McDonald's Case Study TEST QUESTIONS FULLY SOLVED 2024

Globalisation Competitive advantage = adapting to global conditions. 38 000 restaurants in 120 countries. Quality tests three things Quality of inputs used Durability and reliability of the good or service The good is fit for purpose Eg. 2011 McAus coffee did not meet customers' "sophisticated coffee palate" (feedback showed dissatisfaction with consistency and strength of the blend). Responded by barista made coffee. Brainpower Read More Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:00 / 0:00 Full screen Environmental Sustainability Reducing energy use, Reducing water use, Environmental responsibility and waste packaging, Waste minimisation, Transport and distribution Eg. 2010 McAus states : "McDonalds Australia signed up to the Sustainability Advantage program run by the NSW Department of Environment, Climate Change, and water to assist us in improving our sustainability initiatives" Technology McAus partnered with MenuLog and Ubereats = accessibility, online ordering app, automated drink dispensers, LED signage for reduced energy consumption, digital displays notify customers when food is ready. 4 V's - Volume accurate inventory management = transformation processes to respond to changes in consumer demand, satisfy customer demand by developing systems that track volume of items sold in each store. The 4 V's - Variety McDonald's responded to changing consumer tastes and demands = altering the variety of menu items it provides. Create Your Taste and Gourmet Creations range offers customisation. The 4 V's - Variation prepared for expected shifts in demand caused by changing seasons, consumer tastes, and marketing campaigns. The 4 V's - Visibility values direct contact. Customers can give feedback using an online form or calling the customer service line - sometimes receive an incentive. Sequencing & Scheduling Sequencing → sequences its processes at the store level so that the assembly of a burger can be managed in a way that promotes efficiency and consistency. developed strict routines that must be followed Scheduling → manage their time = ensure customers receive their order in a timely manner with the maximum freshness. uses computer systems to communicate orders directly to the kitchen where menu items are then assembled. Technology, Task Design and Process Layout Technology → mobile ordering = place order before arriving at a restaurant. Task Design → all employees understand what their role involves, clearly stating the steps required to fulfil a task (eg drive thru or food making) = smooth transformation process. Process Layout → invests time and money in ensuring the kitchen and restaurant layout is organised in a manner that promotes work flow and ease of access to required equipment and machinery. Have a test kitchen facility that can replicate any McDonald's restaurant Monitoring, Controlling and Improvement consistently measuring and reviewing aspects of the operational processes such as lead times, Drive - Thru wait times, inventory turnover, wastage and cost analysis. If data suggests that an element of the operational process has fallen short of its target, McDonald's takes remedial action. Performance Objectives : Quality → source quality raw materials, inputs regularly checked for freshness and levels of bacteria Speed → the plant and process layout are designed to ensure the logical placement of ingredients and equipment. Flexibility / Customisation → McAus launched Create your taste menu - influenced by the Subway model. However, added complexity of allowing customisation impacted on speed and cost operational objectives = end of CYT. Cost → combat increasing food prices = simplifying menu, reducing food waste and speeding up service. cost cuts help maintain competitive prices and improve profit margins. Outsourcing key advantage is the cost reduction by using specialist functions. Part of their supply chain management. Eg. July 2014 a supplier in Shanghai using expired and contaminated meat. Bad publicity for mcdonalds and a decline in sales of 7% for july. Shortage of beef and chicken for China stores for 3 weeks. . Quality Management : Quality Control → McDonald's checks the quality of raw material for freshness and bacteria. Quality Assurance → The company implements a strict set of food safety procedures at every stage of the food preparation process. Inventory Management : Accurate forecasting of demand → introduction of making food to order = ensure the delivery of freshly made food and reduced operational costs associated with wastage. Accurate inventory control → Restaurant and stock management teams communicate to determine local tastes, needs and events which may impact demand for menu items. FIFO Internal Sources Of Finance Retained Profits → 2018 Mcdonald's made profit of US$5.9 billion. Management could've chosen to keep all of its profit in the business (to fund future projects), however they chose to give more than half of this to shareholders via dividends. External Sources Of Finance Short Term / Medium Term Debt Overdraft → has available US $3.5 billion overdraft that it is not using = provide a quick source of short-term finance if needed. Commercial Bills / Unsecured Notes → issues "commercial paper" to raise funds through its global-medium terms notes facility and debentures. Long Term Debt Mortgage → equipment or machinery Leasing → In 2018 McDonald's leased 12,334 stores.This reduces the initial capital outlay required for new stores = more stores to be opened in a shorter time frame. It also retains cash in the business that can be used for other purposes. This strategy is used to match cash outflow with cash inflow. Unsecured Notes / Debentures → borrowed cash at fixed interest rates using unsecured notes and debentures. Equity Issued 1660 million shares. The business consistently pays its shareholders a high dividend = greater commitment and interest in business. Government (finance) operating in 120 countries = influenced by laws, policies and regulations of countless governments and government institutions. Eg. Most countries have different rates of pay for employees, as well as minimum age of employees. Australian securities and investment commission (ASIC) Company Taxation Global Market Economic Outlook → viewed as 'recession proof' in developed countries (often performs better in economic downturns due to the perceived value for money of its food). Conversely, when economic conditions are improving, consumers may spend their extra disposable income elsewhere, and McDonald's may suffer. Availability of Funds → currently has an available US$3.5 billion line of credit should it be needed. Low interest rates globally have ensured businesses like McDonald's have relatively easy access to funds if required. Interest Rates → McDonald's has fixed 91% of its total debt at an average interest rate of 3.2% p.a., a reduction from 3.3% p.a. In 2017. As a comparison, in 2007, Mcdonald's had fixed 58% of its debt at an average interest rate of 4.7% p.a.. Liquidity 1.36:1 It was low. Solvency McDonald's is considered very highly geared. As much of the business's debt is long-term, it appears as though it will easily be able to meet its obligations. Profitability G (68%) , N (17%), ROE (n/a) Efficiency 83% Cash Flow Management Returning cash to shareholders via buybacks and dividends (decreasing company cash). Increasing spending on capital infrastructure (decreasing company cash). Decreasing the number of company stores, and increasing the number of franchised stores = generating cash from initial sale and more stable income streams from rent and royalties. WCM Current Assets Cash → has contractual arrangements with franchises for regular payments of rents and royalties = helps Mcdonalds maintain significant cash flow franchisees. Receivables → Late repayments of rent or royalties may attract high interest for franchises. Inventory → Too little stock and customers are frustrated (and sales reduced); too much stock causes wastage and storage issues. Mcdonalds relies 100% on external suppliers for inventory. Mcdonald's stores use a FIFO inventory system. WCM Current Liabilities Payables and other loans → the company takes on average, 32 days to pay its accounts. stores have little control over the monthly payable to Mcdonald's head office Overdrafts → has a US$3.5 billion line of credit facility at its disposal should it be required. To keep this overdraft facility open, McDonald's pays a fee of 0.08% p.a..