Operations Management 1

Operations Management

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 Operations Management 2

OPERATIONS MANAGEMENT

Introduction: Overview of McDonalds

Founded in 1940, McDonalds is one of the largest food service retailer in the world. It
has around 35,000 restaurants all over the world which serves approximately 70 million
customers daily. The food retail chain has operations in over a hundred countries and has
employed over 1.7 million individuals. The company has franchised majority of its restaurants,
and this serves as one of their main revenue sources. Other revenue sources of the include
royalties and rent collection (Vignali 2001); additional revenue comes from the sales of the
restaurants that are directly ran by the company. The highest revenue ever generated by
McDonalds stands at USD 27.5 billion of which USD 5.5 billion was profit. The company offers
a wide range of foods such as French fries, cheeseburgers, chicken, hamburgers, milkshakes as
well as a variety of deserts. McDonalds has its headquarters in Illinois, US. The food retail giant
has continually recorded high sales and profits such as the record sale of 100 billion hamburgers
in 1993. According to Gilbert and Veloutsou (2006), one of the reasons behind the company’s
success is their policy if introducing new items in their menu to attract new customers.

Inventory Appraisal

In the traditional operation management, inventories of finished products and raw

materials were held as a reserve in case needed items ran out of stock. However, in the recent
years, organization management have to know such large inventories are expensive. As a result,
majority of organizations and large businesses have changed their methodology in inventory and
production management (Patton et al., 2011). McDonalds have been left behind as they have also
implemented new strategies in the control of flow of food processing in a multi stage process of
production. This inventory and production management approach is referred to as Just-In-Time
Management (JIT), in which goods and raw materials are acquired when they are to be used in a
certain production stage. This type of production and inventory have brought significant savings
to the cost of production due to decreased inventory levels. The key aspect of JIT is its use of the
“pull” strategy in the control of production (Patton et al., 2011).

The JIT system at McDonalds have some essential aspects which includes the following:
 Operations Management 3

i. It reduces inventory in the supply chains. This system of inventory management gains
substantial efficacies through numerous deliveries of minimal quantities to cater for
the instant demands in the food production chain.
ii. It applies a “pull” system which is referred to as Kanban in the control of production
and raw materials.
iii. It also involves the commitment of employees in regards to their involvement and
participation. It specifically involves the commitment as well as work ethics and
practices which leads to the elimination of wastes (Greasley 2013).

Since its adoption of the JIT system, McDonalds have managed to significantly reduce the
cost of production. The following important characteristics of the JIT approach are behind these
cost savings:

i. Uniform and smooth production flow: The JIT approach establishes a smooth flow of
production which starts with arrival of raw materials and ends with the successful and
timely delivery of final products to the customers. Wide fluctuations in the rates of
production can result in unnecessary delays and excessive “work-in-progress”. The
JIT approach eliminates such non-value-added costs (Greasley 2013).
ii. The pull method of stage coordination during production: Food processing at
McDonalds occurs in several stages. Using the pull approach, goods and raw
materials are only produced in a production stage only if they are required in another
production stage. Such an approach eliminates or reduces “work-in-process” during
the production process. The final result of this approach is a significant reduction in
the waiting time of customers and the resultant non-value-added cost (Greasley
2013).

Operational Management at McDonalds

Quality operation management at McDonalds has been considered as one of the main
factors that has catapulted the company to the top of the food retail business. The firm has
digitalized its information systems and implemented well-founded corporate standards that
ensures quality in all aspects of the company. One of the measures that the company uses to
maintain quality standards is through regular inspections (at least twice per year) in each of its
 Operations Management 4

restaurants (Linn, and Golin 2006). Additionally, the company conducts regular training and
education workshops to create awareness among its employees on quality standards of the
company and measures and techniques of customer satisfaction (Bamford and Forrester 2010).

McDonalds prioritizes the improvement and maintenance of the provision of high quality
products and services. One of the company’s requirements for prospective business partners is
that one must attend training and education workshops where one learns of the organization
culture and the quality standards of the company. One of the reasons behind such workshops is
to ensure that McDonalds franchisees do not compromise the food quality of the company which
has become part of their identity. All stores are required to have similar interior and exterior
design and décor. To maintain the quality of food supplies, the organization has a list of pre-
qualified suppliers who have been vetted and approved to do business with the franchisees
(Peters 2009).

The selection of the franchisees is a thorough process which also employs quality
operational management. The selection process is comprehensive and the applicants must meet
all the requirements to qualify for franchising. First, all prospects have to be acquainted with the
operation and training manuals of the company. McDonalds business procedures and standards
of quality are detailed in 600-page manual; the applicants must master the contents of the manual
which is very challenging to many. The other requirement is mandatory training for all
applicants which is held at Hamburger University which is paid for by the applicant. After
successfully completing the training, the qualified individuals sign a franchise agreement with
McDonalds and are free to establish a franchise store under McDonalds brand name. The
agreement further details the obligations of the franchise and regulations in regards to quality
control.

McDonalds Performance Objectives

Performance objectives are developed by an organization’s management to serve as

guiding principles for the company’s vision and mission to accomplish set objectives in all
aspects of the organization. They are developed based on the specific activities and operations
performed by the organization (Johnston, Clark and Schulver 2012). They primarily describe the
acceptable and desirable activities and outcomes in regards to output and organizational
 Operations Management 5

behavior. they should be set in a way that they are in line with the organization’s objectives and
goals. An organization can have both organizational and departmental performance objectives.
However, the performance objectives shouldn’t clash but rather should be aimed at
accomplishing the general organizational goals and objectives (Patton et al., 2011).

At McDonalds, performance objectives are used to enhance the efficacy of operations.

One of their notable accomplishments is the provision of quality fast foods at convenient prices.
Performance objectives has assisted McDonalds in enlarging their market share and sales
volume; it has also defined the organizational behavior that is expected from the employees in
regards to the standards of quality. The establishment and implementation of quality control
strategies have aided the food retail giant to establish a competitive environment and catapulted
it to become one of the top players in the food retail industry.

At McDonalds performance objectives enhances the quality of products and ensures the
maintenance of good customer service and relations. Customer satisfaction is a key aspect in
McDonald’s business model mostly because the firm is service-based. They have continually
improved their customer services to the extent that the current waiting time for customers has
been significantly reduced. Kaplan (2009) describes the process of picking up orders at any
McDonalds outlet as fast and efficient. The firm has strived to ensure that customers have good
customer experiences in all McDonalds food outlets. The firm has also adopted and implemented
modern technology to enhance their service delivery; such digitalizing of their operations has
enabled the McDonalds employees to serve more customers daily.

Findings

Cost

Cost is an important aspect of any business enterprise which wants to have competitive
prices and McDonald’s realizes this too well. Some organizations sore cash on employee wages,
purchase of tools and machinery and provision of services which minimizes their profits.
McDonalds have mastered the art of minimizing their operating costs. They are thus able to sell
their food much lower than their competitors. They frequently give promotional offers to their
customers which attracts more customers and increases customer loyalty. The large number of
 Operations Management 6

their customers contributes to lower operating costs due to economies of scale. To further reduce
their operating costs, the company plans to use equipment which is energy saving (Kaplan 2009).

Speed

This is the time taken by the customers to have their products or services delivered. The
company aims to reduce this waiting time to 95 seconds. The objective of the company is to
achieve a drive through experience and hence the company needs to fine tune this aspect. If the
company fails to deliver this customer service experience, they mind end up losing lots of
customers (Kiley 2007).

Quality

One of the main emphasis of McDonalds is food quality. The company has established measures
and regulations to ensure that all their stores high quality standards. Some of the measures which
are defines by the quality management operations include regular inspection of food quality at all
McDonalds stores. The company has also put lots of emphasis on training and educating
employees on the importance of maintaining high quality standards. The quality and variety of
their food has continually changed and improved over the years (Kaplan 2009).

Employee Management

Employee management in quality control operations is primarily based on scientific

management principles. This principle suggests that workers should be rewarded for
accomplishing their set objectives and goals. they should also be rewarded with promotions for
achieving certain degrees of academic education. McDonalds food chain have implemented the
use of job promotions and competitive wages where hardworking employees are recognized and
rewarded. McDonalds rewards exceptional and outstanding employees in different ways such
employee of month awards and positive remarks and cognitions (Slack, Chambers and Johnston
2009). The organization has implemented some thorough and precise procedures that govern the
 Operations Management 7

employees’ working environment and ensures the food products being sold to customers are of
high and uniform quality in all its franchises.

McDonalds hire employees who possess the required skill set, abilities, and
competencies, to work so that to build a team capable of running the business and achieving the
set long term and short term goals. The process of selecting and hiring employees at the food
retail giant is rigorous and thorough and involves three aspects:

 A Behavioral Interview
 Job Analysis
 Screening

This selection process ensures that only the qualified individuals, with the relevant skills,
get the chance to work at McDonalds. Another motive behind the selection process is making the
hired employees believe that they have skills and abilities which are essential to the successful
running of the company. Such kind of beliefs enhances individual and team operations which
contributes to the overall success of the company. The selection process also ensures that there is
no recruitment of individuals who don’t need the required qualifications for any particular job at
McDonalds. Hiring such individuals can be detrimental to the organization in that it can create
instability and loopholes in regards to skill sets within the company. Incompetent and unskilled
workers can negatively affect the productivity of McDonalds.

Another important aspect of employee management at McDonalds is treating and relating

to the employee in a good manner. This helps in ensuring that the interactional and procedural
justice is practiced and embedded in the organizational culture of McDonalds (Peters 2009). The
company’s management have made this a core aspect in all operations at McDonalds. The
company believes that after acquiring the best employees in the job market, they have an
obligation to treat them right.

The Principle of performance management is another principle which is being employed

by various organizations in the management of employees in regards to quality operations
management. This process is continual process which defines the hierarchal targets and visions,
introduces and distinguishes authoritative measures of execution. The principle also makes the
 Operations Management 8

curative approaches to warranty the achievement of the models which utilizes techniques and
frameworks which are coordinated with culture and practices. Administration systems
concentrates on the collecting, analyzing and transmission information in an opportune manner
(Rugman and Verbeke 2004).

The performance management framework at McDonalds incorporates arranging

execution, bolstering for superiority, improvement of execution, and evaluation of execution.
Administration of execution is used to distinguish essential authoritative goals and set execution
methodologies that are identified together with those targets. These principles encompass both
group and individual execution. McDonalds doesn’t require to enlarge their administrative tools
or pay for frameworks that are prearranged by exorbitant specialists. Directors should be
responsible and mindful so as to effectively oversee the execution of duties which is a
combination of setting objectives and constant inputs from all the departments of the
organization so as to enhance execution.

Job Design

The job design at the food retail giant’s quality controls is guided by the personal management
models. The jobs under this department is also designed and guided by specific management
principles. The employees at McDonalds are allowed to use self-control mechanisms and
measures in regards to their specific job descriptions and the overall discipline and quality of the
organization. Working as a team and units is a common feature in McDonalds job designs.

Environmental and Ethical Issues

Just like majority of the food companies all over the world, it is important for McDonalds
to consider the environmental and ethical issues. The company employs quality operation
mismanagement so as to ensure that the food products are safe for human consumption.
However, the company is still faced with a number of issues and the management have expressed
their intentions to handle the environmental issues.

The major environmental issue at McDonalds is waste resulting from packaging

materials. This waste results from the company’s plastic materials which are used to wrap and
pack food products. Such packaging materials include burger wrappers, fries’ boxes, drinking
 Operations Management 9

cups, straws, napkins and packaging lids. In addition to this, McDonalds uses lots of unnecessary
packaging materials which end up on the streets and in landfills. The primary reason behind the
prevalent waste products in the food industry is convenience and portability involved in the food
packaging. The fast life of the modern era has resulted in individuals who are all busy and in a
hurry; they thus prefer easy and quick foods which have resulted in a significant increase of the
waste generated in the food industry. In this light, survey statistics indicate that the cups and
packaging materials from McDonalds accounts for 30 per cent of the entire street litter in the
United States.

Waste generation and inappropriate disposal causes adverse effects to human life, animal
life and environmental pollution. Therefore, McDonalds needs to take relevant action so as to
curb the waste from their stores that finds its way to the environment (Gereffi and Christian
2009). In its European, McDonalds produces and disposes off 50 million packaging annually.
Getting rid of this waste by burning is not a viable option because it produces harmful gases and
chemicals which further destroys the environment and is detrimental to the human health.
Alternatively, used of landfills results in land polluting which harms the flora and fauna in the
surrounding lands. Some of the waste produced may find its way to the sea where it poisons
marine life leading to decreased population of ocean life.

McDonalds management are looking to reduce the company’s contribution to global

warming through the emission of greenhouse gases. Studies show that 5% of the greenhouse
emissions in the US is from livestock (Daniel and Wilson 2003); McDonalds is one of the largest
cattle buyers in the world, purchasing approximately 36,000 cattle per year. Operation
management also involves the acquisition of raw materials. McDonalds also outsources meat
from private supplies which is used to make burgers. Majority of the private suppliers have
constantly been accused of degrading the environment by grazing in forests and destroying
natural habitats. Additionally, McDonalds have been accused of using poultry feed whose
ingredients are grown in the forests to fed their poultry.

Operation Management Challenges

The following are the main challenges facing the management of operations at McDonalds:
 Operations Management 10

 Variety of overall output.

 The varying demand for the end products
 Degree of visibility of the end products to the potential customers.
 The volume aspect.

Conclusions

The food retail giant can make numerous changes that can potentially enhance the
operations management at the organization. The company can apply and implement six sigma in
their operations management can be effective in enhancing and improving the quality of their
products. The concept of sigma is designed to mitigate the defects of the operation systems. It is
thus important to identify the deficiencies in the company’s food products as a crucial aspect of
the framework. The six sigma model has five functions which include defining, measuring,
analyzing, improving and controlling. The management at McDonalds can apply and implement
these aspects and use them to analyze how they can simplify their operations management so as
to accomplish maximum efficacy.

There is need for McDonalds to increase their efforts in reducing the negative impact
towards the environment. The company should increasingly invest in research which is aimed at
minimizing the greenhouse emissions from the organization. McDonalds should also ensure that
their suppliers to adopt safe practices in reducing the impact of their livestock to the
environment. Greenhouse emissions from agriculture and livestock can be mitigated in the long
run through carbon sequestration. Lastly, McDonalds needs to curb the amount of waste they
generate through packaging. They need to adopt packaging materials which are reusable; they
can also reward customers who use their own plastic bags by giving them incentives. Some of
the big players in the food industry have started the use of renewable ecofriendly packaging
materials in the US and McDonalds should follow suit.
 Operations Management 11

Reference List

Bamford, D R, and Forrester, P L., 2010. The essential guide to Operations Management:
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Daniel, E. M., and Wilson, H. N. 2003. The role of dynamic capabilities in e-business
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Gereffi, G., Lee, J., and Christian, M. 2009. US-based food and agricultural value chains and
their relevance to healthy diets. Journal of hunger & environmental nutrition, 4(3-4), 21-37.

Gilbert, G. R., and Veloutsou, C. 2006. A cross-industry comparison of customer satisfaction.

Journal of Services Marketing, 20(5), 29-30.

Greasley A., 2013. Operations Management, Third Edition, John Wiley. ISBN 978-1-11997-854-
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Johnston R; Clark, G, and Schulver, M., 2012 Service Operations Management: Improving
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Kaplan, R. 2009. Measuring performance: expert solutions to everyday challenges. Boston,

Mass: Harvard Business Press.

Kiley, D. 2007. Best global brands. Business Week, 6(2007), 56-64.

Linn, S., and Golin, J. 2006. Beyond commercials: How food marketers target children. Loy.
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Patton, S; Clegg, B; Hsuan, J, and Pilkington, A., 2011. Operations Management. McGraw-Hill.
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Peters, N. 2009. Operational Excellence-Identifying qualifying and order winning factors.

Rugman, A. M., & Verbeke, A. 2004. A perspective on regional and global strategies of
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Slack N, Chambers S and Johnston R., 2013. Operations Management, Seventh Edition.
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Slack, N., Chambers, S., & Johnston, R. 2009. Operations management. Pearson Education.

Vignali, C. 2001. McDonald’s: “think global, act local”--the marketing mix. British Food
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