Case Interview Fundamentals: Lesson 14 [Drill: McDonald's order customization risks] — Transcript

Full transcript

1. 0:00Hey guys, how are you doing? In today's
2. 0:02drill, we're going to help McDonald's
3. 0:04assess the risks associated to allowing
4. 0:07order customization in their stores.
5. 0:10Uh so, I specifically like this drill
6. 0:13cuz I get to show you a tool for
7. 0:16brainstorming structure that you
8. 0:17probably haven't seen yet. And it's a
9. 0:19pretty cool one, so stay tuned.
10. 0:22Uh the case question is,
11. 0:24"McDonald's is thinking about allowing
12. 0:26order customization in their entire
13. 0:28chain of franchises in order to better
14. 0:30accommodate customers' demands.
15. 0:33What risks would that decision entail?"
16. 0:35So, what are the risks associated to
17. 0:37allowing order customization in
18. 0:39McDonald's' restaurants?
19. 0:41Okay?
20. 0:42Now, take a take a second
21. 0:44or actually take as long as you need,
22. 0:47structure your answer, say it out loud
23. 0:49if possible, and then come back and
24. 0:51watch mine.
25. 0:53So, I think the risks associated to this
26. 0:57action, I can think of three different
27. 0:59things that could happen. And they are
28. 1:01orders will take longer to be prepared,
29. 1:04orders are going to be more complex, and
30. 1:06inventory is going to be more unstable,
31. 1:08so
32. 1:09we're not going to have the same simple
33. 1:12um
34. 1:13proportion of lettuce to bread to meat
35. 1:16to cheese and everything like that.
36. 1:18And those are going to manifest in two
37. 1:21different ways. One is customer
38. 1:23satisfaction or complaints.
39. 1:25So, either your customer satisfaction
40. 1:27will decrease or complaints will will
41. 1:29increase somehow.
42. 1:30And costs are going to increase somehow.
43. 1:33And orders are going to Orders taking
44. 1:35longer to be prepared are going to
45. 1:37manifest in customer satisfaction in two
46. 1:39ways.
47. 1:40One, we might have longer waiting time
48. 1:43or longer line, and that might
49. 1:45mean we'd have longer lines. So,
50. 1:49of course, an order that's not simple
51. 1:52and that the waiter the server doesn't
52. 1:54do
53. 1:5510 times a day, 100 times a week, uh
54. 1:58will take longer.
55. 1:59And if three people ahead of you in the
56. 2:02line ask for orders that take longer,
57. 2:06line or lines are going to be longer,
58. 2:07too. And if lines are longer, this also
59. 2:10means that we'll have more crowded
60. 2:11stores.
61. 2:12And those two things might decrease
62. 2:15customer satisfaction and increase
63. 2:16complaints.
64. 2:17And
65. 2:19uh second, this orders taking longer to
66. 2:21be prepared will manifest in costs with
67. 2:24more employees needed to avoid waiting
68. 2:27lines. So,
69. 2:29uh if you don't want to have longer
70. 2:31lines, you might want to need you might
71. 2:33need another server making the making
72. 2:36the orders.
73. 2:37Uh another way of saying this, a simpler
74. 2:39way of saying this is
75. 2:41higher labor costs per order. So, if an
76. 2:44employee now can only assemble 75 orders
77. 2:47in a day rather than 100, I'm not sure
78. 2:49about these numbers, I'm just I'm just
79. 2:51making them up.
80. 2:52Uh labor costs per order are going to be
81. 2:5533% higher.
82. 2:56Uh so,
83. 2:58that's that's just how it goes.
84. 3:00If you take twice as long to make an
85. 3:02order, then labor costs are twice as
86. 3:05high.
87. 3:06Now,
88. 3:07orders being more complex will reflect
89. 3:10into more mistakes in orders. So, if
90. 3:13they're more complex to make, it's
91. 3:14easier to make mistakes, and they're
92. 3:16going to happen more frequently.
93. 3:18And that means that we're going to have
94. 3:20to throw some orders away, so this means
95. 3:22more waste in costs.
96. 3:24And a more unstable inventory. So, what
97. 3:27does this mean?
98. 3:29If people can order anything
99. 3:31off the items that we do have in their
100. 3:36in their orders, even if they pay more
101. 3:37for this, then that means that we're
102. 3:40going to need to have that our inventory
103. 3:42is going to lower in a more Is it going
104. 3:44to be consumed in a more unstable
105. 3:46manner? So, this means that we're going
106. 3:49to more frequently run out of items. So,
107. 3:51if one on one specific day, everyone
108. 3:53that comes in in the morning asks for a
109. 3:55double lettuce or something, that means
110. 3:57that in the afternoon we might run out
111. 3:59of lettuce. And that might leave people
112. 4:01unsatisfied because they'll either eat
113. 4:03a burger without lettuce and they wanted
114. 4:05lettuce, or they're just going to say,
115. 4:07"Well, whatever, I'll come I'll go to
116. 4:09Burger King or something to get my
117. 4:11my order lettuce there." And this will
118. 4:14mean in costs, one, that we're going to
119. 4:17need more inventory to prevent that from
120. 4:19happening, and two, that we might have
121. 4:21more waste, too, because if on a
122. 4:23specific day we have a little bit extra
123. 4:25lettuce every day for this,
124. 4:28and a specific day no one orders
125. 4:30lettuce, everyone orders um
126. 4:32their orders without lettuce. And since
127. 4:35uh
128. 4:35we're using items that will go bad after
129. 4:39not so long, then
130. 4:41we might have waste because of that.
131. 4:43And there are
132. 4:45the most relevant risks here, in my
133. 4:48opinion, is order taking longer to be
134. 4:50prepared and the impact of that in the
135. 4:54waiting line waiting times and lines
136. 4:56because
137. 4:57uh
138. 4:58I think part of the value value
139. 5:00proposition of McDonald's and of fast
140. 5:02food in general is taking a short period
141. 5:04of time to eat your meal. And if you
142. 5:07have long lines, and especially if your
143. 5:09competitor doesn't,
144. 5:11then you're you're in a pretty bad
145. 5:13position there. So, though that to me is
146. 5:16the most important uh risk here. So,
147. 5:20unless we can we'll figure out
148. 5:23that the impact of this on waiting times
149. 5:25and lines is very short, or we can find
150. 5:28an alternative like assembly line
151. 5:30optimization to make uh
152. 5:33order customization
153. 5:35possible without increasing
154. 5:38lines and waiting times, then this is
155. 5:40what we should be concerned about the
156. 5:42most. And now, there are two things I
157. 5:44want to bring to your attention here.
158. 5:46The first one is, as I mentioned before,
159. 5:49the structure that I used is a matrix
160. 5:52structure. I have on the x-axis
161. 5:55uh
162. 5:56things that I think could happen because
163. 5:58of order customization,
164. 6:00effects of order customization, and on
165. 6:02the y-axis I have
166. 6:05uh how they would manifest and how they
167. 6:08would be a problem to us. And then in
168. 6:10the boxes inside, I have the the
169. 6:14hypothesis of what could be what could
170. 6:16happening and how that would affect us.
171. 6:18And this is an interesting tool that you
172. 6:20can use to bring to structure many of
173. 6:22your brainstormings. So, pay attention
174. 6:25to it, and if you can, try it further
175. 6:27on. And if you want, you can send send
176. 6:30us examples of what you did. I'd be
177. 6:32happy to comment.
178. 6:33And
179. 6:34second, I want to bring to your
180. 6:36attention my structure of customer
181. 6:39satisfaction and costs. And that's just
182. 6:42a I want to say that that's just a
183. 6:44revenues and costs structure, just a lot
184. 6:47more customized. Cuz in this case,
185. 6:50in the order customization,
186. 6:53given the order customization change,
187. 6:56the only driver of revenue that would be
188. 6:57affected is customer satisfaction. So,
189. 7:01that's why I didn't need to say revenues
190. 7:03and costs, I could just say customer
191. 7:05satisfaction and costs. And it just
192. 7:07looks a lot more customized, and it
193. 7:09really is a lot more customized.
194. 7:11Okay? So,
195. 7:13this was my answer. I hope it helped
196. 7:14you, and I'll see you in the next video.