The purpose of any business is profit maximization with cost optimization and process improvement. Operations Management plays a crucial role in managing processes and optimizing operations. The two main dimensions of this process have a good approach and location strategy. These have gained even more importance with the growing trend of globalization. (Heil, 2009) Today a company can source its raw materials in Africa and get them processed in Asia only to be sold in Europe and the Americas.
Types of Process Strategies are discussed in Operations Management
- Process Focus: Facilities are organized by processes, usually churning out low volumes but various products. This provides for more extraordinary product flexibility but low equipment utilization.
- Repetitive Focus: Facilities are typically organized in assembly lines and characterized by modules (parts and assemblies made previously). This process allows quasi-customization and enjoys the economic advantages of the continuous operation with low-volume and high variety models.
- Product Focus: Facilities are organized by-products and are typical of high-volume and low-variety operations. This helps minimize unit costs and high equipment utilization. This also means reduced product variety flexibility and needs more increased capital investment.
- Mass Customization Focus: Under this process, the above three principles are combined. Mass customization is a more recent principle resulting from improved mechanical and technological advancements. Traditionally customization and low cost were mutually exclusive. This helps gain economies of scale while allowing for the personal touch that the customer may wish to have in the good/service.
McDonald’s Corporation – An Example
Process strategy guides how a product is produced, or a service is rendered. (Operations Management, 2009) This can be easily understood if we look at a firm that implements such processes with excellent efficiency. McDonald’s Corporation (NYSE: MCD) is a US-based firm. McDonald’s, first started by Ray Kroc, is now one of the most popular fast-food restaurants worldwide. They cater to more than 58 million customers every day at more than 31,000 locations globally, generating revenue worth USD 23.5 billion in 2008. (Annual Report, 2008)
McDonald’s business model is based on servicing products with speed and customization. In 1999, McDonald’s spent $181 million introducing their “Made for You” system (Chase & Aquilano, 2009).
Under this new system, standard food items are not held in a bin until sold. Modern technology dramatically assists McDonald’s operations in the “Made for You” design. McDonald’s takes care to match the customer preferences of the geography it services. So while the products and processes are highly standardized globally, they are customized at local levels to offer uniform quality with local taste and delicacy. This explains steps like introducing beefless burgers in a country like India.
McDonald’s strategy is that of mass customization. The product base is kept semi-ready but not stocked in bins until an order is placed. Once the order is placed at the cash counter, staff members in the kitchen get a signal through monitors about the same. They start assembling the order as per the requirement to customize it with condiments and fillings. This helps minimize the turnaround time and avoid problems out of stock or wastage issues.
Facility location and management play a critical role in how McDonald’s operates. Usually, they have a model of distributed facilities, each facility being very similar to the next, all focused around the same menu – although the uniformity is beginning to increase global footprint. In addition, the company has a vertical integration system of the business model where long-term contracts help minimize the cost and assure the availability of raw materials. Collaborating with the suppliers also helps promote innovation and quality improvement.
McDonald’s Corporation has its global headquarter in Oak Brook, Illinois, USA. (www.mcdonalds.com, 2009) McDonald’s has spread its operations globally and has a standardized set of practices to manufacture and service products while keeping local taste, flavor, and culture.
Two brothers named Dick and Mac McDonald started the business in 1940 by opening a restaurant in San Bernardino, California. This service, “Speedee Service System,” 1948 established the principles of the modern fast-food restaurant. We know McDonald’s today is a result of expansion and standardization done by Kroc, who started by opening a franchised restaurant in Des Plaines, Illinois, on April 15, 1955, which was the ninth McDonald’s restaurant overall. Kroc later purchased the McDonald brother’s equity in the company and led its worldwide expansion, and the company became listed on the public stock markets in 1965.
The company divides the business into distinct geographic segments, including the US, Canada, Europe, Asia/Pacific, Middle East and Africa (APMEA), and Latin America. The US represents around 34% of revenues and 47% operating income. Europe makes up 42% of total revenues and 40% of operating income, with France, Germany, and the UK as the most important markets, accounting for around 55% of Europe’s revenues. In APMEA – which makes up 18% of McDonald’s total revenues and 13% of operating income – Australia, China and Japan are the key drivers of sales growth and make up 50% of the region’s revenues. (Annual Report, 2009)
This hub-and-spoke model helps the company understand the nuances of the markets they operate in a while providing a central command from the global headquarter. Thus while the individual needs to have a fair amount of autonomy to function and decide, the headquarters acts as a policy-making body for international business. This structure is pretty standard for large corporations like McDonald’s.
In today’s markets, with globalization and the improvement of information technology that ensures seamless communication across the globe, issues usually arise with far-flung offices are minimized if not erased. Given this fact, the location of the global headquarters seems to be working fine in favor of the company and does not demand a change. Further, with US operations forming a significant chunk of revenue share, the location of headquarters in the USA seems to be suitable for the Corporation.
Annual Report (2008), McDonald’s Corporation. Web.
Chase, R., Jacobs, F., Aquilano, N. (2004), Operations Management for Competitive Advantage, (10th Edition). McGraw-Hill Irwin, Boston.
Heil, Karl. (2009) Location Strategy. Web.
McDonald’s Corporate Website (2009), McDonald’s Global Headquarters Address. Web.
Operations Management (2009), Operations Management: Process Strategy and Capacity Planning, Chapter 7. Web.