McDonald's Food Chain
It was early evening and one of the 25 McDonald's outlets in India was bustling with activity with hungry souls trooping in all the time. No matter what one ordered - a hot Maharaja Mac or an apple pie - the very best was served every time. But did anyone ever wonder as to how this US giant managed the show so perfectly? The answer seemed to lie in a brilliantly articulated food chain, which extended from these outlets right up to farms all across India.
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 a wider menu, 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 35 suppliers spread all over India through a massive value chain.
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 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). These efforts paid off in the form of joint ventures between McDonald's India (a 100% wholly-owned subsidiary of McDonald's USA) and Hardcastle Restaurants Pvt. Ltd, (Mumbai) and Connaught Plaza Restaurant (New Delhi).
By mid-1950s, the restaurant's revenues had reached $350,000. As word of their success spread, franchisees started showing interest. However, the franchising system failed because the McDonald brothers observed very transparent business practices. As a consequence, imitators copied their business practices and emerged as competitors. The franchisees also did not maintain the same standards of cleanliness, customer service and product uniformity. At this point, Ray Kroc (Kroc), distributor for milkshake machines expressed interest in the business, and he finalized a deal with the McDonald brothers in 1954. He established a franchising company, the McDonald System Inc. and appointed franchisees. In 1961, he bought out the McDonald brothers' share for $2.7 million and changed the name of the company to McDonald's Corporation. In 1965, McDonald's went public and expand their market until nowadays (setting up restaurants inside Wal-Mart retail stores, intense competition from supermarkets, convenience stores, mom and dad delicacies, gas stations and other outlets selling reheatable packaged food, promote Disney through its restaurants and opened restaurants in Disney's theme park) with 25,000 restaurants in 116 countries, serving more than 15 billion customers annually.
During the same year, the company recorded sales of $36 billion, and net income of $1.5 billion. McDonald's overseas restaurants accounted for nearly 60% of its total sales. Franchisees owned and operated 85% of McDonald's restaurants across the globe.
In Search of Perfect Logistics - The Story of the Cold Chain in McDonald’s India
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. This centralized distribution system is unique to McDonald's to handled McDonald's inventory. 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 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. 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.
According to Vinay Adhye (Adhye), director, RFPL, the system reduces delivery time, from 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. 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 (30 minutes to complete the delivery).
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. It helps minimize damage to goods by maintaining temperature even the McDonald's restaurants face