Mcdonalds India | Mcdonalds Supply chain Strategy of French Fries | Supply chain Optimization | SCM

Summary

This video explores McDonald's strategic supply chain optimization for its French fries in India. Initially facing challenges in sourcing local potatoes and importing them due to high costs and complex regulations, McDonald's invested in a joint venture to cultivate suitable potatoes. After several attempts and innovations, by 2007, they successfully produced fries locally, reducing costs, inventory, and lead times. The video highlights the benefits of local production, including cost savings and supply assurance, and discusses the ongoing challenges of scaling up, managing costs, and competing for supply in a growing market.

Takeaways

• 📚 McDonald's spent six years building its supply chain in India before opening its first store, focusing on sourcing ingredients locally.
• 🍟 Producing McDonald's signature French fries, known as Mac Fries, in India was initially challenging due to local agricultural conditions and the need for a specific potato variety.
• 💡 In the early 1990s, McDonald's formed a joint venture with Lamb Weston and an Indian company to invest in local potato farming and production facilities.
• 🚫 Initial attempts to grow suitable potatoes for Mac Fries in India were unsuccessful, leading to the decision to import frozen fries, which was complex and costly.
• 📈 From 2007 to 2011, local production of Mac Fries in India increased from zero to 75 percent, significantly benefiting McDonald's in cost savings and supply assurance.
• 🔄 After failed attempts, McDonald's partnered with McCain in 1998, who tested production capabilities and conducted regional trials to find the ideal potato variety for Mac Fries.
• 🌱 McCain's approach involved working directly with farmers, demonstrating key agricultural breakthroughs to increase their confidence in growing the right potato variety.
• 💰 Local production of fries resulted in a 30% lower cost structure for McDonald's, with no exposure to exchange rate fluctuations and reduced inventory levels.
• ⏱️ The reduction in shipping time from 60 days to less than a day for local fries improved risk management and contingency planning for McDonald's.
• 📉 Despite the success, McDonald's faced challenges in meeting the growing demand for Mac Fries, managing costs in the face of inflation, and competition for supply from other food companies.
• 🔄 McDonald's had to focus on not only its own supply chain but also on its suppliers' supply chains to ensure a stable and efficient supply of ingredients.

Q & A

Why did McDonald's decide to optimize the supply chain of French fries in India rather than importing them from the US?

Importing French fries from the US would have cost McDonald's more money and time, making it a less viable option for their operations in India.

How long did McDonald's spend building its supply chain in India before opening its first store?

McDonald's spent almost 6 years building its supply chain in India before opening its first store.

What was the main challenge McDonald's faced in sourcing local French fries in India?

The main challenge was finding a suitable variety of potato that could be grown in India's agricultural conditions to meet the quality standards required for McDonald's French fries.

What was the joint venture between Lamb Weston and an India-based company called, and what was its purpose?

The joint venture was called 'Lamb-Western Foods', and its purpose was to identify and grow a suitable variety of potato for making McDonald's French fries in India.

Why did McDonald's initially choose to import frozen fries despite the complexities?

Importing frozen fries was the best option left to get fries quickly in order to open their stores in India, as the initial attempts to localize French fries had failed.

What were the restrictions and costs associated with importing French fries into India in the 1990s?

Import quantities were limited to 800 metric tons, import duties were high at about 56 percent, and the lead time for importing fries from the US to India was around 60 days.

How did McCain approach the challenge of sourcing potatoes for McDonald's French fries in India?

McCain first tested its production capabilities in India using excess capacity from Vista Foods, conducted regional trials to locate ideal growing locations, and experimented with 13 types of potatoes to find the right variety.

What benefits did local production of French fries bring to McDonald's India?

Local production reduced costs by 30%, eliminated exposure to fluctuating exchange rates, and decreased inventory levels and shipping times significantly.

How did the local production of French fries impact McDonald's ability to offer value meals in India?

The reduced cost of local fries allowed McDonald's to launch extra value meals at everyday low prices, increasing customer visits and average spend per visit.

What were the challenges McDonald's faced in terms of quantity and quality as they aimed to grow their restaurant count and cater to the growing middle class in India?

The challenges included meeting the rapidly growing demand for fries by increasing the portion of fries being processed locally and managing the supply chain costs amidst high inflation in India.

How did the competition for supply from other international food companies impact McDonald's sourcing strategy in India?

The competition required McDonald's to focus on building a long-standing relationship with nearly 1000 farmers and ensuring a stable volume of demand to secure their supply chain.