Components of Mcdonalds Cost Structure Through Value Chain Essay

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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.

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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….....

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