Lean Operations

Lean production or operations refers to a method of reducing waste in industrial systems while retaining efficient and effective productivity (Maskell, Baggaley, & Grasso, 2011). In layman’s words, it means maximizing customer value with the fewest resources. To achieve this goal, management must transfer its focus from distinct technologies or asset optimization to vertical departments. Rather, it advocates for products or services to flow horizontally across assets, technologies, and divisions to customers, as Maskell, Baggaley, and Grasso (2011) highlight. Six-sigma, like lean manufacturing, refers to a quality metric that strives for excellence (Schroeder, Linderman, Liedtke & Choo, 2008). It is a data-driven methodology that eliminates defects and holds that for a product to be of good quality, per every million opportunities, it should contain at most 3.4 defects. This is measured with the help of a six-sigma calculator. Most companies are transforming from the old ways of operations to the contemporary critical thinking in terms of lean schemes and six-sigma (Maskell, Baggaley, & Grasso, 2011). Initially coined by Toyota automobile firm, lean thinking has spread into many industries such as hospitality and food, apparel, computer and Agriculture.

McDonald and Burger King are two top competitors in the international fast food industry (Koontz, 2010). Both of them use lean operations as well as six-sigma to ensure customer satisfaction and loyalty in their hamburger products. One of the areas where this is evident is operations management, the term which refers to creating high efficiency in an organization through administration of business to maximize profits.

Production Process and Customer Interactions

Both McDonalds and Burger King, in their production processes, employ lean accounting (Koontz, 2010). The SOFP (Sales, Operations, Financial Planning) Process, a major lean accounting tool is found in both the two firms’ value streams. Here, the sales team issue their sales forecast every month, a document which is compared to customer demand as pointed out by Grigg & Walls (2007). This action is to check whether quality and quantity customer demands have been achieved. Finally, a meeting is called to discuss on variances and their corrective mechanisms. Remedies can entail difficult decisions like personnel downsizing. The move is conducted to remain with staff just enough for the company’s immediate needs. McDonald’s did this to ensure it could still afford to offer attractive compensation to its staff (Grigg & Walls, 2007). Due to this factor, McDonald’s employees are more motivated than its competitors’ staff hence more committed towards producing quality goods.

Ed Rensi of McDonald’s stated a few years ago that they would downsize due to increased wage bills and dwindling consumer demands (Ruiz-de-Arbulo-Lopez, Fortuny-Santos & Cuatrecasas-Arbós, 2013). The company would also start banking on quality as opposed to quantity in hamburger production to outcompete its major rival, Burger King. The lean production scheme has so far worked because the big Mac hamburger has been enhanced to meet customer demands while minimizing production costs such as labor. This lean production process has seen big Mac’s revenue stay ahead of its main rival product, Burger King’s Whopper.

McDonald’s, while producing its hamburger, has ensured it uses lesser calories as compared to its competitors (Bleich, Wolfson & Jarlenski, 2017). A comparison of big Mac and Burger King’s Whopper depicts this scenario. Big Mac contains 530 calories as compared to Whopper which has a whopping 630 calories. Even worse, the latter has 38 grams of fat compared to McDonald’s double-decker hamburger which has 27 grams (Bleich, Wolfson & Jarlenski, 2017). McDonald’s has therefore not only cut down on production process costs, a lean processing technique; it has also engaged six-sigma by enhancing product quality since the modern customer prefers healthier consumption. Moreover, constant customer interactions with the products have shown that big Mac is preferred because it is tastier. Customers have subsequently developed a loyalty culture towards McDonald’s.

Technologies Used in Production

Both McDonald’s and Burger King provide similar fast food, hamburger, which is prepared quickly at low prices (Rose, 2014). At McDonald’s however, dressing of sandwiches is standardized with dispensers that use levers and portion-controlled condiments. Burger King (BK) does the same through manual labor where employees use plastic bags and squeeze bottles, forgetting to cater for pre-measured quantities. As a result the finished product, big Mac comes out with a better taste as well as quality and at a lower cost compared to Whopper. In addition, the latter product faces more wastage. Research shows that BK utilizes 1.1 percent of their overall revenue through condiments wastage (Rose, 2014). Moreover, using microwave ovens means BK’s utility cost shoots up by 2.1% in comparison to McDonald’s (Rose, 2014). Better technology at McDonald’s, an operations management scheme, has not only portrayed the efficiency of six-sigma but effectiveness of lean processing as well.

Quality, Excellence and Customer Satisfaction

Quality management is one of the key driving factors for McDonald’s (Xin, 2015). The firm ensures their products meet customer requirements. Each single day, 64 million clients visit McDonald’s globally, a significant portion of who order for big Mac as observed by Xin (2015). The firm created a training facility through a learning institution, Hamburger University, an idea that emanated from the need to improve big Mac’s quality. Here, the organization’s management works on the front line to learn and know the customers on an individual basis, an aspect which BK has not yet considered. The learners are taught how to use six-sigma techniques and apply this in McDonald’s. Xin (2015) points out that through this the firm is able to measure quality of its products, an aspect which gives it an edge in the hamburger market. Such actions exemplify six-sigma utilization in creating value for money. When the business processes rhyme with customer requirements, waste elimination is more effective as only value-adding tasks are done. Management taking the front-line eliminates irrelevant protocols as well as unrealistic excessive management expectations. McDonald’s only hires managers who have worked in their restaurants. In the long-run, the quality creation and excellence orientation leads to profit maximization as well and ultimately, as intended, customer satisfaction. In fact this contributed to McDonald’s success and seen it being ranked 7th most valuable brand globally when BK never made it to the top one hundred (Xin, 2015).

Inventory Methodologies and Models

McDonalds splits its commodities into make-to-order burgers and make-to-stock burgers (Wee and Wu, 2009). The former include big Mac and other custom-made hamburgers. The overall inventory management target is to employ the Just-in-Time formulae where holding costs are minimized as possible thus making lean production a reality. No burgers are kept more than 20 minutes after preparation (Wee and Wu, 2009). For instance, when a client requests for a Big Mac, the order is forwarded to the cooks’ counter via a monitor. Within 90 seconds, they have to make the product ready. No stocks are kept. This make-to-order technique saves on stock storage costs and long lead times. Moreover, it saves on the opportunity cost of holding cash which often minimizes an entity’s liquidity (Wee and Wu, 2009). On the other hand, BK’s Whopper gets stocked for a short while before sale to its customers. This disadvantage inhibits quality as some of the firm’s stores do not sell fresh products.

Areas for Improvement

While BK majorly needs to engage six-sigma and lean processing to achieve success with regards to Whopper, McDonald’s only needs a little improvement in its Big Mac. BK must utilize more technology such as lever-enabled dispensers in dressing sandwiches. Moreover, to compete effectively against McDonald’s, the company has to be aggressive in its lean inventory management by fully transforming into just-in-time production.

According to Dimi (2015) McDonald’s lean processes have led to high delivery in service, fast-moving queues, controlled finished product flow, customer loyalty, minimal congestion and low production costs. However, McDonalds is over-aggressive on saving towards labor costs (Dimi, 2015). This has led to high labor turnover in the firm. In essence, the company saves on continuous operational labor but in turn its costs of hiring and lay-off related expenses might surpass what it saves. These unseen staff turnover costs can be curbed through optimally increasing wages.

References

Bleich, S. N., Wolfson, J. A., & Jarlenski, M. P., (2017). Calorie changes in large chain restaurants from 2008 to 2015. Preventive Medicine.

Dimi, O. (2015). Possibilities Of Organizing The Romanian Management Accounting For A Company Which Applies Lean Accounting. Annals-Economy Series, 6.

Grigg, N. P., & Walls, L. (2007). Developing statistical thinking for performance improvement in the food industry. International Journal of Quality & Reliability Management, 24(4).

Koontz, H. (2010). Essentials of management. Tata McGraw-Hill Education.

Maskell, B. H., Baggaley, B., & Grasso, L. (2011). Practical lean accounting: a proven system for measuring and managing the lean enterprise. CRC Press.

Rose, R. (2014). IA4- Privacy Policies in the Private Sector: The Fast Food Industry.

Ruiz-de-Arbulo-Lopez, P., Fortuny-Santos, J., & Cuatrecasas-Arbós, L. (2013). Lean manufacturing: costing the value stream. Industrial Management & Data Systems, 113(5).

Schroeder, R. G., Linderman, K., Liedtke, C., & Choo, A. S. (2008). Six Sigma: Definition and underlying theory. Journal of operations Management, 26(4).

Wee, H. M., & Wu, S. (2009). Lean supply chain and its effect on product cost and quality: a case study on Ford Motor Company. Supply Chain Management: An International Journal, 14(5).

Xin, G. (2015). The Study of Brand Choice Decision of Top 3 Global Brand Quick Serviced Restaurant (KFC, McDonald’s, Burger King) in Bangkok.