preparation of a Hamburger
Employee
inspects the raw
material inventory
for the following
day
Is there
enough
beef in
storage?

Operation Management Project 2
Page 29 of 36
No
Call Otto and
Sons Company in
Chicago and
have them send
more beef
Is there
enough
produce in
storage?
Yes
Yes
No
Call Condie's in Salt
Lake City and ask them
to send more lettuce,
tomatoes and onions
Is there
enough
condiments on
the service
counter?
No
Call Hunt's
Ketchup for
additional
ketchup packets
to be sent
Is there
enough milk
cartons
available for
purchase?
Yes
No
Call Robinson
Dairy in Colorado
Springs for a
new supply
delivered
Employee goes
outside and greets
the truck carrying
today's supplies from
the railroad station.
Yes
A
A
Employee assists the
supply trucker bring
all supplies into the
restaurant's kitchen
Does any
supplies
delivered
today need
refrigeration?
No
Yes
Place beef in
freezer while
putting the milk
and produce in
the refrigerator
Employee cleans
the preparation
counter and
prepare for
customer's orders
Employee
waits to fill a
customer's
order
Customer enters
McDonalds and
approaches the
register
Employee
waits to still
fill the
customer's
order
A
2
Employee enters
the kitchen area

A
2
Customer places
order
Review orders via
computer screens.
There is an order
for a Big Mac.
Toast hamburger
bun and place it
on the
preparation
counter.
Retrieve meat
fromholding tray.
Place the
hamburger patty
on the bottom
half of the bun.
Review the
computer screen
displaying orders
waiting to be
filled.
B
B
Does the
customer want
lettuce and
tomato on
his/her Big Mac?
Place tomato and
lettuce atop the
hamburger patty
Yes
No
Place top half on
bun on top of
hamburger
ingredients.
Place the
hamburger into a
cardboard box
designed for a
Big Mac
Review the
computer screen
displaying orders
waiting to be
filled.
Does the
customer
want to dine
in the
restaurant?
Place Big Mac
into a take out
bag
Place Big Mac
box onto a
restaurant tray
Yes No
Take order to the
front service
counter
Hand Big Mac
order to the
waiting customer


Operation Management Project 2
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Appendix 6 Illustration of a McDonalds Supply Chain
SERVICES
Supply Network
McCormick
(Spices)
SUPPLIERS
Otto & Sons
(Red Meat)
Condie's
(Produce)
Robinson Dairy
(Dairy Products)
Sara Lee
(Pastries)
Tyson
(Poultry)
SERVICE SUPPORT OPERATIONS
Baltimore, MD
Chicago, IL
Bethesda, MD
Chicago, IL
Colorado Springs, CO
Salt Lake City, UT
LOCAL SERVICE PROVIDER CUSTOMERS
McDonalds Restaurant
6355 E. Evans Ave
Denver, CO 80222
Inputs Transformation Localization Output
MANUFACTURING SUPPLIERS MANUFACTURING DISTRIBUTION CUSTOMERS
Operation Management Project 2
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Operation Management Project 2
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Appendix 7 Interview with Ronald Lessnau


What: McDonalds Interview
Where: 3996 E Evans Ave
When: Thursday, October 28, 2004 at 1:15 p.m.

Manager Ronald Lessnau Owner

Process
Can you take us through the process of manufacturing a McDonalds hamburger? (This consists
of every step from obtaining the raw materials from various companies to create the hamburger
itself to hand to the awaiting customer.)

McDonalds has a complex purchasing and quality assurance department. They have specialist
in each area, beef, Poultry, Nutritionist, Chefs, Agronomists and so on. Our specs for raw quality
are where the purchasing and manufacturing process begins. The specifications for lettuce are
two pages long single spaced type. When McDonalds opens a new country, they spend in excess
of two years developing the supply chain. This includes everything that is used in the restaurant
from milk to potatoes. Agronomists can spend two years to help the farmers grow a russet
potato that is six inches long and has the solid contents that are required to produce a finished fry
that looks, taste and has the mouth feel that french fries do in Colorado, Chicago or Tokyo. I
cant share the ingredients or recipes, but I can tell you that our beef is 100% Grade A and
McDonalds has higher specs than the USDA.
McDonalds inspectors work daily at all the beef plants that we purchase beef from inspecting the
manufacturing processes and assuring quality control is in place.

McDonalds has set the industry standard in Quality control and assurance. McDonalds has
worked with the CDC to set standards for the humane slaughter of cows and no dairy cow over 5
years old will be used for beef supply in the McDonalds food chain supply. The hamburgers are
80 to 82% lean beef.

When the hamburger patty is formed at the plant, it is cryogenically frozen and stored at a
minimum of 10 degrees below zero.

It is ship via rail car or truck at the same temperature to different distribution systems around the
country. Each of these centers are privately owned by independent business people who must
comply with McDonalds quality specs for handling, storage, ordering, product rotation, (first in
first out) and inventory turn. To assure high standards are maintained during the delivery to the
restaurants and proper handling of products during that process as well the driver and
McDonalds mangers check the product, as it is unloaded. They are looking for condition of the
cases as they come off the truck, condition of the truck itself. Is it clean and in good repair inside
and outside? Has it been cleaned before it left the yard to deliver to the restaurants? They check
the internal temperature of the frozen meet to assure it arrives at the proper temperature. It must
be kept at minus 10 degrees at all times. They check the temperature and condition of the
refrigerated product as well. It has to meet the dame rigorous standards. It must be delivered
between 34 to 38 degrees.

McDonalds has quality assurance personnel who inspect the distribution systems and spot check
deliveries as well. Some inspections are announced and some are random with no notice.

At the restaurant, once the product is received the same standards apply for product rotation,
temperature and storage as the distribution centers. We check the temperature of our freezers
and refrigerators twice a day and record those temperatures in a book that becomes a permanent
record of quality control and safety for our restaurant. The restaurants are required to keep those
books on premise for 6o days before they can be taken to record storage.

Once the product reaches our back door we take two hour supply of frozen meat to our grill side
freezers where the temperature is zero and the meat is grilled on our grill at a specific
temperature and time to assure a properly cooked patty that has good visual characteristics, has
the proper internal temperature for food safety and quality, is hot and maintains its natural
juices. The cooked patties are held in a temperature can humidity controlled cabinet that keeps
the patty hot and moist. From there the patty is placed on the properly finished bun with the
ingredients or toppings the customer requested. The sandwich is prepared and served to the
customer as fast as possible. From the time the bun is toasted the sandwich is finished with 35
seconds. Our standard for the time the customer finishes placing their order, they should have
their sandwich in 90 seconds or less.

We check the temperature of the toasted buns daily to assure the toaster is properly calibrated
and the finished product meets the desired quality specs McDonalds set. We check the internal
temperature of all finished products, meat, chicken, filet, beverages etc twice a day to assure
quality and food safety. These temperatures are recorded in the book mentioned earlier and
recorded. Any product that does not meet the internal temperature must be corrected
immediately. We check the procedures of the employees as they prepare the products to assure
they are following the correct procedures.

To maintain quality control on the restaurants my organization does inspections both announced
and unannounced to review procedures and inspect the whole process described above.
McDonalds does inspections on the restaurants three times a year to review all procedures. Each
restaurant is graded on these visits and the grades are used to determine eligibility for growth to
new franchised locations and the ability to be rewritten at the end of your franchise term. Failure
to meet these requirements could result in default of your franchise agreement.

Raw Materials
What companies do you receive your raw materials from?
What can you tell us about the companies that supply your raw materials?
What form of transportation is taken to ensure that the food arrives at your store fresh and not
perished?
Do you receive your raw materials from the company directly or from the McDonalds
headquarters?

McDonalds receives its raw materials from different vendors depending what part of the
country youre from. All vendors work off the same specifications. The meat we use in Denver is
from Otto & Sons Inc. They have meat plants in Chicago and Oklahoma that supply meat to our
distribution center. We receive our produce from Condies in Salt Lake City, Milk from Robinson
Dairy in Colorado Springs. Sara Lee provides our tea and Danish. Hunts and Heinz provides
our catsup. McCormicks provides our spices and some of our sauces. McDonalds has many
suppliers of raw products. Those are just a few.

McDonalds Corporation does not provide raw materials or products to the Licensee. Ray Kroc
had a basic belief that McDonalds have the highest quality specifications and hold suppliers to
those specs versus providing products to the Licensees and having a conflict between quality
and profit margins. He wanted the Company to be successful and provide the framework and
procedures for the system. He wanted the best products used at the best price and knew that
independent business people who had their time, money and passion in something would be
better for the system, the customer and the owner.

Operation Management Project 2
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Customer Service/Surveys
Do you use customer feedback to improve your service? If so, how?
Having you ever directly contacted a customer based on their feedback information to get a
better understanding of their comment?
Who directly uses and implements customers comments?

McDonalds listens to customers in many different ways. We talk to some of our customers in
the lobby and find out whats on their mind and how they like whats going on in the restaurant.
Sometimes asking an open ended question allows the customer to expand on what they want to
talk about. We listen! We have an 800 number that customers use to call when we fall short of
their expectations or when we make a mistake with their order. McDonalds has a web site that
can be visited by customers and their they can voice their opinion, voice complaints or learn
more about what McDonalds is doing as a company in many different areas. McDonalds has
nutrition, public relations, charity work and donations, education and scholarships to mention a
few.

When a customer calls about a service issue or any comment, my procedure is they will receive
two phone calls, one from the restaurant manager and the other from one of our supervisors or
myself. We want to hear comments from our customer. It is important to the lifeblood of any
business. We have extended our hours as a result of many comments. We have gone back to
different products because of customer feedback. Years ago we reduced some of the seasoning in
our chicken products in a test market. Based on the interviews and focus groups that were
conducted we went back and didnt roll it out nationally. We went to all white meat nuggets
because of focus group studies. In Denver we went to the 99-cent double cheese years ago
because of feedback we received in focus groups that were conducted as part of our normal
market research.

We talk to customers all the time. This may sound simple but our family and crew are customers
too, and we ask how they feel about new products or procedures. Sometimes you can prevent a
good idea from going bad by talking to those closest to the customer, your sales people. Anytime
a customer calls, writes or sends an e-mail, its an opportunity to fix a problem and be responsive
to their needs and learn more about how they feel about your business. They talk to many
people and can be an ambassador for your business or can present you in a bad light.

Customer comments are used by different departments at the corporate level, market research
will talk to customers and find out how they like or feel about an Ad Campaign or a specific
commercial. Product development may use input on developing a new product or changing how
a new product is prepared, priced or even how its packaged.

Forecasting
What are your goals for this particular store?
What do you forecast your store will be doing in the future? Introducing new products?
What methods will be used to carry out these store forecasts and why? IDEAS: Better customer
attention, better products?
Are the forecasting products a reflection of the individual customers desires and needs?
In the past, how accurate have you been at forecasting changes in your store? Hoe do you deal
with forecasting errors?

Forecasting in the sense youre describing is done in large part by the corporation, as part of their
responsibility to the franchisees and McDonalds shareholders. Each local restaurant forecast or
project the impact of the new product that is being marketed and / or introduced.


Operation Management Project 2
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The goal for my particular restaurants is to exceed the projections of new product launches. I
strive to implement all products better because of the initial capital investment required or the
investment in training, procedures and marketing that I have to spend. Increasing the unit
movement of any product can result in increased sales and profits.

I cant share what new products McDonalds will be rolling out in the upcoming months or next
year, so that is a tough question to answer. I can say that I am always working on ways to
improve everything we do that affects the customer. Some improvements are slow and others
are subtle. Nonetheless, the grade we receive is from the customers pocket book. If we do
things right and improve, customers let us know.

When we launch a new product, such as Chicken Selects, we increase the advertising budget and
focus the marketing on specific demographics. We target the audience then the media they will
most likely use, radio early a.m. or drive time. Television is another media, now what program
and what time slot? Print media is used as well, will it be outdoor billboards, newspaper or
magazines.

Next we sample the product with our employees so they know what it is and how it tastes. After
soft launch, we start the full marketing campaign and product test or give samples to our
customers on a specific day across the TV market.

We use radio remotes and bring product to local radio stations for them to eat so they can talk
about the product while they are reading the script for our live commercials.

After the first wave of marketing McDonalds sometimes do more focus group surveys to
determine how well the launch went. Sometimes customers tell us during these introduction
periods that the creative didnt get them interested in the product or it wasnt believable, in those
cases McDonalds may modify the creative or the commercial. Case in point was the McLean
Burger we sold 12 years ago. It had 7% fat. Was the best low fat burger on the market, cost 53
cents a pound more for the meat than our normal beef? Customers told us they wanted a lean
burger that was healthier. McDonalds gave them the best lean beef burger available. It didnt
sell! Customers voted with their pocket books and said, We want food that taste good. Fat
adds flavor and eaten in moderation with a balanced diet is good for you. This is a case where
McDonalds listened to a few customers and then listened again.

I believe this best describes how we listen, forecast and move with the trends in the market place.
It best describes how we react to mistakes and how we try our best to be successful. McDonalds
owes it to its customers, licensees suppliers and its shareholders to listen, react and be a
responsible leader.

In summary, McDonalds has been extremely accurate in forecasting trends or needs the
customers want and request. Not trying to be arrogant, but McDonalds in the past has help
customers deal with their changing lifestyles. The Egg McMuffin developed by Herb Peterson,
an owner operator in California introduced hand held breakfast sandwiches for the first time. It
took 10 years for breakfast to be successful at McDonalds and now McDonalds cracks more
farm fresh, grade A eggs daily than the largest institution in the United States, the US
Military.

Operation Management Project 2
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