Components of Mcdonalds Cost Structure Through Value Chain

¶ … Value Chain Concept of McDonalds The concept of value chain is helpful in understanding how business organizations create or lose value across their various activities and operations. This is primarily because value chain is based on the economic principle of competitive advantage over rivals. In this case, business organizations are considered successful by operating in segments where they have a relatively productive advantage as compared to others within the same industry.

The significance of value chain in an organization's competitive and productive advantage is because it incorporates a series of activities relating to developing, manufacturing, marketing, and distributing products. An example of a company that has achieved tremendous competitive advantage over its rivals through effective value chain practices is McDonalds' Corporation. Component of McDonalds Cost Structure The growth and development of McDonalds Corporation has been characterized by widespread reputation for its value proposition.

This value proposition is based on constant provision of quality food that is served consistently and quickly across all its restaurants worldwide. This value proposition is largely supported by the corporation's cost structure that is made of restaurant, marketing costs, and costs associated with raw materials procurement. In addition to generating revenues through its fully-owned restaurants, it also obtains revenues to its fast food chains owned by franchise holders. Generally, McDonalds cost structure is relatively akin to the industry average as evident in the sector's cost breakdown (Nair, 2013).

The largest component of McDonalds' cost structure is raw materials or purchases, which is followed by labor. The other components that follow in this cost structure are rent and utility, depreciation, marketing, and others respectively. As previously mentioned, the company's cost structure relative to its supply or value chain is similar to the cost structure of the fast-food industry. However, the corporation's pricing strategy is follows a geographic structure, which is the basis of its business model.

This is influenced by the organization's efforts to offer its products and services at value driven prices to customers in a competitive manner. Based on this analysis, the major components of McDonalds' cost structure in their respective order are raw materials or purchases, labor, rent and utility, depreciation, and marketing. McDonalds' Value Chain in Relation to Cost Structure McDonalds Corporation is renowned as the leading fast food retailer worldwide that has achieved tremendous success and profitability throughout all its operations.

The company's success is reflected in its huge customer base and reputation for excellent customer service and manufacturing suitable food items for its customers. Actually, the growth and rapid development of the corporation has contributed to its consideration as the epitome of globalization, especially in relation to its various success factors. At the heart of McDonalds' success is its cost structure is a suitable value chain process that is dependent on primary and support activities.

The primary and support activities are part of the corporation's distinctive strategy that helps in generating competitive advantage over its rivals. According to Thompson, Peteraf, Gamble & Strickland III (2015), a creative, unique competitive strategy is one where a business organization distinguishes itself from competitors and generates competitive advantage reflected in huge profits (p.6). McDonalds Corporation, through its primary and support activities in the value chain towards the cost structure, has reflected a creative and distinctive competitive advantage.

There are two major categories of value chain activities in the fast-food industry and in McDonalds Corporation's i.e. primary activities and supportive activities. Primary Value Chain Activities in McDonalds The primary activities in McDonalds' value chain include inbound logistics, outbound logistics, marketing and sales, and service. With regards to inbound logistics, the corporation purchases raw materials from pre-determined suppliers only. Even though the company has practiced backward vertical integration in relation to its supply chain, an increase in its capital and labor results in a corresponding increase in production.

The use of this strategy in the supply chain is geared towards lessen costs and ensure production of high-quality products i.e. food (Sharma, 2014). In relation to operations, the business organization has constantly transformed its design for quickly manufactured high-quality products. Despite the improvements in design, the corporation's quality of food has seemingly declined and service has become slow, which demonstrates lack of consistency throughout the firm's restaurants (Cantalupo, n.d.).

McDonalds' outbound logistics is devoted to offering the highest quality food accompanied by excellent customer service in a customer-friendly environment. Consequently, the organization ensures collaboration between workers, franchises, and suppliers to provide high-quality food options and helping customers make effective decisions. The corporation's marketing and sales are characterized by the use and maintenance of a comprehensive advertising campaign that has contributed to a huge customer base. The firm not only utilizes conventional media but new media as part of its advertising strategy.

The final primary activity in McDonalds' value chain that relates to its cost structure is services through which the organization provides additional services to customers. Some of the major examples of additional services provided by McDonalds to its customers include free Wi-Fi services and a Gift Card. Support Activities in McDonalds Value Chain As a global service business organization, McDonalds Corporation has supportive activities in its value chain that promote the coordination of primary activities and help improve the overall efficiency and effectiveness of the supply chain (Etienne, 2012, p.3).

The first support activity is organizational infrastructure in which McDonalds has established a contemporary and sophisticated system. The infrastructure is based on the use of advanced Information Technology as well as strategies towards maintaining green initiatives. Secondly, the corporation primary activities are coordinated by human resource management in which workers enjoy flexible hours and involvements in extra responsibilities and activities. The third supportive activity is technology development, which is largely based on the use of advanced Information Technology.

In this case, the corporation focuses on modernizing its fast-food chains, manufacturing value, and enhancing its.