McDonald’s Analysis Essay
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Background
McDonalds corp. is recognized as the world’s largest fast-food company serving millions daily worldwide. The corporation has over 30000 restaurant chains in over 120 countries. It was opened in the 1940s by two brothers Mac and Dick Donald’s in the United States. It was incorporated in 1955 and the company has sold over 100 billion hamburgers. The headquarters of the company are located in Illinois and oak brook in the United States. The current CEO of the organization is Donald Thompson. The company boast of an experienced team of managers, global infrastructure, a recognized brand, and, world-class operating system. It is presently the world’s largest food retailer serving almost the whole world.it is running a hamburger college where the chefs are trained before being recruited at the organization (Gamble, et al, 2010).
The culture of Mcdonald’s is founded on corporate values of sharing value systems, and maintaining quality standards to ensure quality is maintained and lead time is also reduced. The future plans of Mcdonald’s are to be the best employer in the societies in the world. This future goal is incorporated in the vison of the company where Mcdonald’s seeks to become the leading fast food provider around the world. To ensure the goals are attained, employing the best employees and training then is one of the strategies McDonald is using. The mission of McDonalds is to be its customers favorite place and way to eat by improving the operations so as to provide the most delicious food that meets the expectations of the its customers (Gamble, et al, 2010).
1. Force 1: Existing competitive rivalry between suppliers
Threat of Competition – High
The competition in the service industry in the hotel sector is high and the trend is rising. There is competition on prices, quality of food, location, and consistency of service, food range, presentation, and style. The needs of the customers are continuously changing and therefore, the firms are competing in introducing the services that meet the customer needs. There is the introduction of a variety of products and different food menus for the customers. There is competition in the quality of service in the sector. The operators are continuously introducing new strategies to serve customers in a better way (Kerin, 2012).
There is competition between the franchises and the locally operated restaurants adding the degree of competition. The single-locations of fast food of McDonald’s accounts for a small share of the restaurants their share in the revenue in the industry is high. There is a need to strategically locate the restaurants such as the place where the traffic of people is high. Also, marketing the brand is also important to capture customer interests (Kerin, 2012).
2. Force 2: Threat of new market entrants
Threat of New Entrants – Low
The service industry in the restaurant sector is made up of established large chains that enjoy the benefits of economies of scale, technological advances, and distribution channels. On the other hand the startup costs are low making it easy for firms to compete in this industry. There are many organizations entering the industry but firms that operate on a global scale like Mcdonald’s have a stronger competitive advantage over the startup firms. It is very unlikely that the startup firms will capture a larger market share than the giants. The giants boast of brand names and customer loyalty limiting the penetration of new entrants. Therefore, the difficulty in penetration by the startup firm makes the force on threat by new entrants into the service industry very low (Gamble, et al, 2010).
3. Force 3: Bargaining power of buyers
The consumers in the service sector do not have the power the influence the prices directly but they influence how the products are priced significantly. The availability of communication platforms such as social media and the health concerns the customers can supply views and opinions which influence others significantly (Kerin, 2012). All firms in the service sector should adhere to the requirements and social regulations; promoting quality, and spending to promote the brand reputation. The standards should be regulated so that the customers can feel safe and satisfied when consuming the products. The observation of the needs of the customer by the operators, and the lack of ability to directly influence the prices by the customers makes the power of buyers in the service sector moderate (Kerin, 2012).
4. Force 4: Power of suppliers
Power of Suppliers – Moderate
The suppliers in the service industry are very important. The prices they charge influence the profitability of the organization. Although the suppliers in the service sector cannot charge prices be the market prices, the operators in the industry lack an opportunity to bargain for large quantity discounts and cheaper products. Therefore, there is a need for the operators to create good relationships with suppliers so that the supplies are available when needed and in the right quantity. The service industry, however has many suppliers their location is very significant as it determines how cost effective it is in accessing them. The suppliers near the operators significantly influence the costs of transportation. Therefore, the fact that the suppliers do not have the ability to charge prices above the prevailing market rates and the operators do not have ability to bargain for discounts and cheaper prices makes the power of suppliers in the service industry moderate (Kerin, 2012).
5. Force 5: Threat of substitute suppliers
Threat of Substitutes – High
The products in the fast foods are optional items and are very easily substituted by other meals. The meals prepared at home, deliveries, meals supplied at stores, and dine-in restaurants are all substitutes. The increasing information on how fast foods are unhealthy other substitutes that are more healthy are becoming more attractive options. There are many promotion activities promoting the need to consume more healthy products. There is a need for the operators in the fast food sector to change the image the customers have their products by providing versatile menus that meet quality and healthy standards (Gamble, et al, 2010).
Competitiveness of the Organization within Its Industry Sector
Classifying the organization within the framework of the service process matrix
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The upper quadrant in the service process matrix contains firms with low labor intensity operation, high degree of customization and interaction between customers and the organization. McDonald’s has a high degree of customer interaction, customization of products tom meet needs of customers, which places it within the service sector. There is some picture of belonging to the service factory are via the dramatic exclusion of customization and low labor intensity due to technology advances (Gamble, et al, 2010).
McDonalds SWOT analysis.
A review on SWOT analysis of an organization is very vital when it comes to decision making. Most managers of organizations make decisions after looking at the SWOT issues an organization has (Kerin, 2012). By adopting the SWOT analysis approach, planners are able to understand the internal factors as well as factors outside the organization (Kerin, 2012). A look at the strengths and weakness gives the planners an understanding of the internal factors whereas a look at the opportunities and threats inform about the outside factors that a firm faces (Kerin, 2012). The adoption of a SWOT analysis approach helps the planners match the resources an organization has with its activities and capabilities. It also informs the planners if there is efficiency in the firm in the manner in which available resources are being utilized (Kerin, 2012).
Strengths of McDonalds.
It enjoys the advantage of being the largest fast food industry in the world. McDonald’s makes sales that account for over 8 percent of the total sales in the world in the fast food sector. It serves over 70 million customers worldwide every day. Another advantage is that it has a very strong brand that is known worldwide. The brand contains the Ronald McDonald clown which is highly identified by people worldwide. In addition, the firm conducts a string advertisement to promote the sales. Also, Mcdonald’s operates the locally adopted menus in the different countries it is operating. The ability to adopt the local needs promotes its sales. More to that, the ability to partner with the best brands such as Coca-Cola, Heinz ketchup, Donnon Yogurt and others. Lastly, the fact that over 80 percent of restaurants are run by independent franchises. This enables Mcdonald’s to focus on perfecting the marketing campaigns and serving systems. Lastly, McDonald’s also targets children by providing toys, advertisements, playgrounds and many other services. To enjoy the services the children come with their parents who also consume the services (Gamble, et al, 2010).
Weaknesses of Mcdonald’s.
McDonald’s is currently facing negative publicity where it is being criticized for offering unhealthy foods. It is being blamed for stimulating obesity and also there is criticism about the strong marketing strategies focusing on young children. Another weakness is the offering of unhealthy food menu by offering unhealthy drinks and meals. There have been protests by organizations fighting obesity decreasing the popularity of Mcdonald’s. Lastly, there is a weakness of the inability to differentiate. There is very low differentiation Mcdonald’s with the firm being unable to introduce new features. For this reason Mcdonald’s is opting to compete using prices (Kotler, et al, 2010).
Opportunities for McDonalds
There is an increase in demand for healthier foods by customers worldwide. Using its big brand name, Mcdonald’s can significantly capture of this market and provide the healthy food. However, there are efforts put in place by McDonald’s with plans to open vegetarian restaurants. Another opportunity is the need for home delivery meals is increasing and Mcdonald’s can capitalize on this opportunity. Finally, the trend of changing customer habits is on the rise and they represent new needs. Capturing on all these needs, the business opportunity for Mcdonald’s can significantly increase (Kotler, et al, 2010).
Threats for McDonalds
The fast-food market is highly saturated in developing economies. This limits the profitability of Mcdonald’s as it becomes a challenge to penetrate new markets. Another threat is the global trend towards healthy eating habits. There are attempts by governments and other organizations to fight obesity, and people are becoming more cognizant of eating healthy. Another threat is the presence of local restaurants which offer food that meets the needs of the locals better than what Mcdonald’s does. This makes it difficult for McDonalds to penetrate the local market. Lastly, there is the threat of lawsuits against McDonalds. McDonalds has been sued several times and lost the lawsuits. The lawsuits are expensive and time consuming. If McDonalds continues to operate in the same way, there is a high chance of more lawsuits (Gamble, et al, 2010).
Rationale for Choice of Service Organization
The service sector in United States is very important as it helps in meeting the needs of the people. The people heavily depend on the service sector in the conduction of their needs. The banking sector, healthcare sector, hotel sector, and communication sectors are all very important in the economy of united. The sector is creating jobs for people in the county and significantly reducing the unemployment gap. The sector drives the economy of United States by providing the necessary complementary for other sectors (Gamble, et al, 2010).
McDonald’s is a big organization with significant effects on the economy of the United States. Employing more than 2 million employees worldwide, it significantly contributes to reducing the levels of unemployment in the country. The company also contributes to the GDP and GNP of United States. McDonalds operates in over 120 countries servicing many people. By providing food for the people McDonalds is able to help people work in a convenient way (Gamble, et al, 2010).
Introduction
Service Sector Challenges:
Using distinctive service organization characteristics, contrast the operational issues of the specific organization with those faced by a typical manufacturing firm. Issues such as service encounter, supporting facility and process flows, management of capacity and demand, managing waiting lines, and service relationships may be used
There have been a myriad of challenges in the fast food industry in the last ten years that have negatively affected the profit margins. There are organizations in the sector who have withstood the challenges but there are others who have performed better than others. There has been pressure for the need to adapt healthy food affecting the sales of the fast food restaurants. Overtime, these restaurants have been service unhealthy food and drinks to the customers. The food is industrial in preparation and highly processed and they contain high fat and are believed to increase the BMI (body mass index) causing weight gain. This has led to publication of books that inform people on the healthy food options and the negative consequences of consuming the fast food. There have been responds by the operators introducing healthy options but the shadow of bad publicity still hangs over the sector (Northouse, 2010).
Another challenge in the industry is the rising prices of commodities reducing on profitability. The food and beverage inputs make the highest portion of the costs. The high prices of livestock, wheat, corn and others have significantly shrunk the profit margins. Due to stiff competition in the sector it is impossible to shift the increase in costs towards the customers, and in most cases the margins are below 10 percent. The recent recession lowered the commodity prices but it also come with complications, and presently the prices are on the rise. Another challenge in the industry is the high saturation levels in the market. There are many franchise in almost every town competing for customers. There are many competitors in this market offering similar products and there are few customers per location. The ales of individual restaurants are very low because of sharing a small market with many competitors (Cox, & Fardon, 2005).
Assessment of the Service Strategy
In the delivery of service to customers Mcdonald’s has adopted a global strategy aiming at becoming the choice for customers. The franchise model is one of the strategies McDonald is using. Using the franchise model Mcdonald’s owns only 15 percent and the rest is owned by the franchise. There is also the adoption of the local menus to serve the customers food that they are familiar with. The put into consideration the needs of the customers and their local preferences. To capture on the Indian market, McDonald is thinking on introducing vegetarian restaurants. The firm tries to meet the lifestyle needs of the diverse customers it serves. Another unique strategy by Mcdonald’s is the advertising method. McDonald’s uses different slogans which are aimed at attracting a given type of clients. They avoid using negative or comparison ads of those in competition. The firm has around 140 slogans used in advertising all over the world and 23 out of them are used in the United States (Kotler, et al, 2010.
The service strategy by McDonald’s also focuses on the company growth. The firm is continuously adding the number of restaurants so as to increase on the market presence. They consistently focus on increasing sales and the profit margins.at McDonalds there is adoption of better operations, product development, and innovation. McDonald targets three classes but not limited. They put in place promotions to attract children, teenagers and the business customers (Northouse, 2010).
Another service strategy adopted by Mcdonald’s is co-branding strategy which has significantly boosted the business. It is the provision on the am things in different manners. It has tied up with other firms and serve the customers with the products together. The strategy has helped McDonald’s increase profits and also increase the sales volume and the growth of the company. Another effective strategy McDonalds has applied overtime in ensuring quality services is the use of the “plan to win strategy”. The strategy us 5p’s of people, price, product, place, and promotion. The 5p’s perceive every element in the organization and they focus on improving everything within McDonalds (Wright, et al, 2000).
Analysis of the Service Design
Restaurant design
Designing the restaurant effectively plays a role in attracting customers and retaining them. The designs should complement the food preparation and the quality of service. The achieving of a restaurant design that meets all the requirements shows the ability to understand restaurant front and back operations (Northouse, 2010).
New service development
The development of new services at Mcdonald’s is incorporated in the daily process at the firm so as to ensure normal activities are not disrupted. There is the conduction of a study to determine the needs before any new service is introduced (Northouse, 2010).
Service encounter
The quality of service at Mcdonald’s is aimed at meeting the needs of the customers. The service includes the pre-service, the main service and the after service. All information for a given service are available to the customer before any decision is made. There is a website that has all the information relating to the service experience at McDonalds (Gamble, et al, 2010).
Supporting facility and process flows
The flow of activities at Mcdonald’s is smooth thanks to the incorporation of systems in all process. There is use of technology and systems in processing information. Systems have been put in place to ensure the expectations of customers are met (Northouse, 2010).
Service quality
So far Mcdonald’s offers its customers the best quality service in all sections. There is use of self-service to ensure there is effective management of queues. The customers can now be served according to how they arrive. However, there are continuous efforts to improve the quality of service in the future (Kotler & Lee, 2005).
Facility location
There is a significant part in the success of any business. There is a need to analyze the flow of customers in relation to the services that are being provided. The restaurants by McDonalds are located strategically in places with high traffic of people. The restaurants are at convenient places for easy access by customers (Miller, 2000).
Information technology
Technological progress is taking organization with a storm. The organizations which efficiently adopt the new technology are at a better advantage than the ones which do not. There is a high rate of population growth and it can be predicted that the future of McDonald’s hamburger making will be robot like increasing speed and reducing demand for manpower (Northouse, 2010).
Assessment of the Service Operations Management
Operations management at Mcdonald’s are aimed at converting commodities to food according to the needs of the customers. The methods that McDonalds use are forecasting, scheduling, capacity planning, and assuring quality, managing inventories, control of activity, motivating employees, and many others. All these efforts are aimed at ensuring the goals set are achieved. It concerns the effective use of available resources at McDonalds so as the desired output is achieved. There is a need to match the operations management with the organizations goals (Hitt, et al, 2009).
Problems in the system
There are several problems that McDonald’s restaurants encounter in relation to operations management. There are cases of improper product planning where it becomes impossible to adequately adjust to rising demands. When this happens customers go to other nearby restaurants. There are situations of shortage of ingredients in some outlets. Another problem is lack of parking space decreasing the number of customer who could visit the restaurants. It becomes a major problem for the customers who have no waiting time in situations where the restaurants lack drive through facilities (Kotler, et al, 2010.
Another problem is the problem of supply chain management and inventory management leading to shortages in stock. The problems are caused by errors in calculations and ordering problems. There is problems of using batch numbers inadequately that sometimes require customers to wait for longer periods (Northouse, 2010).
In respond to the above problems, McDonalds has introduced product planning in operations management. Product planning ensures that products are acquired in a system manner ensuring achievement of optimality. There is a continuous update of the menu at McDonalds to accommodate the varying needs of customers. The increase in demand for healthy foods has led to incorporation of healthy food in the menu (Northouse, 2010).
Another step is capacity planning to determine the needs of an organization. McDonalds is continuously accessing the needs of the outlets before any resource is acquired. By knowing the capacity of the restaurants the operation decisions can easily be made. There is a consideration of the long-term and the short-term need of the restaurants in acquiring resources. The operations manager at McDonalds has to set the capacity of making food for each restaurant to ovoid on shortages or surpluses. There is a need to make sure that there is adequate ingredients and enough stock to make the need food (Kerin, 2012).
There is location planning as a role of the operations management. Location of the restaurant is very significant s it determines the success or failure of an organization. There are efforts in choosing a location of the restaurants of McDonalds. The restaurants are located in places where there is maximum customer visits to the restaurants. Another consideration in the location of the outlets of McDonalds is the availability of parking space to ensure customers with cars are not inconvenienced. This goes hand in hand with the need for drive thru and locations with ample space to ensure raw materials can easily be delivered (Kerin, 2012).
In operations management McDonalds conducts process planning to ensure the making of food stuffs is done in an economic way ad a competitive manner. The activity consist of selecting, specifying processes, developing, machine tools, and other planning to ensure the materials are converted to food. At McDonalds there is establishment of the cooking process to ensure food is prepared using the most economic and competitive way. There is consideration of health, hygiene, and safety issues. There is a continuous introduction of latest equipment in the kitchen due to technological advancement to pace, perfect, and improve the quality of food (Kotler, et al, 2010.
Another activity in the operations at McDonalds is the supply chain management. The supply chain represents the flow of goods from the suppliers then through processes within the organization until the final products is achieved. There is a need to effectively coordinate all the activities in the supply chains of organizations to minimize on costs and improve quality. McDonalds has several suppliers who deliver the required resources to ensure they make the food on their menu and other customer needs. The management in the operations have put in place strategies to the raw materials are delivered on time, quality, quantity, acceptable cost, and in the right manner (Kotler, et al, 2010.
Conclusions
Recommendations for Change—Overall Service Design
The introductions of new services should ensure a seamless flow of operation within McDonalds. There is a need to match change with capacity so that operations within the firm are not affected. Effective communication plan should be drafted before any change is implemented. The changeover should be implemented in phases to ensure the employees easily adopt the new changes. Provisions for resistance should be provided. Adoption of new technology should be for the benefit of the organization where a CBA (cost benefit analysis) should be conducted before any change in implemented (Mallik, 2010).
Recommendations for Change—Operations Management
Toimprove on acquisition of raw material and other resources within McDonalds there is a need for the management to use the EOQ (economic order quantity) approach so as to order optimally. The EOQ tool factors in the problem of cost in relation to number of order, the storage costs, and many other costs. Cutting on such costs can significantly add on the profits of the McDonalds (Kerin, 2012).
Another area of improvement is the designing of the layout at McDonalds. The operations management personally should ensure that there is a seamless flow of activities within the stores and kitchens. This goes a long way in reducing on the number of accidents in the kitchens and other places of work. There should be a clear picture on how things are ordered within the firm (Kerin, 2012).
Another good tool that can be applied in McDonalds is the use of the FIFO (first in first out) approach in handling materials. The fact the materials which McDonalds handles are perishable it is important to ensure they are consumed in the order of arrival. This can save on costs of storage and refrigeration (Gamble, et al, 2010).
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