Example Answers to Questions on Strategy, Quality Control and Change

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Operation management is the core function of the organization. Operation management is helpful in increase product value and efficient transformation. All the organizations have some goals and objectives and the Operation Management is short term plans to fulfill these objectives. Operation Management Plans helpful to achieve strategic

objectives by tactical plans. These tactical plans are for day to day issues and are very

frequent e.g. for the production operation management is amount of output produced in

specified time and machinery and HR requirements.

DEFINITION

"Operation management is concerned with the creating, operating and controlling a

transformation system which takes inputs of a variety of resources and produces outputs

of goods and services which are needed by customers."

Operation Management: an active learning approach by John Bicheno, Brian

Elliot Page 9

Cited at June 15, 2010

Company Background

McDonald's is the largest restaurant chain in the world. It started in 1940, when two

brothers Dick and Mac McDonald's opened first restaurant in San Bernardino,

California. Initially, they owned a hotdog stand, but after establishing the restaurant

they served around 25 items, which were mostly barbequed. It becomes popular and

profitable. In 1948 they closed it and opened a restaurant to sell only hamburgers,

milkshake and French fries. Gradually it become famous and they started franchising

their restaurant in the year 1953.

History of McDonald's

http://lifestyleiloveindia.com/lounge/history-of-mcdonlads-1806.html Cited at 27th July 2010

Now McDonald's is the world's largest food chain. It has about 30,000 restaurants in

the 121 countries and it serves 52 million customers. Its 70% restaurants are under

franchise and its head office in United States. The company's mission statement is "be

our customers' favorite place and way to eat". Its mission statement slightly changed in

the UK. It is "be the UK's best fast service restaurant experience".

McDonalds; company background, products, competitors and positioning

www.docstoc.com/docs/9481476/mcdonalds-company-background-products-

competitors-positioning

Cited at 27th July 2010

Role and importance of operations management in McDonalds

McDonald's is another example of a JIT system wherein McDonald's doesn't begin to

cook its orders until a customer has placed a specific order. Due to sophisticated burger

making technology, McDonald's is able to make food fast enough to wait until it is been

ordered.

Improved Quality

McDonald's provide customers good quality food. It is just because of JIT technique.

They wait until consumer placed order of burger and then they cook and give to the

consumer. They give consumer fresh food because of this they provide consumer good

quality food.

This higher quality customer service is subject to McDonald's ability to actually

produce faster. Without this ability, McDonald's ordering costs would be sky-high

because the costs associated with ordering would be the loss of customers tired of

ordering fast food that really isn't fast.

Second, JIT allows McDonald's to adapt to demand a little bit better. Seemingly, lower

inventory levels would cause McDonald's bigger problems in a higher demand because

they wouldn't have their safety stock. However, because they can produce burgers in a

record time, they don't have to worry about their pre-made burger inventories running

out in the middle of an exceptionally busy shift

Lower Costs

The holding costs for burger parts (beef, cheese, buns, whatever other garbage they put

on their burgers) are fairly high because of their spoilage costs. Frozen ground beef

that's good today might not be so good in a few months. Once cooked, the same ground

beef's spoilage rate shoots through the roof. Instead of having a shelf life of months or

weeks, the burger needs to be sold within 15 minutes or so. The holding costs go from

roughly 20% per week to 100% per hour.

In other words, under McDonald's old system, they produced at a level that gave them

high inventories so that food would be available fast, which is the main benefit of fast

food. Unfortunately, food that was unsold after a short period of time was scrapped.

Food that was sold was forced to be sold at a higher price in order to absorb the scrap

costs of unsold food. Ultimately this meant higher costs for McDonald's.

Why JIT

Economic Order QuantityS avings

A large benefit of JIT is that it reduces the total cost of ordering and holding inventory.

Let's quickly recap three firms that have achieved this and how they did so.

Dell and McDonald's

High holding costs are the nature of the computer and fast food industries. JIT system

allowed them to exploit the savings that were realized by holding less inventory.

High holding costs and low ordering costs are the factors that drive JIT. Generally, it's

the ability to lower ordering costs that make it a feasible solution. McDonald's and Dell

were both slaves to the high holding costs. It was just the nature of their industry. The

solution for them was that while they couldn't lower holding costs, they could lower

ordering costs. Wal-Mart didn't even have particularly high holding costs, but they

realized it would be profitable to lower ordering costs which led to high holding costs as

a ratio of holding costs to ordering costs.

What McDonald's, Wal-Mart, and Dell have in common is very high holding costs in

comparison to their ordering costs. Ultimately, this, coupled with the ability to lower

safety stock, is when JIT is effective. EOQ determines how much you should order and

there are two factors that drive economic order quantities down: low ordering costs and6

high holding costs. Depending on the product and the industry, one or both of these

qualities may exist in your operations. If they do, JIT may be right for you. Without

the ability to make ordering costs low as a percentage of holding costs then there is no

need for JIT. In fact, the increased frequency in ordering will result in cost increases.

Safety StockReductions

The other aspect of JIT is the drastic reduction in safety stock. My previous article on

safety stock discussed the two reasons safety stock exists: variability in demand and

variability in lead times from suppliers (in McDonald's case, the supplier is the internal

production process).

It is because of this variability that safety stock exists in the first place. What JIT does

is tries to reduce the lead times and variation in lead times in order to help reduce safety

stock. Let's revisit the safety stock formula to figure out why this is:

Safety Stock: {Z*SQRT(Avg. Lead Time*Standard Deviation of Demand^2 + Avg.

Demand*Standard Deviation of Lead Time^2}

The first term is Lead Time*Standard Deviation of Demand^2. This is the inventory

needed to account for fluctuations in demand during the lead time. If lead time is

shorter, which JIT tries to accomplish, then this part of the safety stock is smaller, this

lowering safety stock inventory.

Wal-Mart and Dell accomplished this by using better software and communication with

their suppliers. McDonald's accomplished this by creating a system that allowed a

faster burger production (remember, McDonald's lead times are internal).

The second term is Avg. Demand*Standard Deviation of Lead Time^2. This is the

inventory needed to fill demand because of lead time variance. If lead time has no

variance or is reduced then this term can be eliminated or at least reduced. Again, this

is what JIT try to accomplish.

Wal-Mart accomplishes this by demanding it, Dell by working with suppliers, and

McDonald's by standardizing production.

high holding costs. Depending on the product and the industry, one or both of these

qualities may exist in your operations. If they do, JIT may be right for you. Without

the ability to make ordering costs low as a percentage of holding costs then there is no

need for JIT. In fact, the increased frequency in ordering will result in cost increases.

Safety StockReductions

The other aspect of JIT is the drastic reduction in safety stock. My previous article on

safety stock discussed the two reasons safety stock exists: variability in demand and

variability in lead times from suppliers (in McDonald's case, the supplier is the internal

production process).

It is because of this variability that safety stock exists in the first place. What JIT does

is tries to reduce the lead times and variation in lead times in order to help reduce safety

stock. Let's revisit the safety stock formula to figure out why this is:

Safety Stock: {Z*SQRT(Avg. Lead Time*Standard Deviation of Demand^2 + Avg.

Demand*Standard Deviation of Lead Time^2}

The first term is Lead Time*Standard Deviation of Demand^2. This is the inventory

needed to account for fluctuations in demand during the lead time. If lead time is

shorter, which JIT tries to accomplish, then this part of the safety stock is smaller, this

lowering safety stock inventory.

Wal-Mart and Dell accomplished this by using better software and communication with

their suppliers. McDonald's accomplished this by creating a system that allowed a

faster burger production (remember, McDonald's lead times are internal).

The second term is Avg. Demand*Standard Deviation of Lead Time^2. This is the

inventory needed to fill demand because of lead time variance. If lead time has no

variance or is reduced then this term can be eliminated or at least reduced. Again, this

is what JIT try to accomplish.

Wal-Mart accomplishes this by demanding it, Dell by working with suppliers, and

McDonald's by standardizing production.

In order to accomplish the tasks of shortening lead times and reducing their variances, a

considerable amount of work needs to be done with suppliers/internal operations. For

some firms this is worth the trouble, for others, it is not.

Conclusively, there are two major parts to JIT inventory operations: lowering the ratio

between ordering costs and holding costs and shortening lead times. What results is a

firm with such high holding costs that ordering very small batches very frequently is the

most profitable solution. This eliminates average inventory above the safety stock

level. Then, if lead times and lead time variability can be decreased, safety stock can be

decreased. The result is inventory coming in as it needs to come in. In other words, it

comes in just-in-time.

McDonalds, a guide to the benefits of JIT

www.inventorymanagementreview.org/2005/11/mcdonalds_a_gui.html

Cited at 27th July 2010

Strategic Objectives of McDonald's

Customer satisfaction

McDonald's collects the information about customer satisfaction. Then they can take

positive action regarding to the customer satisfaction and operational performance. The

McDonald's manager collects the information by talking their customers and tries to

give best service. It is the best method to solve the customer problems and improve the

level of satisfaction of customers. This encourages McDonald's employees and

managers to be responsive and communicative with customers. McDonald's maintain

balance between the customer satisfaction and operations in restaurant. McDonald's

constantly talk to their customers and aware of the problems and complaints.

Supply chain performance

McDonalds can be to develop framework for measuring supply chain performance

linking to satisfaction modes of customers that can be in terms of McDonald's decision

process and operational performance pattern which requires real time performance

measures during operation and communication within McDonald's operation areas,

performance measurement practice in the case of McDonalds implies to customer

satisfaction from within there indicates performance operation levels and McDonalds

financial measures from the effective management stature. Strategies are vital for all

business, irregardless of the goods or forces that they offer. Through strategic

supervision and operations, companies are able to incorporate innovative and successful

means of running McDonalds businesses. In the fast food industry, certain business

strategies are also being developed and applied so as to achieve similar effects. The case

study will provide focus on McDonalds and how the company has evolved to be

successful in the British market (McDonald, 2008).

Thinking made easy strategic management-McDonalds

www.ivythesistypepad.com/term_paper_topics/2010/08/strategic-management-

mcdonalds.html

cited at 28th July 2010

success of operation management in McDonald's

In today's society, corporations and enterprises are expanding their businesses in the

global

markets. Globalization is necessary for success and survival in the worldwide market;

however, global competition is not easy. By the end of the twentieth century, the list of

Fortune 500 companies was no longer only United States corporations due to an increase

in

international companies joining the list. As a leading food service retailer, McDonald's joins

those corporations with restaurants in 119 countries. Important strategic decisions are a

key

factor to their success with consideration for both internal and external factors. When

considering the foreign market, companies need to consider there are risks. There must be

local marketing to appeal to the local consumers and also to build relationships and trust.

Therefore, the strategic planning for marketing has to be effective. McDonald's caters its

menu in other countries to the cultures of the regions. For example, in India, the non-

vegetarian menu includes chicken and fish items only. Beef is not on the menu in India

because are considered sacred. Global marketing decisions are no different than those

made

domestically but the decisions are unique to each country. Furthermore, operating on a

global

scale allows a company's employees to experience working in different cultural

environments. This is a good marketing strategy for recruiting employees. McDonald's has

aglobal core curriculum for its restaurant management.

McDonald's commitment to diversity is established on the foundational belief that diversity

is

not just a moral and ethical issue, but also a business issue. Due to the global expanse of

McDonald's business, diversity has become an integral part of the internal company

culture.

McDonald's has over 30,000 restaurants around the world, which means franchise

owner/operators, employees, and customers represent just about every culture, religion or

ethnicity on earth. In addition, McDonald's promotes the use of local suppliers and based

on

their policies of diversity, expects and retains suppliers that have a similar diversity culture.

Knowing and understanding the local customs and traditions of the communities where

McDonald's has established businesses, integrating people from these communities into

the

company, and adapting locally to the tastes and cuisines of the community, has made

McDonald's the leader in their industry.

In the United States alone, McDonald's has won numerous awards and received national

recognition for diversity. According to McDonald's website, www.mcdonlads.com, awards

include; PUSH-Excel Corporate Partner Award, Corporate Achievement and Image Award,

Nullities Corporate Award, Corporate Vision Award, and the Circle of Inclusion Award.

These awards and recognitions are not the result of a surface attempt to appease the

critics.

They are the result of McDonald's embracing and integrating diversity into their

company

ethos as an asset and an ally.

McDonald's realizes that having diversity as an asset greatly enhances the profitability of

the

company. Diversity is a direct reflection of a company's interpersonal relationships. These

relationships, if positive, result in a rewarding venture. Conversely, if the relationships are

negative, the company's morale declines and if not addressed, leads to the deterioration of

the

company. This deterioration directly impacts the company's income and the community's

acceptance of the business. However, McDonald's leadership encourages diversity through

their policies and programs. McDonald's proven success with leveraging the advantages of

diversity can be attributed to their core value of ethics.

McDonald's success is built on the foundation of personal and professional integrity. From

the beginning, McDonald's has based its reputation on trust and dependability, and their

commitment to the community made them a household name. Founder Ray Kroc, believed

in

giving something back to the community in order to make the world a better place.

Throughout the 1970's, McDonald's became involved with a lot of charity work. In 1974

established a charity called Ronald McDonald House. The purpose of this program was to

provide temporary housing for the families of seriously ill children receiving treatment at

nearby hospitals. Since the 70s, more than 10 million families around the world benefited

from the comfort provided by Ronald McDonald Houses.

In addition to their community involvement, McDonald's has a long-standing commitment to

environmental protection. Restaurants around the world have innovative programs for

recycling, resource conservation, and waste reduction. The environmental achievements of

this corporation have been recognized by organizations such as the Audubon Society,

Conservation International, Keep America Beautiful, the National Recycling

Coalition, and

the U.S. Environmental Protection Agency.

McDonald's is also an equal opportunity employer. As an equal opportunity employer

McDonald's ensures that employees and job applicants are selected, trained, and

promoted

without discrimination to race, gender, sexual orientation, age or disability. The company

promotes their employees based on their relevant skill, talents, and performance. In

support of

this McDonald's promotes and sustains a working environment, which is free from unlawful

discrimination, harassment and bullying. Employees are regarded as members of a team

where everyone's opinion is valued and respected. The Human Resources department

monitors the effectiveness of the discrimination policies at regular intervals and takes

corrective action as necessary to ensure that they being complied with. Employees who

feel

that they have been treated unfairly are encouraged to use the remedies outlined in the

Company's handbooks. McDonald's ethical standards, as well as their strategies for

globalization and diversity are instrumental to the overall success of the company.

McDonald's

TASK 2

Resources, McDonalds as a key retail company which focuses on the efficiency of

their production process for the success of their company they have a

widely efficient production scheme, from the transportation of their

raw material (uncooked food) to the efficiency of distributing their

products on site.

McDonalds production process works roughly like this:

* Collection of raw materials from certified suppliers, McDonalds

only accepts products, which are GM free and ensure that all their

eggs are free range

* Processing the raw materials, at factories around the UK McDonalds

process their raw materials into edible products ready to be sent

to McDonalds branches around the UK, also they partially cook some

of the products

* Processed products are packed in bulk ready to be transported

* Transportation of products to UK branches

* Further processing of products on site of McDonalds branches

(cooking the products e.g. quarter Pounder burgers)

* Distribution of the final product to customers

During the production process McDonalds also tries to ensure they have

the best quality materials as possible to ensure that they get the

best end product possible, also they monitor they're waste products

carefully during production to make sure nothing goes to waste and

that they comply withhe al th and safety regulations, these controlling

factors at the end lead to McDonalds products being the best they can

possibly be.

Here are some of the guidelines they've set out for their suppliers

and production factories to comply as best they can;

Social

------

Protect the health and welfare of employees and contribute to the

development of communities in which they operate

Seek ways to increase economic profitability by increasing resource

use efficiency and harnessing the benefits of ecological services

Environmental

Maximize water use efficiency and eliminate the release of waste into

water

Minimize the release of harmful by-products into the air

Maximize energy use efficiency and use ecologically sustainable

renewable sources when feasible

Minimize waste production, maximize recycling and ensure proper

handling and disposal of solid waste

Maintain soil health by controlling erosion and improving structure

and fertility

Preserve natural habitats for native species and protection of

biodiversity

Minimize the use of chemical pest management inputs that impact human,

animal and environmental health

Animal Welfare

Ensure that animals' needs for food, water and space-as well as other

physiological, behavioural and hygiene needs-are met consistently

Also during production McDonalds tries to use as many recyclable products possible, here are some facts and figures of that scheme which McDonalds is trying to implement;

RECYCLED MATERIAL USAGE

Sales Packaging Item

Recycled Content in %

Carry Out Bags

80

Medium Fry Boxes

72

Large Fry Cartons

72

Apple Pie Boxes

72

4 Piece Chicken McNuggets Boxes

72

6 Piece Chicken McNuggets Boxes

72

9 Piece Chicken McNuggets Boxes

72

20 Piece Chicken McNuggets Boxes

72

Napkins

100

Also all McDonald's suppliers have to use a minimum recycled content

of 50% in their corrugated containers. In 1994, the recycled content

of paper and board in McDonald's transportation packaging averaged

77%. The recycled content of all McDonald's paper and board packaging

in the UK in 1994 was 59%. All McDonald's office stationery is made

from recycled paper and all company off ices recycle waste paper. All

picnic benches, drive-thru tarmac bollards, and a majority of fencing

panels purchased by McDonald's for new restaurants, are made from

recycled polystyrene. REUSE a scheme has been extended to 425

restaurants, returning used corrugated cardboard Mac Fries boxes to

central distribution for sale to industry for second time use

The functions of production

www.123helpme.com/view.asp?id=148993

cited at 7th August 2010

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