OPERATIONS MANAGEMENT OF : | McDonald’s Restaurant | | This documentation of research looks into the operation management of McDonald’s restaurant under the grounds of Quality, Inventory and Capacity management. This report has been prepared for the purpose of International Operation Management module for MBA program of ANGLIA RUSKIN UNIVERSITY. | | 0977106/1
137068/268400 | 4/14/2011 | |

LONDON COLLEGE OF ACCOUNTANCY

INTERNATIONAL
OPERATIONS MANAGEMENT

PREPARED BY:
LCA STUDENT NUMBER: 137068/268400
ARU STUDENT NUMBER: 0977106/1
WORDS IN TOTAL: 3847/4338

Table of contents:

1. Introduction........................................................................4
1.1 Case Introduction.....................................................................4
1.2 Introduction of the company...................................................5
1.2.1 Brief Introduction of raw product...........................................7

2. Product Design process....................................................8
2.1 Filet-O-Fish: - History of its own............................................10

3. Capacity and Inventory management issues..............12
3.1 Inventory management for filet-o-fish in McDonald’s...........13

4. Quality Management........................................................14
4.1 Total Quality Management.....................................................14
4.2 Quality Management System..................................................14
4.3 Quality Check Tools................................................................15

5. CONCLUSION...........................................................................16

6. BIBLIOGRAPHY........................................................................17

7. GLOSSARY...............................................................................18

8. APPENDIX................................................................................19

SYNOPSIS OF THE CASE:

The project is about the multinational fast food restaurant McDonald’s Corporation and its product Filet-O-Fish. All the ground of how McDonald’s started and introduced filet-o-fish in its main menu is covered. Design process of the product from where the idea was generated and how the product was launched after the pilot run has been discussed. Other grounds of operations management like capacity and inventory management including the model of how McDonald’s uses it for the product discussed and the quality management within the organisation to maintain the standard of the product that helps in achieving the higher level of customer satisfaction has all been brought up.
Referencing is followed as convincingly as Harvard University referencing model mentions the standard and the project is finished within the word criteria.

1. INTRODUCTION

1.1 CASE INTRODUCTION

Operational performance of the McDonald’s on the grounds of Quality, Capacity and Inventory management as how it plays the key role in functioning of the restaurant will be the focus of this project. With its highly loved menu items, to deliver costumer with quality product they sell is not always easy but McDonald’s have done every little thing to increase the effectiveness of their service. McDonald’s the fast food restaurant which is popular selling its famous beef and chicken in its main menu also included fish and veggie burger for the sake of non meat consumers so that they always have the option for any costumers who walks in the restaurant. To deliver the outstanding service and on time serving hot fresh and quality food it is noticed that McDonald’s is not able to serve the fish and veggie burger as quick as they can serve a costumer who walks in to buy a Big Mac or a Chicken Sandwich. So this project is directed towards McDonald’s strategy of introducing fish burger (Filet O’ Fish as it is named in McDonald’s menu) and fish fingers into its menu and how it affects the total service time in this fast food restaurant.

Hence the project is all about the design process of the McDonald’s fish product (Filet O’ Fish and Fish Fingers) and its quality, capacity and inventory management issues in the restaurant that was introduced permanently in the main menu since 1963 which reached nationwide status in 1965.

1.2 INTRODUCTION OF THE COMPANY:

McDonald’s is the multinational fast food restaurant that serves over 60 million costumers everyday in over 32,000 restaurants that has spread over 117 countries around the world operating with its brand mission statement ‘to be our customers favourite place and way to eat. (http://www.aboutmcdonalds.com/mcd/media_center.html/about/mcd_history_pg1.html)
San Bernardino, California, US, 1948, two brothers Dick and Mac McDonald opened the restaurant; their concept was completely new and different than others of that time which was based on quick service, lower price and large volume of business. Over 150 customers queued around that small burger stand to buy their hamburger and in no time it was so popular.
Ray Kroc, a milkshake machine salesman found about Dick and Mac McDonald doing so good and hence had an idea of selling his milkshake in the hamburger stand with a new refurnished establishment, when he thought this business will go the long way, on 15 April 1955, Ray started serving customers in his first franchise McDonald restaurant in Des Plaines, US. There and then McDonald’s Corporation was first established as the fast food restaurant. McDonald brother’s format was kept successful adding the Quality, Cleanliness, Service and Value standards which are still continued as the McDonald’s operating principle. (http://www.mcdonalds.ca/en/aboutus/history.aspx)

Coming to 1967 McDonald’s then opened its branch outside the US into Canada and Puerto Rico and further in 1974 the first McDonald’s opens in the UK being one of the 3000th McDonald’s Restaurants opened worldwide. Today McDonald’s is operated by an affiliate, franchisee and the corporation itself. Corporation earns from the rent, royalties and fees paid by the franchisees. Company restaurants generate comparatively less revenue than that comes from franchisee and royalties. McDonald’s menu includes beef burgers, chicken products, French fries, fish products, breakfast items with sausage, egg and muffin of most use, hot drinks, cold drinks, shakes and in response to the criticisms over the wellbeing of its product the company has included considerably healthy eating option such as salads, wraps, fruit and vegetarian burger for non meat consumers.
Employing over 1.7 million employees worldwide, McDonald’s always have been a better place to work with the most diversified employee framework. With 75% franchisee and company operated restaurants McDonald’s generated $7.5 billion operating income in 2010 with $4.58 of Earning per share and total of $2.4 billion dividends paid. (http://www.aboutmcdonalds.com/mcd/media_center.html)
With its training and development that is committed towards staff literacy and motivation McDonalds has been recognised as one the best place to work, with its flexibility in work and on job training that employees are provided, McDonald’s have always been successful to achieve the organizational objectives. They operate and serves the customers in-store and on the drive thru. Their objectives are clear and their image of fast food service is demonstrated all over the world with their one way service and product based strategies.

1.2.1 Brief Introduction of raw product:
Examples considering the UK McDonald’s,
Beef patties: Approximately 7,500 cattle’s are used each week to produce the beef patties that are made from high quality cuts of forequarter and flank that comes from more than 16,000 farms of Ireland and Britain Itself.
(http://www.mcdonalds.co.uk/ourfood/index.shtml)
Chicken: McDonalds uses breast meat of broilers chicken in all its chicken products buying around 0.8 million chickens a year from Hundred’s of British farmers and few also being sourced from mainland Europe and a portion coming from Brazil and Thailand. (http://www.mcdonalds.co.uk/ourfood/index.shtml)
Fish: All the fish used for both fish fingers and filet o’ fish are made using filleted Alaskan Pollock or Hoki fish which is bought through Marine Stewardship Council certified fisheries from the seas around New Zealand from the sustainable fisheries, it is filleted there and then shipped for the processing. All McDonald’s fish is chemical addition free and are cooked from frozen. (http://www.mcdonalds.co.uk/food/fish/filet-o-fish.mcdj)

1. Product Design Process:
Idea generation:
Lou Groen another McDonald’s franchise owner who owned a McDonald’s in Cincinnati, Ohio had an idea about the fish sandwich for those customers who were engaged in the practise of not eating meat on Fridays during early 1960’s. This idea generation of the new product is not usually a defined Benchmark of compared product against one of better class or the Reverse Engineering but can be looked as the visual comparison of customer perceptions under Perceptual mapping.
Costumers: Research showed it can be a popular sandwich as there will be option for all and it mainly targeted the non meat consuming customers and the Muslims who considered fish as halal. (Halal’ referred back to glossary)
Suppliers: Sustainable fisheries were chosen to supply Cod fish meat for the filet patty.
Design firms and Marketing: Cye Landy Advertising Agency which was the marketing agency for Lou Greoen’s McDonald at that time, marketed and advertised the product as Filet-o-fish that was named by the proprietor of the agency, Cye Landy.
Feasibility Study:
As Lou Greon in 1962 felt the need of fish sandwich in his restaurant, he considered to sell filet o fish as there were customers in the market to consume it and the suppliers existed and it was again one of next innovative thing to cover a food line from seafood and for that McDonald’s brand it looked economically beneficial and technically feasible in the market.
Rapid Prototyping:
Form design: As Cye Landy Advertising Agency was working with Lou Greon during that time they concluded the design of filet o fish. It was designed to serve on the steamed bun with 30ml tartar sauce and a half slice of cheese.
Functional design:
Product Reliability: Product reliability develops a framework which links specifications and product performance in the context of new product development In order to address the product performance necessary to achieve the accomplishment of business objectives. (Murthy Dodderi Narshima Prabhakar, M. Rausand and T. Osteras (2008) Product Reliability) Hence product was reliable in meeting the business objectives through the service standard on place.

Maintainability: New equipments like rapid steamer for steaming buns and freezing space on the freezers for raw products need to be introduced. The separate Vat to cook the fish patty is to be on place and should be used independently without cooking any other product on the same oil.
Usability: Right from the delivery point product temperature has to be maintained and cooking time is set to cook and on the right temperature with holding time of the fried products on the hot holding being the key. Employees have to be provided correct training putting up the flyers and the new training cards on place that can help them easily remember how to use and everyone effectively following up the right procedures.
After the completion of performance specification via feasibility study of the product in the business market, form design, functional design and production design was carried on and then Test Prototype, Revise Design and Re-test was also carried out to complete the whole prospect of rapid prototyping for the design, manufacturing and delivering specifications just before the pilot run and final tests took place. Production design was carried on the most simplified maintaining all the McDonald’s standard.
Pilot run and final tests: When Groen came up with this idea of fish sandwich to the McDonald’s owner Ray Kroc, he was not completely convinced so he told Groen, they will sell Kroc’s Hula Burger (grilled pineapple) and the new Filet O’ Fish on Fridays, and the one that will sell in more quantity will be selected to add to the permanent menu. Final design process and plans was carried out and filet o fish was ready to be lunched in the McDonald’s menu.
New Product lunch: Since Filet O’ Fish was sold in higher quantity and was loved by the customers and the fact that the pilot run was carried in Ray Kroc’s own restaurant, the filet o fish won hands down on the deal made with Groen, it was added to the menus throughout 1963 and finally made its permanent place in McDonald’s menu in 1965.

2.1 Filet O’ Fish: - History of its own:
Since 1965 after it was nationally recognised menu item in McDonald’s, as McDonald’s flourished into international market, filet-o-fish was sold in the market assembling in different ways adding extra items other than how it is now. Fish filet deluxe, Double filet-o-fish, Royal-o-fish were the different varieties that innovatively tried to promote filet-o-fish and on the non-English-speaking countries it was even being called Fish Mac, McFish or Fish Filet but all this names were changed to one universal Filet-O-Fish during 2006/2007 in Germany. Hence filet-o-fish universally only contains a lightly salted crisp breadcrumb coated fish patty mostly made from Hoki fish or Alaskan Pollock, half a slice of cheese on the heel and 30gm of tartar sauce on the crown of a steamed regular bun. (McDonald’s filet-o-fish build up chart, www.mcdonalds.co.uk)
McDonald’s initially used Cod fish meat for its filet-o-fish but catching of the Cod fish declined and there was no enough supply of the amount of fish they required, McDonald’s then looked for sustainable fisheries and hence changed their suppliers and the kind of fish they use in their sandwich. Use of Alaskan Pollok and Hoki fish increased as they had a holistic view of their supply chain that guaranteed the consistent delivery of high quality and safe products in the sustainable manner. And now Since November 2007, McDonald’s mostly uses the Alaskan Pollock fish because of the declination of New Zealand Hoki fishery sustainability. As by March, 2009, after Marine Stewardship Council placed the Alaskan Pollock fisheries in a re-assessment program, the job is not getting easy because of their declining rate of catching numbers that reduced by 30% between 2005 and 2008, that saw Hoki fish as the major ingredient.

Student’s view about this product design process:
Success has been higher and lengthier but all the issues relating to declining in the number of main fish meat in the trading market, import cost of fish patties always stays on the expensive side of McDonald’s design process of this particular product. Sustainable fisheries should be identified for the longer run and the finished sandwich has to make more impact on the market universally. As it doesn’t sales equally in high number in every kind of market McDonald’s is operating on, if we take an example of McDonald’s not highly selling its filet-o-fish in comparison to its other product, customers have to wait more than acceptable service time during some visit. Depending on the volume of sale, a restaurant has filet patties ready as per it’s projected level as they don’t want to sale the ones that doesn’t meets McDonald’s quality and thus customer’s have to wait long enough, at times even up to four to five minutes where they expect to be served promptly reflecting fast food restaurant image which can be the barrier to service as it has the low demand and can result in customer dissatisfaction of not being served on time.
Idea was generated during 1962, Product was designed and sold since 1963 but it was included permanently in the menu only on 1965 nationally, it is quite a long process and should have been more expensive too hence product design process should have been accelerated and they could have done far better in introducing the product. Computer Aided Design (CAD) and other innovative approaches should have been used during those early days.

2. Capacity and Inventory management Issues:
Capacity management is the function of measuring, monitoring, adjusting and establishing the level of capacity in order to execute all the management and business objectives. Capacity management is aimed in increasing productivity without increasing the cost whilst Inventory management is the maintenance of stock to meet the current and future demand. It is always carried out with optimum ordering and not running out of stocks at crucial times. It is about how many units to order and when to order. It is always important in delivering high quality service to the customers as can get what they want and when they want.
When we talk about capacity and inventory management in McDonald’s, they have their suppliers everywhere around the world. Suppliers of their main products including fish are mentioned on introduction section of this project (1.2.1). All procedures are in place that has the follow up on delivering agent to the receiving restaurant where supply chain management comes into role. McDonald’s follow just in time ordering (JIT) approach, their system on place that looks after the scheduled delivery of inventory for their restaurants takes every advantage of quantity discounts that comes with high bulk of ordering. There will be chance of re-ordering and adding up stock that the Restaurant Business Manager can do as they are aware of the reorder point. All different kinds of inventories are required for McDonald’s operation but mainly the ones that comes on the form of frozen and chilled products are expected to be delivered within the right temperature and restaurants are expected to maintain it before it is being served to the costumers so that every product meets health and safety and food hygiene and safety issues.
Under the Inventory management, an Economic order quantity (EOQ) model that is generally described as ordering of optimal quantity that will minimise the total inventory costs in further classified in two different models. 1. Basic EOQ model, 2. Production quantity model (DR. Randolph Metz-Johnson ( 2011 Jan-April) Study hands out, IOM)

Right model of Economic order quantity used for McDonald’s and filet-o-fish will be briefly discussed under inventory management for filet-o-fish in McDonald’s in 3.1.

3.1 Inventory Management for Filet-O-Fish in McDonald’s
Building up of a filet-o-fish most of raw material type of inventory that falls within the dependent form of demand. Carrying cost and ordering costs are subject to the volume of inventory ordered. As it is sold within projected volume of McDonald’s daily business and doesn’t highly deviate, it is controlled with the continuous system while at times periodic system of inventory control is also followed. Hence there is certainty on demand as it stays constant throughout. Economic Order Quantity (EOQ) model is used and ordered quantity is expected to be received all at a time so that no shortages are suffered.
Once the filet patties (frozen), tartar sauce (chilled) and regular buns (dry) are received in the delivery, each of them are placed in the right place that is maintained with the right temperature in the clean and hygienic restaurant environment. Frozen fish patties are stored in frozen and fried before it is served, holding the fish patty for maximum of twenty minutes in the hot holding cabinet. Assembly of filet-o-fish as a sandwich is processed only after costumer places their order. Following stocks should be in place in the restaurant all the time with a cooking VAT and the bun steamer working in order to meet customer demand and maintain the high standard of customer service. * Cooking oil * Frozen fish patties * Tartar sauce * McDonald’s cheese * Regular non-sesame topped bun

3. Quality Management:
Every organisation is set to maintain the higher quality of product and services they sell and render to their customers. (Oxford American dictionary: Quality is a degree or a level of excellence). Quality management is focused on how well product or service does what it is supposed to do and the dimensions like performance, features, reliability, conformance, durability, serviceability, aesthetics, safety and perceptions can be used to identify the quality effect of the product. (Study hands out, IOM 2011 Jan-April, DR. Randolph Metz-Johnson)
Quality assurance should be met by producers by making sure it is produced according to the product design. Producers keep a check on the cost whilst the consumer looks for the fitness of use and the price they pay but in the business market customers view always dominates as they are well informed and their expectations grow, hence the quality should be maintained no matter what cost is to incur. Offering of the commitment to quality is the only way the business can survive and prosper in this modern competitive business environment.

4.2 Total Quality Management (TQM)

A philosophy that stresses three principles for achieving high levels of process performance and quality: customer satisfaction, employee involvement and continuous improvement in performance.
Ref: (Operations Management Processes and Supply Chains, 2010, 9th edition, Lee J. Krajewski, Larry P. Ritzman, and Manoj K. Malhotra)

4.3 Quality Management System (QMS) This management system is a system in place that helps in achieving customer satisfaction and complements other company systems. It is more about collecting customer feedback through customer surveys, telephone interviews etc and working wisely on the weak side of management streams.
TQM and QMS both of these management streams help in satisfying the customer that results in achieving higher standard of customer satisfaction all the time. In case of McDonald’s, TQM is more used for the quality assurance. It starts from Human Resource Management in place that recruits the motivated employees. Employee working in the organisations are provided quality training and ensured they deliver higher standard of customer service. Training in McDonald’s is very popular with their effort of bringing in Apprentice scheme that helps their employees to march towards NVQ level 2 in hospitality and customer service and all senior staffs that represents McDonald’s management stream are given all the training and are always present on the restaurant to guide the employees and give excellent customer service on every visit as it helps in everyone’s involvement for the process of continuous improvement.
In case of serving filet-o-fish in McDonald’s restaurant, Customers at times have to wait longer by the time they get their filet-o-fish ready as it is not one of the most popular McDonald’s Sandwich and there are fewer consumers who walks in and asks for filet-o-fish, so if a regular customer wants to buy more than 2 or 3 filet-o-fish on the same order during less busier period of the business, he/she may have to wait say about 4-5 minutes as McDonald’s employees are trained to have fried products ready as per the projected level of the business volume in order to sell the quality product. As fried filet patty can only stay on the heating cabinet for twenty minutes and have to be discarded if not sold within that time, employees are only expected to meet that requirement and follow the work discipline. Doing so employee won’t be on the wrong side but for Customer, they are not concerned about anything else rather than considering they have waited long to get what they want in a fast food restaurant. Part of fish, McDonald’s also sells fish fingers as a part of children’s happy meal and McDonald’s customer is found complaining about not getting the option to buy it individually, hence complain arises due to this factors which is not under employees control at all the times. Such factors stand out as the barriers to quality assurance of the product.

4.4 Quality check tools
Out of all quality check tools like Process flow chart, Cause-and-Effect diagram, Check sheet, Pareto analysis, Histogram, Scatter diagram and Statistical process control chart, any appropriate tool can be used to identify the quality problem and follow the right procedures to rectify the remedies and assure the quality of the product.
Referred from: (Study hands out, IOM 2011 Jan-April, DR. Randolph Metz-Johnson)
Picking up one of those above mentioned tools, Cause-and-Effect diagram is attached on the appendix at the end of the project. (Appendix 2)

5. Conclusion

Having discussed McDonald’s and its permanent menu item Filet-O-Fish, we have covered a lot of grounds under product design, Inventory and capacity management and Quality management. Filet-O-Fish being the loved menu item for non meat consuming costumers and a tribe of Muslim religion people who only consumes halal meat, has not made a bigger impact on meat loving customers. Being introduced in the McDonald’s menu since 1965, rest of the promotional sandwiches that McDonald’s not always sells, filet-o-fish is sold lot fewer in the average. Costumers have to wait longer as it is not always ready depending on the business volume on the particular period. Fish fingers that is a part of happy meal for children’s in McDonald’s is only sold in happy meal and not sold separately which dissatisfies the costumers and results in complain to the head office. Managers are found using alternatives at times to dissolve the conflict and help in customers satisfaction. Not always is the same story, so many times managers are bound to follow company guidelines to optimum standard so that they can lead with example and perform as a role model, hence in case of filet-o-fish and fish fingers that is sold in McDonald’s may not come with higher margin of profit but have cause unexpressed dissatisfactions on the customers.
On the other hand for its raw product as McDonald’s is trying to maintain their filet patty processed from fisheries certified sustainable by the Marine Stewardship Council, approach is more healthier and food hygiene and safety oriented but this is becoming more difficult each year and their main fish Alaskan Pollock fisheries is placed in a re-assessment by the Marine Stewardship Council because of the declination on their catch volume by more than 30% between 2005 and 2008 that has even caused Supply as another concern.
Hence suggesting McDonald’s to introduce the alternatives of fish burger can be the recommendation number one and/or practising more innovative ways of bringing it in the market with different market strategies can be the other recommendation for McDonald’s regarding its fish products.

6. Bibliography: 1. DR. Randolph Metz-Johnson ( 2011 Jan-April) Study hands out and lecture notes, IOM 2. LCA, ANGLIA RUSKIN UNIVERSITY, Materials covered from college and university websites, Jan-April 2010 3. Lee J. Krajewski, Larry P. Ritzman, and Manoj K. Malhotra (2010) Operations Management Processes and Supply Chains. 9th edition 4. Greasley Andrew (2009) Operations Management. 2nd edition 5. Robert Johnston and Graham Clark (2008) Service Operation management: improving service delivery. 3rd edition 6. Murthy Dodderi Narshima Prabhakar, M. Rausand and T. Osteras a. (2008) Product Reliability 7. BBC news 2005 , A brief history of McDonalds: http://www.bbc.co.uk/dna/h2g2/A3816740 8. McDonald’s Canada. History of McDonald 2011http://www.mcdonalds.ca/en/aboutus/history.aspx 9. McDonalds USA , Media centre http://www.aboutmcdonalds.com/mcd/media_center.html 10. McDonalds latest news March 2011, Best Big Company to work with. http://www.mcdonalds.co.uk/about-us/latest-news/latest-news.shtml 11. McDonalds official UK website2012, Food and filet-o-fish http://www.mcdonalds.co.uk/food/fish/filet-o-fish.mcdj 12. McDonald’s filet-o-fish build up chart www.mcdonalds.co.uk 13. Quality assurance solutions, Walter Shewhart http://www.quality-assurance-solutions.com/Walter-Shewhart.html 14. http://www.aboutmcdonalds.com/etc/medialib/aboutMcDonalds/students.Par.42391.Image.-1.0.1.gif 15. Walter Shewart 1920s, developed control charts, introduced term “quality assurance” 16. W. Edwards Deming (1900-1994) Summarized 14 points of Deming b. http://www.mftrou.com/edwards-deming.html

7. Glossary:

Halal: meat requires special slaughter techniques.
Hoki: a species of fish.

8. APPENDIX: A. Meaning of quality:

Reference: IOM study hands out note jan-april2011

B. Cause-and-effect diagram (“fishbone” diagram) * chart showing different categories of problem causes

Reference: IOM study hands out note jan-april2011