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According to (Nigel Slack pg 4) Operations management is becoming more appealing partly because managers have realised that "that is where the money is". Getting operations to work effectively can give the twin benefits of improved efficiency, thus reducing costs, while also providing improved quality and service which increases revenue.
Using a relevant case study, McDonald's is the best food restaurant today because of it's operating systems.
McDonald's is the world's leading local restaurant with more than 30,000 locations serving 52 million customers in more than 100 countries each day. More than 70% of McDonald's restaurants worldwide are owned and operated by independent local men and women. For the second year in a row, McDonald's has been selected for inclusion in the Dow Jones World and Dow Jones North America Sustainability Indexes. These indexes recognize companies that are industry leaders on a broad range of economic, environmental, and social issues. McDonald's is one of the very few food service retailers to be honoured.
McDonald's Operations Strategy
"To provide unmatched consistency in operations in support of high product quality. This must be accomplished with adequate speed, low cost, and process innovation to accommodate changes in consumer tastes."
From the statement of McDonald's operations strategy, it is clear that both consistent and high-performance quality are considered order winners, while speed, cost, and innovation are considered order qualifiers.
Furthermore, McDonalds' operation strategy can be categorised into the following:
Capacity: ï‚· Growth as needed through additional stores - but capacity added carefully.
ï‚· Well-utilized - franchisee's well-being depends on it.
Facilities ï‚· Distributed facilities, each facility being very similar to the next, all focused around the same menu - although the uniformity is beginning to change.
Technology ï‚· High degree of process understanding, emphasis on "fool-proof" processes
ï‚· A leader in the technology of fast-food delivery
Integration ï‚· Partnership arrangement
ï‚· Long-term relationship with suppliers to promote innovation and quality improvement
Organization ï‚· Guidelines provided by corporation, but franchisees push to locally optimize.
Systems ï‚· Centralized buying
ï‚· Bulk contracts
ï‚· "Push" system for basic supplies, "pull" system day-to-day in the restaurants
Looking at the operations strategy along the seven dimensions, they all support the operations mission and the business strategy earlier stated. The Systemic strategy creates unmatched consistency in operations that has been difficult to imitate.
We will now see the effects of operation management as it affects the Operations Strategies laid down.
Capacity planning is focused on the level of capacity that we provide at each stage of the production or service delivery system.
Capacity Planning Process
Assess company situation
- What triggered the decision to alter capacity?
- Are we expecting rapid growth?
- Are we introducing new products?
- Is more efficient/productive technology available?
- Are we expanding into new market segments?
In assessing the company situation, think about what triggered the decision to alter capacity. If this is a start-up business then that is your situation for choosing that capacity. If you have an established business, what caused you to decide to change the capacity levels that are in your business? Are you responding to a competitor's move? Has your competitor suddenly done something to make you think that you had better increase or decrease your capacity in that niche?
Determine Existing Capacity
Defining the appropriate measures of capacity is critical. Failure to define capacity of production and outputs of production processes properly could lead to erroneous conclusions.
- What are the appropriate measures of capacity?
- What is the capacity of each component of the production system?
- Where are the bottlenecks?
Fundamental capacity planning is understanding how much capacity you have now in your production or service delivery system. This is not always easy to quantify.
One of the things that you have to decide is what the appropriate measures of capacity are.
Determine Required Capacity
You have to determine how much capacity you need at each stage in the production system. These are the planning details, the things that you have to address in your business plan. Forecasting future capacity requirements is a difficult process.
Forecast volume - For a restaurant, how many customers do you expect to serve at different points in time? There are probably some peaking factors. You probably expect some peaking on Fridays, Saturdays and Sundays, but very little at the beginning of the week. Maybe there are seasonal factors to consider.
Assess uncertainty of capacity requirements - The uncertainty of capacity requirements is especially critical in service businesses. How do you know what the demand is going to be? How do you know how many people are going to show up? We can try to control this variability with a reservation system but there may be a fair amount of uncertainty in our capacity requirements. That is why McDonalds' uses tools like sales projection, labour projection and many more attached to this write-up.
Forecast timing of capacity requirements - The timing of capacity requirements can be important, whether by hour of the day, day of the month, or month of the year. You not only have to determine how much capacity you need but what capacity you need at certain points in time. McDonalds' know that they need more capacity (more workers) at certain times of the day, and they probably need more workers on Saturdays and Sundays than they do on Mondays. See attachments.
Scenario or "what-if" analysis should be used to assess the sensitivity of key assumptions in your analysis(Byron J. Finch, Richard L. Luebbe).
Lead times to introduce additional capacity are also important. The longer the lead time to put the capacity in place, the more critical the timing of new capacity.
Evaluate economies of technology.
If you intend to introduce new technology, perhaps to replace labour, the technology is going to involve a certain capital investment over its expected life. If it is a computer system, maybe we will spread that cost over a very short period because we know that the computer technology is going to be obsolete in about three years. We have to look at what the amortized cost of that capital investment is versus the cost of the best alternative.
Managing Supply and Demand
Providing more capacity in a service delivery system or production system is always an alternative. We must not forget, though, that one of our options is to manage supply and demand to better utilize capacity. When we are talk about "managing supply" we are focused on optimizing the supply of capacity that we have in our business. When managing demand, we are trying to influence the demand pattern that is interacting with our business. The challenge in production planning is to match supply and demand to the greatest extent possible.
It is important to recognize that both supply and demand can be influenced by business managers.
A chase strategy is often employed when the demand fluctuates up and down due to the cyclical nature of your business. Like that of McDonalds'. This cycling could be by the time of day, day of the week, month of the year(see attachments). In a "chase" strategy, you would adjust the capacity up and down to match the demand as close as possible. In restaurants and bars, on Friday and Saturday nights you will bring on more workers. If you've guessed wrong then you might send the extra workers back home after a few hours because the demand hasn't materialized as expected. This is called "chasing demand"; you are adjusting capacity to the demand that is there and doing it as dynamically and quickly as you can.(strategic operations management, Steve Brown, Richard lamming etc, page 278)
Supply Management Alternatives
Use part-time employees.
Having part-time employees available when needed is one way to chase demand.
Maximize efficiency through training, work scheduling, cross-training, use of technology, etc.
E.g. schedule work to ensure that employees are fresh when they are at work or cross-train employees to enable them to do more than one job. If there is an unexpected shift in demand they can do a different job.
Plan for future expansion in initial construction of facilities.
Perhaps you are building a business and you know that you are going to expand in the future but you only need a certain area for your building now. When you construct that building, make it so you can easily expand it. In the structural design of the building or in the layout of the equipment, contemplate future expansions so that you can make that expansion at minimal cost. This is an important factor in planning for the future of the business, anticipating future expansions and building that into your current plans. McDonalds' logic is Franchising which I would not want to go into.
All McDonalds' store be it franchise or not use the same grills, toasters, vats an many more. However, depending on the size of the store, they might be bigger than each other. This helps as there is only one company in charge of repairs and maintenance. This helps them to get familiar with only one set of equipments rather than different ones by different companies. Again, it does not cost the operations anything by transferring labour out to another store if needed, as no training is required!
Technological processes are the activity side of technology - the make and do component. It is the most important part. Having the capability to engage in technological activity means being able to develop technological solutions to problems. The result of technological activity is products and services that people need or want, either for personal consumption or for company or industrial use. (http://www.cdli.ca/depted/g7/processes.htm)
Technology is playing a vital role in McDonald's plans to lure more customers into its 1,230 UK fast food restaurants - as well as driving cost savings and operational efficiency across the organisation.
McSalads are not the only new things on the menu, as the company is also introducing wireless networking, PlayStation 2 video games consoles, internet terminals, flat screen televisions and music videos into its revamped stores.
McDonalds' strategy this year is to attract business users. We've found that drive-thru and service station restaurants are extremely popular with our business customers on the move. The hotspots will allow businessmen to check email, access the internet and download presentations while having something to eat and drink,' he says.
In addition to attracting customers, McDonald's is hoping to cash in by forming revenue sharing partnerships and advertising deals with its internet service providers and equipment providers.
Along with most other UK retailers, McDonald's is evaluating chip-and-PIN payment card readers for its UK branch network.
The restaurant has rolled out readers in all its Scottish branches, though a project with technology provider Ingenico.
Results have been encouraging, with nine per cent of customers using payment cards since its introduction nine months ago. The key is to make paying by card as quick as paying by cash,
McDonald's Corporation has chosen its LonWorksÂ® technology to network its restaurant kitchen equipment in order to create the "kitchen of the future," which aims to lower energy consumption and increase operational efficiency. McDonald's is encouraging its kitchen equipment manufacturers to include Echelon's power line technology in new equipment for its restaurants(see attachments for reference).
"We are committed to being a market leader in environmental responsibility and energy management, so it's great to have a proven platform that we can use to address such an important issue," said Bob Langert, McDonald's vice president of Corporate Social Responsibility. "Echelon's technology will also enable our franchisees to create restaurants that are easier to operate, facilitate preventive maintenance and provide new services while saving energy."
When a company expands its business into areas that are at different points of the same production path, such company is said to be vertically integrated. McDonalds is involved in every process of its production and services; from raw materials to service providing.
Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. Contrary to horizontal integration, which is a consolidation of many firms that handle the same part of the production process, vertical integration is typified by one firm engaged in different parts of production (e.g. growing raw materials, manufacturing, transporting, marketing, and/or retailing).
There are three varieties: backward (upstream) vertical integration, forward (downstream) vertical integration, and balanced (horizontal) vertical integration.
A company exhibits backward vertical integration when it controls subsidiaries that produce some of the inputs used in the production of its products.
For instance, Keystone distribution is the company that carries out all the logistics of the restaurants in the U.K. Its responsibility to set exacting standards and provide leadership in ways of helping improve the value for money that McDonald's is able to offer to the consumer.
To achieve this Keystone has invested in the future and utilises the latest technology to manage the supply chain.
As McDonald's U.K. Distributor, it is also our responsibility to co-ordinate the requirements of hundreds of restaurants with McDonald's suppliers and Keystone's team approach is committed to providing the perfect service and products every time.
Keystone guarantees the supply of fresh food daily - 24 hours a day, 7 days a week. Our Quality Inspection Programme checks the product at each stage of the distribution chain and it is this dedication and attention to detail that is essential in ensuring we provide our customers with total quality, consistency and value for money with products that always provide that special McDonald's taste.
On the forward vertical integration where it controls distribution centres and retailers where its products are sold. Franchising is the key scope. From McDonald's start in 1955, headquarters dictated pretty much every detail of running a franchise. For instance is the Franchise in charge of the west- end and part of the city called West1 Foods. The franchise controls the operational management but the headquarters in East Finchley oversees its operation and make visits to the restaurants to monitor its compliance to the regulations. Such visits are Full Operations Review(FOR), Short Operations Review(SOR), Service Training Days(STDS) to mention a few.
Balanced vertical integration means a firm controls all of these components, from raw materials to final delivery.
The three varieties noted are only abstractions; actual firms employ a wide variety of subtle variations. Suppliers are often contractors, not legally owned subsidiaries. Still, a client may effectively control a supplier if their contract solely assures the supplier's profitability. Distribution and retail partnerships exhibit similarly wide ranges of complexity and interdependence. In relatively open capitalist contexts, pure vertical integration by explicit ownership is uncommon -- and distributing ownership is commonly a strategy for distributing risk.
Like discussed above, the organisation of McDonalds' restaurant is in such a way that the company taps the piper and dictates the tune. The basic thing expected of the franchise is to comply and by so doing profit maximization is assured depending on its management process.
The control systems can be characterised under the hospices of the TQM, JIT, EMPLOYEE MANAGEMENT and Service Delivery systems.
Top Quality Management: Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. For McDonald's, total quality management (TQM) involves that the employees are at work on time, are neatly dressed, and are clean. The employees must make sure that the customers constantly receive safe food, which implies that the employees must wash their hands often to remain clean. Moreover, the employees must follow certain Standard Operational Procedures, so the customers always receive exceptional quality and service. This includes the employees using plastic gloves when they prepare the food, that the meat and fries are properly fried, and that the vegetables are thoroughly washed when used in the food. Another TQM is that the employees rely on teamwork and high energy to get the job done, so that the customers do not have to wait long for their food. Furthermore, McDonald's management emphasizes that their restaurants should be clean. This involves that the restaurants are tidy, sparkling and spotlessly clean. As McDonald's illustrates the quality is that the employees delivers fast, accurate and friendly service with a smile.
The less obvious benefit is the higher quality customer service that arises from the JIT burger assembly. When McDonald's waits for you to order the burger, they do a few things to improve customer service. First of all, when you place a special order, it doesn't send McDonald's into a panic that causes huge delays.
Now that McDonald's is in the practice of waiting until you order a burger until they make it, they don't freak out when they have to make a special order fresh just for you. 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.
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.
The reputation of any business ultimately depends on the quality of its products. High quality products need high quality people to create, design, produce and deliver them. So if a business is to maintain its reputation it needs to do well at recruiting high quality employees. For any business offering a large element of personal service, an ability to recruit, train and retain high quality staff is particularly vital.
The selection process includes an initial online psychometric test. This test produces an initial score. The applicant then attends a first stage interview and is offered "On Job Experience" (OJE). This is a 2-day assessment in a restaurant. Successful completion at OJE will lead to a final interview, after which the manager decides whether or not to hire the applicant. After the final interview the manager will rate the applicant's responses. A successful applicant will have demonstrated skills and behaviours that have been identified as being key to the position. S/he will also have produced documents to show s/he is eligible to work in the UK in line with the Asylum and Immigration Act 1996.
The first stage is to notify all candidates as to whether or not their application has been successful pending satisfactory references. The company notifies all unsuccessful applicants in writing.
McDonald's inducts all new employees into the business through a Welcome Meeting, which they must attend.
The Welcome Meeting gives an overview of the Company, including:
food, hygiene and safety training
policies and procedures
training and development.
New employees will also meet their trainer, and tour the restaurant.
The company operates a 3-week probationary period, after which employees are rated on their performance and are either retained or have their employment terminated.
McDonald's success is built on the highest standards of quality, service and cleanliness delivered to customers in each of its restaurants. Well-trained crew and managers are the first step to achieving these standards. It is company policy to provide career opportunities that allow employees to develop their full potential. This includes a comprehensive training programme for crew and operations management and career progression that enables a 'first job' employee to progress through to a senior management position through merit-based promotions.
The first stage of training is at the Welcome Meetings. These set out the company's standards and expectations. This is followed by a structured development programme that provides training in all areas of business. Crew trainers work shoulder-to-shoulder with trainees while they learn the operations skills necessary for running each of the 11 workstations in each restaurant, from the front counter to the grill area. All employees learn to operate state-of-the-art foodservice equipment, gaining knowledge of McDonald's operational procedures. The majority of training is floor based, or "on-the-job" training because people learn more and are more likely to retain information if they are able to practise as they learn. All new employees have an initial training period. Here they are shown the basics and allowed to develop their skills to a level where they are competent in each area within the restaurant. The time scale for this depends on their status i.e. full or part-time. They will also attend classroom-based training sessions where they will complete workbooks for quality, service and cleanliness.
After the initial training period all employees receive ongoing training. This is done using "Observation Checklists" for the station they are working at. The rating will go towards their appraisal grading.
The restaurants do promote crew members to hourly-paid management positions that carry accountability for areas within the restaurant, or responsibility for a shift. Training and development is given in the restaurant and in addition the participants will attend regular development days. On successful completion of a management entrance exam, employees will attend a training course held by the training department at the regional office before returning to the restaurant in a management position.
The McDonald's Management Development Curriculum takes new recruits from trainee manager to Restaurant Manager. This consists of on-the-job training and open learning development modules, supported by courses and seminars at the Company's National and Regional Training Centres. The Management Development Curriculum is aimed at persons aged 21 or over, either graduates or individuals with some previous management experience. It offers a direct route into restaurant management, through an intensive structured training programme.
The Management Development Curriculum is divided into four key programmes:
Shift Management - developing trainee managers in the skills and techniques required to become effective in all aspects of running a shift.
Systems Management - targeting second assistant and newly promoted first assistant managers. This programme covers all areas of McDonald's systems, increasing the manager's business knowledge. It also develops individual techniques.
Restaurant Leadership - introducing managers to the key skills needed to become effective restaurant leaders e.g. team-building, communication, decision-making.
Business Leadership - focusing restaurant/general managers on the need to develop a business strategy that encompasses both internal and external factors.
Most departments in the regional offices offer restaurant managers opportunities to be seconded to work in the regional office. This gives an experienced manager the opportunity to develop and learn new skills, to see a different side of the business and to experience how each department's strategies have a role in achieving the company's goals.
McDonald's believes that the success of the restaurants and the company is achieved through the people it employs. The company aims to recruit the best people, to retain them by offering ongoing training relevant to their position and to promote them when they are ready. Its recruitment policies, procedures and practices reflect the company's determination to fulfil its aim.
Service Delivery systems
When talking about our service delivery system and doing the business plan, we have to determine how the service is going to be delivered. What processes are we going to use to deliver the service? What is the work force going to be like? What kind of equipment facilities are we going to use, recognizing that we are going to produce the service and deliver it simultaneously?
Using the McDonald's example, it seems that McDonald's restaurants have the philosophy that "discretion is the enemy of order". In simple words: do not let too many people have discretion or decision making authority. If there were too many people with decision making authority, there would be no speed and consistency.
There are only effectively one or two people in a McDonald's that make decisions. Everybody else reacts - the buzzer goes to take the burgers out, put French fries in a package with a scoop that is designed to give you just so many French fries in a package, mix something up according to a recipe. Everyone there is controlled by equipment, standards and timers. The decision making authority is centralized within one or two experienced people.
The majority of employees at McDonald's are very young and most of them have not yet finished high school. How does this fit with the service concept? It fits in a sense that McDonald's serves cheap food. In order to have cheap food, you have to have cheap labour. By employing young people and probably giving them their first job in life, they are achieving a low cost of production. McDonald's would logically have a high turnover of staff as employees will move on to university or higher paying jobs. Consequently they do not give these young people a lot of high level decision making authority.
The service delivery system in a McDonald's Restaurant is a comprehensive design that includes an efficient layout of facilities and equipment and clearly defined procedures, roles, responsibilities and standards. Collectively all of these factors produce an efficient system that has predictable outcomes. That is a key aspect to the service delivery system that ties in with the service concept. You cannot have speed, consistency and low cost without designing that into the service delivery system. Plus every others mentioned above in this essay one can tell that McDonalds service delivery system is one of the best if not the best.
The essay is meant to be long enough to be meaningful and short enough to be concise! Therefore, at this juncture, we as a group have worked very hard to get more than enough materials that are relevant to the case of study. We think the "little" we have provided will be of utmost use.
To accomplish a high level of effectiveness and efficiency at the operational level of management, getting the Strategic level right is very important. That is why the employees in the headquarters of McDonalds' get paid properly other than what an ordinary store employee gets!
Thank you for taking your time to read.