The term ‘value chain’ was used by Michael Porter (1985) in his book “competitive advantage; creating and sustaining superior performance”. Brown (1997),”described value chain as a tool to disaggregate a business in to strategically relevant activities”. A business could achieve competitive advantage by performing these activities more cheaply and more effectively compare to competitors. Value chain analysis tries to examine the value a company’s activity creates in producing products or services that satisfy customer needs.
“The rationale behind the concept was that an organisation is not just a place where people, money, equipment, machinery etc are kept but it is the ability to put them in to productive activities to produce product which customers feel they can pay a price. As porter (1985) argues “the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage”. Figure 1: Value Chain in McDonald Company In McDonald’s case, the key value adding activities are inbound logistics, operation, outbound logistics, marketing & sales and service.
McDonald’s logistics function is to buy food on behalf of its operator (franchisee) and arrange delivery in to their restaurants. McDonald’s logistics includes; the procurement and shipment of raw materials in to suppliers, the procurement and shipment of finished goods between the suppliers and the distribution centres, together with the warehousing at each distribution centre, the ordering and the delivery to restaurants of all food, packaging and operating supplies.
To improve its logistics operation, McDonald’s combines a number of food-processing plants dedicated to its operation only. The establishment of ”food towns” consisting of a distribution centre and a bakery, a meat plant, a sauce plant and a chicken plant, gives McDonald’s competitive advantage. In the aspect of marketing & sales McDonald’s adopted the concept of 7ps of marketing mix formulated by McCarthy (1975) and Gilligan & Fifield (1996).
These 7ps includes; product, place, price, promotion, people, process, physical. With these 7ps McDonald’s was able to create a uniformity of items that taste the same in different countries. McDonald’s realises that although there is cost savings in standardisation but success can be achieved by being able to adapt to a specific environment. It has a pricing strategy that enables it to cope with a particular market. In setting price, McDonald’s looks at the elasticity of demand for its product in response to price.
Considering the diverse range of culture, custom in different countries, McDonald’s has localised its marketing communication strategy using different promotion and advertisement. For instance McDonald’s uses the England footballer Alan Shearer as a logo to advertise its hamburgers in the UK and in France its uses Fabien Barthez, the French international goalkeeper. Obviously, McDonald’s uses a number of styles to attract customers. The supporting activities that can be identified are procurement, human resources development and technology.
McDonald’s uses electronic procurement system. It had set logistics trends for restaurants with its online ordering system. It was noted that more than 12% of McDonald’s franchisees ordered food supplier electronically. Revamping its supply chain with software and technology made it easy to respond quickly and efficiently to customers’ needs. With the online ordering system, McDonald’s had a return on investment of 23. 2% in 2003. However, the human resource development at McDonald’s is excellent.
McDonald’s uses a high-engagement approach to improving both their operations, leadership pipeline and employee satisfaction with their career growth. Every management staff at McDonald’s receives training at one of the regional training centres and at the national centre, Hamburger University in East Finchley. Training all employees to work in one best way (quick-service culture) made McDonald’s to gain customer’s loyalty continuously leading to a competitive advantage.