McDonald's cooks its hamburgers and famous french fries on site, but the pie you order to finish off a Big-Mac attack more than likely comes pre-baked from Bama Companies of Tulsa, Okla., and only is reheated prior to serving.
That's nearly always true in the U.S. and, increasingly, in other far-flung regions of the world where McDonald's is introducing fast-food restaurants. Like suppliers in numerous other industries, Bama is following its biggest customer around the globe, exporting to many areas and, more recently, setting up foreign production. Today, both companies are busy making inroads into what may be their biggest plum yet - the vast market of China.
Bama's 30-year relationship with McDonald's has not been without its ups and downs. Ironically, there was a time when the pie and biscuit maker was not sure it could handle the McDonald's account in the U.S., let alone consider servicing an overseas market like China. In 1966 when McDonald's asked Bama if it could supply 600 stores nationwide, Bama CEO Paul Marshall said, "I doubt it." He was concerned that the company had neither the equipment nor the personnel for such a large undertaking. By 1968, however, Bama had upgraded its plants and was making 75 percent of the apple and cherry pies served to McDonald's customers, a percentage that has remained fairly constant since then.
There have been other ups and downs as this long relationship evolved. In the mid-1980s, McDonald's threatened to pull Bama's contract because of a large number of product recalls. Bama re-won McDonald's confidence by again modernizing its equipment, practicing strict quality control and introducing ISO standards.
Today, the company supplies McDonald's restaurants in 25 countries with apple pies from its Tulsa operations, in addition to making bakery goods, frozen dough and desserts for such companies as Pizza Hut, Nabisco, Pillsbury, TCBY, Wal-Mart, Kroger Foods and Food Lion.
The task in China - its first plant outside the U.S. - is to assure quality food processing, transportation and storage in a country where hygiene in these areas often is below U.S. standards.
The reason Bama decided to take on the difficult job of establishing production in China was simple: cost of operations. A 75 percent to 100 percent import duty on Bama products proved too steep for the pie and biscuit manufacturer to continue exporting.
McDonald's encouraged Bama to set up operations in China, "but no guarantees or investment on their part was involved," said Karen Kiely, Bama's director of international business development.
There was, however, an implied promise of rapid growth. Since first entering China in the early 1990s with one restaurant, McDonald's has quickly expanded and plans to open more than 1,000 outlets by the end of the decade.
Still, it was not a decision that Bama took lightly. While Paula Marshall-Chapman, CEO of Bama Pies Ltd. and Bama Foods Ltd., had decided as early as 1991 that it was time to go global, it was not until 1993 that the company actually took the plunge. In the interim it had conducted an extensive feasibility study on China's market and had located a joint-venture partner, Red Star. Together, the two companies invested $1.1m in a pre-existing production facility, with Bama holding a 60 percent share. The facility opened in Beijing in March 1993.
"For us, the advantages of going into business with this Chinese government-owned entity was that it had a frozen-storage facility," said Kiely. Another advantage: Red Star is a subsidiary of Nanjiao Farms, a huge Chinese government conglomerate that operates farms and manufacturing sites south of Beijing.
"Nanjiao Farms is a joint-venture partner with many companies in China," she added. Among them is McDonald's.
Scott Silkwood, Bama's senior vice president of operations, emphasized how critical it was to choose the right Chinese partner. "If your partner is integrated in the government, they know what political channels to maneuver that will facilitate business activities more easily," he said.
Moreover, Bama's involvement with Red Star helped Bama learn what it needed to do to become an effective logistics manager and dependable service provider.
This was important for both inbound - where Bama was using a third-party transportation provider to ship ingredients to its processing plant - and outbound, where two domestic trucking companies were used, one in south China and another in the north. Kiely declined to name its Chinese truck providers, since the company considers that information proprietary.
|"Meeting the intense standards of McDonald's was and continues to be one |
of our biggest challenges." .
- Karen Kiely of Bama
|If anything makes Bama executives cautious about the future in China, it is credit.|
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