Description
McDonald’s Supply Chain
McDonald’s Supply Chain
Contents
Introduction ............................................................................................................................................. 3 History .................................................................................................................................................... 3 McDonald’s in India ............................................................................................................................... 4 Supply Chain of McDonald’s ................................................................................................................. 5 Introduction ......................................................................................................................................... 5 Incorporating Chill Zones – The McDonalds Cold Chain .................................................................. 6 Validation of McDonalds Cold Chain ................................................................................................ 8 McDonalds Suppliers and Distributors ............................................................................................. 10 Outsourcing of Ingredients ............................................................................................................... 12 McDonald's Supply Chain – Challenges........................................................................................... 19 Conclusion ............................................................................................................................................ 20 References ............................................................................................................................................. 21
2
Introduction
McDonald's is the leading global foodservice retailer with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day. More than 75% of McDonald's restaurants worldwide are owned and operated by independent local men and women. McDonald's predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald's offers salads and vegetarian items, wraps and other localized fare. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos (such as the religious prohibition of beef consumption in India) or to make available foods with which the regional market is more familiar (such as the sale of McRice in Indonesia).
History
The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in San Bernardino, California. Their introduction of the "Speedy Service System" in 1948 established the principles of the modern fast-food restaurant. The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion. With the successful expansion of McDonald's into many international markets, the company has become a symbol of globalization. Its prominence has also made it a frequent topic of public debates about obesity, corporate ethics and consumer responsibility.
3
McDonald’s in India
McDonald’s entered India in 1996 through joint ventures with two Indian entities, Hardcastle Restaurants Pvt. Ltd. and Connaught Plaza Restaurants Pvt. Ltd. Hardcastle Restaurants Pvt. Ltd. owns and operates McDonald’s restaurants in western India through a 50-50 joint venture with the parent company. Through a similar partnership, Connaught Plaza Restaurants Pvt. Ltd. owns and operates McDonald’s operations in northern India. The company operates about 160 restaurants in India. McDonald's India has developed a special menu with vegetarian selections to suit Indian tastes and preferences. McDonald's does not offer any beef or pork items in India. Only the freshest chicken, fish and vegetable products find their way into our Indian restaurants. In addition, they have re-formulated some of their products using spices favored by Indians. Among these are McVeggie™ burger, McAloo Tikki™ burger, Veg. Pizza McPuff™ and Chicken McGrill™ burger. They have also created eggless sandwich sauces for the vegetarian customers. Even their soft serves and McShakes™ are egg-less, offering a larger variety to the vegetarian consumers. McDonald's India's local suppliers provide them with the highest quality, freshest ingredients. Complete adherence to the Indian Government regulations on food, health and hygiene is ensured, while maintaining their own recognized international standards. Fast, friendly service - the hallmark of McDonald's restaurants the world over is the mantra they abide by. Stringent cleaning standards ensure that all tables, chairs, highchairs and trays are sanitized several times each hour. Such meticulous attention to cleanliness extends beyond the lobby and kitchen to even the pavement and immediate areas outside the restaurant.
4
Supply Chain of McDonald’s
Introduction
US-based fast food giant, McDonald's success in India had been built on four pillars: ? ? ? ? Limited menu Fresh food Fast service and Affordable price
Intense competition and demands for wider menus, drive-through and sit-down meals encouraged the fast food giant to customize product variety without hampering the efficacy of its supply chain. Around the world (including India), approximately 85% of McDonald's restaurants were owned and operated by independent franchisees. Yet, McDonald's was able to run the show seamlessly by outsourcing nine different ingredients used in making a burger from over 38 suppliers spread all over India through a massive value chain. McDonalds had been working on its supply chain even before it opened its first joint in the country. Between 1992 and 1996, when McDonald's opened its first outlet in India, it worked frenetically to put the perfect supply chain in place. It developed its Indian partners in such a manner that they stayed with the company from the beginning. The success of McDonalds India was achieved by sourcing all its required products from within the country. To ensure this, McDonalds developed local businesses, which can supply it highest quality products. Today, McDonalds India works with 38 different suppliers on a long term basis and several other stand alone restaurants for its various other requirements. It trained the local farmers to produce lettuces or potatoes to specifications and worked with a vendor to get the perfect cold chain in place. And explained to the suppliers precisely why only one particular size of peas was acceptable (if they were too large, they would pop out of the patty and get burnt).
5
These efforts paid off in the form of joint ventures between McDonald's India (a 100% wholly-owned subsidiary of McDonald's. McDonald’s distribution centres in India came in the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and in Kolkata in 2007. McDonald's entered its first distribution partnership agreement with Radha Krishna Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. The association goes back to July 1993, when it studied the nuances of McDonald's operations and requirements for the Indian market. As distribution centers, the company was responsible for procurement, the quality inspection programme, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value-added services like shredding of lettuce, re-packing of promotional items continued since then at the centers playing a vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it had spent more than six years to get the system into place. This system brought about a veritable revolution, immensely benefiting the farmers at one end and enabling customers at retail counters get the highest quality food products, absolutely fresh and at great value. Through its unique cold chain, McDonalds has been able to both cut down on its operational wastage, as well as maintain the freshness and nutritional value of raw and processed food products. This has involved procurement, warehousing, transportation and retailing of perishable food products, all under controlled temperatures.
Incorporating Chill Zones – The McDonalds Cold Chain
A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range. It is used help extend and ensure the shelf life of products such as fresh agricultural produce, processed foods, photographic film, chemicals and pharmaceutical drugs.
6
Setting up extensive cold chain distribution system forms the lifeline of any fast food business. In this regard, McDonald's incorporated state-of-the-art food processing technology along with its international suppliers to pioneering Indian entrepreneurs, who are today an integral part of the cold chain. McDonald's finding the factor of cold room being vital ensured that even before vegetable from farms enters the refrigerated zones, they are locked in a pre-cooling room to remove field heat. Vegetables are placed in the pre-cooling room within half an hour of harvesting where rapid cooling decreases the field temperature of vegetables to 2ºC within 90 minutes. Then a large cold room (a refrigerated van) is used for transportation to the distribution centers. In the van, the temperature and relative humidity of crop is maintained at 1-4ºC and 95 per cent, respectively and the flavors and freshness are locked at -35°C. McDonald’s restaurants store products to be used on a daily basis, within a temperature range of –18ºC to 4ºC. About 52% of the food products need to be stored under these conditions before they are used.
7
Validation of McDonalds Cold Chain
A cold chain can be managed by a quality management system. It should be analyzed, measured, controlled, documented, and validated. The overall approach to validation of a distribution process is by building more and more qualifications on top of each other to get to a validated state. This is done by executing a Component Qualification on the packaging components. Next, an Operational Qualification that demonstrates the process performs at the operational extremes. The final piece is the Performance Qualification that demonstrates that what happens in the real world is within the limits of what was demonstrated in the Operational Qualification limits. All suppliers adhere to Indian government regulations on food, health and hygiene while continuously maintaining McDonald's recognized standards. As the ingredients move from farms to processing plants to the restaurant, McDonald's Quality Inspection Programme (QIP) carries out quality checks at over 20 different points in the Cold Chain system.
8
Ingredients
Cheese Dehydrated onions Iceberg lettuce Chicken patty Veg. Patty, Veg. Pineapple/Apple pie Chicken (dressed) Buns Eggless mayonnaise Sesame seeds Iceberg lettuce Fish fillet patties Iceberg lettuce nuggets,
Supplier
Dynamix Dairy Industries Ltd., Pune Jain Foods, Jalgaon Trikaya Agriculture, Pune Vista Foods, Taloja
Kitran Foods, Taloja Riverdale, Talegaon Cremica Industries, Phillaur Quaker Cremica Pvt. Ltd., Phillaur Ghaziabad Meena Agritech, Delhi Amalgam Foods Ltd., Kochi. Ooty Farms & Orchards, Ooty Finns Frozen Foods & Jain Foods (Nasik, Jalgaon) Al Kabeer, Hyderabad
Vegetables for the patties Mutton and mutton patties
Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that emphasizes prevention within McDonalds’ suppliers' facility and restaurants rather than detection through inspection of illness or presence of microbiological data. Based on HACCP guidelines, control points and critical control points for all McDonald's major food processing plants and restaurants in India have been identified. The limits have been established for
9
those followed by monitoring, recording and correcting any deviations. The HACCP verification is done at least twice in a year and certified.
McDonalds Suppliers and Distributors
Suppliers are proclaimed to be the backbone of any good business as they are the individual units that build supply chain. On them depends the health of the overall business cycle. McDonald's sourced ingredients from all parts of India. Some of these are tabulated below. In 1996, when McDonald's entered India, it was looking for a distribution agent who would act as a hub for all its vendors. Mumbai-based Radhakrishna Foodland Private Limited (RFPL) was chosen for the job as it was already a distributor for its sister concern, Radhakrishna Hospitality Services, a catering unit supplying to offshore institutions. The iceberg lettuce from Ooty, mutton patties from Hyderabad and sesame seed buns from Punjab were all delivered to RFPL's distribution centre (cold storage) in its refrigerated vans. RFPL stored the products in controlled conditions in Mumbai and New Delhi and supplied them to McDonald's outlets on a daily basis. By transporting the semi-finished products at a particular temperature, the cold chain ensured freshness and adequate moisture content of the food. The specially designed trucks maintained the temperature in the storage chamber throughout the journey. Drivers were instructed specifically not to switch off the chilling system to save electricity, even in the event of traffic jam. FJ Walker of Australia, a McDonald's partner, helped RFPL build a cold storage in Thane. Another cold storage with equipment worth about Rs.75 lakh was built in Delhi in 1998. RFPL also handled McDonald's inventory management. It had to anticipate future requirements and contingencies and plan for optimum utilization of the refrigerated vehicles.
Meeting McDonald's "cold, clean, on-time" delivery standards was no easy task considering that there were 30 suppliers situated all over the country. AFL Logistics Ltd (ALL), a joint venture between and Coughlin of the US, and RFPL was responsible for ensuring these standards. Coughlin's task was to make sure that McDonald's had the proper amount of
10
supplies and materials at each restaurant. The challenge was the physical movement of material and inventory control in a country with bad roads and basic infrastructure bottlenecks. To meet McDonald's high standards, Coughlin ensured that quality, temperature and packaging requirements were met. At the same time, unused capacity in the vehicles was used to transport goods from other vendors. This helped Coughlin deliver the lowest cost with the highest quality. RFPL also handled in-city distribution to restaurants. The restaurants were not supposed to stock more than three days of inventory, the time limit for distribution centres or warehouses was a stringent 14 days to minimize costs and optimize quality control. This required round-the-clock monitoring of pick-ups and truck movements. Since most of the items were perishable, McDonald's standards covered the entire delivery schedules. For in-city delivery, the truck was monitored from the time it left the distribution centre till the time it reached the restaurant. Not just that, the time taken in offloading was noted too. The products were transported from the suppliers' end to the distribution centre in refrigerated and insulated vehicles through a system of consolidation to ensure better utilization of vehicle capacity. While the temperature in the reefers ranged from -18º to -22º, that in chilled trucks ranged from 1 to 4º RFPL was also responsible for cleanliness (including the personal hygiene of the drivers), and the packing and temperature control of the food (digital probes were inserted into items selected at random) it transported. There were also data logs to track the movement of each batch. This meant that in the case of a complaint from a restaurant, the batch could be identified, isolated, and dumped. To perfect the system, the RFPL team travelled to a number of countries, including Turkey, the Philippines, Australia, and the US. AFLL also followed similarly detailed procedures. McDonald's insisted on standardization by its suppliers. Vista Processed Foods & Kitran Foods (Vista & Kitran Foods), which supplied the pies, nuggets, vegetable, and chicken
11
patties, commissioned a new facility for the purpose in 1996, complete with insulated panels, temperature control, and chill rooms. McDonald's also assisted its suppliers with improvements. For instance, it helped Trikaya Agriculture develop a variety of iceberg lettuces (which is a winter crop) that would grow all year round. And for quality control, Trikaya's post-harvest facilities included a cold chain consisting of a pre-cooling room to remove field heat, a large cold room, and a refrigerated van with humidity controls. Details of the suppliers and how they operated to meet McDonald’s standards are given in the following pages.
Outsourcing of Ingredients
The following suppliers, who build up the major supply chain of McDonalds, reveal how the Cold Chain works and contributes towards the efficiency of McDonalds.
Dynamix Dairy Industries (Supplier of Cheese) Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up a network of milk collection centres equipped with bulk coolers. Easy accessibility has enabled farmers augment their income by finding a new market for surplus milk. The factory has:
? ?
Fully automatic international standard processing facility. Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein & whey protein and humanized baby food.
?
Stringent quality control measures and continuous Research & Development
From farm two degrees Celsius in 90 minutes is the first step to quality. For example, the Rs 262-crore Dynamix Dairy Industries, located in Baramati in Pune district of Maharashtra, manufactures cheese slices for McDonald’s at 10 metric tonnes per month. Dynamix has helped set up 15 bulk cooling centres throughout the district from which it purchases milk.
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Each cooling centre, which is equipped with modern measuring and testing equipment and a large cooling tank, is not more than a few kilometres away from local dairy farms. A farmer can deliver milk even twice a day on his bicycle and get a printed receipt on the spot, which also lists the quality of the milk supplied by him as per fat content, colour and solids content. If the milk is sub-standard or adulterated, it is rejected on the spot. A batch of milk can vary from one litre to 10 litres, or more. Each batch is mixed in one large stainless steel cooler and chilled immediately to two degrees Celsius to stop bacterial growth and preserve freshness. From this point onwards, until just before the burger is actually served in a McDonald’s restaurant hundreds of kilometres away, the temperature is never allowed to increase. When the refrigerated milk arrives at the Dynamix plant at Baramati, the milk in every single tanker is thoroughly tested and rejected if found sub-standard, adulterated or contaminated. The sophisticated testing lab can check fat content with an accuracy of 0.1 per cent. It can even detect minute traces of pesticides or antibiotics administered to cows. This instant feedback and the rejection of the entire tanker-load forces farmers to follow the best practices in terms of animal husbandry, use proper feeds, cut down on the indiscriminate use of pesticides and animal medicines and completely stop even the slightest attempts at adulteration.
Trikaya Agriculture (Supplier of Iceberg Lettuce) Implementation of advanced agricultural practices has enabled Trikaya to successfully grow specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm infrastructure features:
? ? ? ?
A specialized nursery with a team of agricultural experts. Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant. Pre-cooling room and a large cold room for post harvest handling. Refrigerated truck for transportation.
13
Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such enterprise that is an intrinsic part of the cold chain. Exposure to better agricultural management practices and sharing of advanced agricultural technology by McDonald's has made Trikaya Agriculture extremely conscious of delivering its products with utmost care and quality. Initially lettuce could only be grown during the winter months but with McDonald's expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is now able to grow this crop all the year round. McDonald's has provided assistance in the selection of high quality seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a refrigerated transportation system allowing a small agri-business in Maharashtra to provide fresh, high-quality lettuce to McDonald's urban restaurant locations thousands of kilometres away. Post harvest facilities at Trikaya include a cold chain consisting of a pre-cooling room to remove field heat, a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of the crop is maintained between 1º C and 4º C and 95% respectively. Vegetables are moved into the precooling room within half an hour of harvesting. The pre-cooling room ensures rapid vacuum cooling to 2º C within 90 minutes. The pack house, pre-cooling and cold room are located at the farms itself, ensuring no delay between harvesting, pre-cooling, packaging and cold storage. With this cold chain infrastructure in place, Trikaya Agriculture has also a plan to export this high value product to other international markets, especially to McDonald's Middle East and Asia Pacific operations. McDonald's expertise in packaging, handling and long-distance transportation has helped Trikaya to do trial shipments to the Gulf successfully. In addition to export, McDonald's assistance has enabled Trikaya Agriculture to supply this crop to a number of star-rated hotels, clubs, flight kitchens and offshore catering companies all over India.
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Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products including Fruit Pies) A joint venture with OSI Industries Inc., USA, McDonald's India Pvt. Ltd. and Vista Processed Foods Pvt. Ltd., produces a range of frozen chicken and vegetable foods. A world class infrastructure at their plant at Taloja, Maharashtra, has:
? ?
Separate processing lines for chicken and vegetable foods. Capability to produce frozen foods at temperature as low as -35 Degree Celsius to retain total freshness.
?
International standards, procedures and support services.
Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the chicken and vegetable range of products, is another important player in this cold chain. Technical and financial support extended by OSI Industries Inc., USA and McDonald’s India Private Limited have enabled Vista to set up world-class infrastructure and support services. This includes hi-tech refrigeration plants for manufacture of frozen food at temperatures as low as - 35° C. This is vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is maintained. The frozen product is immediately moved to cold storage rooms. With continued assistance from its international partners, Vista has installed hi-tech equipment for both the chicken and vegetable processing lines, which reflect the latest food processing technology (de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the latest vegetable mixers and blenders are in operation. Also, keeping cultural sensitivities in mind, both processing lines are absolutely segregated and utmost care is taken to ensure that the vegetable products do not mix with the non-vegetarian products. Now, at Vista, a very wide range of frozen and nutritious chicken and vegetable products is available. Ongoing R&D, both locally and in the parent companies, work towards innovation in taste, nutritional value and convenience. These products, besides being supplied to McDonald's, are also offered to institutions like star-rated hotels, hospitals, project sites, caterers, corporate canteens, schools and colleges, restaurants, food service establishments and coffee shops.
15
Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai) An integral part of the Radhakrishna Group, Foodland specializes in handling large volumes, providing the entire range of services including procurement, quality inspection, storage, inventory management, deliveries, data collection, recording and reporting. Salient strengths are :
? ?
A one-stop shop for all distribution management services. Dry and cold storage facility to store and transport perishable products at temperatures upto -22 Degree Celsius.
?
Effective process control for minimum distribution cost.
McDonald's local supply networks through Radhakrishna Foodland, which operates distribution centres (DCs) for McDonald's restaurants in Mumbai and Delhi. The DCs have focused all their resources to meet McDonald's expectation of 'Cold, Clean, and On-Time Delivery' and plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Ranging from liquid products coming from Punjab to lettuce from Pune, the DC receives items from different parts of the country. These items are stored in rooms with different temperature zones and are finally dispatched to the McDonald's restaurants on the basis of their requirements. The company has both cold and dry storage facilities with capability to store products up to -22º C as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state. Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts) Amrit Food, an ISO 9000 company, manufactures widely popular brands – Gagan Milk and Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh. The factory has:
?
State-of-the-art fully automatic machinery requiring no human contact with product, for total hygiene.
16
?
Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High Temperature) processed milk and milk products.
?
Strict quality control supported by a fully equipped quality control laboratory.
This relationship between McDonald's and its Indian suppliers is mutually beneficial. As McDonald's expands in India, the supplier gets the opportunity to expand his business, have access to the latest in food technology, exposure to advanced agricultural practices and the ability to grow or to export. There are many cases of local suppliers operating out of small towns who have benefited from their association with McDonald's India. McDonald's convinced its suppliers to set up two separate production lines for chicken and vegetable patties, keeping in the mind the link between food and religion in India. This was in sharp contrast with its global practice, where McDonald's suppliers produced all types of patties from the same line. These two production lines were housed in two different rooms and the only way a worker could cross over from one line to the other was by passing through the shower room. This eliminated all chances of contamination. However, from a supplier's point of view, more lines meant a reduction in capacity utilisation and high cost of production. To minimise costs, McDonald's helped Vista & Kitran Foods produce derivatives of chicken and vegetable nuggets (not based on McDonald's recipe) for Indian hotels and restaurants and thereby reach new markets. Vista & Kitran's higher margin and higher capacity utilization for non-McDonald's products helped it remain cost competitive. McDonald's philosophy had been 'one world, one burger' i.e. the McDonald's burger should be consistent in terms of cost and quality throughout the world. To ensure this, all of McDonald's suppliers followed the internationally acclaimed HACCP systems wherein both inputs and finished goods were subjected to chemical and microbiological tests. This kept food fresh and free from contamination. Apart from this, the entire production line was automated using sophisticated technology, barring only the final compilation of the bun, cheese and patty - which was done by hand.
17
18
McDonald's Supply Chain – Challenges
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Full Supply Chain responsibility Multi Temp. Products - Over 65 % temperature controlled Stores as far as 500 – 1000 kms Drops per month - Over 1000 Movement mainly by road Regular movement of perishables by air Routing Challenges No margin for error – Operations critical client No Stock Outs at store On time delivery record – above 97 % Clean delivery record – above 99 % Unfailing inbound supply chain Bull whip effect Cannibalization Order and Inventory Management Product innovations
19
The most important challenge in the supply chain is its integration. Mc Donald has managed it in a very diligent way.
Conclusion
As a result on the efficient supply chain, gross margin improved by more than 15%. The reduction in raw material wastage was achieved to the extent of 30%. So did the average inventory. The store transfers and the order time also reduced to half. Hence we see that optimizing the supply chain can increase the efficiency of a company in multiple ways.
20
References
? ? ? ? ?
http://www.icmrindia.org/free%20resources/casestudies/McDonald%20food%20chai n-7.htm http://www.articlesbase.com/marketing-articles/mcdonalds-india-supply-chain729402.html www.expresshospitality.com/20070315/management06.shtml www.mcdonaldsindia.com www.nrf.com/Attachments.asp?id=9504
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doc_159685014.docx
McDonald’s Supply Chain
McDonald’s Supply Chain
Contents
Introduction ............................................................................................................................................. 3 History .................................................................................................................................................... 3 McDonald’s in India ............................................................................................................................... 4 Supply Chain of McDonald’s ................................................................................................................. 5 Introduction ......................................................................................................................................... 5 Incorporating Chill Zones – The McDonalds Cold Chain .................................................................. 6 Validation of McDonalds Cold Chain ................................................................................................ 8 McDonalds Suppliers and Distributors ............................................................................................. 10 Outsourcing of Ingredients ............................................................................................................... 12 McDonald's Supply Chain – Challenges........................................................................................... 19 Conclusion ............................................................................................................................................ 20 References ............................................................................................................................................. 21
2
Introduction
McDonald's is the leading global foodservice retailer with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day. More than 75% of McDonald's restaurants worldwide are owned and operated by independent local men and women. McDonald's predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald's offers salads and vegetarian items, wraps and other localized fare. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos (such as the religious prohibition of beef consumption in India) or to make available foods with which the regional market is more familiar (such as the sale of McRice in Indonesia).
History
The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in San Bernardino, California. Their introduction of the "Speedy Service System" in 1948 established the principles of the modern fast-food restaurant. The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion. With the successful expansion of McDonald's into many international markets, the company has become a symbol of globalization. Its prominence has also made it a frequent topic of public debates about obesity, corporate ethics and consumer responsibility.
3
McDonald’s in India
McDonald’s entered India in 1996 through joint ventures with two Indian entities, Hardcastle Restaurants Pvt. Ltd. and Connaught Plaza Restaurants Pvt. Ltd. Hardcastle Restaurants Pvt. Ltd. owns and operates McDonald’s restaurants in western India through a 50-50 joint venture with the parent company. Through a similar partnership, Connaught Plaza Restaurants Pvt. Ltd. owns and operates McDonald’s operations in northern India. The company operates about 160 restaurants in India. McDonald's India has developed a special menu with vegetarian selections to suit Indian tastes and preferences. McDonald's does not offer any beef or pork items in India. Only the freshest chicken, fish and vegetable products find their way into our Indian restaurants. In addition, they have re-formulated some of their products using spices favored by Indians. Among these are McVeggie™ burger, McAloo Tikki™ burger, Veg. Pizza McPuff™ and Chicken McGrill™ burger. They have also created eggless sandwich sauces for the vegetarian customers. Even their soft serves and McShakes™ are egg-less, offering a larger variety to the vegetarian consumers. McDonald's India's local suppliers provide them with the highest quality, freshest ingredients. Complete adherence to the Indian Government regulations on food, health and hygiene is ensured, while maintaining their own recognized international standards. Fast, friendly service - the hallmark of McDonald's restaurants the world over is the mantra they abide by. Stringent cleaning standards ensure that all tables, chairs, highchairs and trays are sanitized several times each hour. Such meticulous attention to cleanliness extends beyond the lobby and kitchen to even the pavement and immediate areas outside the restaurant.
4
Supply Chain of McDonald’s
Introduction
US-based fast food giant, McDonald's success in India had been built on four pillars: ? ? ? ? Limited menu Fresh food Fast service and Affordable price
Intense competition and demands for wider menus, drive-through and sit-down meals encouraged the fast food giant to customize product variety without hampering the efficacy of its supply chain. Around the world (including India), approximately 85% of McDonald's restaurants were owned and operated by independent franchisees. Yet, McDonald's was able to run the show seamlessly by outsourcing nine different ingredients used in making a burger from over 38 suppliers spread all over India through a massive value chain. McDonalds had been working on its supply chain even before it opened its first joint in the country. Between 1992 and 1996, when McDonald's opened its first outlet in India, it worked frenetically to put the perfect supply chain in place. It developed its Indian partners in such a manner that they stayed with the company from the beginning. The success of McDonalds India was achieved by sourcing all its required products from within the country. To ensure this, McDonalds developed local businesses, which can supply it highest quality products. Today, McDonalds India works with 38 different suppliers on a long term basis and several other stand alone restaurants for its various other requirements. It trained the local farmers to produce lettuces or potatoes to specifications and worked with a vendor to get the perfect cold chain in place. And explained to the suppliers precisely why only one particular size of peas was acceptable (if they were too large, they would pop out of the patty and get burnt).
5
These efforts paid off in the form of joint ventures between McDonald's India (a 100% wholly-owned subsidiary of McDonald's. McDonald’s distribution centres in India came in the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and in Kolkata in 2007. McDonald's entered its first distribution partnership agreement with Radha Krishna Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. The association goes back to July 1993, when it studied the nuances of McDonald's operations and requirements for the Indian market. As distribution centers, the company was responsible for procurement, the quality inspection programme, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value-added services like shredding of lettuce, re-packing of promotional items continued since then at the centers playing a vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it had spent more than six years to get the system into place. This system brought about a veritable revolution, immensely benefiting the farmers at one end and enabling customers at retail counters get the highest quality food products, absolutely fresh and at great value. Through its unique cold chain, McDonalds has been able to both cut down on its operational wastage, as well as maintain the freshness and nutritional value of raw and processed food products. This has involved procurement, warehousing, transportation and retailing of perishable food products, all under controlled temperatures.
Incorporating Chill Zones – The McDonalds Cold Chain
A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range. It is used help extend and ensure the shelf life of products such as fresh agricultural produce, processed foods, photographic film, chemicals and pharmaceutical drugs.
6
Setting up extensive cold chain distribution system forms the lifeline of any fast food business. In this regard, McDonald's incorporated state-of-the-art food processing technology along with its international suppliers to pioneering Indian entrepreneurs, who are today an integral part of the cold chain. McDonald's finding the factor of cold room being vital ensured that even before vegetable from farms enters the refrigerated zones, they are locked in a pre-cooling room to remove field heat. Vegetables are placed in the pre-cooling room within half an hour of harvesting where rapid cooling decreases the field temperature of vegetables to 2ºC within 90 minutes. Then a large cold room (a refrigerated van) is used for transportation to the distribution centers. In the van, the temperature and relative humidity of crop is maintained at 1-4ºC and 95 per cent, respectively and the flavors and freshness are locked at -35°C. McDonald’s restaurants store products to be used on a daily basis, within a temperature range of –18ºC to 4ºC. About 52% of the food products need to be stored under these conditions before they are used.
7
Validation of McDonalds Cold Chain
A cold chain can be managed by a quality management system. It should be analyzed, measured, controlled, documented, and validated. The overall approach to validation of a distribution process is by building more and more qualifications on top of each other to get to a validated state. This is done by executing a Component Qualification on the packaging components. Next, an Operational Qualification that demonstrates the process performs at the operational extremes. The final piece is the Performance Qualification that demonstrates that what happens in the real world is within the limits of what was demonstrated in the Operational Qualification limits. All suppliers adhere to Indian government regulations on food, health and hygiene while continuously maintaining McDonald's recognized standards. As the ingredients move from farms to processing plants to the restaurant, McDonald's Quality Inspection Programme (QIP) carries out quality checks at over 20 different points in the Cold Chain system.
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Ingredients
Cheese Dehydrated onions Iceberg lettuce Chicken patty Veg. Patty, Veg. Pineapple/Apple pie Chicken (dressed) Buns Eggless mayonnaise Sesame seeds Iceberg lettuce Fish fillet patties Iceberg lettuce nuggets,
Supplier
Dynamix Dairy Industries Ltd., Pune Jain Foods, Jalgaon Trikaya Agriculture, Pune Vista Foods, Taloja
Kitran Foods, Taloja Riverdale, Talegaon Cremica Industries, Phillaur Quaker Cremica Pvt. Ltd., Phillaur Ghaziabad Meena Agritech, Delhi Amalgam Foods Ltd., Kochi. Ooty Farms & Orchards, Ooty Finns Frozen Foods & Jain Foods (Nasik, Jalgaon) Al Kabeer, Hyderabad
Vegetables for the patties Mutton and mutton patties
Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that emphasizes prevention within McDonalds’ suppliers' facility and restaurants rather than detection through inspection of illness or presence of microbiological data. Based on HACCP guidelines, control points and critical control points for all McDonald's major food processing plants and restaurants in India have been identified. The limits have been established for
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those followed by monitoring, recording and correcting any deviations. The HACCP verification is done at least twice in a year and certified.
McDonalds Suppliers and Distributors
Suppliers are proclaimed to be the backbone of any good business as they are the individual units that build supply chain. On them depends the health of the overall business cycle. McDonald's sourced ingredients from all parts of India. Some of these are tabulated below. In 1996, when McDonald's entered India, it was looking for a distribution agent who would act as a hub for all its vendors. Mumbai-based Radhakrishna Foodland Private Limited (RFPL) was chosen for the job as it was already a distributor for its sister concern, Radhakrishna Hospitality Services, a catering unit supplying to offshore institutions. The iceberg lettuce from Ooty, mutton patties from Hyderabad and sesame seed buns from Punjab were all delivered to RFPL's distribution centre (cold storage) in its refrigerated vans. RFPL stored the products in controlled conditions in Mumbai and New Delhi and supplied them to McDonald's outlets on a daily basis. By transporting the semi-finished products at a particular temperature, the cold chain ensured freshness and adequate moisture content of the food. The specially designed trucks maintained the temperature in the storage chamber throughout the journey. Drivers were instructed specifically not to switch off the chilling system to save electricity, even in the event of traffic jam. FJ Walker of Australia, a McDonald's partner, helped RFPL build a cold storage in Thane. Another cold storage with equipment worth about Rs.75 lakh was built in Delhi in 1998. RFPL also handled McDonald's inventory management. It had to anticipate future requirements and contingencies and plan for optimum utilization of the refrigerated vehicles.
Meeting McDonald's "cold, clean, on-time" delivery standards was no easy task considering that there were 30 suppliers situated all over the country. AFL Logistics Ltd (ALL), a joint venture between and Coughlin of the US, and RFPL was responsible for ensuring these standards. Coughlin's task was to make sure that McDonald's had the proper amount of
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supplies and materials at each restaurant. The challenge was the physical movement of material and inventory control in a country with bad roads and basic infrastructure bottlenecks. To meet McDonald's high standards, Coughlin ensured that quality, temperature and packaging requirements were met. At the same time, unused capacity in the vehicles was used to transport goods from other vendors. This helped Coughlin deliver the lowest cost with the highest quality. RFPL also handled in-city distribution to restaurants. The restaurants were not supposed to stock more than three days of inventory, the time limit for distribution centres or warehouses was a stringent 14 days to minimize costs and optimize quality control. This required round-the-clock monitoring of pick-ups and truck movements. Since most of the items were perishable, McDonald's standards covered the entire delivery schedules. For in-city delivery, the truck was monitored from the time it left the distribution centre till the time it reached the restaurant. Not just that, the time taken in offloading was noted too. The products were transported from the suppliers' end to the distribution centre in refrigerated and insulated vehicles through a system of consolidation to ensure better utilization of vehicle capacity. While the temperature in the reefers ranged from -18º to -22º, that in chilled trucks ranged from 1 to 4º RFPL was also responsible for cleanliness (including the personal hygiene of the drivers), and the packing and temperature control of the food (digital probes were inserted into items selected at random) it transported. There were also data logs to track the movement of each batch. This meant that in the case of a complaint from a restaurant, the batch could be identified, isolated, and dumped. To perfect the system, the RFPL team travelled to a number of countries, including Turkey, the Philippines, Australia, and the US. AFLL also followed similarly detailed procedures. McDonald's insisted on standardization by its suppliers. Vista Processed Foods & Kitran Foods (Vista & Kitran Foods), which supplied the pies, nuggets, vegetable, and chicken
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patties, commissioned a new facility for the purpose in 1996, complete with insulated panels, temperature control, and chill rooms. McDonald's also assisted its suppliers with improvements. For instance, it helped Trikaya Agriculture develop a variety of iceberg lettuces (which is a winter crop) that would grow all year round. And for quality control, Trikaya's post-harvest facilities included a cold chain consisting of a pre-cooling room to remove field heat, a large cold room, and a refrigerated van with humidity controls. Details of the suppliers and how they operated to meet McDonald’s standards are given in the following pages.
Outsourcing of Ingredients
The following suppliers, who build up the major supply chain of McDonalds, reveal how the Cold Chain works and contributes towards the efficiency of McDonalds.
Dynamix Dairy Industries (Supplier of Cheese) Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up a network of milk collection centres equipped with bulk coolers. Easy accessibility has enabled farmers augment their income by finding a new market for surplus milk. The factory has:
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Fully automatic international standard processing facility. Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein & whey protein and humanized baby food.
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Stringent quality control measures and continuous Research & Development
From farm two degrees Celsius in 90 minutes is the first step to quality. For example, the Rs 262-crore Dynamix Dairy Industries, located in Baramati in Pune district of Maharashtra, manufactures cheese slices for McDonald’s at 10 metric tonnes per month. Dynamix has helped set up 15 bulk cooling centres throughout the district from which it purchases milk.
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Each cooling centre, which is equipped with modern measuring and testing equipment and a large cooling tank, is not more than a few kilometres away from local dairy farms. A farmer can deliver milk even twice a day on his bicycle and get a printed receipt on the spot, which also lists the quality of the milk supplied by him as per fat content, colour and solids content. If the milk is sub-standard or adulterated, it is rejected on the spot. A batch of milk can vary from one litre to 10 litres, or more. Each batch is mixed in one large stainless steel cooler and chilled immediately to two degrees Celsius to stop bacterial growth and preserve freshness. From this point onwards, until just before the burger is actually served in a McDonald’s restaurant hundreds of kilometres away, the temperature is never allowed to increase. When the refrigerated milk arrives at the Dynamix plant at Baramati, the milk in every single tanker is thoroughly tested and rejected if found sub-standard, adulterated or contaminated. The sophisticated testing lab can check fat content with an accuracy of 0.1 per cent. It can even detect minute traces of pesticides or antibiotics administered to cows. This instant feedback and the rejection of the entire tanker-load forces farmers to follow the best practices in terms of animal husbandry, use proper feeds, cut down on the indiscriminate use of pesticides and animal medicines and completely stop even the slightest attempts at adulteration.
Trikaya Agriculture (Supplier of Iceberg Lettuce) Implementation of advanced agricultural practices has enabled Trikaya to successfully grow specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm infrastructure features:
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A specialized nursery with a team of agricultural experts. Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant. Pre-cooling room and a large cold room for post harvest handling. Refrigerated truck for transportation.
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Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such enterprise that is an intrinsic part of the cold chain. Exposure to better agricultural management practices and sharing of advanced agricultural technology by McDonald's has made Trikaya Agriculture extremely conscious of delivering its products with utmost care and quality. Initially lettuce could only be grown during the winter months but with McDonald's expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is now able to grow this crop all the year round. McDonald's has provided assistance in the selection of high quality seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a refrigerated transportation system allowing a small agri-business in Maharashtra to provide fresh, high-quality lettuce to McDonald's urban restaurant locations thousands of kilometres away. Post harvest facilities at Trikaya include a cold chain consisting of a pre-cooling room to remove field heat, a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of the crop is maintained between 1º C and 4º C and 95% respectively. Vegetables are moved into the precooling room within half an hour of harvesting. The pre-cooling room ensures rapid vacuum cooling to 2º C within 90 minutes. The pack house, pre-cooling and cold room are located at the farms itself, ensuring no delay between harvesting, pre-cooling, packaging and cold storage. With this cold chain infrastructure in place, Trikaya Agriculture has also a plan to export this high value product to other international markets, especially to McDonald's Middle East and Asia Pacific operations. McDonald's expertise in packaging, handling and long-distance transportation has helped Trikaya to do trial shipments to the Gulf successfully. In addition to export, McDonald's assistance has enabled Trikaya Agriculture to supply this crop to a number of star-rated hotels, clubs, flight kitchens and offshore catering companies all over India.
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Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products including Fruit Pies) A joint venture with OSI Industries Inc., USA, McDonald's India Pvt. Ltd. and Vista Processed Foods Pvt. Ltd., produces a range of frozen chicken and vegetable foods. A world class infrastructure at their plant at Taloja, Maharashtra, has:
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Separate processing lines for chicken and vegetable foods. Capability to produce frozen foods at temperature as low as -35 Degree Celsius to retain total freshness.
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International standards, procedures and support services.
Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the chicken and vegetable range of products, is another important player in this cold chain. Technical and financial support extended by OSI Industries Inc., USA and McDonald’s India Private Limited have enabled Vista to set up world-class infrastructure and support services. This includes hi-tech refrigeration plants for manufacture of frozen food at temperatures as low as - 35° C. This is vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is maintained. The frozen product is immediately moved to cold storage rooms. With continued assistance from its international partners, Vista has installed hi-tech equipment for both the chicken and vegetable processing lines, which reflect the latest food processing technology (de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the latest vegetable mixers and blenders are in operation. Also, keeping cultural sensitivities in mind, both processing lines are absolutely segregated and utmost care is taken to ensure that the vegetable products do not mix with the non-vegetarian products. Now, at Vista, a very wide range of frozen and nutritious chicken and vegetable products is available. Ongoing R&D, both locally and in the parent companies, work towards innovation in taste, nutritional value and convenience. These products, besides being supplied to McDonald's, are also offered to institutions like star-rated hotels, hospitals, project sites, caterers, corporate canteens, schools and colleges, restaurants, food service establishments and coffee shops.
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Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai) An integral part of the Radhakrishna Group, Foodland specializes in handling large volumes, providing the entire range of services including procurement, quality inspection, storage, inventory management, deliveries, data collection, recording and reporting. Salient strengths are :
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A one-stop shop for all distribution management services. Dry and cold storage facility to store and transport perishable products at temperatures upto -22 Degree Celsius.
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Effective process control for minimum distribution cost.
McDonald's local supply networks through Radhakrishna Foodland, which operates distribution centres (DCs) for McDonald's restaurants in Mumbai and Delhi. The DCs have focused all their resources to meet McDonald's expectation of 'Cold, Clean, and On-Time Delivery' and plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Ranging from liquid products coming from Punjab to lettuce from Pune, the DC receives items from different parts of the country. These items are stored in rooms with different temperature zones and are finally dispatched to the McDonald's restaurants on the basis of their requirements. The company has both cold and dry storage facilities with capability to store products up to -22º C as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state. Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts) Amrit Food, an ISO 9000 company, manufactures widely popular brands – Gagan Milk and Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh. The factory has:
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State-of-the-art fully automatic machinery requiring no human contact with product, for total hygiene.
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Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High Temperature) processed milk and milk products.
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Strict quality control supported by a fully equipped quality control laboratory.
This relationship between McDonald's and its Indian suppliers is mutually beneficial. As McDonald's expands in India, the supplier gets the opportunity to expand his business, have access to the latest in food technology, exposure to advanced agricultural practices and the ability to grow or to export. There are many cases of local suppliers operating out of small towns who have benefited from their association with McDonald's India. McDonald's convinced its suppliers to set up two separate production lines for chicken and vegetable patties, keeping in the mind the link between food and religion in India. This was in sharp contrast with its global practice, where McDonald's suppliers produced all types of patties from the same line. These two production lines were housed in two different rooms and the only way a worker could cross over from one line to the other was by passing through the shower room. This eliminated all chances of contamination. However, from a supplier's point of view, more lines meant a reduction in capacity utilisation and high cost of production. To minimise costs, McDonald's helped Vista & Kitran Foods produce derivatives of chicken and vegetable nuggets (not based on McDonald's recipe) for Indian hotels and restaurants and thereby reach new markets. Vista & Kitran's higher margin and higher capacity utilization for non-McDonald's products helped it remain cost competitive. McDonald's philosophy had been 'one world, one burger' i.e. the McDonald's burger should be consistent in terms of cost and quality throughout the world. To ensure this, all of McDonald's suppliers followed the internationally acclaimed HACCP systems wherein both inputs and finished goods were subjected to chemical and microbiological tests. This kept food fresh and free from contamination. Apart from this, the entire production line was automated using sophisticated technology, barring only the final compilation of the bun, cheese and patty - which was done by hand.
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McDonald's Supply Chain – Challenges
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Full Supply Chain responsibility Multi Temp. Products - Over 65 % temperature controlled Stores as far as 500 – 1000 kms Drops per month - Over 1000 Movement mainly by road Regular movement of perishables by air Routing Challenges No margin for error – Operations critical client No Stock Outs at store On time delivery record – above 97 % Clean delivery record – above 99 % Unfailing inbound supply chain Bull whip effect Cannibalization Order and Inventory Management Product innovations
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The most important challenge in the supply chain is its integration. Mc Donald has managed it in a very diligent way.
Conclusion
As a result on the efficient supply chain, gross margin improved by more than 15%. The reduction in raw material wastage was achieved to the extent of 30%. So did the average inventory. The store transfers and the order time also reduced to half. Hence we see that optimizing the supply chain can increase the efficiency of a company in multiple ways.
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References
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http://www.icmrindia.org/free%20resources/casestudies/McDonald%20food%20chai n-7.htm http://www.articlesbase.com/marketing-articles/mcdonalds-india-supply-chain729402.html www.expresshospitality.com/20070315/management06.shtml www.mcdonaldsindia.com www.nrf.com/Attachments.asp?id=9504
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doc_159685014.docx