In 33 years as a McDonald's franchisee, Irwin Kruger has seen an innovation or two. Soon after Kruger started running a string of East Coast restaurants in the late 1960s, McDonald's introduced the Big Mac, which raised cholesterol levels coast to coast. In 1973, Mickey D's invented the Egg McMuffin and opened for breakfast, a move that took competitors years to copy. As Kruger will tell you, the logistics behind moves like these are the very soul of the industry. Indeed, McDonald's has long been studied in B-schools, celebrated for the sophisticated choreography of its kitchen assembly line. But Kruger will also tell you a few things the outdated MBA case studies can't. For one thing, McDonald's original, much-vaunted food-prep system eventually broke down.
Traditionally, McDonald's served customers quickly by storing precooked, prewrapped sandwiches under heat lamps and dispensing them as they were ordered. For decades, this worked fine. But during the '80s, customers increasingly complained about cold food. The chain tried a quick fix: using microwaves to reheat sandwiches before serving. But that only made things worse. "The sauces kind of blended with the cheese, the buns were no longer being toasted, and that didn't really meet taste requirements," Kruger says. By the early 1990s, he adds, "McDonald's system was broken. They'd lost the quality edge." To regain it, the House That Ronald Built was forced to embark on a $350 million experiment to reengineer the way it flipped its burgers.
McDonald's recent drive to redesign its production system provides a classic reminder of how operations and logistics are crucial parts of every business, not just manufacturers. Financial firms like banks need goof-proof systems to cart around canceled checks and cash every day. High-concept dot-coms have to manage inventories and pack and ship goods-tasks that have foiled more than a few e-tailers. Likewise, the processes that drive fast-food kitchens are every bit as choreographed as any automotive plant or chemical refinery. That's one reason fast-food cases, like the venerable 1980 Harvard Business School case comparing McDonald's and Burger King franchises, are staples of B-school classes. "Fast-food operations are so complex because the time from order to delivery has to be quick, wastage has to be absolutely zero, and you have to be able to scale them to varying levels of demand," says Dennis Lombardi of Technomic, Inc., a Chicago-based food-service consulting firm. That means being able to turn out everything from salads to chicken fajitas in less than 90 seconds, whether the kitchen is manned by 20 cooks at lunchtime or just 4 workers at midnight.
For years, nobody did the job more efficiently than McDonald's. Founded as a drive-in by Richard and Maurice McDonald in the late 1930s, the chain launched the fast-food industry with its high-volume cooking process called the Speedee Service System. "For the first time, the guiding principles of a factory assembly line were applied to a commercial kitchen," writes Eric Schlosser in the recent book Fast Food Nation. In the early 1950s the McDonald brothers sold the rights to their restaurant to Ray Kroc, a milk-shake-equipment salesman who franchised the restaurant nationwide.
The chain owes its success to several factors, including smart real estate strategy (see sidebar: You Want Land with That?), savvy management of franchisees, and family-friendly marketing. But behind it all lies its operating system, which guarantees that a Quarter Pounder tastes the same and arrives just as quickly whether you're dining in Boston or Boise. Under the original McDonald's system, workers cooked burgers on a "clamshell fryer" that heats both sides of the patty simultaneously in less than four minutes. That's quick, but not quick enough to cook a fresh burger matched to every customer order. So McDonald's used "batch cooking." At each store, managers used historical sales data to forecast how many Big Macs or Quarter Pounders would be ordered during the next 15 minutes, and cooks would set them asizzle, dress them in condiments, wrap them, and place them under heat lamps, waiting for orders. It was a classic "push" system. "Speed was the order winner at McDonald's, so they made to stock and kept finished goods available to eliminate waiting time," says Nelson Fraiman, a Columbia Business School professor who teaches fast-food cases.
The system satisfied customers' need for speed, but it had its drawbacks. Since cooking was based on forecasts, variations in demand caused headaches. Crews that cooked too many burgers created tons of waste, and crews that underestimated demand had to scramble to catch up. The reliance on forecasting also made it difficult to add menu items-burgers with bacon or new chicken sandwiches-because new menu choices made historical data useless. Another problem: Because the burgers were doused with toppings before customers ordered them, anyone who wanted to deviate from the standard fixings had to place a special order, which took an aeon. The food itself suffered, too. Even when burgers didn't get cold, the heat lamps withered such ingredients as lettuce and tomatoes.
To fix the problems, McDonald's had to reinvent its kitchen. As execs began toying with new cooking systems, they gravitated toward the technique used by their archrival, Burger King. The real difference in the company's operating procedure is that instead of stockpiling fully wrapped sandwiches, Burger King stockpiles cooked beef patties in a steam chamber before it puts them inside sandwiches. By moving this inventory buffer a bit upstream, the chain is able to dress burgers when customers order them, allowing for customization. It's a slightly slower system, but BK tries to counteract that by touting its customized approach. (Hum along: "Hold the pickle, hold the lettuce, special orders don't upset us.") This format also makes it easier to offer new menu items. The McDonald's team won't cop to copying Burger King in creating its new system, which it calls "Made for You," but after years of research, McDonald's has moved to an "assemble-to-order" system that's quite similar. "We took a holistic look at the placement of people and equipment, and much like the Just in Time manufacturing processes, we tried to eliminate steps," says Anna Rozenich, a McDonald's spokeswoman.
To make this a "pull" system, in which customer orders generate custom-made sandwiches, McD's hooked up video monitors to transmit orders from the cash register to the back of the restaurant, says Bob Marshall, a 1981 MBA from Loyola University who oversaw the system's rollout. Next came a new prep line, where the cooked burger is slathered with toppings. The linchpin of the system is a tandem of new high-tech devices-a holding cabinet and a new bun toaster. The cabinet creates a steamy environment where cooked meat patties are held until a customer orders a sandwich. It sounds simple, but "there's a huge amount of science involved," Marshall says. "We had to understand the number of Btus that could be held in an individual beef patty, how heat is transferred back and forth, what kind of humidity needs to be around it." The result, he says, is a cabinet that can keep a burger fresh for up to 20 minutes. Once they'd solved that problem, they had to work through another bottleneck: toasting buns. That usually takes 25 seconds-way too much time in the new system, which allows just 35 seconds to make the entire sandwich. Marshall's team tried toasting buns ahead of time, but that didn't work. So they reengineered the buns themselves, using a denser dough that toasts faster. Today, a new flash toaster browns buns in just 11 seconds.
The new system debuted in 1998. Franchisees, tired of serving McMush, signed on enthusiastically. By the end of 1999, all 12,600 U.S. locations had been refitted, at a cost of about $25,000 per store. "It took a little while for us to adapt to it, because it's a different mind-set," says Kruger, the franchisee. "But employees and managers like it quite a bit, because it's taken a lot of the variability out of our business." Wasted food is down by 50 percent in his stores, from 1 percent of sales to 0.5 percent. Kruger says it's obvious that people like the food better now, too, because his crews are tossing fewer half-eaten sandwiches. Rivals say McDonald's service times have slowed, a charge the chain denies. Says Lombardi, the consultant: "Given the magnitude of the change, I give McDonald's huge kudos for what they've accomplished."
In early 2001, McDonald's announced a plan to capitalize on its new system's flexibility by rolling out additional menu items that will rotate every few weeks. In the meantime, Burger King is mulling its own kitchen redesign, though a spokeswoman says plans are on hold until they figure out how to do the renovations without closing stores. Other businesses would be wise to pay attention to how high McDonald's jumped to give customers the ability to customize their burgers. Fraiman, the Columbia professor, says so-called mass customization is becoming a part of many industries: Levi's now creates custom blue jeans. Dell will send you a custom-built PC overnight. Cadillac is streamlining the process of ordering cars with unique sets of options. Other businesses may also find themselves turning inside out to please customers who want it their way. Even if it means spending millions to accommodate requests as simple as "Hold the pickles."