1. What characteristics of McDonald’s production system have been most important in building its record of success and growth in the industry? McDonald’s unique production system has been central to their corporate strategy. Ray Kroc immediately saw value in the McDonald brothers’ production methodology. The McDonald brothers controlled the preparation of each menu item, regulating exactly how much of each topping would go on each burger, in order to maintain consistency and uniformity. Going forward, the company would base their business model on three key tenets: limited menu, low prices, and fast service. Kroc obsessed over perfecting the operating system with these three tenets in mind. He believed that consistency and uniformity, with respect to products, should be the overarching goals of this operation strategy. It began with the “Speedee Service System” in 1948 and continued to evolve from that point. McDonald’s operating system focused on four key areas: improving the product, improving equipment, developing excellent supplier relations, and developing and monitoring franchisees. McDonald’s had created a unique relationship with its franchisees and suppliers. McDonald’s believed that franchise growth was where they should make their profits, not primarily from the franchise fees, which had been the industry standard. This relationship fostered growth and innovation as franchisees made recommendations and provided feedback on what was working and what wasn’t. McDonald’s broke another industry standard by developed very close relationships with supplier. McDonald’s worked closely with suppliers to ensure consistently high quality food products made to McDonald’s’ exact specifications. By working with the suppliers to control the quality of their products, McDonald’s’ was helping to ensure that a burger served at any one of their locations would look the same, taste the same, and reinforce McDonald’s’ reputation for quality and consistency. The suppliers knew that if they met the very specific standards set forth by McDonald’s, they would be rewarded with the loyalty of a very lucrative customer. This relationship was mutually beneficial as the consistent demand from McDonald’s helped suppliers grow alongside the chain, turning small farming operations into major institutional vendors. 2. What are the primary new challenges McDonald’s faces in the 1990s? In the early ‘90s, McDonald’s legendary growth rate began to slow. Consumer preferences were changing and McDonald’s worried that the limited menu that had served them so well over the previous decades might not be enough to carry them into the future. Going into the 1990s McDonald’s faced many challenges, including increased competition in the domestic quick-service market, consumer pressure to provide healthier options, and increased environmental criticism. The major challenges outlined in the case include the following:
Casual dining restaurants, such as Chili’s and Olive Garden, were becoming increasingly popular. These restaurants offered a wide selection of menu items, with prices that could compete with McDonald’s.
Drive-thru only chains, such as Sonic and Rally’s, were out-performing McDonald’s on speed of service. These chains were now seeing big growth, where McDonald’s’ expansion was slowing down.
Taco Bell had become another big competitor. Taco Bell focused on providing an extensive offering of inexpensive Mexican food. Taco Bell had 26 menu items under one dollar. They were able to keep their prices low by shifting food preparation to offsite suppliers, requiring less kitchen space on-site.
Nutrition was a growing concern among many American consumers, and McDonald’s had become synonymous with high-fat, high-calorie “fast food”. There was extreme pressure for McDonald’s to augment their menu with healthier options, lower in fat and sodium than the traditional burgers and fries.
Including a wider variety of items on their...
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