McDonalds manages this with the careful management of the supply chain. Porter described what he saw as a value chain (Porter, 1985). He divided this into five separate sections; inbound logistics, operations, outbound logistics, marketing and sales, and service (Porter, 1985).
These different activities are also linked by the same support activities, there are four of these, but they can be seen to be active throughout the entire value chain, they are firm infrastructure, human resource management, technological development and procurement (Porter, 1985). These support activities may relate to more than only one section of the supply chain and as they are in existence they also add costs to the value chain, but are necessary and as such they must be seen to actively add value to the product (Porter, 1985). The reduction of cost should not be achieved at the cost of the quality or value that the support services offer.
The way in which cost saving may be seen to be produced within the value chain is by the linkages in the supply chain. In this, the activities of one part of the supply chain can be seen to affect the activities and costs of another part of the supply chain. The inbound logistics are very important in this business as there is a fast turnover of stock, which in conjunction with procurement as well as human resources and then operations ensures that the demand is satisfied. The way in which this is achieved is via economies of scale which are maximised throughout the systems of in and outbound logistics, especially if we look at isolated restaurants.
As already discussed the value chain can help to reduce costs. This can give the producing company a competitive advantage as long as the goods they are producing are of an acceptable quality with lower costs that that of its competitors as well as being able to sustain that cost gap (Grant, 1998).
Differentiation is attained through the selection of one or more characteristics which are valued by the customer, these may be different characteristics for different markets.
To understand where the advantages arise and how the costs are incurred a cost analysis may be undertaken, with the percentage cost being attributed to the core and supporting activities.
An example of using cost analysis in value chains has been demonstrated by some motor manufacturers.
- Inbound Logistics; There are careful handling and stock control measures to ensure the stock delivered is maintained in good quality, but the strongest point is the just in time system which is used. There company arrange all of their own inbound logistics and many of the companies that supply McDonalds are either supplying totally or mostly McDonalds, as seen with companies such as Golden West Foods. Alternatively McDonalds are able to exercise a high level of control over the supplies
- Operations; The set up of these companies is designed to keep quality high by way of the integrated team work, and by use of standardised system and monitoring of those systems.
- Outbound Logistics; There are a large number of goods going out in the form of burgers, shakes and fires, these are managed with a strict and efficient stock rotation that makes sure there is a first in first out system. The use of time cards measures the length of time food is held, and food older than this is meant to be thrown away, for example, burgers that are not sold after ten minuets should be rejected. This system reduces costs and also helps make sure that the stock held is managed so there is always fresh food ready. Former sales patterns are used to calculate the optimum level of different food types to be held ready.
- Marketing and Sales; the marketing is targeted to a specific audience. The target markets are divided into different groups, such as adults and children. The adult marketing sees specific products advertised, whereas marketing aimed at children is more aimed at the brand making the venture appear fun and desirable (Mintzberg et al, 1998).
- Service; This is also standardised in terms of initial and after sales service if there are complaints, the idea is that standardised goods should have less divsion to create complaints and standard service when ordering will also satisfy customer demands by giving them the service they expect.
This is also supported by differentiation of different types, in the past mostly aimed at brand image. The image of the uniform goods, the level of cleanliness and also supporting images, such as the way the restaurants may become involved in local communities which was also furthered in 1974, when the first Ronald McDonald house was opened. This was a house in Philadelphia that could be used by families of critically ill children when their children were in hospital. These are all forms of differentiation that have lead to competitive advantages.
Question 3; How Manufacturing Process describes how fast food restaurants have transformed beef production in the U.S.A.
If we look at the beef industry in the US, McDonalds, along wit other fast food chains have changed the way beef production takes place. If we consider the position prior to the fast food revolution, the main processing of beef was with the butchering of the joint and beef used as an ingredient. This may have been in the form of chuck steak or ready prepared mince for the many sit down burger joints.
For companies such as McDonalds there was the need for a standardised ready to prepare production that would be fast to cook and taste the same. This means that there needed to be a way of preparing to food in a central locations and sending it out to give all the food the standardised make up, taste and ingredients.
Technology was developing to allow for this are more and more freezers were coming into use, and the development of frozen beef patties mans that the food would all be standardised, easy to store and transport and easy to cook. The demand was increasing this mean more and more beef was needed to meet the demands of the fast food industry. At the same time the fast food industry was also increasing the demand of households for similar good to buy at the supermarket and then cook at home.
The demand for fast, low cost beef transformed the way it was produced. Beef producers had to make economies of scale, the smaller ranchers were squeezed and many failed or sold out to larger beef production operations. The need for increased meet per animal also saw increased pressure to use drugs to prevent disease and hormones to promote growth. The pressures were not only from the fast food industry, but also the consumer and prepared food markets.
The pressures were also on the way the beef was manufactured, and tools such as the hydrogenated of fat were seen to develop to increase the standardisation of the product and also make it faster to cook and cheaper to produce. The pressures changed a traditional industry into a more streamlines cost conscious industry with high levels of processing being used to add commercial value to the beef.
Question 4; What are some of McDonald’s marketing process innovations?
One of the main strengths of McDonalds is the way they have marketed their goods. McDonalds was one of the first companies to make use of an attractive character to attract children, Ronald McDonald was a corporate image character that was seen before many of today's manufacturers found that cartoon character would help to sell goods.
The use of a character was also able to sell the image and the experience rather than the food. This meant there were associations with the brand that were not associated with the food. The food was also marketed, with he well known Big Mac seen as a signature burger introduced in 1968.
There key to the marketing has been the single approach with a standardised marketing approach. An individual can walk into any McDonalds in any country and know what to expect. This increases the amount of foreign business done in any of the restaurants. The brand and marketing is also seen in menu's which although not always the same in each country will be very similar, with the well known Big Mac's and other basic menu items all packed in the same fashion. The customer can feel at home with the food, as well as similar style surroundings so that even children will know where they are by looking around.
The associations of the food with fun and fast food and for many years the Americanised images were all advantageous and resulted in higher sales due to the use of association marketing at its best.
Question 5; Describe the Franchising Business and McDonalds as a Real Estate Business?
Franchising is a system which can take a variety of forms which are more common in the services and leisure industry than in manufacturing. A franchise is an independently owned business which purchases the right to use the trade or brand names as well as the brand systems and share in the marketplace recognition. This will usually take an initial investment to purchase both the premises, equipment and right to use the name, and then there will usually be a percentage of turnover payable as an ongoing fee. In return the franchisees agrees to terms and conditions which includes doing things the company way. As well as McDonalds, companies such as Burger King, Tie Rack, Benetton and the Body Shop all use franchise agreements in their strategic growth plan (Chryssides et al, 1998).
To the normal customer walking into one of these stores there would be no visible difference between companies owned stores or a franchise as they are, or should be run in the same way. There is also the problem of lack of control by the expanding company, although a franchise can be revoked if it does not meet its franchise agreements, this can be a lengthy process and can attract negative publicity. However, as we can see from the source of the investment capital it is relatively low risk for the expanding company.
For McDonalds many of the fees will come from the way in which the franchisee fees are paid as well as the use of specific suppliers. However in many instances the company may have started the restaurant and may own the land and the businesses which the franchisee leases. In many ways this increases the security for the company and the risk for the franchisee as they also have to pay the company rent.
It is with this we can argue that there are issues such as the company having a large interest in real estate as well as the fast food industry.
Question 6; How has globalization affected McDonald’s operations?
This reputation of the company as being a global company has also proven a weakness as it is a recognisable target for anti-globalisation protestors and other actions groups such as we see in the well known McLibel case in the UK. In this the company pursued a case against a very small amount of individuals and gained much negative publicity (Guttenplan, 1996). This type of publicity will always have a negative effect as it appears to disregard the personality of the individual person (Hooley et al, 1998). Even though McDonalds won the case they lost the fight for public opinion (Europe Intelligence Wire, 2004). Globalisation means that the negative image created becomes a global image.
There have also been many different protests regarding globalisation and the effect of trade on the different countries. The benefits of comparative advantage are recognised by these groups, the problem being the way in which the advantage is not even spread, and may also bring other problems, such as social and economic due to the increased inequality of wealth in the poorer countries. McDonalds as a global company and well known name has found itself on more than one occasion a victim of violence due to this public perception, on May Day in London in 2000 a store in city was vandalised and practically destroyed due to this perception. This may not be so important to the company due to the small proportion of the incidents, but for the franchisees which operate in these restaurants.
Therefore globalisation has changed the way in which the company may be seen, but it was also globalisation that opened the door for the company to expand internationally. The ability of a single company to have a global image resulted in increased demand for the goods. Placements in US television programmes and films was also a driver for the demand. This was seen when the first McDonalds opened in Moscow, despite being relativity expensive there were lines that took hours to reach the front of the line to be served and demand was very high, resulting in the restaurant selling out of many goods.
There have also been accusation made in terms of the way that company operates and determining the truth from fiction is difficult. It does appear that with the increased demand for cheap beef McDonalds in the US has looked to south American suppliers where rain forest may have been cut down to create ranches. However, due to the nature of the goods the supply chain benefits are limited as each ingredient is relatively low cost.
The main influence has been on the way the company has been able to spread and expand, but also on operational aspects of marketing and the need to change and develop to meet the needs of local markets as times have change. For example, the war on Iraq has left many potential counters with an anti American attitude and McDonalds has suffered form this, especially when seeking to attract Muslim customers.
Question 7; what does McDonalds need to do to address emerging health awareness of its customers?
If we look at McDonalds its current position and concerns then we can see how it needs to change. The core menu has changed throughout the years, but has remained fairly constant in style since the 1960's a time when the Big Mac as introduced (Business Week, 1998). This in itself was a change to the menu of a restaurant which had been founded in 1937, but it has been a long term change (Business Week, 1998). As any marketing expert will confirm products have a life cycle, and a thirty year life cycle is very good without the need to revamp and change the product to keep it fresh.
The menu has not remained static as once the public stated to get tired of beef the Chicken Nuggets were introduced, as such the menu can be seen as a strength as it is adaptable and new products are introduced (Kotler, 2003). At the same time there have seen many health concerns regarding the level of nutrition and level of fat in the meals.
In these new additions to the menus the marketing department reassert their expertise as within four years of being introduced in the United States the chicken nuggets were the countries second most popular selling product, but these were still not healthy (Business Week, 1998). The most recent changes have been changes to the chicken nuggets lowering the salt levels and also changing the meat to white meat only. The introduction of the healthy range of food has also been a change, but it may be argued that has occurred very late and the company is now trying to regain its former position.
The problem may be seen as related to both the lifecycle of the products and the public perception of the offerings which together mean the perception has become quiet negative. The ability of McDonalds to retain its customers has been limited and the way in which the company has grown can be seen by many as a weakness due to the phenomenal increase in the fast food and restaurant has not resulted in the same proportional increase in profits for the chain. ''McDonald's has totally failed to adapt its original concept,'' (Simon C. Williams, chairman of the Sterling Group quoted in Business Week, 1998). Here we can see the need to adapt and change, the core concept may remain but may also need to be brought up to date to consumer needs
Sales in some products have fallen as the products are seen as old and tired, this is emphasised when there are some many more new products being offered and menus are increasing in their variety.
The placement of the actual meal within the restaurant is usually seen by way of the promotions in the restaurant, with posters advertising the latest toys, possibly backed up by television or radio commercials. Promotion also takes place with advertisements that will often be branding advertisements aiming at new customers. For example, the new range of breakfast times, or salads, showing a now target market which may not have been altercated in the past. The company is seeking to align itself with the more health conscious section of the market as well as the current core target market. The marketing to children still remains, but this is also emphasising the health aspects and the improvement in the food. The new tag line of 'I'm loving it' also seeks to emphasise the lifestyle aspect rather than just the product.
The changes have been seen in terms of offering new products as well as the way in which food nutrition leaflets are meant to be available. This goes some way to counter balance the negative publicity caused by programmes such as 'Super size Me'. Which were made purely to 'expose' the poor health nutrition of the meals. Now there are many goods, such as salads and flat bread grilled chicken sandwiches that are self, but the image remains that of burgers, as salads are not perceived as fast food. The image needs to change to fast and healthy, but this has some way to go yet.
References
Business Week (1998, March 8th) McDonald's; Can it regain its golden touch, Business Week.
Chryssides G D Kaler J H (1999), An Introduction to Business Ethics, London, Thompson Business Press.
Grant R (1998), Contemporary Strategy Analysis, London, Blackwell
Guttenplan D.D, (1996, July-August), McLibel: a free-speech food fight under British rule, Columbia Journalism Review, v35 n2 p13(3)
Hooley G J; Saunders J A; Piercy, (1998), Marketing Strategy and Competition Positioning, London, Prentice Hall
Kotler, P, (2003), Marketing Management, International Edition, New Jersey, Prentice Hall
Business Ultimate resource (2004), the book.
Mintzberg H, Quinn J B, Ghoshal S (1998), The Strategy Process, London, Prentice Hall.
Porter M E (1985) Competitive Advantage: Creating and Sustaining Superior Performance, Free Press
