McDonald’s Supply Chain

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

McDonalds Suppliers and Distributors..............................................................................................10

Outsourcing of Ingredients................................................................................................................12

McDonald's Supply Chain – Challenges...........................................................................................19

Conclusion.............................................................................................................................................20

References..............................................................................................................................................21

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.

McDonald's predominantly sells hamburgers, various types of chicken sandwiches and

products, French fries, soft drinks, breakfast items, and desserts. In most markets,

McDonald's offers salads and vegetarian items, wraps and other localized fare. This local

deviation from the standard menu is a characteristic for which the chain is particularly

known, and one which is employed either to abide by regional food taboos (such as the

religious prohibition of beef consumption in India) or to make available foods with which the

regional market is more familiar (such as the sale of McRice in Indonesia).

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.

4

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

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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. 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.

Incorporating Chill Zones – The McDonalds Cold Chain

A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an

uninterrupted series of storage and distribution activities which maintain a given temperature

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range. It is used help extend and ensure the shelf life of products such as fresh agricultural

produce, processed foods, photographic film, chemicals and pharmaceutical drugs.

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

Dehydrated onions Jain Foods, Jalgaon

Iceberg lettuce Trikaya Agriculture, Pune

Chicken patty Vista Foods, Taloja

Veg. Patty, Veg. nuggets, Pineapple/Apple pie Kitran Foods, Taloja

Chicken (dressed) Riverdale, Talegaon

Buns Cremica Industries, Phillaur

Eggless mayonnaise Quaker Cremica Pvt. Ltd., Phillaur

Sesame seeds Ghaziabad

Iceberg lettuce Meena Agritech, Delhi

Fish fillet patties Amalgam Foods Ltd., Kochi.

Iceberg lettuce Ooty Farms & Orchards, Ooty

Vegetables for the pattiesFinns Frozen Foods & Jain Foods (Nasik, Jalgaon)

Mutton and mutton patties Al Kabeer, Hyderabad

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

those followed by monitoring, recording and correcting any deviations. The HACCP

verification is done at least twice in a year and certified.

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.

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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.

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.

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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,

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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Dynamix Dairy Industries (Supplier of Cheese)

Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up

a network of milk collection centres equipped with bulk coolers. Easy accessibility has

enabled farmers augment their income by finding a new market for surplus milk. The factory

has:

Fully automatic international standard processing facility.

Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose,

casein & whey protein and humanized baby food.

Stringent quality control measures and continuous Research & Development

From farm two degrees Celsius in 90 minutes is the first step to quality. For example, the Rs

262-crore Dynamix Dairy Industries, located in Baramati in Pune district of Maharashtra,

manufactures cheese slices for McDonald’s at 10 metric tonnes per month. Dynamix has

helped set up 15 bulk cooling centres throughout the district from which it purchases milk.

Each cooling centre, which is equipped with modern measuring and testing equipment and a

large cooling tank, is not more than a few kilometres away from local dairy farms. A farmer

can deliver milk even twice a day on his bicycle and get a printed receipt on the spot, which

also lists the quality of the milk supplied by him as per fat content, colour and solids content.

If the milk is sub-standard or adulterated, it is rejected on the spot. A batch of milk can vary

from one litre to 10 litres, or more. Each batch is mixed in one large stainless steel cooler and

chilled immediately to two degrees Celsius to stop bacterial growth and preserve freshness.

From this point onwards, until just before the burger is actually served in a McDonald’s

restaurant hundreds of kilometres away, the temperature is never allowed to increase. When

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 13

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.

Trikaya Agriculture (Supplier of Iceberg Lettuce)

Implementation of advanced agricultural practices has enabled Trikaya to successfully grow

specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm

infrastructure features:

A specialized nursery with a team of agricultural experts.

Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant.

Pre-cooling room and a large cold room for post harvest handling.

Refrigerated truck for transportation.

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

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- 14

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:

Separate processing lines for chicken and vegetable foods.

Capability to produce frozen foods at temperature as low as -35 Degree Celsius to

retain total freshness.

International standards, procedures and support services.

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

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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

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.

Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai)

An integral part of the Radhakrishna Group, Foodland specializes in handling large volumes,

providing the entire range of services including procurement, quality inspection, storage,

inventory management, deliveries, data collection, recording and reporting. Salient strengths

are :

A one-stop shop for all distribution management services.

Dry and cold storage facility to store and transport perishable products at temperatures

upto -22 Degree Celsius.

Effective process control for minimum distribution cost.

McDonald's local supply networks through Radhakrishna Foodland, which operates

distribution centres (DCs) for McDonald's restaurants in Mumbai and Delhi. The DCs have

focused all their resources to meet McDonald's expectation of 'Cold, Clean, and On-Time 16

Delivery' and plays a very vital role in maintaining the integrity of the products throughout

the entire 'cold chain'. Ranging from liquid products coming from Punjab to lettuce from

Pune, the DC receives items from different parts of the country. These items are stored in

rooms with different temperature zones and are finally dispatched to the McDonald's

restaurants on the basis of their requirements. The company has both cold and dry storage

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.

The factory has:

State-of-the-art fully automatic machinery requiring no human contact with product,

for total hygiene.

Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High

Temperature) processed milk and milk products.

Strict quality control supported by a fully equipped quality control laboratory.

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

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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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19

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

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

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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

%20chain-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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