McDonald’s Corporation Case Study solution: McDonald's Strategic issues, McDonald's Corporation’s Core competencies, McDonald's Corporation’s VRIO Framework, McDonald Corporation’s’ business model and its revenue streams, McDonald's PESTEL analysis to analyze impact on the company’s ability to sustain a competitive advantage

McDonald’s Corporation Case Study 

TASK ONE

After reading the case study McDonald’s Corporation, prepare a report on the attractiveness of the fast food industry from the perspective of McDonald’s Corporation, an American fast food company founded in California, United States, best known for its hamburgers, cheeseburgers, French fries, soft drinks, wraps, and desserts now faces the challenges of increased competition. You should prepare your answer in a report format and comment on:

·         The strategic issues that McDonald needs to address

·         The core competencies of McDonald

·         The business model of McDonald? Also, discuss on the various strategies/techniques how McDonald earns money? 

TASK TWO 

Your task is to analyze McDonald Corporation’s external environment and prepare:

·         The trends in McDonald’s’ external environment that are likely to have the greatest impact on the company’s ability to sustain a competitive advantage?

McDonald’s Corporation Case Study solution

The strategic issues that McDonald needs to address:

·        Providing product that balances quality, speed, and affordability. Complaints about speed of service have “increased significantly” in recent years, with the McDonald’s service experience described as “chaotic.”

·         Innovating the menu without creating unnecessary menu scope creep.

·         Responding to competitive threats and other quick-service restaurants such as Wendy’s, Burger king, and Yum! Brands’ Taco Bell.  without losing the company’s core identity. McDonald’s is roughly twice the size of its next largest global competitor (all three Yum! Brands combined), but has slightly fewer outlets. It controls almost half of the U.S. hamburger market, which is more than three times larger than the market share held by either Wendy’s or Burger king.

·         Prevention of complacency, in spite of many years of relative success.

·         Defining a clear vision of what it wants to be and a plan for how to get there.

·         Resolution of the case that the National labor Relations Board’s (NlRB) general counsel has filed against it claiming that the company has enough control over franchise operations to be considered a joint employer.

·         Resolution of serious staffing issues if it is to improve customer loyalty. An internal survey results one out of every five customer complaints was about “rude or unprofessional employees.

·         Increasing its appeal to millennials. Millenials are consistently choosing “fresh and healthy” over “fast and convenient” and “McDonald’s is having trouble convincing them it can be both. McDonald’s has to find interesting and engaging ways to share that information with them, not old-fashioned corporate lecturing.

·         Improving public perceptions of the McDonald’s brand. In July 2014, the Big Mac earned the dubious distinction of being America’s worst hamburger, placing last out of 21 in a study by Consumer Reports. McDonald’s also ranked lowest among peers in the 2015 American Customer Satisfaction Index. Fast food restaurants overall dropped 3.8 percent, but McDonald’s fell by six percent from 2014, holding firm in the last spot.

·         Becoming more “culinary inspired” and to simplify food labels by reducing the number of preservatives. There are still 19 ingredients in the French fries McDonald’s serves in the United States, compared to just five in Great Britain.

The core competencies of McDonald Corporation’s

Core competencies of McDonald’s can be analyses using VRIO framework.

Value:

Various resources and capabilities that add value and make it competent in market include:

·         McDonald’s has a strong brand image all around the globe. Branding helps it to generate huge revenue and promote its marketing efforts more efficiently.

·         McDonald’s continuously follows an aggressive technology upgrade to allow Starbucks-like interactivity to both smooth out operational waiting times and improve the customer experience.

·         As a direct competitive response to the “better burger chains,” McDonald’s is offering “Build Your Own” tablets where customers design their own sandwich from over 30 choices of meats, toppings, and buns. This presents an interesting conundrum for a quick-serve restaurant that generates roughly two-thirds of its revenue from drive-through customers.

·         To increase its appeal to millennials, McDonald’s has hired Google executive to lead McDonald’s “Experience of the Future,” which includes an improved social media presence, development of a Smartphone app, and testing of mobile payment systems.

Rare

Resources and capabilities of McDonald’s which are rare include:

·         McDonald’s share has given a 56.26 % return to its shareholders in a period of two years from July 2015 to July 2017 as compared to Dow Jones index return of 21.91 % for the same period.

·         McDonald’s is roughly twice the size of its next largest global competitor (Wendy’s, Burger king, and Yum! Brands’ Taco Bell, all three combined). It controls almost half of the U.S. hamburger market, which is more than three times larger than the market share held by either Wendy’s or Burger king.

·         In addition to curtailing antibiotic use in its U.S. chicken supply, McDonald’s is now selling dairy products from growth- hormone-free cattle. The company has also pledged to examine its product ingredients and review its food preparation procedures. Its goal is to become more “culinary inspired” and to simplify food labels by reducing the number of preservatives.

·         McDonald’s is giving customers more choice in what they eat is by giving franchises more freedom to offer locally relevant menu items. Local restaurant operators can choose items from the company’s global pipeline and adjust them as needed to suit local tastes. Managers will also be granted more freedom to run their own promotions to increase store traffic.

Costly to intimate

List of capabilities and resources of McDonald’s which are costly to intimate include:

·         In 2017, McDonald’s operated a total 37,000 restaurants globally, with 14,300 of them in the U.S. One of Easterbrook’s first major moves was to propose all-day breakfast in all U.S. restaurants, the company’s biggest initiative in six years.

·         McDonald’s is present in more than 120 countries which enables its ability to maintain the business in most efficient manner.

·         In China and Hong kong, the company recently sold an 80 percent stake in their 1,750 restaurants to Citic (state-owned investment group) and the U.S. private equity firm, Carlyle. They are currently looking for these partners to open an additional 1,500 stores in China, Hong kong, and korea.

Organized to capture Value

Resources and capabilities of McDonald’s which are organized in a structured way tp add value to organisation include:

·         McDonald’s has strong supply chain management embedded with advanced technology to bridge the gap in the system and serve the customers to the best.

·         To free up space for  new offerings, the company has planned to phase out underperforming features such as the snack wrap and reduce the number of extra value meals. McDonald’s menu has swollen to over 120 items. A greater variety of menu options helps to draw new customers into stores.

·         The company has launched a video series entitled “Our Food, Your Questions,” demonstrating how McDonald’s food items are made. The company has responded to 40,000 questions and that the increased transparency has been well received. In June 2015, McDonald’s has hired Robert Gibbs, former White House Press Secretary under President Obama, to serve as executive vice president and global chief communications officer, and Silvia lagnado, previously with Bacardi ltd, to serve as head of global marketing to take over the company’s media affairs.

·         The company grants employees the ability to accrue up to five days of paid vacation annually after one year of employment.

      [RBL Academy provides best coaching, home tutor, home tuition, online tuition, Project and assignment solutions for all subjects of Class 11 and 12 Accounts, Business Studies and economics. Home tuition for BBA, B.Com, MBA, CA, CS and CMA all subjects Financial management, Cost Accounting, Management Accounting, Corporate Finance, Business Statistics, Economics, Income Tax, Financial Accounting, Operation Research, Operation Management, Business Statistics, Investment Management, Security analysis and Portfolio Management, Corporate Accounting, Research methodology, Corporate tax Planning, Strategic Financial Management, Advance Cost Accounting, Financial Derivatives and all other subjects as per requirement of students are also offered.]

McDonald's Corporation’s’ business model and its revenue streams

McDonald’s management philosophy is three-legged stool:

One leg is the parent corporation,

The second leg is the franchisees, and

The third is McDonald’s suppliers.

It has built an ever-larger network of store owners and an integrated supply-chain management system. Many new menu items, such as the Big Mac and Egg McMuffin, have been developed by the franchisees. It encouraged local owners to be entrepreneurial as long as they maintain the company’s four main principles: quality, service, cleanliness, and value. Because of the volume of McDonald’s business, it found many supply partners willing to adhere to his high standards.

McDonald’s both owns and operates its own restaurants, as well as, franchisees them to others. The large majority of restaurants are franchised (85 percent) and McDonald’s makes money by leveraging its product, fast food, to franchisees that have to lease properties, often at large mark-ups that are owned by McDonald's. McDonald's runs a franchising business model under which it trades access to its brand, its operating infrastructure, and its resources to restaurant operators for a hefty price. These entrepreneurs pay an initial fee at the start of their franchise. They also send in an ongoing royalty that's based on a percentage of their sales. Finally, franchisees pay McDonald's rent for the property that, by the way, can't drop below a certain rate and is set on 20-year terms.

There are three primary franchise ownership structures:

 1) Conventional franchisee,

2) Developmental license, and

 3) Affiliates.

Under a conventional franchise agreement, the company typically owns the land and building, and leases the location to the franchisee. The franchisee pays for “equipment, signs, seating and décor.” As the equipment depreciates or new facilities or food preparation processes are required, the franchisee is expected to reinvest in the business. McDonald’s also co-invests into specific strategic initiatives to motivate franchisees to adopt changes. Franchisees pay rent and royalties based on a percentage of sales, with specific minimum rent payments and initial fees paid upon opening a new restaurant or acquiring a new franchise. The typical franchisee lease is 20 years.

The specific conditions of the franchise agreement vary on the owner’s experience, credit capacity, and the local legal environment. Franchisees can vary significantly in size.

The largest franchisee has a developmental license for 2,200 restaurants across latin America and the Caribbean. On the other end of the spectrum, some franchisees own and operate a single location.

[RBL Academy  provides online tuition, coaching classes, home tuition, home tutor, project and assignment solutions to XI, XII, BBA, B.COM (H), MBA & CA students from various schools, institutes and universities such as Amity University, IGNOU, CCSU, MDU, ROHTAK UNIVERSITY, D.U., G.B.T.U., M.T.U., S.M.U., P.T.U., Annamalai, Jamia, Jaypee, IILM, NIILM, U.P.T.U., Manav Rachna University, Sharda University, Lovely Professional University etc.]

The trends in McDonald’s’ external environment that are likely to have the greatest impact on the company’s ability to sustain a competitive advantage

McDonald’s external environment can be analysed using PESTEL analysis frameworks that have the greatest impact on its ability to sustain a competitive advantage.

Political

The turnover in fast food industry is very fast due to high stress and less pay. Activists lobby for a larger pay raise. The National labor Relations Board’s (NlRB) general counsel has filed a suit claiming that McDonald’s has enough control over franchise operations to be considered a joint employer. McDonald’s raise pay to at least $1 more per hour than the local minimum wage will be enough to attract and retain motivated workers. The company also granted employees the ability to accrue up to five days of paid vacation annually after one year of employment.  

Economical

The unemployment rate has been cut in half from its 2009 peak at 10.0 percent to just 5.1 percent in 2015, and per capita real disposable income is near record highs. For the first time ever, American spending on dining out exceeded grocery sales in April 2015. According to the Restaurant Association, millennials tend to favor quick service, deli, and pizza joints over more traditional casual and high-end dining; ethnic foods are also viewed as new and interesting. McDonald’s is giving customers more choice in what they eat is by giving franchises more freedom to offer locally relevant menu items. McDonald’s has customised its products where customers design their own sandwich from over 30 choices of meats, toppings, and buns.

Social

Obesity-related health care expenses in the United States total $663 billion annually. Beef still comprises the highest proportion (58 percent) of meat consumed in the United States, but health-conscious consumers are increasingly shifting toward poultry and other lean meats. Concerns over the increase in antibiotic-resistant bacteria have led to calls for the elimination of sub therapeutic antibiotic use in meat animals. McDonald’s has stopped selling chicken products from birds treated with antibiotics important to human health. Besides ending the use of antibiotics in the chickens used, McDonald’s also decided to remove high-fructose corn syrup from McDonald’s hamburger buns. It also laid out a 10-year plan to only use suppliers that keep chickens cage free. McDonald’s also offers dairy products from growth- hormone-free cattle. The company has also pledged to examine its product ingredients and review its food preparation procedures.

Technological

To attract millennial, McDonald’s has improved its social media presence, developed a smart phone app, and mobile payment systems. With its major move to propose all-day breakfast in all U.S. All kitchens are now equipped with separate grills for cooking eggs and burgers, rolling carts and utensils to use just with eggs (to prevent contamination), and new toasters so that they can prepare both buns and muffins at the same time (they toast at different temperatures). Advance technological adoption in supply chain management and franchise system makes it much ahead of its customers. McDonalds uses latest technologies for service and food delivery. McDonald’s continuous effort in technological upgradation in its supply chain and customer relationship management gives it an edge to achieve competitive advantage in market.

Environmental

Severe drought led to increase in price of beef which forced farmers to turn to more expensive forms of feed such as hay and corn, to ship cattle to greener pastures in the north, or to cull their herds through sales or sending heifers to the butcher instead of breeding them. The resulting price increases for supplies ranging from bread to eggs to meat are squeezing already tight operating margins.McDonald’s is maintaining its price by reducing its cost at other operational activities to gat a competitive advantage in the market.

Legal

To support healthier food choices, The Patient Protection and Affordable Care Act stipulated that calorie counts must be displayed on all food service menus of chains with at least 20 units and that restaurants must provide additional nutritional information upon request. These trends place considerable pressure on a fast food company that depends on hamburgers for the main portion of its income. McDonald’s reduced its Happy Meal calorie count by 20 percent by adding apples and halving the amount of french fries. McDonald’s has reduced the sodium content of its food by 15 percent, and plans to make further reductions in calories, sugars, saturated fats, and portion sizes by 2020. There are so many health related laws that can affect fast food businesses. McDonalds operates in more than 100 countries and has to remain cautious about compliance so as to not become a target of law.

[RBL Academy provides online tuition, coaching, home tutor, home tuition, project and assignment solutions for XI, XII, BBA, B.COM, MBA, CA CPT, IPCC, Final, CS Foundation, Executive & Professional, CMA Foundation, Inter & Final. RBL Academy assists these students in almost all their subjects of their course curriculum such as Accountancy, cost Accountancy, Management Accounting, Business Law, economics, Strategic Financial Management, Income Tax, Indirect Tax, Economics, Statistics, Auditing, Business Communication, Business Ethics and all other subjects as per the requirement.]

References

·         McDonald’s, “Annual report, 2016, ” last modified March 1, 2017,http://bit.ly/2qXPprQ.

·         “National Economic Trends,” Economic Research, accessed October 2017,https://research.stlouisfed.org/ datatrends/net/page3.php.

·         Bethkowitt,“Inside McDonald’sBoldDecision toGo CageFree,”Fortune, lastmodified August 18, 2016, http://fortune.com/mcdonalds-cage-free/.

·         “Big Mac’s Makeover,” Economist.

·         Julie Jargon, “McDonald’s to Pare Menu, Review Ingredients,” Wall Street Journal, last modified December 10, 2014, https://www.wsj.com/articles/mcdonalds-planning-new-menu-with-fewer-items-1418230599.

·         Stephanie Strom, “McDonald’s Seeks its Fast-Food Soul,” New York Times, March 7, 2015, https://www.nytimes. com/2015/03/08/business/mcdonalds-seeks-its-fast-food-soul.html?_r=0.

·         Joshua Brown, “McDonald’s Fixes its Marketing, Chipotle Fixes its Product,” Fortune, last modified January 21, 2015, http://fortune.com/2015/01/21/mcdonalds-chipotle-integrity-trust/.

·         Mary Bowerman, “What’s America’s Favorite Fast-Food Restaurant?” USA Today, last modified July 1, 2015, https://www.usatoday.com/story/money/2015/07/01/ chick-fila--america-favorite-restaurant-mcdonalds-consumer-survey/29554303/

·         Jargon, “McDonald’s to Pare Menu, Review Ingredients,” Wall Street Journal.

·         Strom, “McDonald’s Seeks its Fast-Food Soul,” New York Times.

·         Jargon, “McDonald’s Faces ‘Millennial’ Challenge,” Wall Street Journal.

·         Beth Kowitt, “Fallen Arches: Can McDonald’s Get its Mojo Back?” Fortune, last modified November 12, 2014, http://fortune.com/2014/11/12/can-mcdonalds-get-its-mojo-back/.

·         Dean, Brat, and Gasparro, “McDonald’s CEO is Out As Sales Decline,” Wall Street Journal.

·         “When the Chips are Down,” Economist, last modified July 22, 2010, http://www.economist.com/ node/16646178

·         Julie Jargon, “McDonald’s Tackles Repair of ‘Broken’ Service,” Wall Street Journal, last modified April 10, 2013, https://www.wsj.com/articles/SB10001424127887324010704578414901710175648.

·         Jargon, “McDonald’s Tackles Repair of ‘Broken’ Service,” Wall Street Journal

·         “McDonald’s Agrees Chinese Franchise Sale,” BBC News, last modified January 9, 2017, http://bbc.in/2frmkRk.

·         The VRIO framework   Jay B. Barney and William S. Hesterly  Source: Barney, J. B. and Hesterly, W.S.  (2010)  Strategic Management and  Competitive Advantage: Concepts and Cases,  third  edition, Pearson Education.

·         Anon, (2015). PESTEL analysis of the macro-environment. [online] Available at: https://frrl.files.wordpress.com/2010/04/pestlanalysis.pdf [Accessed 2 Dec. 2015].

 

 

Operational function of Amul Case study solution, Amul Supply chain, Amul Production Process, Core challenges faced by Operation functions at Amul, Issues related to managing third parties service providers of Amul, Strategies to be implemented to improve operational efficiency of Amul

 In this assignment you are asked to assume the role of a manager in the operations function of the organisation that you work for (or one with which you are otherwise familiar).

In the last top management meeting the outgoing CEO requested that you write a report (of no more than 2,500 words) introducing the operations function to the incoming CEO, who is new to the organisation. She has specifically requested that you include the following three parts in your report:

Part 1

An overview of operational activities, including:

1. the type of good or service that the company provides (including a summary of the order qualifiers and order winners of those goods/services and the related operations strategy)
2. the production process of that good or service
3. the key performance objectives of operations
4. and a brief overview of the supply chain network and/or any key business processes that are outsourced.

Part 2

An explanation of how the operations function collaborates with other business functions (such as human resources, sales & marketing, or financial management) to improve efficiency and customer service. Add examples for clarity.

Part 3

A summary of the core challenges that the operations function faces (and why) and, based on that summary, a proposal for one improvement accompanied by a strategy for the implementation of that improvement.

Case Study Solution

GCMMF

Established in the year 1973, with a motive to help poor farmers to get good return on milk they sell, Gujarat Cooperation Milk Marketing Federation Limited has now become the largest food product marketing organisation in India having an annual turnover of 4.8 billion dollar (2018-19). It procures approximately 23 million liter milk per day from 18700 village milk cooperative societies, 18 member unions covering 33 districts and 3.6 million milk producer members. (Source:Amul website).Popularly known as Amul, its operations is managed by 61 sales office and it has a network of 10000 dealers and 10, 00,000 retailers making it one of the largest operational networks in India. Product range of Amul includes milk, milk powder, ghee, butter, cheese, Pizza cheese, Ice cream, Paneer, chocolates, health beverages and traditional Indian sweets. (Source: Amul website). It is also largest exporter of dairy products selling its products in USA, Singapore, Gulf countries, Philippines, Japan, China & Australia. (Source:Amul website). Amul follows an umbrella branding strategy. It uses a common brand name ‘Amul” for all categories of products it deals in. Amul's sub-brands include variants such as Amulspray, Amulspree, Amulya and Nutramul. The edible oil products are grouped around Dhara and Lokdhara, mineral water is sold under the Jal Dhara brand while fruit drinks bear the Safal name. (Source:Amul website).

Production process of Amul

Milk Reception

Milk receipt process is done in Amul 3 Process and reception lab. Raw Milk brought in from trucks is unloaded, tested and processed. Milk from Amul 2 is brought here in cans . Three reception points are available to unload milk from tankers. Each reception line is equipped with centrifugal pumps having a capacity of 30000 LPH, Air decompressor to remove air from milk, filters, pre heat exchange chiller and raw milk silo that is used to store milk.

Amul 3 Milk Pasteurization Process

Pasteurization process follows following sequential steps:

From Raw milk tankers, milk flows to chiller for cooling. There is a raw milk buffer tank where milk gets stored. From Raw milk buffer tank it is stored in milk silo and from there milk goes to pasteurization tank to complete pasteurization of milk. After that it goes to regeneration section to separate cream from pasteurized milk. cream separation section consist of two parts, one of skimmed milk section and other of cream buffer tank. From cream separation section to skimmed milk section, milk is heated at 80 degree Celsius and then stored in milk silo. Skimmed milk after pasteurization is issued to powder section,

Milk Powder Section has two units one for skimmed milk pasteurisation and other for whole milk pasteurization. After proportionate mixing in milk storage tank, pasteurized standard milk is converted into milk powder, sent to Amul 2 section, or transported via rail or road tanker to distributors. From cream separation unit, cream is sent to cream buffer tank where it is pasteurized at 80 degree Celsius and then transferred to Cream Balance tank. Afterwards it is issued to butter section unit.

Amul 3 Milk Dispatch

Milk processed at Amul is sent to different sections such as Amul 2 for pouch packaging, Flavoured milk section, Milk Powder section, butter section, ghee section L& T section and transferred to different dairies.

Amul 2 Milk receipt process

Amul 2 receives milk in cans at RMRD. Both cow and buffalo milk marked with separate colour is received in morning and evening. Two reception lines are available. Cans are verified for sour or curdled milk. After that milk is added to weighing tank. Empty cans are shifted to washer. Samples are collected for checking fat and SNF calculations. After that it is sent to Amul 3 section for further processing. Milk at Amul 2 is also used for producing butter milk which is packed at packaging department.

Milk Pouch Packaging section

Pouch packaging sections deal with packaging of milk into pouches. 3 packing machines having two identical heads for packaging, each head drawing heat sealable polythene sheet from distinct separate roll which is supplied with milk to be packed from overhead tank by gravity.

Butter Section

Separator vessel separates excess fat from milk, which is used to manufacture butter. Butter is manufactured using fresh cream of milk. Coloured salt is added with cream to make butter Cream from Milk 3 and Milk 2 section is brought to Butter section where they are pasteurized at 90 degree Celsius and then cooled to 10 degree Celsius. After that it is rotated in pipe for 20 hours and after that it is moved to cream balance tank. Plate heat exchanger is used to maintain heat level in the process. From there churning process starts which results into production of butter milk as well as butter. After churning butter milk is cooled in chiller from where it is transferred to butter milk silo. Churning leads to butter grains which are washed with butter milk and salted and non salted butter is prepared. Non salted butter is used to make ghee and salted butter is grinded for adding colour and then blended thereafter it is stored in butter silo. From where is packaged into 10 gm chiplet, 8gm blister pack, 100 gm refill pack and 500 gm refill pack.

Flavored Milk, Coffee and Chocolate manufacturing Process

Process of making flavored milk, chocolate and coffee are slightly different. Sugar, SMP and TSP is mixed and dissolved with pasteurized milk for homogeniastion. The mixture is chilled at 5 degree Celsius while taking caring of prevention of acidity and then it is transferred to storage tank. Colour and flavour is added and filtration process is done to automatically wash, fill and cork milk in glass bottles and then placed in metal crates. Then the product os sterlised and cooled in cooling rooms where they are stored for 5 days at ambient temperature to watch quality defects such as curdling, leakage and discolouration. After that it is labeled and wrapped with hot glue machine.

Ghee Section

Sour milk is used to produce ghee. This milk is sent to cream machine for extracting cream. Cream is then converted into butter and butter is heated to make ghee. After that it packed into tins or plastic bags.

 

Supply Chain of Amul

Supply chain management of Amul Dairy starts with milk being brought by farmers and milk producers to village cooperative society on their conveyance either by bicycle or on foot. Village cooperative unit measures the quality of milk and it is then transported to union production facility by special milk container trucks. From there it is further sent to wholesale Amul distributors who in turn send them to retailers in special trucks.

The whole process is outsourced to different operations and logistics partners to implement the supply process effectively and efficiently. Amul follows stringent process of verification and surety for maintaining safety and quality of products from channel partners. All members in supply chain have to adhere rules and guidelines issued by Amul at different levels of logistics management. Amul offers good profit margin for its wholesalers and retailers, support in estimating demand and easy repayment policies for retailers for capital investment done by them.

 

Technology and e-initiatives in Supply chain management of Amul

Amul is one of the first FMCG firms in India to employ Internet technologies to implement B2C commerce. Another e-initiative taken by Amul is to provide farmers access to information relating to markets, technology and best practices in the dairy industry through net enabled kiosks in the villages. Amul has also implemented a Geographical Information System (GIS) at both ends of the supply chain, i.e. milk collection as well as the marketing process. Farmers now have better access to information on the output as well as support services while providing a better planning tool to marketing personnel. In collaboration with IBM, Amul has set up an ERP base system to integrate its upstream and downstream partners thus keeping a track to improve efficiency, reduce wastage and meet supply and demand effectively and efficiently.

Key strategic performance objectives of operations in Amul

1. Quality

All plants of Amul are ISO 22000:2005 certified for having Excellency in food safety management system. It has executed Total quality management system of international standard to avail best quality products to its national and international customers.

2.Speed

Since Amul deals in perishable products, speed is something which is essential for conduct of operations at Amul. Amul has outsourced partners to collect, deliver and transport raw milk and finished products on time without any delay. The company stringent rules in terms of getting raw material and finished products delivered on time.

3.Dependability

Amul has Ecommerce website through which customers can order products and get it delivered on stipulated time. To maintain its supply chain and customer relationship management, it has implemented SAP system to reduce wastage, keep track of inventory of raw material at plant and finished goods at retail outlets and distributors. Transport vendors are also aligned on ERP system which makes possible to track shipment.

4.Flexibility

Amul believes in continuous improvement in its operation process since its inception. They have diversified their product range from dairy products to manufacturing of oils, selling of fruits and vegetables. From time to time they bring necessary changes to meet market and customer requirements. Operation process of Amul is rigid in terms of following manuals and guidelines of manufacturing products and quality maintenance but flexible at adopting changes in process of manufacturing to gain competitive advantage and quality improvement.

5.Cost

Reduction in cost of manufacturing product is at utmost priority in Amul. To achieve this, they have initiated multiple programs with their milk producers to increase productivity of milk thus achieving economies of scale at production and reducing cost of finished goods. Amul has removed third parties in distribution channel and set up retail outlets to sell their products directly to its customers. Amul follows JIT system that allows reduction in cost which can incur due to money invested in stocks. Multiple operational procedures are followed to reduce cost of manufacturing in Amul.

Collaboration of Operational function with other functional areas

None of the organisations can survive for a longer period of time if functional areas of that business are not aligned. Amul uses integrated ERP system to keep a track of harmonious coordination among efforts of all functional departments towards achievement of organisational goals. Relationship of operation function with other managerial function is of immense use in getting a steady, planned and long term growth of any organisation. Relationships among these functional departments have been explained below:

Accounting and Finance Function

Operation department provides valuable information with regard to cost of production of goods, cost of inventory holding, budgeted production units, requirement of plant expansion, software upgradation and finance and account department provides information on availability of funds that can be allocated on operation functions of the company. On the basis of the information, finance manager takes capital budgeting decisions, and raise funds to meet procurement and working capital requirement of the organisation. On the basis of the information, finance manager decides over make or buy decision and outsourcing decisions too.

Technical function

Operation manager seeks information from technical department to improve production efficiency and technological upgradation that is required at production floor. Technical department assists in availing best production technologies to enhance production and reduce cost. Technical department has to install suitable MIS to control systems for production control which takes inputs from marketing information system and provides output to purchasing information system.

Human resource function

Both departments remain in touch with each other where operation managers gives input on number of employees currently working at production floor. If there is any shortage or surplus of employees in operation department, the same is made known to HR department. And HR department recruits or shifts employees to fulfill the desired needs at operation level. HR team seeks information on salary to be paid to different categories of employees working in operation department on the basis of acquaintance of skills required to perform that job. They also collection information from production department regarding job analysis, job design KSA and KRA of the employees to be recruited for production department. Operation team also seeks information on training and development programs for employees working at operational level.

Marketing Function

Marketing manager provides current demand status of products to operation department and operation department has to schedule production to meet those demand needs on time. Marketing Managers need to understand production schedules to meet their delivery requirements. Marketing managers also provide information with regard to customization to be done as per customer needs. Operation department provides monthly production status to marketing department which helps them to avail products to customers as per production schedule and meet the demand of market according to availability of products. It also help them to avoid false commitments to customers with respect to availability of products.

Core challenges faced by Operation functions at Amul

Some of the major issues faced at Amul with respect to operation function include:

Unstructured lead time

Due to faulty and obsolete means of transportation, products are not delivered on time. Since people at logistics and transportation system are not professionals, they posses delay in delivery. However this impediment has been reduced to maximum extent by implementation of JIT at Amul. Still more needs to done to improve level of efficiency at logistics and distribution part.

Gap between demand and supply

There is huge gap in determining demand and supply of products at Amul. In peak season, company is not able to satisfy the demand of the market and in off season many products got expired due to less demand of that particular product. It is a core challenge being faced at operation level and steps have been taken to accurately forecast demand and supply needs of various products so as to reduce wastage and shortage without incurring huge investment on it. To reduce this gap, Amul focused on adopting farmers business facing process. Still a lot is to be done to meet supply and demand needs.

Suppliers

Suppliers of milk to Amul are farmers. Most of them are illiterate, untrained and have liquidity issues with them. Mismanagement and delay in payment to the producers always initiate backlog in supply of milk on time. Amul focuses on making payment to them without delay. Pricing of milk has been fixed by Amul but fixed price also creates issue at pick time as these farmers get better price in market than what Amul gives them. Amul has done a lot of programs with farmers to keep them intact with Amul and benefits they accrue by becoming permanent members of the system. But liquidity issue with them imposes a threat to Amul and lot is to be done at this level.

Issues related to managing third parties service providers

Except for marketing of products, all other operational activities are entrusted with third party service providers at Amul. Farmers are the shareholders at Amul and they decide the price of raw material payable to them. Processing of milk nad production of dairy products lies in purview of union from the beginning. Logistics and distribution management is attributed to third party service providers, who possess impediment in the successful implementation of operation functions by causing delays, using old vehicles to perform their jobs. They are not specifically trained, skilled and professional to manage the operations professionally. Amul has started giving training and keeping vigilance by successful implementation of JIT and ERP bases vendor management system still things go out of the way which is uncontrollable many times at functional level. Issues related to Cold storage system for frozen food distribution is still not handled by distribution vendors. They are not equipped with such vehicles due to which quality of food gets deteriorate. Many times, children are used as labours to load and unload trucks which are unlawful.

Strategies to be implemented to improve operational efficiency

Time schedule of logistics, transportation & distribution can be set and traced from ERP system which is being done at Amul; still things go in haphazard manner due to undisciplined behaviour of vendors leading to suffering to retailers and ultimately consumers. Stringent rules and penalty provision should be implemented to reduce number of occurrence of such events. Parallely, Amul should train drivers, and vendors to drive carefully and avoid accidents on roads and delay in logistics and transportation. None of the manpower in operation process should be less than 18 years as it has been observed many times children loading and unloading dairy products from vehicles, which is even against conduct of law. Many times, benefits offered by Amul do not reach to retailers and whole benefit is enjoyed by distributors. Amul must encompass programs to ensure that it reaches to retailers thus benefitting retailers and not only distributors and wholesalers. This will also provide them an incentive to sell more and more products of Amul. Raw material codification should be done in such a way that it can be easily understood by logistics team and operation personnels to avoid any miscommunication and understanding. Since farmers suffer from liquidity Crunch Company should take action and make payment to farmers even before stipulated time to keep them happy and feel proud to be associated with Amul. Consumer complaints at Amul are not resolved at stipulated time creating nuisance and rupturing of reputation of the company. Amul should provide training to its retailers to handle consumers’ issues and grievances and provide all levels of support in resolving their queries. Demand Supply analysis predictor softwares can be used in alignment with retailers and wholesalers valuable information to predict actual demand of products. Farmers should be provided training on cattle management system to avoid diseases caused to cattle and increase milk productivity. Amul must explore new market and develop new products that can be manufactured and sold to utilise unused milk of off season.

References

Business Strategies for Managing Complex Supply Chains in Large Emerging Economies: The Story of AMUL; Chandra, Pankaj; Tirupati, Devanath; IIM A – April 2003

A case study of AMUL cooperative in India In relation to organizational design and operational efficiency; Prasad, Ruchira; International Journal of Scientific & Engineering Research Volume 4, Issue 1, January-2013 1

http://www.amul.com ; http://www.amuldairy.com/ ; Amul Operational manuals. Amul store manuals of production process.

https://digital.hbs.edu/platform-rctom/submission/amul-the-taste-of-india/

(https://www.rediff.com/money/2005/sep/23spec.htm )

http://www.pearsoned.co.uk/media/onlinepreview/slack_9780273731603/assets/pdf/9780273731603_c01.pdf