McDonald’s India Optimizing the French Fries Supply Chain
Ana Anthony Sebastian Tessa !"
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McDonald’s French Fries Supply Chain
Contents
Summary
Competitors
Results
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McDonald’s French Fries Supply Chain
Building a Supply Chain From Scratch
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McDonald’s French Fries Supply Chain
Building a Supply Chain From Scratch Not All Potatoes Are Created Equal
India is
rd
3
Largest producer of potatoes in the world
BUT…
Process grade
<1%
To qualify for French fry production a potato must have: High solids Low sugars Large, oblong shape Disease resistance Long dormancy !
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McDonald’s French Fries Supply Chain
Ideally a French Fry Potato Needs
Growing 120-150 days Growing 90-100 days Long daylight (14-16h) Outdated farming and Cool nights Sandy-loan soil
In India
irrigation High sugars, low solids potatoes No cold storage
Controlled irrigation
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McDonald’s French Fries Supply Chain
McDonald’s India Demand and Supply in the 90s Why They Expanded
Second-largest overall population in the world
Financial reforms which helped open Indian economy to trade
Fast-growing middle class
Built a menu that was 60% vegetarian
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McDonald’s French Fries Supply Chain
Challenges in India in 1990s
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Outdated agricultural practices that wasted water and electricity.
No facilities at farm level to store post-harvest produce
Most raw materials did not meet McDonald’s target specifications
Very poor roads and a barely existing cold chain
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McDonald’s French Fries Supply Chain
Local Approach Understanding Indian Operating Conditions and Indian Consumers
Local Supply Chain ! ! !
Drive agricultural growth Generate employment Show the Indian government the company’s commitment to development
Domestically Sourced ! ! !
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Fish patties Dairy Mixes Buns
Joint Venture
Company Mix
Jatia and Bakshi provided intimate knowledge of the Indian market. Jatia for west and south, and Bakshi for the north and east.
International suppliers, local supplies and joint ventures
Imported ! ! !
Oil Happy Meal toys MacFries
McDonald’s French Fries Supply Chain
McDonald’s Focus Changing Over Time
First stores in Delhi & Mumbai
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Quality Service Cleanliness Value
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1996
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Building food, safety and quality standards Meeting service standards Clearing bottlenecks in the supply chain
McDonald’s French Fries Supply Chain
Potato and Farmer Matters
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McDonald’s French Fries Supply Chain
Early 1990s Joint Venture
International french-fry supplier Lamb Weston
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India-based Tarai Foods
Invested 10M in: land, plant and machinery
McDonald’s French Fries Supply Chain
1998 Joint Venture with McCain
Goal
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GROWING THE RIGHTPOTATO
Focus 1
Focus 2
Focus 3
Cultivating appropriate variety of potatoes (seeds)
Suitable location for farmers to grow full size potatoes
McCain’s production capabilities in India
McCain built a 25M (Canadian) facility for french fries processing
McDonald’s French Fries Supply Chain
Partnership With Farmers A Win-Win
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McCain set-up a one-acre demonstration Show farmers the seeds to use How to improve yields through better sowing, drip irrigation and better harvesting techniques Government subsidized farmer’s drip irrigation system purchases !
Regional trials for ideal growing area
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Management trials for best growing practices Experimentation with 13 types of potatoes
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Storage trials
McDonald’s French Fries Supply Chain
Imported vs. Local Fries $!!"
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2006
2007
2008 Imported
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2009
2010
Local
McDonald’s French Fries Supply Chain
Major Benefits For McDonald From Using Local Supply Chain
Lowering 30 percent of cost structure and no exposure to the fluctuating exchange rate
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Saving an additional 19 percent in import costs
Reducing inventory levels from 15 days (imported fries) to 6 days (local fries)
Close relationships with farmers helped ensure a secure supply
McDonald’s French Fries Supply Chain
Similar Supply Chain
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McDonald’s French Fries Supply Chain
India’s Traditional Potato Supply Chain
Farmer
01 Consolidator
02 Wholesaler
03 Semi-Wholesaler
04 Retailer
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(Food and Agriculture Organization of the United Nations, 2015)
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McDonald’s French Fries Supply Chain
McCain-McDonalds Potato Supply Chain
Farmer
01 Wholesaler
02 Retailer
03
Benefit of cutting the consolidator/middlemen for farmers: ! ! ! ! ! !
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Guaranteed sales 30-40% increase of output Increase of income Establishing trust to wholesaler Reduction in operating cost Reduction of water using McDonald’s French Fries Supply Chain
India PepsiCo’s Frito Lay Potato Supply Chain
Consumer
PepsiCo
Vendor
McCain-McDonalds Potato Supply Chain
Consumer
McDonalds
Agronomist
McCain
Contract Farmer 19
Farmer McDonald’s French Fries Supply Chain
Relationship With The Farmer
PepsiCo’sFritoLay Relationship
Farmer is a contract worker
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Key Support From Company
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McCain-McDonalds Farmer is a limited partner
The company ensures the availability of inputs to farmers working in the area under contract Providing crop and weather insurance Monitored by Company
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Demonstrating key agricultural breakthroughs to grow potatoes Machinery tools for harvesting
McDonald’s French Fries Supply Chain
Direct Competitor
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McDonald’s French Fries Supply Chain
Burger King !
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World 2nd Largest fast-food chain
Relatively High Price with High Quality !
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Join India Market 2014
2 Decades later than Mc
McDonald’s French Fries Supply Chain
Indian Local ventures to penetrate market
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McDonald’s French Fries Supply Chain
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PE(private Equity) Company
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Expert on Total management
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Various experience with food
& beverage partnership !
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Capital Foods, Sula Wines, Blue Foods and F&B Asia Pte Ltd.
McDonald’s French Fries Supply Chain
Build totallocal supply chain.
Joint Venture Partner
Reduce imported ingredients. Develop Added Value menu.
Decision makingsof all the Franchises’ location and operation
Master Franchise in India
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Managing the sub-operator and other ventures Focus onconsumptionrather than on supply
McDonald’s French Fries Supply Chain
Local Supply
Consumption
Expansion
Currently Most of ingredients are imported as price range is high. But will localize supply chain
Focus on customer withvalue added product
Currently 16 stores, 40 until next year, 150 until 2020
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McDonald’s French Fries Supply Chain
Results
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McDonald’s French Fries Supply Chain
Impact of the Decisions Made by McDonalds
Beneficial circumstances for Indian farmers
Updated farming and irrigation practices
McDonalds local supply chain, advantages: !
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Goodwill of the government
Agricultural growth
Employment
Cost reduction Secure supply due to close contact with farmers Lower shipping time McDonald’s French Fries Supply Chain
