The fast-food industry in the United States has typically useddrive-through wind

Question

The fast-food industry in the United States has typically useddrive-through windows to increase profitability. With 65 per-cent of fast-food revenue derived from drive-through win-dows, these windows have become the focal point for marketshare competition among fast-food outlets such as Wendy’s,McDonald’s, Burger King, Arby’s, and Taco Bell. Even chainsthat did not use drive-through windows in the past, such asStarbucks and Dunkin’ Donuts, have added them to theirstores.

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Production technology changes have included the useof separate kitchens for the drive-through window, timersto monitor the seconds it takes a customer to move from themenu board to the pickup window, kitchen redesign to mini-mize unnecessary movement, and scanners that send custom-ers a monthly bill rather than having them pay at each visit.Now, in an attempt to cut costs and increase speed even fur-ther, McDonald’s franchises have tested remote order-taking.

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It takes an average of 10 seconds for a new car to pull up toa drive-through menu after one car has moved forward. Witha remote call center, an order-taker can answer a call from adifferent McDonald’s where another customer has alreadypulled up. Thus, a call center worker in California may takeorders from Honolulu, Gulfport, Miss., and Gillette, Wyo. Thismeans that during peak periods, a worker can take up to 95orders per hour. The trade-offs with this increased speed atthe drive-through window are employee dissatisfaction withconstant monitoring and the stress of the process, decreases inaccuracy in filling orders, and possible breakdowns in commu-nication over long distances. However, this technology may beexpanded to allow stores, such as Home Depot, to equip cartswith speakers that customers could use to wirelessly contact acall center for shopping assistance.In Asia and other parts of the world where crowded cit-ies and high real estate costs limit the construction ofdrive-throughs, McDonald’s and KFC have added motorbikedelivery as part of their growth strategy.

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Fifteen hundred ofthe 8,800 restaurants in McDonald’s Asia/Pacific, MiddleEast, and Africa division offer delivery, while half of the newrestaurants KFC builds in China each year will offer deliv-ery. The delivery option requires an area in the restaurant toassemble orders that are placed in battery-powered inductionheating boxes. Along with cold items in insulated contain-ers, all of the orders are placed on the back of yellow and redMcDonald’s branded motorbikes or electric scooters. MostMcDonald’s delivery orders are phoned in, but the companyhas started offering Internet-based ordering in Singapore andTurkey. The number of call centers may be reduced in thefuture as online ordering increases. Neither McDonald’s norKFC plan to use this technology in the United States, whereMcDonald’s derives two-thirds of its sales from drive-throughcustomers.This case illustrates how firms can use production tech-nology to influence their costs, revenues, and profits. Becausefirms in more competitive markets may not have much abil-ity to influence the prices of their products, they may dependmore on strategies to increase the number of customers andlower the costs of production. These strategies may involvechanging the underlying production technology, loweringthe prices paid for the inputs used, and changing the scale ofoperation.To analyze these issues, we’ll first discuss the nature ofa firm’s production process and the types of decisions thatmanagers make regarding production. We’ll then show how afirm’s costs of production are related to the underlying pro-duction technology. Because the time frame affects a man-ager’s decisions about production and cost, we distinguishbetween the short run and the long run and discuss the impli-cations of these time frames for managerial decision making.This chapter focuses on short-run production and cost deci-sions, while we analyze production and cost in the long runlater (Chapter 6)

discuss how diminishing returns set in for the production process and how the management responded to this situation.

Explanation / Answer

Answer:-

In today's competitive,changing the price of aproduct is not in the hands of the seller, as customers are being offered with a wide variety of options. Increase in the price of product offered by one player would make the customers to switch to the competitors product and thus leads to decrease in the revenue of the seller who increases the price.

Elsewhile the selelrs are moving towards making their production more cost effective so they can easily compete with their competitors.

Below mentioned startegies are adopted by the manufacturer to be competitive:

?Sourcing the raw material in bulk quantity directly from the supplier without any middlemen involved and thus saving on the margin paid to the middlemen.

?Operating on a large scale and thus achieving economies of scale of production and thus reducing average cost of production.

?Change in production technology, ie. moving from labor intensive to capital intensive technology, using automated or robotics technology, integrating with the supplier through erp and thus saving on costs.

?Vertical integration, where the manufacturer take on either the supplier activity (Backward Integration) or the distributor activity (Forward Integration) and thus saving on the costs.

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