By Larry Barrett, Sean Gallagher  |  Posted 2003-07-02 Print this article Print

McDonald's planned to spend $1 billion over five years to tie all its operations in to a real-time digital network, but the project failed before it even got off the ground.



The McDonald brothers first conceived of what would become known as the fast-food or quick-service model shortly after World War II when they mapped out the layout for their original restaurant in San Bernardino, Calif., on a tennis court. The idea was simple: take the mass production, assembly-line system used for manufacturing cars and replicate it in a burger restaurant.

They installed large grills in their kitchen to cook up burgers in large volume and incorporated what they would call the Speedee Service System. This wasn't a system that relied on technology but common sense. It eliminated menu items that required utensils or dishware, replacing them with the nine-item menu that would become the foundation of the McDonald's dynasty. No dishes. No forks. Paper wrappers and cups and a few napkins.

Managers, who often owned the stores they managed, would write down orders on pads of paper and pass them back to the kitchen. More often than not, the burgers and fries would be waiting under heat lamps. Inventory was something that managers handled by intuition and experience. Often, managers would jot down how much milk or cheese or beef they would need for the next week on the back of the order forms they filled out when taking customer orders at the register.

The registers weren't computerized and certainly weren't linked to the kitchen. They simply facilitated the transaction.

Next, they divided the actual food preparation into specific jobs for different workers. One fellow worked the grill, cooking the patties. Another "dressed" the burger with a precise amount of ketchup and mustard before wrapping it and sending it down the line. Another worker was in charge of mixing milk shakes and pouring sodas. Yet another employee would work the register, collect the money and deliver the meal to the customer.

Over the years, McDonald's franchisees and corporate executives came to discover that many of the same problems that originally hampered the McDonald's brothers' California restaurant were still eating away at their profit margins.

Turnover of employees has been and always will be one of the biggest problems facing McDonald's operators. In fact, McDonald's claims that one in 10 Americans has worked at a McDonald's at one time in his or her life. Since the pay is mostly minimum-wage level or slightly above, McDonald's typically attracts teenagers and other relatively inexperienced or unskilled laborers. The fast-food industry attrition rate has been pegged at more than 100%, placing a premium not only on being able to hire and train new employees quickly, but to also make the assembly line method of building burgers extremely easy to understand and quick to pick up.

One feature of Innovate was supposed to fix much of that by streamlining the delivery of employee training and benefit data through the system. Using the Internet to convey training information, such as how to clean fryers or use the point-of-sale system, McDonald's hoped to leverage their existing training system across this platform.

But helping with human resources was just a small part of the $1 billion, five-year grand plan. McDonald's provided few details about Innovate. However, current McDonald's information technology managers, who spoke on condition of anonymity; former McDonald's Chief Information Officer Carl Dill, who worked at the company from 1982 to 1998; and software consultants close to the project confirmed McDonald's lofty intentions.

According to those individuals, an Oracle enterprise resource planning system, which can handle most day-to-day business functions, would serve as the hub. The Oracle software would run on Sun Microsystems Sun Fire Unix servers, replacing the company's homegrown IBM mainframe general ledger accounting system, and enhancing or replacing virtually every major back-office system in place at McDonald's used for finance, supply-chain management and human resources.

But the innovation didn't stop there. Innovate also would have monitored the temperatures of cooking and freezing appliances, as well as the exact usage of food and packaging supplies. The theory was that by working closely with suppliers and store managers, the company could improve the consistency of the product—for example, all burgers would be cooked at the exact same temperature and flipped at the exact same intervals at any restaurant in the world.

In the process, McDonald's hoped to instantaneously collect and send data to stores from the corporate office simply by punching a few keystrokes. If a store in Seattle wasn't moving people through the lines or drive-through as fast as others in the same general area, McDonald's could ask the local manager to add another employee or two to the lunch shift to improve service time. If one store wasn't moving as many McRib pork sandwiches as others in the area, the corporate office could double-check to make sure the restaurant had all the proper signage and marketing resources in place.

McDonald's hoped to be able to let its executives and managers see at any time of day how sales of any product at any store were proceeding, where backup supplies sat anywhere between its stores and its suppliers' plants, and manage its stores accordingly. If there was a run on salads in California, replenishing supplies could be rerouted from trucks originally destined for Iowa. This would give McDonald's the power to react to customer demand quickly, and draw substantial financial rewards from the resulting efficiency.

Monitored remotely and, eventually, managed remotely, the system would take a lot of the responsibilities away from individual store managers.

Scheduling of crew members would be simplified because the system would tell managers exactly how many customers ordered Big Macs or Quarter Pounders between noon and 2 p.m. every day of the week. Predicting the likely volume of sales—not only total sales, but also specific product sales—would make it easier for a manager to pick and choose the specific employees he or she wanted working the different spots on the burger assembly line.

Eventually, McDonald's technology managers and consultants say, the Internet-based network would have linked all of the company's 30,000-plus restaurants and 300-plus approved vendors 24 hours a day, seven days a week, to the back-office system at its corporate office in Oak Brook. This would have given McDonald's executives a complete, instant picture of the company's operations around the world, and, in theory, the ability to act quickly when necessary to adjust the deployment of promotions and supplies to meet demand.

While McDonald's already collects sales data from many of its stores on a daily basis, the company's decade-old financial reporting systems—built on IBM's CICS transaction service and DB2 database—weren't built with real-time business intelligence in mind. Different units within McDonald's used different tools to get at that data, from batch reports to data warehouse tools. McDonald's Canada, for instance, uses IBM's Visual Warehouse tools to analyze marketing and promotional programs. Depending on the location, McDonald's can only cull this data in a matter of days or weeks. But with Innovate, executives would be able to analyze data from all over the world from their Web browser—it would give them a dashboard for driving McDonald's business.

Taking it a step further, McDonald's may have eventually moved in lockstep with its car-making brethren by using the system to replace human workers, one of the most expensive and complicated components of the model. Indeed, McDonald's 2002 corporate payroll topped $3.1 billion. Some McDonald's stores already have installed machines that fill and distribute soda to the service line. Eventually, the cooking, wrapping and frying of burgers might have been handled by machinery, taking the troublesome and unpredictable element of human crew members out of the equation altogether. If every McDonald's restaurant in the chain eliminated just one minimum-wage worker from each shift, each store could save $82.40 a day. It might not seem like much, but taken across McDonald's 30,000-plus restaurants—those owned by McDonald's and those run by franchisees—the automation of one job could save about $900 million a year systemwide.

McDonald's also hoped to extend this detailed flow of data to the kitchen itself, checking to ensure that the consistency of products was maintained remotely. Though officials declined to confirm it, several sources close to the company say Innovate eventually would have incorporated Simple Network Management Protocol (SNMP) technology that would have monitored every significant piece of equipment in each store. Every piece of food storage and preparation hardware would be monitored and managed remotely, ensuring consistency in the products worldwide and reducing the employees needed to staff a typical McDonald's.

SNMP is the standard method used to monitor and manage network equipment like routers, hubs and servers from network management systems such as Hewlett-Packard's OpenView and Computer Associates' Unicenter. It provides a common way to pass status information from intelligent devices back to a monitoring system over a network. With the addition of simple electronic monitoring devices, a network connection, and an SNMP management information base (a piece of software that interprets the data from the device for the monitoring system), that "intelligent device" can be nearly anything—including a freezer, a fryer, or a soda dispenser.

For instance, instead of reacting to a freezer that had malfunctioned overnight, the manager would be alerted instantly by the system to the problem. The system would also tell the manager which freezer repair technicians were in the area and approved by McDonald's and provide the technician with any historical data about the freezer or other McDonald's equipment in need of repair. Early notice to an assistant manager at 10 p.m. could be the difference between a $3 fuse and losing hundreds or thousands of dollars' worth of perishable products left unrefrigerated overnight.

Taking Innovate to its outer limits, the folks in Oak Brook would have been able to track the exact temperature of the oil used for french fries in any store connected to the network. How much syrup and carbon dioxide was in each soda tower would have been monitored.

McDonald's knows that consistency and speed are the cornerstones of its business. The impact could range from the superficial to the disastrous.

If french fries in one restaurant had too much oil or cook even two minutes longer than those at another restaurant, its customers are going to know the difference. If a 16-year-old crew member isn't cooking the beef patties long enough at the prescribed temperature of at least 140 degrees, an E. coli bacteria breakout—and millions of dollars in lost sales and legal settlements, to say nothing of potential loss of human life—could and has happened.

In 1993, an E. coli outbreak at Jack in the Box restaurants claimed the lives of four children. McDonald's also could use this technology to make life easier for its franchisees by automatically generating historical temperature logs for food safety reports required by the Food and Drug Administration. And it also could alert owner-operators in the event of an unusually large voided transaction at the drive-through window point-of-sale system (suggesting that a crew member might be pocketing money instead of putting it in the register).

McDonald's wasn't the only quick-service chain at least thinking about the potential of SNMP. In 2001, Burger King began a trial of SNMP-based monitoring in restaurants in England with equipment from Opto 22, a Temecula, Calif.-based systems integrator. Network-based monitoring is common in European grocery chains concerned with stock spoilage and strict local health regulations.

"This wasn't a new idea by any means," says Michael Disabato, a senior analyst at Midvale, Utah-based Burton Group and former information technology manager at McDonald's. "We were talking about this 10 years ago. But when we first proposed this, [McDonald's executives] just laughed at us. Because it came from the technology group and not the operations people, it wasn't taken seriously. This was a recurring problem at McDonald's."

Senior Writer
Larry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.

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