Business Study - McD Case Study .pdf

Operations Case Study Notes - Summary Role Strategic role - Cost leadership - McD sell 75 burgers per sec - Large turnover (CA) - Operations training program = efficiency and reduce costs Influence G...

Operations Case Study Notes - Summary Role Strategic role - Cost leadership - McD sell 75 burgers per sec - Large turnover (CA) - Operations training program = efficiency and reduce costs Influence Globalisation - Significant - 2018 → McD 11th most valuable brand - 2017 Annual report = $91 billion in sales (adapting to global conditions) Technology - Efficiency and reduce long term costs - Partnership with Menulog and Uber = order online - Online ordering app → efficiency - LEDs, automatic drink, digital menu boards, customer notification (app) Quality expectations - 2011 didn’t meet Aussie coffee palate = introduction of McCafe - 2018 – introduced fresh beef instead of frozen → 90% customer satisfaction - Quality of input → Supplier, franchises and employees work together, - Durability of g, reliability of s → sophiscates supply chain, rarely out of stock - Fit for purpose → Meet standards of Food Safety Act 1991 Cost based competitions - McD western europe - Rising operational cost → focus on cost minimisation Government policies - Variety of govt policies and rules - Us calorie count - Australia New Zealand Food Standards - Safety Plan by Hazard Analysis Critical control point = monitor and control Environmental sustainability - Reduce energy use → 2014, more energy efficient equipment (save $14.2 mill), LEDs save 50-70%, efficient air conditioning, lighting, solar panels - Reduce water use → raintanks, time flow taps (slow flow of water) - Packaging → reduce waste, promote recycling, packaging renewable = reduce 30% waste over 10 years - Transport & distribution → fewer miles = less fuel (alt. fuel use) Corporate social responsibility - People, planet, profit - Sustainable supply chain - Collab with suppliers → holistic approach - Economic responsibility - Tries to use Australian products/manufacturers - Animal Health & welfare - 1997 McD rearing and slaughtering animals → cage free eggs Processes Inputs - Transformed (materials, info) - Material (physical inputs for products)  - info → internal/external gathered = customer feedback, analysis of sales - Cust satisfaction → shift to be healthier to remain competitive - Transforming resources (HR & Facilities) - HR - 109,000 employees (specific role) - Front counter - Greet take orders - Host → assist wit kiosk and place menu on table - Kitchen - Facilities - Cooking equipment - Affect efficiency and costs - Upgrade facilities in order to sustain growth and more sophisticated Transformed process - Influence of 4’s V’s - Volume - Quantity of item = essential inventory management - 2012 - 1.7 million customers per day = LV - Seasonal for some products - Short lead time - Variety - Customise → sauces, additional breakfast, desserts - Variation - Influenced by external factors → recession → staff, inventory - Visibility - Feedback via online or call, direct contact - Home delivery + stores = hgh visibility - Sequence and Scheduling - Strict routine of assembly foods - Manage time of making ingredients and customers receive product in a timely manner - Tech, task design, process layout - MyMaccas App, improved drive thru - Job description - staff know role = smooth flow, time allocated tasks - Test kitchen → try new processes and products - Monitoring and controlling - McD managers review lead times, drive thru waits, inventory turn over, wastage and cost analysis → shortfall = action Outputs - Customer service + product - Engaging customer service – brand loyalty Strategies Performance objectives - Quality - Consistency and dependability - Wastage and costs reduced - Emphasise quality of raw material - Speed - Maintain flow - Layout → speed and logical placement  - Complexity of menu items - Alteration to drive thru to increase capacity of cars - Flexibility + Customisation - Standardisation → customised - Create your taste menu → kiosk - Cost - Large cost - minimise - Increase wage/salaries → increase cost for input - Kiosk reduce about/human error ND/SD - innovate/maintain products - Create your taste/gourmet creations - Putting extra costs on customer - Differentiate from customers Supply chain management - Reduce logistics costs by utilising local suppliers Outsourcing - Key functions → management of IT, logistics - Outsourcing makes a mistake - bad for reputation eg. Contamination Technology - Efficiency, accurate, reduce labour costs, minimise waste Inventory - Accurate forecasting of demand = 10% food binned - unnecessary → started making food to order - Accurate inventory control = supply planning system to reduce over/under stock Quality management - Quality control = Check quality of raw input & levels of bacteria - Quality assurance = strict set of rules standards & safety procedures Global factors - R & D → innovate, improve products, processes and service - R & D on external factors → customer needs, general economic needs and competitive behaviour  Marketing Case Study Notes - Summary Role Strategic - McD 2017 Annual report → raise customer awareness of enhanced convenience of delivery and expand the options to engage with the brand Production, selling and marketing approaches - Sales → marketing approach (Customer centric) Types of markets - Individual consumption Influence Factoring influencing customer choice - Psychological - Foodie with health food - McD change to include healthy options - Economic - 2017 AR → substantially affected by the economic cycle - recession proof - Government - ANZFSC - nutrition info available - Sociocultural - Variety of social and cultural backgrounds - Extra value meals & Loose change menu Consumer laws - Labelling - Australia - ANZFSC - Food Act 2003 NSW & Food Regulation Act 2015 NSW - Display ingredients, nutritional and allergy - Advertising - Spam Act 2003 CTH prohibits unsolicited messages that adversities or promote a business or goods - McD breach when they had send to friend link to send to other people - ACCC → Act 2010 CTH - prevents unethical or misleading advertising Ethical considerations - Advertising to children → exploiting children - Fast foods contributing towards obesity → using healthier ingredients Processes Situational analysis Diverse income, global brand, highly Lack of central control, poor operating detailed growth plan, market share, performances, international lead markets Innovation, anticipate and respond to Negative publicity, interruptions with changing consumer preferences supply chain, food safety brechers, competition, increase in wage costs - In 2014 drop in profit → need for healthier foods, all day breakfast earned boost in profits Market research - Collection of customer preferences  - More transparency of food there eating Establish marketing objectives - Growth plan (market share) 1. Retain existing customers 2. Regain lost customers 3. Converting casual customer Identifying Target markets - Globally , 68 million per day - Developing into Asia with more restaurants - Each country - different demographic/geography - different wants Developing marketing strategies - 2017 global plan - Enhance digital capabilities - Redefine customer convenience through delivery - Elevate customer experience (convenience, personalised and enjoyable visit) Implementation, monitoring and controlling - Monitoring and controlling Gourmet creations, create your own taste, MyMaccas ordering app Strategies Market segmentation, Product/service differentiation and positioning - Demographic → Happy Meal toys (kids) coffee and table service (older) - Psychographic → Development of healthier options - Geographic → Suit local taste (Aussie Angus Beef) - Positioning → Super size me - negative publicity (fatty foods), re-position (Eat Smart, Be active) Products - Goods and/or service - Branding → more people recognise the golden arches - Packaging → protect the food, reinforce info the company wants the consumer to know Price inc. Pricing methods - Loss leader → Loose change menu - Price points → Value ladder with different varying levels of affordability - Price bundling → Package for a lower price than purchase individually Promotion - Advertising → promote the brand, masstige (mass advertising), TV ad campaign celebrity endorsement with Mindy Kaling - 4 million views (in a week), exclusive offers, encourages to provide feedback - Publicity → Articles - Sales/promotion → monopoly promotion Place/distribution - Distribution channels → producer, retailer, customer - Channel choice → selective distribution channels. Third party sales increased. Uber eats w/t McD has grown from 200 to 7000 stores Global markets - Global branding → Golden arches - logo - Standardisation →uses the benefits of economies of scale, also constituency within all the stores - Customisation → Recognises different cultural tastes. Local modifications  Finance Case Study Notes - McDonald’s Role Strategic Role - Increase profit and debt equity Objectives - Profitability - Increase profits, (Aim mid 40% from 20% GP) - Growth - increase sales, store no. - Efficiency - increase efficiency - ↓ administration and interest $ - Liquidity - Increase cash flow - Solvency - Continue to reach cash to shareholders Influence Internal finance - Retained profits - Buybacks and dividends External finance - Short / Medium Term - Overdraft - US $2.5 million - Commercial Bills - Commercial papers to the public - Long term - Mortgage - Equipment/machinery, limited property - Leasing - lands and building - Unsecured notes / Debentures are used - Equity - Debt increasing and equity decreasing Finance Issues - Range of banks and finance companies Government Institutions - Minimum wage employees - Different taxation system - ASIC → enforce Corp. Act 2001. Underneath McD Australia Holdings limited creates reports - Company taxation → Different rates on profits avoid company tax Global market - Economic outlook - 2017 Annual report - Substantially influenced by economic fluctuations - Recession proof Lower economic - Cheap food eg. Loose Change menu - Seen as a luxury - Decrease sales - Availability of funds - Low interest rates globally - Relatively easy access - More debt finance - Interest rates - Low interest rates (anywhere from 0.3% - 5.4% p.a) - More debt Processes Planning and Implementing - Assessing financial needs/budgets → budgets for reno. For restaurants  - Using record system → Standard bookkeeping and accounting. Point of sale system - Info on roster staff, sales, food, assembling food. Monitor store sale levels - Managing financial risks → - Interest rate swap - Amount of interest payable on loans, variable interest rate - Foreign currency forward - Lock in exchange rate and avoid risks from changing economic fluctuations Implementing Financial Control → Assessed externally audit - for assurance purposes Debt financing → - Disadvantages - Within time frame and variable interest rates - Expense - Advantages - Cheap form of finance with (LIR) - Payments are tax deductible - More flexible, with large sums obtained in a short period of time Equity financing - Disadvantages - Can be more expensive than debt equity - Advantages - Returning cash to business, to not pay dividend - Expansion of projects Monitoring and controlling - Cash flow statement, income statement and a balance sheet - Analysis the report Financial Ratios Liquidity (Current Ratio) (A:L) McD KFC 2015 2016 2017 2015 2016 2017 3.26:1 1.4:1 1.85:1 0.55:1 1.08:1 1.65:1 2015 - Increasing cash for capital return program Gearing (D:E) McD KFC 2015 2015 4.35:1 7.38:1 Both Negative equity  Profitability (GP) (GP:S) McD KFC 2015 2016 2017 2015 2016 2017 66% 68% 68% 69% 70% 69% GP = Sales - COGS McD is lower than KFC Profitability (NP) 2015 2016 2017 2015 2016 2017 15% 17% 18% 16% 17% 17% Limitations of financial report Capitalising expenses - Development costs of properties are capitalised - Buildings are seen as an asset Valuing Assets - Goodwill - McD Aus has approx $409 million in goodwill in 2017 - McD purchases back a franchise, the amount they pay is over and above tangible and intangible worth Limitations - Are they paying too much - Is the goodwill figure relevant after years of purchase Timing issues - Management make a statement that they are no events after the date - Additional safeguard: make sure disclose any significant issues before reports are published - Another issue is the amount of assets and the rate of depreciation (straight line) - problem is that straight line may not reflect economic reality - meaning could overstate actual profits. Ethical issues of financial reports - McD managers can earn extra payment based on performance or shares as a bonus - Deferring or capitalising expenses - Seen as extra profit - Another Eg. McD franchises pay McD a percentage of gross sales for royalties and rent. This may be an incentive to make false financial statements to reduce fees payable. Strategies Cash flow management (CFM) - Customers pay cash/card  - Paid directly to company or to franchisee on a monthly basis - Cash flow strategies - Returning cash to the company directly through dividends or buybacks - Increase spending on capital infrastructure - Decrease no. of company stores and increase franchisees, thus generating cash from initial sale, royalties and rent - 2017: McD generate US $5.5 billion from operations Working Capital Management Assets Cash - Franchisees have to pay royalties or rent → they must report previous month sales by 11am on the first day by next month, and then royalty must be paid full on the 10th day - Helps maintain significant cash flow Receivables - Tight control - Late payments of rent/royalties, may come with high interest – helps control largest receivables Inventory - Too little stock = customer frustrated (reduce sales), too much (storage/wastage issues) - Relies on external suppliers for inventory - McD has started only making the hamburger hen orders (reduce waste/costs) - Uses manugistics = places necessary orders with suppliers - Uses FIFO Liabilities Payables - Takes 25.4 days to pay its accounts Overdraft - McD has a US $2.5 billion overdraft, pays 0.07% p.a which equal US$1.75 million per year Strategies Leasing - 12,626 restaurants (2017), built US $12.5 billion worth of buildings on land - Allows with rapid expansion w/o large initial capital outlay Sale and Lease back - McD services a large income from the property it leases - Some properties are selling the leases, then leasing bac to reach the full market value Profitability Management Costs Control Fixed variable costs - Fixed = Not directly linked to dales - council rates, insurance premiums - Variable = directly linked to sales - royalty fees payable (food,packaging,drinks) - Mixed = wages, electricity, water Revenue controls - Turning 95% franchisees, creating more stable revenue streams, as there is  less risk of operating their own stores. However, total revenue actually decreases Global Financial Management Exchange rates - McD held US $12.4 billion, which is approx 42% of long term debt Exchange rates/hedging/derivatives - Forward exchange rates contracts, options, cross currency swaps - Based by locking future exchange rates, helps smooth the impact of currency fluctuations Interest rates - Uses interest rate swaps - Avg. 3.3% p.a and currently has 89% of debt fixed - Uses hedges, turning fixed interest into variable interest