McDonald's Supply Chain
McDonald's Supply Chain
Submitted By:
Group 3
Nidhin Thomas Mathew (14PGP026)
Pranav Srivastav(14PGP032)
Ratish Kumar Mishra(14PGP037)
Anish Kumar (14PGP068)
Sourav Agarwal(14PGP120)
Yadvendra Yadav(14PGP123)
Contents
Introduction ............................................................................................................................................. 3
History .................................................................................................................................................... 3
McDonald’s in India ............................................................................................................................... 4
Supply Chain of McDonald’s ................................................................................................................. 5
Introduction ......................................................................................................................................... 5
Incorporating Chill Zones – The McDonalds Cold Chain .................................................................. 6
Validation of McDonalds Cold Chain ................................................................................................ 8
SUI GENERIS NETWORK ............................................................................................................. 10
McDonalds Suppliers and Distributors ............................................................................................. 12
Outsourcing of Ingredients ............................................................................................................... 14
Dynamix Dairy Industries (Supplier of Cheese) ........................................................................... 14
Trikaya Agriculture (Supplier of Iceberg Lettuce) ....................................................................... 15
Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products including
Fruit Pies) ...................................................................................................................................... 16
Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai) ........................................ 17
Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts) ............... 18
McDonald's Supply Chain – Challenges........................................................................................... 20
Demand Forecasting ......................................................................................................................... 21
Food safety and HACCP ................................................................................................................... 21
Technology at its best ....................................................................................................................... 22
Conclusion ............................................................................................................................................ 23
References ............................................................................................................................................. 24
2
Introduction
McDonald's is the leading global foodservice retailer with more than 32,000 local restaurants
serving more than 60 million people in 117 countries each day. More than 75% of
McDonald's restaurants worldwide are owned and operated by independent local men and
women.
History
The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in
San Bernardino, California. Their introduction of the "Speedy Service System" in 1948
established the principles of the modern fast-food restaurant. The present corporation dates its
founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on
April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald
brothers' equity in the company and led its worldwide expansion.
With the successful expansion of McDonald's into many international markets, the company
has become a symbol of globalization. Its prominence has also made it a frequent topic of
public debates about obesity, corporate ethics and consumer responsibility.
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McDonald’s in India
McDonald’s entered India in 1996 through joint ventures with two Indian entities, Hardcastle
Restaurants Pvt. Ltd. and Connaught Plaza Restaurants Pvt. Ltd. Hardcastle Restaurants Pvt.
Ltd. owns and operates McDonald’s restaurants in western India through a 50-50 joint
venture with the parent company. Through a similar partnership, Connaught Plaza
Restaurants Pvt. Ltd. owns and operates McDonald’s operations in northern India. The
company operates about 160 restaurants in India.
McDonald's India has developed a special menu with vegetarian selections to suit Indian
tastes and preferences. McDonald's does not offer any beef or pork items in India. Only the
freshest chicken, fish and vegetable products find their way into our Indian restaurants.
In addition, they have re-formulated some of their products using spices favored by Indians.
Among these are McVeggie™ burger, McAloo Tikki™ burger, Veg. Pizza McPuff™ and
Chicken McGrill™ burger. They have also created eggless sandwich sauces for the
vegetarian customers. Even their soft serves and McShakes™ are egg-less, offering a larger
variety to the vegetarian consumers.
McDonald's India's local suppliers provide them with the highest quality, freshest ingredients.
Complete adherence to the Indian Government regulations on food, health and hygiene is
ensured, while maintaining their own recognized international standards. Fast, friendly
service - the hallmark of McDonald's restaurants the world over is the mantra they abide by.
Stringent cleaning standards ensure that all tables, chairs, highchairs and trays are sanitized
several times each hour. Such meticulous attention to cleanliness extends beyond the lobby
and kitchen to even the pavement and immediate areas outside the restaurant.
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Supply Chain of McDonald’s
Introduction
US-based fast food giant, McDonald's success in India had been built on four pillars:
Limited menu
Fresh food
Fast service and
Affordable price
Intense competition and demands for wider menus, drive-through and sit-down meals -
encouraged the fast food giant to customize product variety without hampering the efficacy
of its supply chain.
Around the world (including India), approximately 85% of McDonald's restaurants were
owned and operated by independent franchisees. Yet, McDonald's was able to run the show
seamlessly by outsourcing nine different ingredients used in making a burger from over 38
suppliers spread all over India through a massive value chain.
McDonalds had been working on its supply chain even before it opened its first joint in the
country. Between 1992 and 1996, when McDonald's opened its first outlet in India, it worked
frenetically to put the perfect supply chain in place. It developed its Indian partners in such a
manner that they stayed with the company from the beginning. The success of McDonalds
India was achieved by sourcing all its required products from within the country. To ensure
this, McDonalds developed local businesses, which can supply it highest quality products.
Today, McDonalds India works with 38 different suppliers on a long term basis and several
other stand alone restaurants for its various other requirements. It trained the local farmers to
produce lettuces or potatoes to specifications and worked with a vendor to get the perfect
cold chain in place. And explained to the suppliers precisely why only one particular size of
peas was acceptable (if they were too large, they would pop out of the patty and get burnt).
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These efforts paid off in the form of joint ventures between McDonald's India (a 100%
wholly-owned subsidiary of McDonald's. McDonald’s distribution centres in India came in
the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and in
Kolkata in 2007.
McDonald's entered its first distribution partnership agreement with Radha Krishna
Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. The
association goes back to July 1993, when it studied the nuances of McDonald's operations
and requirements for the Indian market. As distribution centers, the company was responsible
for procurement, the quality inspection programme, storage, inventory management,
deliveries to the restaurants and data collection, recording and reporting. Value-added
services like shredding of lettuce, re-packing of promotional items continued since then at the
centers playing a vital role in maintaining the integrity of the products throughout the entire
'cold chain'.
Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it
had spent more than six years to get the system into place. This system brought about a
veritable revolution, immensely benefiting the farmers at one end and enabling customers at
retail counters get the highest quality food products, absolutely fresh and at great value.
Through its unique cold chain, McDonalds has been able to both cut down on its operational
wastage, as well as maintain the freshness and nutritional value of raw and processed food
products. This has involved procurement, warehousing, transportation and retailing of
perishable food products, all under controlled temperatures.
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Setting up extensive cold chain distribution system forms the lifeline of any fast food
business. In this regard, McDonald's incorporated state-of-the-art food processing technology
along with its international suppliers to pioneering Indian entrepreneurs, who are today an
integral part of the cold chain.
McDonald's finding the factor of cold room being vital ensured that even before vegetable
from farms enters the refrigerated zones, they are locked in a pre-cooling room to remove
field heat. Vegetables are placed in the pre-cooling room within half an hour of harvesting
where rapid cooling decreases the field temperature of vegetables to 2ºC within 90 minutes.
Then a large cold room (a refrigerated van) is used for transportation to the distribution
centers. In the van, the temperature and relative humidity of crop is maintained at 1-4ºC and
95 per cent, respectively and the flavors and freshness are locked at -35°C. McDonald’s
restaurants store products to be used on a daily basis, within a temperature range of –18ºC to
4ºC. About 52% of the food products need to be stored under these conditions before they are
used.
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Validation of McDonalds Cold Chain
A cold chain can be managed by a quality management system. It should be analyzed,
measured, controlled, documented, and validated. The overall approach to validation of a
distribution process is by building more and more qualifications on top of each other to get to
a validated state. This is done by executing a Component Qualification on the packaging
components. Next, an Operational Qualification that demonstrates the process performs at the
operational extremes. The final piece is the Performance Qualification that demonstrates that
what happens in the real world is within the limits of what was demonstrated in the
Operational Qualification limits.
All suppliers adhere to Indian government regulations on food, health and hygiene while
continuously maintaining McDonald's recognized standards. As the ingredients move from
farms to processing plants to the restaurant, McDonald's Quality Inspection Programme
(QIP) carries out quality checks at over 20 different points in the Cold Chain system.
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Ingredients Supplier
Cheese Dynamix Dairy Industries Ltd., Pune
Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that
emphasizes prevention within McDonalds’ suppliers' facility and restaurants rather than
detection through inspection of illness or presence of microbiological data. Based on HACCP
guidelines, control points and critical control points for all McDonald's major food processing
plants and restaurants in India have been identified. The limits have been established for
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those followed by monitoring, recording and correcting any deviations. The HACCP
verification is done at least twice in a year and certified.
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McDonalds Suppliers and Distributors
Suppliers are proclaimed to be the backbone of any good business as they are the individual
units that build supply chain. On them depends the health of the overall business cycle.
McDonald's sourced ingredients from all parts of India. Some of these are tabulated below.
In 1996, when McDonald's entered India, it was looking for a distribution agent who would
act as a hub for all its vendors. Mumbai-based Radhakrishna Foodland Private Limited
(RFPL) was chosen for the job as it was already a distributor for its sister concern,
Radhakrishna Hospitality Services, a catering unit supplying to offshore institutions. The
iceberg lettuce from Ooty, mutton patties from Hyderabad and sesame seed buns from Punjab
were all delivered to RFPL's distribution centre (cold storage) in its refrigerated vans.
RFPL stored the products in controlled conditions in Mumbai and New Delhi and supplied
them to McDonald's outlets on a daily basis. By transporting the semi-finished products at a
particular temperature, the cold chain ensured freshness and adequate moisture content of the
food. The specially designed trucks maintained the temperature in the storage chamber
throughout the journey. Drivers were instructed specifically not to switch off the chilling
system to save electricity, even in the event of traffic jam.
FJ Walker of Australia, a McDonald's partner, helped RFPL build a cold storage in Thane.
Another cold storage with equipment worth about Rs.75 lakh was built in Delhi in 1998.
RFPL also handled McDonald's inventory management. It had to anticipate future
requirements and contingencies and plan for optimum utilization of the refrigerated vehicles.
Meeting McDonald's "cold, clean, on-time" delivery standards was no easy task considering
that there were 30 suppliers situated all over the country. AFL Logistics Ltd (ALL), a joint
venture between and Coughlin of the US, and RFPL was responsible for ensuring these
standards. Coughlin's task was to make sure that McDonald's had the proper amount of
supplies and materials at each restaurant. The challenge was the physical movement of
material and inventory control in a country with bad roads and basic infrastructure
bottlenecks.
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To meet McDonald's high standards, Coughlin ensured that quality, temperature and
packaging requirements were met. At the same time, unused capacity in the vehicles was
used to transport goods from other vendors. This helped Coughlin deliver the lowest cost
with the highest quality. RFPL also handled in-city distribution to restaurants.
The restaurants were not supposed to stock more than three days of inventory, the time limit
for distribution centres or warehouses was a stringent 14 days to minimize costs and optimize
quality control. This required round-the-clock monitoring of pick-ups and truck movements.
Since most of the items were perishable, McDonald's standards covered the entire delivery
schedules.
For in-city delivery, the truck was monitored from the time it left the distribution centre till
the time it reached the restaurant. Not just that, the time taken in offloading was noted too.
The products were transported from the suppliers' end to the distribution centre in refrigerated
and insulated vehicles through a system of consolidation to ensure better utilization of vehicle
capacity. While the temperature in the reefers ranged from -18º to -22º, that in chilled trucks
ranged from 1 to 4º
RFPL was also responsible for cleanliness (including the personal hygiene of the drivers),
and the packing and temperature control of the food (digital probes were inserted into items
selected at random) it transported. There were also data logs to track the movement of each
batch. This meant that in the case of a complaint from a restaurant, the batch could be
identified, isolated, and dumped. To perfect the system, the RFPL team travelled to a number
of countries, including Turkey, the Philippines, Australia, and the US. AFLL also followed
similarly detailed procedures.
McDonald's insisted on standardization by its suppliers. Vista Processed Foods & Kitran
Foods (Vista & Kitran Foods), which supplied the pies, nuggets, vegetable, and chicken
patties, commissioned a new facility for the purpose in 1996, complete with insulated panels,
temperature control, and chill rooms. McDonald's also assisted its suppliers with
improvements. For instance, it helped Trikaya Agriculture develop a variety of iceberg
lettuces (which is a winter crop) that would grow all year round. And for quality control,
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Trikaya's post-harvest facilities included a cold chain consisting of a pre-cooling room to
remove field heat, a large cold room, and a refrigerated van with humidity controls.
Details of the suppliers and how they operated to meet McDonald’s standards are given in the
following pages.
Outsourcing of Ingredients
The following suppliers, who build up the major supply chain of McDonalds, reveal how the
Cold Chain works and contributes towards the efficiency of McDonalds.
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the refrigerated milk arrives at the Dynamix plant at Baramati, the milk in every single tanker
is thoroughly tested and rejected if found sub-standard, adulterated or contaminated. The
sophisticated testing lab can check fat content with an accuracy of 0.1 per cent. It can even
detect minute traces of pesticides or antibiotics administered to cows. This instant feedback
and the rejection of the entire tanker-load forces farmers to follow the best practices in terms
of animal husbandry, use proper feeds, cut down on the indiscriminate use of pesticides and
animal medicines and completely stop even the slightest attempts at adulteration.
Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant.
Pre-cooling room and a large cold room for post harvest handling.
Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such
enterprise that is an intrinsic part of the cold chain. Exposure to better agricultural
management practices and sharing of advanced agricultural technology by McDonald's has
made Trikaya Agriculture extremely conscious of delivering its products with utmost care
and quality. Initially lettuce could only be grown during the winter months but with
McDonald's expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is
now able to grow this crop all the year round. McDonald's has provided assistance in the
selection of high quality seeds, exposed the farms to advanced drip-irrigation technology, and
helped develop a refrigerated transportation system allowing a small agri-business in
Maharashtra to provide fresh, high-quality lettuce to McDonald's urban restaurant locations
thousands of kilometres away. Post harvest facilities at Trikaya include a cold chain
consisting of a pre-cooling room to remove field heat, a large cold room and a refrigerated
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van for transportation where the temperature and the relative humidity of the crop is
maintained between 1º C and 4º C and 95% respectively. Vegetables are moved into the pre-
cooling room within half an hour of harvesting. The pre-cooling room ensures rapid vacuum
cooling to 2º C within 90 minutes. The pack house, pre-cooling and cold room are located at
the farms itself, ensuring no delay between harvesting, pre-cooling, packaging and cold
storage. With this cold chain infrastructure in place, Trikaya Agriculture has also a plan to
export this high value product to other international markets, especially to McDonald's
Middle East and Asia Pacific operations. McDonald's expertise in packaging, handling and
long-distance transportation has helped Trikaya to do trial shipments to the Gulf successfully.
In addition to export, McDonald's assistance has enabled Trikaya Agriculture to supply this
crop to a number of star-rated hotels, clubs, flight kitchens and offshore catering companies
all over India.
Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products
including Fruit Pies)
A joint venture with OSI Industries Inc., USA, McDonald's India Pvt. Ltd. and Vista
Processed Foods Pvt. Ltd., produces a range of frozen chicken and vegetable foods. A world
class infrastructure at their plant at Taloja, Maharashtra, has:
Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the chicken and vegetable range of
products, is another important player in this cold chain. Technical and financial support
extended by OSI Industries Inc., USA and McDonald’s India Private Limited have enabled
Vista to set up world-class infrastructure and support services. This includes hi-tech
refrigeration plants for manufacture of frozen food at temperatures as low as - 35° C. This is
vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is
maintained. The frozen product is immediately moved to cold storage rooms. With continued
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assistance from its international partners, Vista has installed hi-tech equipment for both the
chicken and vegetable processing lines, which reflect the latest food processing technology
(de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the
latest vegetable mixers and blenders are in operation. Also, keeping cultural sensitivities in
mind, both processing lines are absolutely segregated and utmost care is taken to ensure that
the vegetable products do not mix with the non-vegetarian products. Now, at Vista, a very
wide range of frozen and nutritious chicken and vegetable products is available. Ongoing
R&D, both locally and in the parent companies, work towards innovation in taste, nutritional
value and convenience. These products, besides being supplied to McDonald's, are also
offered to institutions like star-rated hotels, hospitals, project sites, caterers, corporate
canteens, schools and colleges, restaurants, food service establishments and coffee shops.
Dry and cold storage facility to store and transport perishable products at temperatures
upto -22 Degree Celsius.
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facilities with capability to store products up to -22º C as well as delivery trucks to transport
products at temperatures ranging from room temperature to frozen state.
Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts)
Amrit Food, an ISO 9000 company, manufactures widely popular brands – Gagan Milk and
Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh.
Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High
Temperature) processed milk and milk products.
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This relationship between McDonald's and its Indian suppliers is mutually beneficial. As
McDonald's expands in India, the supplier gets the opportunity to expand his business, have
access to the latest in food technology, exposure to advanced agricultural practices and the
ability to grow or to export. There are many cases of local suppliers operating out of small
towns who have benefited from their association with McDonald's India.
McDonald's convinced its suppliers to set up two separate production lines for chicken and
vegetable patties, keeping in the mind the link between food and religion in India. This was in
sharp contrast with its global practice, where McDonald's suppliers produced all types of
patties from the same line. These two production lines were housed in two different rooms
and the only way a worker could cross over from one line to the other was by passing through
the shower room. This eliminated all chances of contamination. However, from a supplier's
point of view, more lines meant a reduction in capacity utilisation and high cost of
production. To minimise costs, McDonald's helped Vista & Kitran Foods produce derivatives
of chicken and vegetable nuggets (not based on McDonald's recipe) for Indian hotels and
restaurants and thereby reach new markets. Vista & Kitran's higher margin and higher
capacity utilization for non-McDonald's products helped it remain cost competitive.
McDonald's philosophy had been 'one world, one burger' i.e. the McDonald's burger should
be consistent in terms of cost and quality throughout the world. To ensure this, all of
McDonald's suppliers followed the internationally acclaimed HACCP systems wherein both
inputs and finished goods were subjected to chemical and microbiological tests.
This kept food fresh and free from contamination. Apart from this, the entire production line
was automated using sophisticated technology, barring only the final compilation of the bun,
cheese and patty - which was done by hand.
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McDonald's Supply Chain – Challenges
Full Supply Chain responsibility
Multi Temp. Products - Over 65 % temperature controlled
Stores as far as 500 – 1000 kms
Drops per month - Over 1000
Movement mainly by road
Regular movement of perishables by air
Routing Challenges
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No margin for error – Operations critical client
No Stock Outs at store
On time delivery record – above 97 %
Clean delivery record – above 99 %
Unfailing inbound supply chain
Bull whip effect
Cannibalization
Order and Inventory Management
Product innovations
Demand Forecasting
31Q SYSTEM
Demand forecasting for long term is based on an efficient concept known as 31Q system—3
stands for the three years that the fast food chain will keep checking its plans, 1 represents the
detailed forecast of the next year and Q symbolizes the quarterly monitoring of these forecasts.
While preparing annual budget suppliers becomes a part of budgeting process. Usually, the
restaurants give a three-day to one-week forecast to the Distribution Centre. The DC, in turn, has
a three-month rolling forecast with the suppliers which enable them to plan their production
schedules meticulously.
With 250 restaurants scattered across the country, lead times for delivery assume critical
importance. Every restaurant manager knows the exact time of arrival of each product which
enables the supply chain team to work backwards to ensure timely distribution. With a maximum
inventory of ten days in its system, McDonald’s maintains an efficient inventory turn ratio of 36.
Food safety is another critical area for quality standard. For this Hazard Analysis Critical Control
Point (HACCP) certification which ensures food quality is applicable. This is an industry level
certification and is applicable on all the suppliers of the fast food chain. Apart from HACCP,
there are other food safety systems like the Supplier Quality Management Systems (SQMS) and
the Distributor Quality Maintenance Program (DQMP) are also in practice. For processing and
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manufacturing plants SQMS is applicable. The SQMS is a worldwide mandate for all
McDonalds‟ suppliers and includes essentials of the HACCP control system, while also
contriving several principles of its own. The DQMS audits and checks the warehouses of the
chain.
Auditors worldwide are also trained on its SQMS and DQMP programs. Independent auditors
then audit plants and warehouses and allot scores to McDonalds‟ facilities globally to ensure
highest standards.
Suppliers are using SAP while Distribution Centers are on RAMCO Marshall ERP with Cobra
software. These systems are used to automized upload of store orders. For assisting in day to day
functions of store, technologies have been developed e.g. track sales, enables restaurants to
The company is tapping the high growth opportunities with customer satisfaction criteria
effectively and in this effort McDonald’s added Mcdelivery, an innovative option which delivers
meals to the customer’s doorstep. This service has grown at stratospheric levels by more than
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The most important challenge in the supply chain is its integration. Mc Donald has managed
it in a very diligent way.
Conclusion
As a result on the efficient supply chain, gross margin improved by more than 15%. The reduction in
raw material wastage was achieved to the extent of 30%. So did the average inventory. The store
transfers and the order time also reduced to half. Hence we see that optimizing the supply chain can
increase the efficiency of a company in multiple ways.
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References
http://www.icmrindia.org/free%20resources/casestudies/McDonald%20food%20chai
n-7.htm
http://www.articlesbase.com/marketing-articles/mcdonalds-india-supply-chain-
729402.html
www.expresshospitality.com/20070315/management06.shtml
www.mcdonaldsindia.com
www.nrf.com/Attachments.asp?id=9504
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