McDonald's India has always faced the problem of sourcing a supply of potatoes for its French fries ("MacFries"). Due to unfavorable weather conditions, growing potatoes suitable to be used for the MacFries proved to be a challenge in India. With the increasing inflation in India and the plan of the company to expand its business, its Senior Director of Supply Chain is worried and wants to ensure that the future would hold the promise of a 100% local supply sourcing to avoid importing duties and fees.
Hau Lee and Sonali Rammohan
Harvard Business Review (GS79-PDF-ENG)
November 19, 2013
Case questions answered:
- What were the pitfalls of the initial attempts by McDonald’s India to create its French fry supply chain? What were the critical factors that enabled McCain’s success?
- Under McCain’s management, the MacFry Supply Chain has been effective. What are the risks of this model? How can McDonald’s address the competitive threats from other firms moving in and capitalizing on the large investments of time and money that McDonald’s has made?
- What are the options that McDonald’s India can pursue to meet the huge growth in demand that has been predicted in India?
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McDonald's India: Optimizing the French Fries Supply Chain Case Answers
1. What were the pitfalls of the initial attempts by McDonald’s India to create its French fry supply chain? What were the critical factors that enabled McCain’s success?
Pitfalls refer to an unsuspected danger or difficulty. McDonald’s India found it difficult to grow quality potatoes in India before they arrived in India in 1996. They spent six years before they entered the Indian market.
Although India was among the top producers of potatoes globally, less than 1% of it was process grade, i.e., suitable for French fries. The ideal characteristics are low sugars, high solids, a large oblong shape, disease resistance, and long dormancy.
The French fries potato needs to be grown in a season of about 120-150 days with adequate exposure to sunlight(16 hours). But in India, these conditions were not present. The growing season in India is 90-100 days, as against the US and Europe, where it took 120-140 days.
Also, potatoes needed good cold storage facilities, which were not present in India at that time. Outdated farming and irrigation practices were the main reasons for the poor quality of produce. These potatoes, when used to make French fries, resulted in an oily, soggy mass of potatoes.
Hence, McDonald’s India had to import potatoes from outside, which proved to be costly and not fixed, with the exchange rates varying from 44.5 INR to 53 INR per dollar.
Also, the inflation rate in India was constantly rising every year from 3.72% in 2003. It shot up to double-digit figures of 14.97% in 2009., which added to their woes. Till 2006, they imported all their potatoes as they were unable to set up a proper supply chain locally in India.
The joint venture with Lamb Weston and Tarai Foods and an investment of 10 million dollars proved to be costly, as it did not get good quality end products solely because it could not produce good quality potatoes.
McCain set up their potato processing unit in Ahmedabad when McDonald’s ventured into the fast-food business in the country and supplied French fries to McDonald’s India. They concentrated on potato agronomy and soil management. They found that growing potato seeds at high elevations had high vigor, which resulted in higher yields and large-sized potatoes. Hence, the seeds had to be grown in the Himalayas.
From this, we see that McCain implemented a bottom-up approach by identifying the growing patterns of seeds. They also got a 1-acre farm in Ahmedabad to teach the farmers how to grow good quality potatoes. These were the critical factors that enabled their success.
2. Under McCain’s management, the MacFry Supply Chain has been effective. What are the risks of this model? How can McDonald’s address the competitive threats from other firms moving in and capitalizing on the large investments of time and money that McDonald’s has made?
Rather than focusing just on its own supply chain, McDonald’s India began to…
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