1 Operation Management Final Report Group 10

Operations Management

Abstract

Indian economy is growing at a very fast pace. The mostly affected segment within the

population is the middle class. With more disposable income in their hands people are changing

their lifestyle with the changing trends. With stringent work timings more people are shifting

towards fast foods as it is convenient and easily accessible.

Fast food is one which gained acceptance of Indian palate after the multinational fast food

players adapted the basic Indian food requirements viz. vegetarian meals and selected non-

vegetarian options excluding beef and pork totally from their menu.

Multinational fast food outlets initially faced protests and non-acceptance from Indian

consumers. This was due to primary perception that these fast food players serve only chicken

and do not serve vegetarian meals. In addition, fast food is perceived expensive besides being

out-of-way meals in Indian culture. Today, fast food industry is getting adapted to Indian food

requirements and is growing in India. It is gaining acceptance primarily from Indian youth and

Indian middle class families.

This study mainly focuses on the fast food industry in HYDERABAD. And for analysis purpose

we have chosen three main players in this sector in Hyderabad namely Mc Donald’s, Pizza Hut

& Ohris. From our research we were able to find out that the consumers of fast foods have given

highest value for taste and quality (nutritional values) followed by ambience and hygiene. Three

dimensions (service and delivery dimension, product dimension, and quality dimension) of fast

food outlet are the core focus in the research.

1Operations Management In Fast Food Industry


Objective

The main objective of our study is to identify the operations of fast food restaurants in

Hyderabad focusing on PIZZA HUT, OHRI’s, and McDonalds’. Along with analyzing the

business process we have also tried to relate the findings to the concepts of Operation

Management. Some of the concepts are

Supply Chain Management

Service Process Analysis

Waiting Line Management

Facility Layout

Project Management

Process Analysis

Introduction

Consumer foodservice value sales grew at a strong 14% in India during 2006, second only to that of

Vietnam and Indonesia. A robust economy which put more money in the hands of consumers and

leading to growing disposable income, increases in the number of working women, and the

convenience offered by these outlets all contributed to growth in 2006. Most consumer foodservice

outlets have introduced delivery services as well and this has also helped value sales to grow.

Catering to the bottom end of the income pyramid, street stalls/kiosks is the most common type of

consumer foodservice outlet in India, followed by the ubiquitous full-service restaurants.

Witnessing value growth of over 20% in 2006, India saw the most dynamic growth within fast food

in Asia Pacific during 2006, with most other countries witnessing single-digit growth. Increased

availability, novelty in terms of products and offerings, and convenience were all factors driving

fast food growth in India during 2006. Brands such as McDonald’s and KFC are seen as family

venues in India and most Indians attach aspiration value to them. With such outlets in their infancy

and given the absence of any significant campaigns connecting ill-health and fast food, growth

remains strong for this sector in India.

McDonald’s remained the leading consumer foodservice player in 2006 with a 13% share of total

chained consumer foodservice value sales. The company has built its growth over the review period 2

Operations Management In Fast Food Industry


on a host of measures including a strong supply chain, tailoring the menu and products to the local

taste and pricing its products appropriately. In 2006, McDonald’s also expanded into South India by

opening outlets in Bangalore and Hyderabad, for a total of 21 new outlets added nationwide during

that year. Amalgamated Bean Coffee Trading Co Ltd grew the fastest in terms of outlets during

2006 however, with 204 outlets added across its two cafés/bars brands Café Coffee Day and Coffee

Day Xpress.

Of the total consumer foodservice value sales in India during 2006, 80% was accounted for by

stand-alone outlets. That said, retail, travel and leisure locations continued to chip away at the

contribution of stand-alone outlets that year. Retail outlets have gained in popularity by virtue of

their being seen by consumer foodservice players as high-footfall locations. On the other hand

travel locations such as airports and railway stations have gained prominence as these provide the

best means of following the increasingly mobile consumer.

With a constant value CAGR of 8% in 2006-2011, consumer foodservice in India is predicted to

witness one of the fastest growth rates in Asia Pacific. During the same period, more than 500,000

outlets are predicted to be added, taking the total number of outlets in India close to 2 billion and

second only to China in this region. While new domestic players are likely to make their

appearance, a host of international companies are also expected to enter India. Some of the

prominent brands which are expected to make foray include Starbucks, Burger King and Church’s

Chicken. The existing brands, such as Café Coffee Day, McDonald’s, KFC etc, have also lined up

expansion plans to move beyond the metro cities. As players continue to build strong regional

brands, the franchising of outlets is expected to become more commonplace over the forecast

period.

All these food services are leaders in their own fields. These brands have few things in common

their supply chain management practices being one, their operations management strategies being

the other differentiating factor.

As the nature of business changes so does the nature of competition. As businesses integrate

vertically or form alliances termed Supply Chains, competition is no longer between individual

organizations but is more likely to be between Supply Chains. Thus, it is no longer competition as

we knew it between Holden and Ford but between their respective Supply Chains – which may

include the Retailer, Distribution Centre, Transporter, Manufacturer, Supplier, and 2nd Tier

Supplier.3



Methodology

As part of collecting the Primary data we prepared an exhaustive questionnaire (which has been

attached as annexure), which included questions regarding supply chain management,

inventory, layout and costing methods etc. We visited various fast food joints such as Subway,

Mc Donald’s, Pizza Hut and Ohri’s located in various strategic locations in Hyderabad and

interacted with the General Manager and saw the operations of these fast food restaurants.

Subsequent to the collection data we analyzed the various process adopted by these companies

and compared and related with the theoretical concepts of operations management that we have

studied. Moreover a comparative study of the various production processes of these food joints

had been done.

As part of our secondary research we intend to compare the operational practices of these

companies when they entered India and the changes that happened during these years and the

practices that they had to adapt because of these changes.



McDonald’s

Background

McDonald’s first restaurant opened on 15th April 1955 in Des Plaines, Illinois, U.S.A. McDonald’s

Corporation grew from a single drive-in restaurant in San Bernardino, California, in 1948, to the

largest food-service organization in the world. In 1991, McDonald’s owned $13 billion of the $93

billion fast-food industry, operating 30000 restaurants in 119 countries including company-owned

restaurants, franchisees, and joint ventures. In the U.S. alone, more than 18 million people visit a

McDonald’s daily. Worldwide it serves 47 million customers.

McDonald’s management intends to continue growing by: 1) maximizing sales and profits in

existing restaurants, 2) adding new restaurants, and 3) improving international profitability.

Ray Kroc based his empire on the fundamental principles of Quality, Service, Cleanliness, and

Value (Q.S.C.&V.) and developed tangible goals and specific operating practices to carry out his

vision. An extensive team of field auditors monitor these practices, which are communicated to

employees through continuing education that includes videotaped messages from Kroc himself.

Perhaps only McDonalds’ has its own Hamburger University. A worldwide management training

center, Hamburger University is uniquely McDonald’s.

Approximately 80 percent of McDonald’s restaurants are franchises, paying a percentage of their

monthly revenue for centralized marketing research and R&D. Franchise fees cover roughly the



costs of corporate services; thus, if the franchises are not making money, neither is the corporation.

This mutual dependence is considered by management to be a corporate strength.

McDonald’s Corporation revenues are derived from franchise fees plus company restaurant sales.

The Corporation operates approximately 16 percent of U.S. McDonald’s restaurants and a higher

percentage of international restaurants since they usually enter new countries with company

restaurants and then franchise them after they are well established. McDonald’s typically receives

over 20,000 franchise inquiries per year. Twenty-year franchises are awarded to applicants after

extensive screening, and additional restaurants are allocated to franchisees with proven records of

success.

A typical McDonald’s may serve as many as 2,000 people per day, 60–70 percent of whom take

their food outside the restaurant. McDonald’s depends on the ability of their crew to be able to

prepare hot, fresh food and to serve it to their customers within two minutes of the time they enter

the restaurant. To do this, McDonald’s engineering department has carefully designed the layout

and equipment for its restaurants. Diagram in the report shows how all food flows from the back of

the kitchen to the front as it is prepared, and is placed in a heated food “bin” awaiting customer

delivery. Servers at the counter or drive-through window collect items from the bin and drink

stations for customers.

An important component of McDonald’s operational strategy is to anticipate customer traffic

patterns and food selection based on a detailed analysis of sales history and trends and to use this

information to prepare various menu items in the right quantities and at the right times in order to

have the food ready for their customers when they arrive. Food may be stored in the bin for up to

ten minutes before it is discarded.

1991 marked the introduction of “Series 2000” design restaurants. These buildings are

approximately half the size of traditional restaurants, designed to accommodate nearly the same

level of sales but requiring a lower real estate investment. Series 2000 restaurants are targeted

toward both small towns and major metropolitan areas. All of McDonald’s 600-plus suppliers are

independent companies with whom long-term relationships have been developed. This strategy is

intended to improve McDonald’s ability to focus its efforts on its core business — restaurant

operations. Most suppliers operate on a cost-plus basis. McDonald’s often holds seminars and

conferences for suppliers to discuss their needs.



McDonald’s has a diverse workforce .Fact is, that they have the largest number of minority and

female franchisees in the quick service industry. More than 37% of all McDonald's U.S.

Owner/Operators are women and minorities. Their combined sales of African-American licensees

constitute the largest African-American enterprise in the country.

Over the years, McDonald’s success has come as a direct result of their many wide-ranging

perspectives. From new menu items to fresh operating styles, their achievements come largely from

within the broad range of talent, individual potential, and ideas that make up our workforce.

In 2007, McDonald’s was included in the Human Rights Campaign “Buying for Equality” guide–

a leading publication from a nationally known and well-respected GLBT advocacy group.

McDonald's India

McDonald’s in India is a 50-50 joint venture partnership between McDonald’s Corporation [USA]

and two Indian businessmen. Amit Jatia’s company Hard Castle Restaurants Pvt. Ltd. owns and

operates McDonald's restaurants in Western India. While Connaught Plaza Restaurants Pvt. Ltd

headed by Vikram Bakshi owns and operates the Northern operations.

Amit Jatia and Vikram Bakshi are like-minded visionaries who share McDonald's complete

commitment to Quality, Service, Cleanliness and Value (QSC&V). Having signed their joint-

venture agreements with McDonald's in April 1995, they trained extensively, along with their

Indian management team, in McDonald's restaurants in Indonesia and the U.S.A. before opening

the first McDonald’s restaurant in India.

There are 60 McDonald’s restaurants in India employing over 2,000 people who serve more than

1.5 lakh customers across the country every day.

Location

As a part of survey conducted we had a meeting with Mr. Karan (Assistant Manager) of

McDonalds, Hyderabad. With his help we conducted our primary research and thus study based on

our findings.

The McDonald is located in City Centre mall on Banjara Hills, Hyderabad. The choice of location

is done after extensive market research done by McDonald itself. The criteria of selecting the 8



location varies from target customers, their income, their food habits, availability eating joints, and

past calculations and experiences. From the manager we got to know that McDonald particularly

focuses towards three aspects 1. Visibility 2.Local Market Position and 3.Target customers. Their

target customers are families, students, couples and children. The area taken for the restaurant is

according to the location and proportionate to it. Other factors includes footfall anticipated, rates of

the location.

Number of outlets

They have four such outlets in Hyderabad and were planning to open one more in couple of months.

Seating Capacity

This particular outlet has a capacity of 175 and additional arrangements are there to take care of

extra customers coming in on peak hours of the day.

They have a separate party section for handling bigger group of customer.

There are 4 counters to serve the customer and each counter serves 25 customers.

The opening of the counters depends upon the time of the day with fewer counters open during off

peak hours.

Lean Season

October-November.

Method Used

McDonald follows the make-to-stock method and thus the 6 burgers of each variant are made and

stocked at a time.



Facility Layout of the Hyderabad Outlet


NON VEG SECTION VEG SECTION

WORKSTATIONS

SOFT DRINKS/ ICE CREAM DISPENSOR BURGER BIN

CNTR 1CNTR 2CNTR 3CNTR 4

TAKE AWAY ORDER WINDOW

TAKE AWAY WINDOW

ENTRANCE

TABLES

QUEUE

3

2

13 1

44

MANAGER AND EMPLOYEE ROOM

1. French Fries2. Patties Fry3. Storage4. Assembling

3

2


McDonalds India Supply Chain

Supply Chain is one of the critical factors for the smooth functioning of any business. And when we

are talking about fast food business with McDonald’s as the subject of our study we can expect a

Supply Chain model of one of the highest precisions. It is this unmatched Supply Chain Structure,

which not just ensures on time delivery of raw materials and supplies to McDonalds but also

enables it to cut down on its cost and maximize profitability along with maintaining highest quality

standards of its products. The level of commitment of McDonalds can be gauged from the fact that

even before it set up its first restaurant in the country it infused Rs 400 Crore to set up its delivery

mechanism1. McDonald’s initiative to set up an efficient supply chain and deploy state-of-art

technology changed the entire Indian fast food industry and raised the standards of performance to

international levels.

As already mentioned, McDonalds had been working on its supply chain even before it opened its

first joint in the country. McDonalds, an international brand which was trying to make inroads into

the country, 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. McDonald’s

distribution centres in India came in the following order: Noida and Kalamboli (Mumbai) in 1996,

Bangalore in 2004, and the latest one in Kolkata (2007). McDonald's entered its first distribution

partnership agreement with Radha Krishna Foodland, a part of the RadhaKrishna 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 program, 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

centres playing a vital role in maintaining the integrity of the products throughout the entire 'cold

chain'.

1 Vikram Bakshi, managing director and joint venture partner of McDonald's India (North & East) “We had to ensure that we had the back-end linked up to the farm level for delivery commitment”.



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. The following list of suppliers, who build up the major supply chain of

McDonalds, reveal how this ‘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. Each cooling centre, which is equipped with modern

measuring and testing equipment and a large cooling tank, is not more than a few kilometers 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 liters, 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 kilometers



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.

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 kilometers 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 pre-cooling

room within half an hour of harvesting. The pre-cooling room ensures rapid vacuum cooling to 2º C 13



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.

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 Cel. 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. Today, production

of better quality frozen foods that are both nutritious and fresh has made

Vista Processed Foods Pvt. Ltd. a name to reckon within the industry.

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 up to

-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.

Installed capacity of 6000 liters/hr for producing homogenized UHT

(Ultra High Temperature) processed milk and milk products.

Strict quality control supported by a fully equipped quality control

laboratory.

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. Setting up of the Cold Chain

has also enabled it to cut down on operational wastage

Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that

emphasizes prevention within its 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 those followed by monitoring,

recording and correcting any deviations. The HACCP verification is done at least twice in a year

and certified.

The 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.



Procurement process of the Hyderabad Joint

The buns that are used for burgers come from Maharashtra and they are ordered 3 times a week.

The inventory takes one day and arrive, and adequate storage is maintained throughout the journey.

Whether arriving via truck or train, raw materials are delivered fresh and ready to use every day.

To ensure that this freshness is passed onto the customer, each arriving package is personally

inspected for damage during its travel. In addition, the condition of delivery trucks are also taken

into account to make sure that meat was untainted due to a filthy meat cooler. The meat cooler

should always be set at 10 degrees below zero and the meat should remain at a constant temperature

of 34 to 38 degrees. The vegetables are procured everyday from local sources on contract basis.

The French fries are imported from Australia and rest of the things comes from Mumbai on a

centralized distribution basis.Order is done on Buffer Basis.

Quality Control

The policy that McDonalds is currently using is Food Cost Control or FCC.

It’s a six stage process and includes maintaining quality and cost effectiveness in all the the

following:

1. Condiments

2. Raw Waste

3. Complete Waste

4. Promo i.e. the freebies

5. Employee Meal

6. Variants

The shelf life of vegetable patty is 180 and that of vegetable patty is 90 days.

The Bun can be stored for 2 days and accordingly these items are stored in their in house storage

capacity at adequate temperatures.



The burgers that are assembled and stocked are only stocked for 10 min after which they are thrown

and fresh one is stocked.

Restaurant Inspection

Since McDonald’s believes so strongly in high quality products, Licensees are expected to obtain

their desired product needs directly from suppliers rather than the McDonald’s Corporation. While

this ensures that the best raw materials are purchased at a reasonable price, it often leaves the

McDonald’s Corporation “in the dark” concerning the safety precautions and procedures of

franchised restaurants. As a result, the McDonald’s Corporation makes both announced and

unannounced visits to international McDonald’s restaurants to ensure that proper procedures are

being followed. With each visit, the restaurant being inspected is graded on their proficiency and

performance. Based on this grade, the corporation will determine eligibility for growth of new

franchise locations. In addition, the failure to meet requirements can result in a default in your

franchise agreement for the following term. As per the norms the service quality check is done three

times a day.

Forecasting

McDonald’s has a continual means of receiving information from customers, employees, and the

industry that effects short, medium, and long term decision making and forecasting. Different kinds

of information are received from all levels of the corporation and are used to learn more about the

market movement and advertisement structure, to basic everyday processes in production and

packaging of goods for the targeted markets. Forecasting is done in large by the corporation, as

part of their responsibility to the franchisee’s and McDonald’s shareholders.

Through our interview with the Manager, we learned a lot about the basics of McDonald’s business

and hierarchy; we were not able to get more in-depth information that is used for their budgeting,

marketing, advertising, forecasting, and innovations of new products to come because it contains

confidential contents. This is due to the scrutiny from people looking for flaws, bad business

conduct, and other degrading allocations of McDonald’s. Everything that was recorded was cleared

at the corporate level.



Forecasts are vital to McDonald’s organization and significant management decisions. Forecasts

provide the basis for budgetary planning, cost control, planning new products, process selection,

capacity planning, and facility layout. Typically, McDonald’s uses a qualitative type of forecasting.

The main information used in forecasting the stability and future growth of the corporation is by the

number of customers going in and out the door and all voiced opinions.

Costing and Profit margin

Although we had tried to inquire about the details like cost of one burger, net expenditure on the

running of one outlet and other such finance related questions but due to confidentiality issues the

manager could not provide us with this information.

The profit Margin as per the manager is pretty low as the cost of burger and french-fries are

competitive and hence not much of profit .The major income is based on the voluminous sales that

they make per day. They have breakeven period of 10 years that is yet to be achieved.

Training

McDonald’s realizes that its employees must understand their duties in order to fulfill the organization’s

goals. To ensure that all employees properly perform their assigned duties, McDonald’s invests greatly in

their training program. The company continues to receive prestigious awards for their leading-edge training,

including the “Employer of Choice Award” from the Restaurant Business Magazine (“Restaurant

Management”). New crew members go through a thorough orientation process consisting of several videos,

followed by several days of direct one-on-one training by a trainer. After employees feel comfortable with

the operations, they may be promoted to Crew Trainers. Crew Trainers undergo further training for

specialized processes such as the grill area, front counter, drive-thru, and other areas. Shift supervisors are

the next step in the organization, followed by Second Assistant Managers, followed by First Assistant

Manager, and the top manager at each McDonald’s restaurant is the Restaurant Manager. Training never

stops at McDonald’s, no matter which position an employee holds. Some current employees describe

McDonald’s as the “best training company in the world”.



Hierarchy within the restaurant

The employees are taken on a part time basis and they are on the rolls of McDonalds. Every

employee has a dedicated work but is so trained to do all every tasks. The number of employees

depends on sales and the number fluctuates from lean season to peak season. The scheduling of

hours of working is centrally done based on sales and time of the year.

Process Analysis and calculations


New crew members

Shift supervisors

SecondAssistant Manager

FirstAssistant Manager

Restaurant Manager

ORDER CATEGORIZED AS VEG OR NON VEG

SPECIFIC ORDERS SENT TO SPECIFIC SECTIONS

ACCORDINGLY

MATERIALS PROCURED ACCORDING TO THE ORDER

ALL ITEMS ARE ASSEMBLED TO MAKE THE DESIRED PRODUCT AS PER GIVEN DIRECTIONS AND MEASUREMENTS

FINAL PRODUCT ADDED TO THE BURGER BIN

FINAL PRODUCT INVENTORY MEASURED


PRODUCT MANUFACTURING PROCESS

CUSTOMER ORDER PROCESS

PROCESS FOLLOWED AT MCDONALDS

As part of this project, our group went to the McDonalds at Hyderabad Central. There we studied

the process which was followed at the outlet. To increase the efficiency and minimize the time

taken to serve the customers there are two major processes which are in operation. The two

processes are:

1. Burger manufacturing process in the kitchen.

2. Customer serving process at the counters.

Both the above mentioned processes are explained briefly underneath.

Burger Manufacturing Process in the Kitchen

This is the process followed inside the kitchen. McDonalds follows the Made-to-Stock approach,

in which a minimum number of burgers are kept ready as inventory (usually 6 burgers of each

type). Whenever the level of burgers in the inventory goes below the limit, it is replaced with

new burgers. Since the menu is majorly divided in two categories, specifically vegetarian and

non-vegetarian. Depending on the number of burgers in each category, the order is categorized as

vegetarian or non-vegetarian. This order is sent to the kitchen which is divided in vegetarian and

non-vegetarian units, order for each type goes to the specific unit. Depending on the type of


Order Taken

Items As Per Order Picked Up From The Bin

All the items put together in the delivery tray and handed over

Order confirmed with the customer

Amount Disclosed and money taken


burger ordered, materials are procured from the various sections. There is a specified procedure

or sequenced method which is followed; where in each item of the burger is put together as per

the sequence in the specified quantity. This is the assembling part which takes not more than one

minute. Once the burger is made it is sent to the burger bin, where the inventory of burgers is

maintained. To maintain its quality standards, McDonalds has assigned a shelf life to its

products. In case of burgers, if a burger is not sold within ten minutes of it being made, it is

discarded. Thus for every burger, time is noted so as to keep track of the time since it has been in

the bin. This completes the manufacturing process at McDonalds.

Customer Serving Process at the Counters

McDonalds at Hyderabad Central has four counters. These counters are put to operation

depending on the number of customers to be attended. Thus, at any given time all the counters

are not operational, and only a few are operated. This helps McDonalds to cut on its running

cost. When a customer places an order, the attendant takes the order and after the order is

completed, the attendant confirms the order with the customer and discloses the amount to be

paid. After accepting the payment for the order, the attendant picks up the desired items from the

burger bin and all the items are put together in the serving tray. The tray is handed over to the

customer who then picks it up and comes out of the queue. This way the process is completed.

Calculations for burgers sold in McDonalds (Hyderabad Central) in a day

Average number of customers served per hour per station: 30

Average number of burgers per order placed at counter: 3

Total number of Working hours: 12

Total number of burgers sold in a day at counters: 30*3*12= 1080

Average number of orders in delivery and take away: 300

Average number of burgers in take away and delivery: 3

Total number of burgers in take away and delivery: 300*3=900

Total number of burgers sold in one day= 1080+900=1980 rounding off to 2000 i.e. number of burgers sold per day



Average percentage of non vegetarian burgers ordered out of the total: 70%= 2000*0.70=1400

Average percentage of vegetarian burgers ordered out of total: 30%= 2000*0.30= 600

No of non vegetarian burgers sold per day: 1400

Number of vegetarian burgers sold per day: 600

Vegetarian process:

Burger bun cooking: 4 min

Vegetarian patty cooking: 5min

Assembling the burger: 1 min

Total time required for all the activities: 10 min

Non Vegetarian process:

Burger Bun cooking: 4 min

Non Vegetarian Patty cooking: 7 min

Assembling the burger: 1 min

Total time required for all the activities: 12 min

Min Number of patties maintained in buffer: 3

Min Number of buns maintained in buffer: 2

Workstation cycle time (CT): 12*60/2000= 0.36 min= 21.6 sec

Average arrival time per customer: 2 min

Average service time per customer: 2 min

Arrival rate (µ): [1/ average arrival time] = ½ = 0.5

Service rate (λ): [1/ average service time] = ½= 0.5

So according to Model 3 of waiting line:

Referring to exhibit TN7.9 from chase,

For λ/µ = 1 and number of service channels = 2; Average number waiting in line (Lq) = 0.33

Average number in system, Ls = Lq + λ/ µ =0.33 + 1 = 1.33

Average time waiting in line, Wq: Ls/ λ = 1.33/0.5 = 2.55 min23



Average total time in system, Ws: Lq/ λ= 0.33/0.5 = 0.66 min

From the study we have understood that they follow FCFS queue discipline system. There are multiple channels through which customers place their orders (multiple channel layouts), source population is infinite, arrival pattern followed is Poisson, and service pattern is exponential. Thus we can summarize the service pattern as MODEL 3



PIZZA HUT

Background

Pizza Hut entered India in 1996, and opened its first restaurant in Bangalore. Since then it has

captured a dominant and significant share of the pizza market and has maintained an impressive

growth rate of over 40 per cent per annum. Pizza Hut now has 95 outlets across 24 cities in India;

and employed nearly 4,000 people by end of 2004. Yum! has invested about US$ 25 million in

India so far; this is over and above investments made by franchisees. Yum! Brands Inc is the

owner of the Pizza Hut chain worldwide. A Fortune 300 company, Yum! Brands owns Kentucky

Fried Chicken, Pizza Hut, Taco Bell, A&W and Long John Silver’s restaurants worldwide.

Yum! Generated more than US$ 25.9 billion in worldwide sales in the year 2003, and has more

than 33,000 restaurants in over 100 countries.

A major player in the Indian fast food and beverage sector Market share

Pizza Hut is believed to have close to 50 per cent market share of the organized pizza-retailing

segment in India.

Financial performance

According to an article in Financial Express, the market size of the pizza segment is around US$

87 million and currently growing at the rate of 15 per cent to 17 per cent per annum. According

to Pizza Hut sources, most of their outlets are financially successful, encouraging further

expansion. In India, the average investment for each outlet is US$ 275,000-335,000 and is borne

by the franchisee.

Factors for Success Offering value food

Employing economies of scale, Pizza Hut has made its offerings more affordable. Its delivery

offer of US$ 4.4 for four personal pan pizzas has been very successful; helping it grows the

business by 25 per cent. They have recently introduced a range of vegetarian personal pan pizzas

for US$ 1.1.Most Pizza Hut restaurants are located in the metros and smaller metros. In taking



long strides across the country, Pizza Hut is consolidating its position by opening more

restaurants in the metros where it already has a presence as well as opening outlets in new

markets.

Moving beyond metros

According to company sources, Pizza Hut is moving beyond the metros and foraying into

12 to 13 new markets including Trichy, Nagpur, Bhubhaneswar, Thiruvananthapuram and

Pondicherry to increase penetration.

Aggressive marketing and tie-ups with local and popular brands

Pizza Hut has increased its visibility by launching a well-received TV campaign aimed at the

young crowd. It has formed partnerships with recognized brands such as Nestle and Pepsi. It also

holds regular promotional campaigns targeted at children and uses these alliances to offer

packages during these campaigns.

Developing the local supply chain

The local supply chain for Pizza Hut was developed by Yum! and currently 95 per cent of the

ingredients they use are locally produced. They now import very few specialty items like

pepperoni.

Leveraging the India Advantage International brand with an Indian heart

Pizza Hut is one of the first international pizza chains with purely vegetarian dine-ins at

Chowpatty (Mumbai), Ahmedabad and Surat, which also serve Jain menus. Pizza Hut has even

opened two all-vegetarian restaurants in the western state of Gujarat to cater to the Jain religious

community, whose members prefer not to eat at places where meat is served.

Offering more than the international menu

International food chains typically offer only a few localised products in other parts of the world.

However, Pizza Hut’s local menu is as large as the international one. According to Pizza Hut, the

Indian food heritage is very rich, and hence Indians like local flavours. The Tandoori range of

pizzas, which was developed locally, has a menu mix of over 20 per cent.



Indigenous sourcing of raw materials

Pizza Hut has reduced costs through indigenous sourcing of raw material. It has tied up with a

local company Dynamix Dairy Industries Ltd (DDIL) for sourcing mozzarella cheese. The

landed cost of imported mozzarella comes to US$ 3.3 - 3.5 per kilogram. The domestic price,

however, works out to US$ 2.99 - 3.1 per kilogram. Pizza Hut is adding to the bottom line by

localizing equipment as well as by paying attention to inventory replenishment, which

has been reduced from 60 to 30 days.

Future plans

According to Yum! Restaurants International, India is amongst the top five growth markets for

Pizza Hut. Pizza Hut is also experiencing double-digit growth in India and hence is confident

about expanding its operations in India. Pizza Hut hopes to increase the number of Pizza

Hut outlets in India to 200 by the end of 2007 from the present figure of 130. The expansion

programme will make Pizza Hut the fastest growing western restaurant chain in India. In

addition, Yum! plans PizzaHut to be in 55 cities by end of 2007, and 75 cities

by end of 2008.

Fascinating Facts about Pizza Hut - in 2006:

Pizza Hut bought over 8,500 tones of cheese – enough cheese to cover the surface of four

football pitches!

Pizza Hut bought enough Pepsi to fill 9 Olympic size swimming pools

Pizza Hut served 50 million slices of garlic bread – using approximately 12,500,000

cloves of garlic

Pizza Hut uses the equivalent of 525 million pounds of tomatoes each year and more than

700 million pounds of pepperoni per year to make its pizzas

The cheese found in Pizza Hut’s Stuffed Crust pizza is imported from Wales

Worldwide, Pizza Hut serves more than 1.7 million pizzas every day, to approximately

four million customers.



PROPERTY

The role of the property department is to ensure that growth strategy is fulfilled via:

Re-imaging current restaurants to keep them contemporary and appealing for both current

and new customers

Developing new restaurants

These are some key criteria for the site of a new restaurant:

1. It should be in an out of centre location on a retail or leisure park with good parking and

accessibility.

2. The tenant mix of the park must be of good quality with the ability to draw from a wide area.

3. Ideally there should be a wide range of users giving both a day and night time activity to the

area.

4. The catchment area is of a specified minimum size and within a given drive time to the site.

5. There is good visibility both to the passing traffic and users of the park and corresponding

good access to the unit.

6. The park will remain the major draw within its catchment area both now and in the future.

7. There is the opportunity to build a freestanding unit of Pizza Hut’s standard external design.

8. The unit can be standard size, built in line with our standard specification

OPERATIONS

The Pizza Hut restaurant operation is the face of the company. The role of operations is to be

obsessed with the quality of pizza and the experience that customers receive. There are a number

of different Pizza Hut concepts:

Full Service Restaurants:

These are the traditional pizza restaurants offering a seated service and

Take away.

Home Service Restaurants:

These restaurants offer home delivery and takeaway.



Restaurant Based Delivery:

These restaurants are full service restaurants combined with a delivery and

Take away service.

Express Units:

Offer lots of opportunity to expand into food halls and other busy retail locations.

All Pizza Hut sites work to the CHAMPS standard:

Cleanliness

Hospitality

Accuracy

Maintenance

Product

Speed

These six items define the very core of customer expectations. CHAMPS has become the vehicle

which drives Operations Excellence into business and is also supported by a reward and

recognition scheme for team members. The ‘CHAMPScheck’ is a tool used to ensure

consistency of service and product quality across the entire Pizza Hut estate; in fact it is used for

all Yum! Brands.

FINANCE

In support of the business goals, the Pizza Hut Finance function is split into three teams: Control,

Planning and SCM.

The overall role of Financial Control is to ensure that our financial statements are accurate and

reflect a true and fair view of our business performance. It ensures that all transactions entered

into by Pizza Hut are appropriately recorded. It also has the responsibility to ensure that our

assets are protected, through appropriate controls and processes.

Within Financial Control, we have teams that are

responsible for the following:30



Preparing and reporting accurate data to senior management, Yum and Statutory Bodies

Supporting the expansion programmes of the Franchising and Business Development

teams.

Analysing variances from Plan and Forecasts to facilitate and influence decision-making.

Paying over 18,500 employees on a weekly basis and 15,000 employees every four

weeks, ensuring the related tax and statutory responsibilities are discharged.

Paying suppliers who supply food, drink and the services that we need to run our

restaurants.

Treasury and Tax management.

Insurance and Estates management.

Loss Prevention

Structurally, Planning is split into three teams:

1. Business Planning, who manage the total business and individual unit budgeting process, as

well as providing commercial analytical support for our operations.

2. Sales & Marketing Planning, who ensure that Marketing initiatives are rigourously evaluated

and aligned with our strategic and financial goals.

3. Capital Planning, where our focus on returns is displayed through control of investment

processes.

SCM is responsible for procurement for food and non-food items and managing the logistics of

delivering products from suppliers to the outlets.

More specifically this involves:

- Supply chain strategy development for both short and long term

- Supplier development for both existing and new products

- Negotiating and managing contracts for food suppliers as well as services

- Working on cost reduction projects in conjunction with QA and operations

- Negotiate and manage distribution contracts and ensure contract delivery performance to

outlets remain at certain standards

- Support strategic initiatives and cross functional projects like new product launches, promotion

management



Control, Planning and SCM team members spend much of their time helping

other team members in Pizza Hut and in turn are sought out to add commercial

and financial advice to the business as we work together in achieving our

business goals.

STUDY BASED ON SURVEY

As a part of survey conducted we had the privilege of meeting Mr. Suribabu Dhramana

(Assistant Manager) of Pizza hut Hyderabad. With his help we conducted our primary research

and thus study based on our findings.

LOCATION

We visited PIZZA HUT located in “Hyderabad Central”. The location has been selected after

conducting vast market survey. The forecasted sales depending upon the income group of the

people visiting the mall, past experiences with customers, the variety of customers coming are

some of the major factors which led to the selection of this particular location. Market survey is

conducted by the parent organization and it is mostly outsourced. The FRANCHISE which runs

this store is DODSAL LTD. All the stores are on a rental bases. Rent being paid for every square

feet of the store.

CHOICE OF SELECTION OF THIS LOCATION:

Hyderabad Central being a Mall which has large number of shops catering a

differentiated customer base.

No further promotion required.

Target customers available within the mall.

Cinema hall attracts lot of youngster which forms the future customer base for Pizza Hut.

It’s located in the heart of the city. So easy accessibility and more visibility for the target

audience.

Easy accessibility to the warehouse from the mall.

Its located near the exit of the mall which forms a strategic positioning of the store as the

customers leaving the mall would have food before they are done with their shopping.



Layout of the restaurant and the kitchen

The Pizza Hut outlet that we visited was not a very big restaurant, but the layout was made in

such a manner that it could accommodate 78 to 80 people at a time. The limited area that they

had was put to maximum use to accommodate as many people possible without actually making

the place look crowded. The first figure shows the layout of the entire restaurant. As we entered

the restaurant we saw a counter each to our left and right. To our left was the reception counter

where we reserved a seat. To our right was the order placing and cash counter. Once we enter the

restaurant, people from the reception escort us to our respective table or book our reservation.

The tables are strategically positioned so as to allow free movement of people. The sitting is very

comfortable. There are different sized table, ranging from a table for two to a table for eight.

Order is placed with the respective stewards and then the order is entered in the system at the

order taking and cash counter. Once the order is placed it is served in a time span of fifteen to

twenty minutes.

The second figure shows how things work in the kitchen after the order is placed. Let us first

look at the layout of the kitchen. The kitchen is located to the left corner of the restaurant. Once

we enter into the kitchen we see the washing area to the left hand side and to the right hand side

is the section where all beverages are stored. The layout of the kitchen was planned in such a

way that fire and water were located at opposite ends of the kitchen. Adjacent to the washing

room is a room where the dough for the pizza base is made. In one corner of the room the flour

sacks are kept, and then there is a machine called HOBART. This machine is basically for

kneading the dough for the pizza base. Then there is another machine called PROOFING, here

the dough is put for the process of fermentation. Outside this room there is a rest area where a

television and some chairs are put. To the other side of the room there is the cold storage room.

All the vegetables, toppings, cheese and other condiments are stored here at a temperature of

2°C. Different products kept here have different shelf life and are used accordingly. Outside this

cold storage room is a table and a monitor is placed there. Beside this there is another machine

called the RETARDER. As the dough which is kneaded has a storage life of fifteen hours it is

stored here for further usage. As soon as an order is entered into the system outside it is reflected

on this screen. The cook reads the order, takes out the dough from the retarder. There is slanting

table with hollows where all the toppings required for the pizza are kept. The pizza is made here



and then put into the five step oven. It takes around seven minutes for the pizza to get ready.

After this it is taken out and kept on the pizza cutting table to be cut. Thereafter, it is served to

the customers.

TARGET CUSTOMERS:

The layout of the store is in such a way that it’s a family friendly setup. From our study we were

able to analyze that people within the age group of 18 to 30 years forms 70%, above 30 years

forms 20%, kids below the age of 10 years forms around 7 to 10 % of the total customer base. A

lot of focus is made to attract more kids to the shop. Various prices, toys and free birthday gifts

are placed within the sore to attract the children as they form the prospectus customers in the

future and also would bring the family along with them.

SEATING CAPACITY: 78 persons.

NUMBER OF STORES IN HYDERABAD

Six. With the store located At Banjara Hills being the biggest one of them all with 130 people

seating capacity.

PROCUREMENT

Vegetables required for the production of PIZZA and other items are bought from local vendors

on a daily basis. All the other requirements for the production are brought from many vendors

from the HEAD QUARTERS in Mumbai and they are stored in the warehouse. According to the

shelf life of each article the order is placed from this warehouse and kept one month in advance.

Thus they follow JIT for their procurements of raw materials. The request for the replenishment

of the stock is done using email. This ensures proper delivery of the stock without any delay. The

entire system is done using software called as “brainware”. This automatically generates the

needed requirements using the past ordered data. Within the store we were able to locate various

types of refrigerators to store various articles as one was for vegetables, chicken patties and other



commodities, store room, chiller, and other material like pasta all maintained at different

temperature.

If they are in sudden requirement of inventory they make necessary arrangements with the other

PIZZA HUT outlets. Nearest one being in BANJARA HILLS.

BUFFER STOCK: it is maintained at a minimum of one week supply.

FORECASTING

The peak season in a year is the months of September, October, November and December. All

the major festivities in Hyderabad fall during these months. In any week Saturday and Sunday

occupies the peak sales hours.

Forecasting is done once in every two weeks. The sales for two weeks are studied and the

forecast for the next week is prepared. A separate team is allocated with this work.

The peak demand is forecasted on past information available. Based on this data a slight

increment is made to the proposed sales every year.

PROCESS ANALYSIS:

Z

The above diagram represents the various processes involved in processing the final product

which is the PIZZA.


TAKING THE ORDER (2.5min)

PUNCHING THE ORDER (1min)

CEHECK THE ORDER (KITCHEN-1min)

MAKE THE PIZZA (2min)

SERVING TO THE CUSTOMER (1.5minn)

FINAL DRESSING (.5min)

CUTTING PROCESS (1min)

TREATMENT IN OVEN (7min)


The order is taken by 4 stewards. Each personnel have to manage four tables each throughout the

day. After the order has been taken it will be punched in the system at the front desk. The reprint

of the same will be available at the computer at the kitchen. Once this has been placed the pizza

base is made and it is treated in the oven. After the cooking is done it is cut on the table and

dressed accordingly. The customer is served by the same person who has taken the order.

From the analysis we have concluded that:

Workstation cycle time = Total working time per day

No: of pizza’s produced per day

Therefore,

Workstation cycle time =10*60 = 2 Pizza’s per minute

300

Total task time = 16.5 minutes (sum of all the task time)

Theoretical number of workstation = Total task time

Workstation cycle time

Theoretical number of workstation = 16.5*60 = 8.25~ 8

120

EMPLOYEE TRAINING PROGRAM

The total number of employees in the PIZZA HUT store that we visited = 30

There are two personals managing the front desk which includes the computer system in which

the orders are punched in. There all together four systems within the store. Out of which 2 are

continuously working and the other two will be only operational during peak hours. There are 4

to 5 people taking orders at any time. Each person who takes the order manages four tables at a

time. The work duration for each day is 9hrs.



There are part time and full time employees within the store. Everybody works in shifts. A roster

indicating the working hour of each employee is prepared by the management at the beginning of

each week. Alterations can be made to this roster depending upon the demand and other

circumstances.

SELECTION PROCESS AND TRAINING

The employees are selected after passing a screening test (aptitude test) and personal interview

with the management.

After the recruitment is done they are deployed to a one month training which is done by a

separate team. During this period they are working under training squad which helps those to get

familiarize with work culture followed.

Once the training is done they are given various tasks and their performance is closely watched.

Based upon their level of performance they are given various performances.

Pizza hut incorporates employee enhancement program. The evaluation is based upon factors

like punctuality, job order, customer satisfaction, relationship with customer (customer handling

skills). The rewards are usually salary appraisal, mementos, employee of the month awards etc.

The employees are given money for the food. They have the option to buy from the same store or

go out and have their own food.

QUALITY CHECK

Intensive checking of the entire inventory that comes in from the warehouse is done. It has been

noted that they do not follow sampling procedure at all. They individually pick up each and

every raw material which comes in from warehouse and checked for manufacturing date and the

temperature in which it has been maintained. Even the temperature is checked for those

perishable products.

The main components for quality check are:

Packaging

Expiry

Quality



Labeling

If the supplies are not up to the required specification they are returned to the suppliers.

The products once are stocked within the store are individually checked twice a day for quality.

All products whose shelf life has exceeded are thrown out as wastage.

WASTAGE

All orders that are cancelled forma large portion of their wastage. Some undelivered home

delivery also becomes wasted. Pizza’s that are made perfectly are also wasted. Dough &

vegetables, condiments after their shelf life are discarded as waste. Dough has a shelf life of 15

hours. On the whole they have wastage of 15-20%.

PROFIT MARGIN: cost is around 30-35% of sales.

SERVICE MANAGEMENT

From our interview we came to know that during peak hours as in Saturdays & Sundays there is

great rush at this store. And it has been found from the past experience that

Customers waiting in the line/hr = 25

Customers waiting in the system/hr = 30

Waiting time to get a table = 10-15min (max)

Average Service time = 38min

Average Arrival time/hr = 10min

From this data we can calculate

Arrival rate = (1/ average arrival time/hr)

Arrival rate (µ) = 0.1

Service rate = 0.263

From the study we have understood that they follow FCFS queue discipline system. There are

multiple channels through which customers place their orders (multiple channel layouts), 38



source population is infinite, arrival pattern followed is Poisson, service pattern is exponential.

Thus we can summarize the service pattern as MODEL 3.



Ohri’s Banjara Fast Food

Ohri’s, established in the year 1981, through its constant innovations and consistent growth is considered as fastest growing restaurant chain in South India. It is the first one to start food court in Hyderabad and has won many professional laurels and most importantly the praise and appreciation of the customers.

Ohri’s has its widespread presence in Hyderabad through its outlets. They are located in Banjara hills, Somajiguda (JIVA veg kitchen), Bashirbagh etc. For the study of the operations in Ohri’s we went to Ohri’s at Banjara Hills because it is most successful outlet of Ohri’s in Hyderabad which is due to many factors like efficient operation handlings, supply chain system and its quality management system. So by going to this place we could have a better idea that how operation management in fast food industry can lead to success of the company. We went to Ohri’s Banjara and met general manager Mr. Pradeep Diwan who gave us detailed information about the various operations of Ohri’s restaurants.

Location and Layout

PARAMETERS FOR SELECTING THE LOCATION BY THE OHRIS GROUP

Banjara Hills is considered to be the one of the best and most expensive area of the Hyderabad City. Near Banjara Hills Road no. 12 all the business class residents stay and the young crowds go for their outing in the Banjara Hills. Banjara Hills Road no. 12 is just 20 kms far from the airport/railway station. Apart from this Banjara Hills is considered to be the centre of the Hyderabad City.

AREA UNDER COVERAGE

Area Under Coverage is 6000Sq Feet

FOOTFALL

The footfall of the Ohris Banjara Fast Food is of 500-600 covers everyday and on the weekends it fetches up to 900-1000 covers.

SEATING CAPACITY

The total number of tables is 30 at a time 130-135 people can be accommodated.

LAYOUT

Ohris Banjara Fast Food has adapted the concept of Coffee Shop, the basic concept was to accommodate and the utilization of the area so that the people can have quick bite and then move on from the restaurant. Ohri’s Banjara, Hyderabad is adorned with wonderful restaurants. All these restaurants cater different types of mouth watering delicacies.



Layout of restaurant


ENTRANACE

KITCHEN

COUNTER

TABLES TABLES

Billing Countered

STALLS

STANDING

ARRANGEMENT

SITTING ARRANGEMENT

CORPORATE SECTION

MANAGER CABIN

AQUARIUM


Layout of Kitchen

Supply Chain Management

Ohri’s decides for the amount of the inventory to be ordered through AVERAGE PER COVER method so as to pursue scale of economies. In this it determines the total amount of the material used in the total cover of the restaurant. for example if the total order given by 100 covers consumes 100 kgs of tomato, 30 kgs of capsicum etc. so the total amount of different material to be consumed is identified which is divided by the total no. of covers thus the average requirement per cover is identified.

Average per Cover = Total amount of material consumed

Total no of covers

Thus the inventory requirement is evaluated with the help of Average per Cover method along with the demand forecasted in that week. Then this requirement is further send to the main head quarter where they add the entire raw material requirement from different outlets and then send it


Beverage Section

TEA/COFFEE

MOCKTAILS

CUTLERY SECTION

CONTINENTAL DISHES

ENTR-ANCE

ID Validatio

n Machine

Assembly

Platform

INDIAN DISHESSTORAGE ROOM COLD STORAGE


to the local vendor in Secunderabad with whom contract has been made which contacts to the local producer to provide with the raw material.

In this whole system of procuring the raw material, Ohri’s uses their own transportation facility which along with avoiding any case of service breakdown reduces cost and time. To meet Ohri’s high standard it is ensured that the quality, temperature and packaging requirements are met. The unused capacity, in the vehicles is used to transport goods from other vendors. This helps them to deliver the lowest cost with high quality.

The In-city delivery to different outlets of Ohri’s is kept under invigilation from the time it leaves the distribution centre till the time it reaches the restaurant. The restaurant gives 1 hour window time to complete the delivery so as to reduce the cost.

Ohri’s maintains relation with their suppliers so as to increase the effectiveness and efficiency of the supply chain system along with better information linkages. From time to time they give and ask for the review of demand and supply capacity from their suppliers.

As Ohri’s is in contracts with all its suppliers there is no need of keeping inventory for risk hedging to avoid losses due to increase in price. Even if the prices of the raw materials increases due to low productivity or other factors the prices which Ohri’s pays is same as they pay on the yearly contractual basis.


Local Vendors Local Vendors - On the Contractual Basis

Ohri's Ohri's centraliised Warehouse Ohri's Group Centralised Warehose

Ohri's Food Outlets Distribution to Various Ohri's Food Outlet


PROCUREMENT PROCESS

Ohri’s has centralized system for the procurement of raw materials. Its head-office is located in Bashirbagh where the requirement from all outlets is recorded and then as per the total requirement the order is given to local vendor with whom they have yearly contracts. It helps them to get the raw material at a much cheaper rate than available in the market even when there is low production. They have central warehouse where all the raw material is kept and as per the requirement of each outlet it is provided to them just-in-time.

Inventory Management

INVENTORY MANAGEMENT

Ohri’s adopts special measures to keep inventory under a projected level so as to avoid the wastage material proportion which is only 30% on a daily basis and in transportation the wastage proportion is 5%. They have adopted JUST-IN-TIME system to procure the raw material thereby reducing their cost in storage of material as well as wastage is also very low. Everyday briefing is done for the requirements of the next day required inventory to the head-quarters and for those inventory which have life period of more than a week or so, they have cold storage facility. They also provide the facility to keep vegetables at different temperatures so as to maintain their freshness and longitivity.

Usage of Raw Materail 65%

Daily Basis Wastage30%

Transportation Wastage

5%

Raw Material



IN CASE INVENTORY RUNS OUT

If there is shortage of inventory then Ohri’s one outlet will ask for help from another nearby outlet or from the head office. For this they have their own transportation facility thus avoiding any case of delay due to bad service management.

FORECASTING DEMAND IN PEAK SEASON

Ohri’s is in this business since 1981 and since then they have been managing records of their sales of each and every season. So to determine the demand of the peak season like festivals they look into their past 2-3 years records and then through Time Series Trend Analysis, they forecast the demand for a particular season.

PROCESS INVOLVE IN PRODUCTION OF FINAL PRODUCT

In fast food industry when a customer is served it is followed by a long chain of different processes which are managed through operation heads at different level. In Ohri’s there are different departments for the inventory management, supply of materials (including raw material for food and interiors of the restaurants), food preparation process, floor operation, health and hygiene.

LEVEL OF INVENTORY & REPLENISHMENT OF RAW MATERIALS

Inventory of Raw Material is maintained on the daily basis. Every day in the morning raw materials are purchased in the centralized manner. Then the raw materials are distributed on the requirement basis to different Ohri’s food outlets. Generally in Ohri’s Banjara Fast Food outlet raw materials are procured on the daily basis. They believe in the fresh raw materials. And if in the case inventory is left out at the end of the day, if the raw material is fresh and fine then it is consumed next day otherwise it disposed off. In the weekends and in festive season level of raw material stored are high as compared to the week days. Sauces, processed cheese, butter etc are maintained on the monthly basis, whereas vegetables, bread etc are maintained on the daily basis.

REASONS FOR INVENTORY OF RAW MATERIALS

Balances supply and demand Improves supply chain visibility Provides inbound freight management Enables catch weight entry Increases throughput while maintaining inventory and order accuracy Reduces distribution errors Offers date/lot tracking and rotation Optimizes facilities and labor resources



Enables compliance with industry standards Provides transportation procurement, planning and execution Offers multi-echelon inventory optimization

Whether you are a manufacturer, distributor, wholesaler or retailer in the food industry, our Integrated Planning Solutions™ and Integrated Logistics Solutions™ will give you greater access to the up-to-the-minute information you need to be successful. You'll have the flexibility to respond in real time to ever-changing demands and achieve higher throughput in a shorter timeframe. You can reduce inventory, improve service levels and lower costs. And you can ensure compliance with the food industry's evolving regulations.

VARIOUS ITEMS KEPT IN INVENTORY/PERIOD

LIFE SPAN FOOD PRODUCTS1-2 DAY MILK, CREAM, CITRUS FRUITS,

SPINACH, BAKERY ITEMS, FRUITS, CAPSICUM, ETC

3-5 DAY TOMATO, OTHER VEGETABLES, ETC

5-10 DAY POTATO, ONION, BEVERAGES, ETC

ONE MONTH SAUCES, BUTTER, CHEESE, NOODLES, CHINESE PRODUCTS, ETC

MORE THAN MONTH COFFEE, SPICES, TEA, SUGAR, ETC

STORAGE ARRANGEMENT

Storage arrangement for the Inventory is done in the store room, huge room is there for the storage of raw materials which consists of Deep and huge Refrigerators for the cold storage, various other apparatus and according to temperature required for the storage of raw materials.

ACCURATE ACCOUNTING & CONTROL SYSTEMS

Ohri’s believe in being diligent in the way we maintain all accounts to monitor sales, expenses and more over control them using several systems which are in place, such as;

Daily opening and closing procedures


http://www.manh.com/supply_chain_execution/index.html


Web accounting to corporate office Daily expense accounts Calculation on costs of Food Packaging Beverage Miscellaneous costs Kitchen expenses Cleaning solutions Labor

QUALITY CHECK

In Ohri’s, hygiene of the raw material, kept inventory is of utmost priority. It is one of the pioneer restaurants to adopt HACCP (Hygiene Analysis Critical Control Point) system to ensure the quality. Each product which is being kept as inventory first undergoes through quality check as per the standards of HACCP system. Our Research & Development Team continuously experiments on new recipes and production method to create higher guest satisfaction of choice, taste and value for money. When the dish is prepared then the head chef will first taste the dish and then if the dish is delicious and prepared according to customer’s requirement then only it is served to the customer.

PLANNING & TECHNICAL PROCESS

Ohri’s recently implemented production planning and management applications includes modules like planning, management, inventory management system, quality management, recipe management system, route/van management, sales management and machinery management. The aim is to achieve proper planning, management and control of the production systems. Ohri’s restaurant maintains a daily sales forecast based on the historical sales data of that day during the same period last year. Based on this, the software arrives at the prospective sale for each day. At the end of the day, the system calculates the closing balance and goods-in-hand, and taking into account the prospective sales for the next day generates order information. This is uploaded and transferred to the company’s FTP site. Similar information from all the outlets is generated and gathers at the server in the factory. Here the system consolidates all the information and production is scheduled accordingly. A consolidated production chart is then made, which allots assignments to each of the production floors. The software also has various recipes along with the ingredients and their volumes required for the corresponding production volumes. Then the system sends the requisition notes to the raw material store and its copy to the production floors. According to Pradeep Diwan, the entire process is tracked in batches. This enables the restaurant to track down the supervisor, ingredients, supplier, etc. of a particular batch in case there is any deficiency. The system further has add-on modules like quality control, maintenance and management of machinery.



COSTING METHOD

ALLOCATION OF COST

The preparation of a particular cost incurred is due to different elements. Its total cost is sum of procurement cost, transportation cost, inventory management cost, preparation cost and restaurant maintenance cost. This proportion has been illustrated in the following pie chart:

30%Raw Material

20%Equitment/Electricity

20%Transporta-tion/Pro-cure-ment

30%Preparation

Cost

ALLOCATION OF COST

DECISION ABOUT THE PRICE OF A DISH

The cost incurred by Ohri’s is the total cost for the preparation of recipes as well as the maintenance cost of the restaurants. As per Mr. Diwan this cost has to be 1/3 or ½ of the cost that is charged by the Five Star hotels. Ohri’s provides the ambience of five star hotels. Due to this, the cost of maintenance is also very high which forces it to effectively manage each operation so as to increase its margin to the best level possible. The cost of each and every dish is decided by the chief chef of the restaurant because he has a fair idea about the cost incurred from the process of production to serving The cost margin of Ohri’s is 25-28% i.e. for every item of Rs. 100, it earns Rs. 25-28.

EMPLOYEE/ TRAINING PROGRAM

SELECTION, RECRUITMENT & TRAINING PROCESS



Ohris Banjara follows the Recruitment Process. The waiters and all have to be 12 th pass and should have prior experience. Managers and Executive managers should have experience in Hotel Management. All the employees have to undergo training process.

MINIMUM SERVICE LEVEL

Service Level expected from the employees are at different level on the basis of their responsibilities and duties for example waiters has to serve food with utmost care, should always carry smile on their face and understand the customers food requirement.

PARAMETERS OF PERFORMANCE

The performances are measured on the responsibilities and duties of the employees. And the special incentive schemes are there on their additional work. On the festive seasons employees are give bonus.

TIME TAKEN TO SERVE THE CUSTOMER

When the customer gets in the restaurant, firstly, customer is greeted, then the seat is offered and then the order has been taken by the waiter. Serving time depends on the food or the dish ordered by the customer. Generally 5 mins are taken for the tea and 15 mins for Pizza, right from the order taken to the delivery of order on the table of the customer. Few dishes take more time in their preparation some take less time.

PEAK HOURS

Peak hours are of generally 9PM to 11PM; this is the time when people prefer to have their food.

AVERAGE NUMBER OF CUSTOMERS SERVED BY THE EMPLOYEES

At a given time a waiter serves one table at the maximum in the peak or rush hours two tables are served. And rest serving of table depends on the customer’s requirement and the time spends in the restaurant.

ROTATION OF FRONT DESK PERSONNEL

Rotation of Front desk Personnel is done on the shift and daily basis – day shift, graveyard shift and morning shift.



Comparison

FEATURES PIZZAHUT OHRI’S

BANJARA

Mac DONALDS

SUPPLY CHAIN Contractual Contractual Contractual

CENTRALIZED

PROCUREMENT

Flexible Flexible Flexible

PROCESS TYPE MAKE TO ORDER MAIZZE- PLA** MAKE TO STOCK

SERVICE TIME 38 minutes Depends on the order 1 minute

WASTAGE 15- 20% 30% Depends on demand

FINANCIALS

PROFIT MARGIN

AVG SALES/ DAY

BREAKEVEN

65-70% Of Sales

300 Pizzas

Achieved

70%

600-700 Covers*

Achieved

Low

15000 Burgers

10 Years

LAYOUT

FOOTFALL

SEATING

CAPACITY

200/300

78

2400 approx

130 175

*Covers= The total number of people as calculated by ohri’s

** MAIZZE- PLA=Technique used by Ohri’s



SERVICE PROFIT CHAIN

Why Service-Profit Chain?

It is estimated that two-thirds of customers who defect do so because

of poor service. In order for customer service to drive profits, every

link in your service-profit chain – employee capability, job

satisfaction, productivity, employee loyalty and customer satisfaction

– must be strong.

What is Service-Profit Chain?

The service-profit chain is a powerful phenomenon that stresses the importance of people –

both employees and customers – and how linking them can leverage corporate performance.

The service-profit chain is an equation that establishes the relationship between corporate

policies, employee satisfaction, value creation, customer loyalty, and profitability.



Straight Line between Superior Service and Sustainable Profit Growth

Delivering top quality service must be brought to the top of your company's needs hierarchy as

one can draw a straight line between superior service and your sustainable profit growth. To

achieve success, you must make superior service second nature of your organization.

Need for Seamless Integration of the Service-Profit Chain Links

A seamless integration of all components in the service-profit chain – employee satisfaction,

value creation, customer satisfaction, customer loyalty, and profit and growth – links all the

critical dynamics of top customer service. "The company guides, nurtures, and empowers its

employees, and the employees play a vital role in securing customer satisfaction and the benefits

that accrue from it.

VALUE STREAM MAPPING

The value stream mapping method is a visualization tool oriented to the Toyota version of Lean Manufacturing (Toyota production system). It helps t o understand and streamline work process by using the tools and techniques of Lean Manufacturing. The goal of VSM is to identify, to demonstrate and to decrease waste in the process. Waste is defined as any activity that does not add value to the final product. The word is often used to demonstrate and decrease the amount of



waste in a manufacturing system. VSM can thus serve as a starting point to help management, engineers, production associates, schedulers, suppliers, and customers to recognize waste and identify its causes. As a result Value Stream Mapping is primarily a communication tool, but it can also be used as a strategic planning tool and as a change management tool.

In order to do this, the Value Stream Mapping method visually maps the flow of material and information. From the moment the product are entering the back door as raw materials via all manufacturing process steps until the moment the product leaves the loading dock as finished products.

Mapping out the activities in the manufacturing process with cycle times, down times, in-process inventory, material moves, information flows, helps to visualize the current state of the process activities and guides toward the future desired state.

The process usually includes mapping the “Current State” and the “Future State”. These then serve as the foundation for other Lean Manufacturing strategies.

The seven commonly accepted wastes were:

Overproduction Waiting Transport Inappropriate processing Unnecessary inventory Unnecessary motion Defects

The seven Value Mapping tools are:

Process activity Mapping Supply chain response matrix Production variety funnel Quality filter mapping Demand amplification mapping Decision point analysis Physical structure mapping


Redo Loop

Value Added ActivitiesNon Value Added Activities

Waiting (No Activity)

Begin End


Conclusion

The aim of our project was to study the operations of fast food industry. We wanted to learn how the companies like McDonalds, Pizza Hut and local food joints like Ohri’s maintain their leadership in the market. Although it is well known that they have very efficient Business process at place but the project gave us the opportunity to see for ourselves the working where it actually takes place.

The fast food industry by its nature demands for fast, accurate and reliable delivery at each and every instance. For that a very efficient process need to be at place. Our intention was solely to study this process and see the practical implications of the theory we learnt in the operation class.

Based on our survey we found that companies like Mc Donald’s, Pizza Hut we found although they have a separate product but the generic process methodology is same. This includes designing the product; deciding what resources are needed; arranging schedules, equipment, and facilities; managing inventory; controlling quality; designing the jobs to make the product; and designing work methods. The process steps may be different but the efficiency and the output that is coming is due some core principles that they are following. Be it their supply chain management, inventory control, waste management, process design, over the years they have bettered the system. Customer feedback and performance information appraisal are used to continually adjust the inputs, the transformation process, and characteristics of the outputs.

And eventually we realized that operations are the key factor that makes them the leaders in the industry. The efficient management of their operations makes them what they are.


Lead Time

Redo Loop


Contributions

Designing of the Questionnaire: Arpita Dhar, Gaurav Jawa ,Kannan Raj

Analysis:

McDonalds: Arpita Dhar , Gaurav Jawa

Pizza Hut: Kannan Raj, Vijaylaxmi Duggar

Ohri’s : Ruby Kejriwal, Hina Kamra

Service Profit Chain and Value Stream Mapping: Gaurav Jawa

Compilation and Formatting: Arpita Dhar



References

http://www.euromonitor.com/Consumer_Foodservice_in_India

http://www.geocities.com/mcdonaldization/rules.html

Eserve Official Site

http://www.researchandmarkets.com/reports/306103/

McDonald’s India’s Cold Chain.Company report by Hardcastle Restaurants Pvt. Ltd.

www.pizzahutproperty.co.uk

www.pizzahutfranchise.co.uk

Bibliography

Operations Management for competitive Advantage

By:Chase- Jacobs- Aquilano

Purchasing and Supply Chain Management referred Ch-2 and Ch-5

By:Monczka, Trent,Hardfield

Purchasing and Inventory Control referred Ch-1 and Ch-5

By:K.S Menon

Production Planning and Inventory Control referred Ch 1 and Ch-4

By: Seetharanga , Dennis peter.


http://www.researchandmarkets.com/reports/306103/

http://www.euromonitor.com/Consumer_Foodservice_in_India


Consumer perception about fast food in India: an exploratory study

Anita Goyal, Management Development Institute, Sukhrali, India

N.P. Singh, Management Development Institute, Sukhrali, India

Can India be the food basket for the world?

N.VISWANADHAM

Appendix

Questionnaire

Name : Age:

Designation:

Location and Layout related

1. What are the parameters to select the location for the outlet?2. process layout - diagram, facility layout—observation3. Area under coverage?4. What is the footfall?5. What is the layout?6. What is the seating capacity?

Supply Chain management related?

7. What are the various steps followed in the procurement of raw materials?8. What is the minimum inventory level you maintain and how frequently is the inventory replaced?9. If they run out of inventory what do they do?10. How do you forecast the demand in peak season (festive season, post exams)?11. What are the various process involved in the production of the final product?

Employee/Training Programs related questions.

1. How many staff members do they have?2. How many for front desk?3. How many allied workers do they require?4. What is their selection criteria for employees?5. Do you follow training program for new employees?6. What is the duration of the training program?7. What is the minimum service level expected from every employee?8. What are the parameters of performance?9. What is the average time an associate takes to serve a customer, how do they estimate this time?



10. What is the delivery time in peak hours?11. What is the average number of customers served by an employee in a given duration (1 hour)?12. What is the average time period for the rotation of front desk personnel?

Inventory Questionnaire

13. What is the level of inventory maintained for raw materials?14. How frequently is the inventory replenished?15. What are the various items kept in inventory?16. Which item has the shortest inventory life out of the various items? Why?17. Which item has the longest inventory life out of the various items? Why?18. What are the storage arrangements maintained to stock the inventory?19. How do you check the quality standards of various items?20. What is the rejection rate of the various items stored in the inventory?21. Do you have a dedicated inventory management at place?22. Is there a standard inventory management procedure followed at all the outlets or does it varies

with every franchisee?23. Is the inventory management handled in house or is it outsourced?24. How is the procurement quantity of various items decided?25. In case of run out of resources how is the product supply maintained?26. What are the various procurement channels?27. What is the storage cost?

28. What is the maximum storage capacity maintained?29. How are the inventories level affected in peak seasons?30. Do you have coordination with other outlets to back up the supplies?31. Who are your supplies?32. Do you buy your supplies from local vendors or 2you supplies are imported it?

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1 Operation Management Final Report Group 10

Documents

Transcript of 1 Operation Management Final Report Group 10