McDonald’s Company Supply Chain and Performance

Executive Summary

The most important objective of an effective supply chain management arm of an organisation is to ensure that the supply chain management system reduces the cost associated with inventory holding. This means that products and services need to be availed just whenever they are required. For this reason, at McDonald, the supply chain management also embraces handling and management of distribution information. The main purpose of this report is to create an understanding of the manner in which chain management may be applied in a real business by considering the case of MacDonald.

The organisation is a multinational company. Hence, it has an effective arm of supply chain management. In this report, the case of MacDonald is taken as crucial in helping to unveil how chain management may be applied to enhance effective performance of an organisation seeking to acquire global competiveness. Firstly, the report considers the current situation of the supply chain management at McDonald followed by recurrent logistics and supply issues at the company coupled with their solutions. Finally, recommendations for enhancing existence and sustainable arm of logistics and supply chain management at McDonald are offered.

Introduction

Fundamentally, supply chain management entails overseeing the movement of goods and services, finances, and information from the point of production to wholesalers and then to the consumers. It also involves “coordinating and integrating these flows both within and among companies” (Ketchen and Hult 573). Supply chain management is an essential function in an organisation since “organisations increasingly find that they must rely on effective supply chains or networks to compete in the global market and the networked economy” (Ketchen and Hult 574). From this perspective, this paper deploys the concepts of supply chain management to analyse McDonald’s logistics and supply chain operations identifying issues in those operations besides devising a proposal for a strategic solution for supply chain management.

Description of the Current Supply Chain Management Situation

McDonald is a powerful brand that has been established globally. It is one of the largest food restaurants chain in the world. As of 2009, the company served about 47 million people daily who visited about 31000 restaurants of the company established in about 119 nations across the world (McDonald Para.3). Apart from this large number of clientele for a company whose outlets are geographically disbursed and hence making it vital for consideration of an effective logistics and supply chain management, McDonald supplies a wide range of products such as soft drinks, salads, ice creams, cheeseburgers, and chicken products among others. Dealing with this wide range of products, which must be availed in the outlet stores of the company and in the franchises across the globe complicates the management of logistics information.

The current chain management approach of the company is based on the integration of suppliers, buyers, common systems for management of products flow with all company stores and franchises, shared information, and joint product development. The company accepts that managing and “operating an integrated supply chain requires continuous information flows, which in turn assist to achieve the best product flows” (McDonald Para.7). One of the fundamental approaches that have been applied by the company to help realise this concern is deployment of e-procurement technology. This technology is the epicentre for success of logistics and supply chain management at the company. It is also efficient to the extent that it forms the core for not only logistics but also the entire supply chain management for the company. Through it, all McDonald’s franchises are able to purchase every item they need for their restaurants within a minimal time.

Logistics and Supply Chain Management Issues

The reason why McDonald has been successful in the foods industry is its ability to manage logistical information effectively to ensure a consistent supply of its products in all restaurants including the franchises. However, the organisation still has some dominant issues, which may help in a multi-fold to enhance the company’s supply chain management efforts while addressed. In an attempt to ensure that McDonald retains and attracts new consumers for its products, the company focuses on quality and fresh raw materials. However, ensuring high quality and freshness of material qualifies as an immense challenge that faces the food industry.

The problem is even amplified where the products are to be delivered to some geographically disbursed outlets. If McDonald makes mistakes on the quality and freshness of products, consumers may end up doubting the finished products. This case has the implication of reducing the sale levels of the company. McDonald buys beef from suppliers rather than getting it directly from a rancher (McDonald Para.4). Suppliers take time to process the beef into beef patties before availing them to the company. This means that the beef product may not be immediately fresh when brought into the main stores of the company before being distributed to various outlets.

The above challenge on supply chain management for McDonald is amplified by the challenge that inventory holding becomes almost unavoidable for a big organisation like McDonald. An effective chain management must ensure that there is minimal inventory holding so that costs associated with damaged stocks, expired stocks, and handling costs are low (Holweg and Pil 76). As such, McDonald encounters a challenge in its logistical and supply management approaches since to ensure that it avails products to the market at the right time when they are required without holding stocks buffer, incredible forecasting of the future consumption trends is vital. Unfortunately, food products’ consumption patterns are hard to predict since they are mostly driven by preferences and certain extrinsic factors such as increased concerns on healthy eating habits.

Another crucial challenge for the McDonald’s chain management is the ‘bull whip effect’, which describes “…how small fluctuations in demand at the client level are augmented as orders pass the supply chain through distributors, manufacturers, and suppliers” (Halldorsson 287). The effect may reveal the increased costs and other problems associated with the logistics and supply chain management at McDonald. In many supply chains, the topmost upstream set of activities reacts directly to forecasts. On the other hand, the downstream sets of activities largely anticipate the orders to be placed. For instance, Mc Donald produces and supplies goods for sale. Unfortunately, the company does not precisely know when the customers will arrive to buy. This case exemplifies the upstream activity that is dependent on forecast to determine the supply level. The other approach is to produce on order. Although this may help in reducing the costs for preservation of readymade food products, for McDonald to comply with its freshness and quality strategies, the approach poses challenges to the logistics and supply chain management because the cost for urgent inventory replenishments comes in hardy.

A forth issue in the logistics and supply management at McDonald is attributed to the structure of the supply chain deployed by the organisation. According to Fristedt, “McDonald’s supply chain system is so undemanding…it is based on the three-legged stool concept, i.e. Company – Franchisees – Suppliers” (21). This makes the company respond to supply chain problems much slowly in comparison with competing companies in the same line of business. However, since 2001, this challenge has been largely, though not fully, mitigated through subdivision of the organisation into several autonomous structures. The only challenge that remains is how to organise the structures to ensure that challenges associated with decentralisation do not impair McDonald’s logistical and supplies management.

Logistics and Chain Management Solutions

Up to date, compliance to the freshness and quality standards for foods is a magnificent challenge in logistics and chain supply for large organisations like McDonald. To resolve this challenge, the company deserves to create a quality supervisory system. With regard to Fristedt, “McDonald’s restaurants always use the network of independently owned distribution centres that buy products from ‘direct’ suppliers who are involved in the final stage of the food supply chain to provide McDonald’s restaurants with finished food products like hamburger patties and buns” (22). Arguably, suppliers for McDonald make purchases of the raw materials utilised in the production process from suppliers who are geographically dispersed.

To ensure that the food products that are sold by McDonald are compliant to the standards set by the company on freshness and quality, the paper proposes the establishment of a three-stage supervision system. The first stage specifically concerns itself with supervision of various original materials that are acquired directly from suppliers and or setting of direct communication channels with the suppliers on matters of quality and freshness. In the second stage, the logistics department gives the responses of the suppliers on matters arising from stage 1. This ensures that suppliers are engaged in the quality supervisions of materials. In the third stage, supervisors in every outlet, whether company-owned or franchise-owned, should check and ensure delivery of quality and fresh products to consumers.

Compliance to quality and freshness standards of the company can also be enhanced through engagement of the company in direct production of its raw materials. This entails a strategy for creation of a direct supply structure. The company can purchase or even hire a farm for raising beef cattle or for growing products. This makes it even easier for the company to monitor the food quality standards. The problem on inventory holding is practically difficult to resolve especially bearing in mind that forecasting exactly what will be consumed in a particular outlet is difficult. McDonald deals with fasts foods. Therefore, the approach of produce with an order is also another difficult approach of ensuring that the logistics and chain supplies department of the organisation is able to produce and deliver products that will exactly be consumed in a particular outlet.

However, through web-based interaction with customers, it is suggested that the company can approximate precisely the necessary amount of supplies in groups of restaurants located within a given region. For instance, through the company’s website, an application can be created to compile the cumulative number of consumers willing to visit the McDonald restaurants a day ahead. This stands out as the approach of creating a customer-informed method of forecasting. Where the web application may provide fields where customers may enter information about their fast foods preferences, McDonald may supply and make logistic arrangements for particular regions with a high degree of precision.

From the contexts of the’ bull whip effect’, McDonald can make the logistics and supply chain more effective by strategically focusing on promotional effects. A technical forecast team is also vital for ensuring that the company deploys methods that are reasonable to curb ‘lead time’ and sales fluctuations. This way, it becomes possible to make approximations of transportation and other logistical costs with high degrees of accuracy. This effort is necessary if the company will have to operate in a manner that will enable it to achieve its objective of remaining a competitive and the most preferred fast food eatery.

Recommendations

For an organisation having a number of networked outlets dealing with similar products, logistics and supply chain management concepts are essential in ensuring that all the outlets hardly run out of inventory and or do not keep inventories to the levels that may result to incurring additional costs for their maintenance. To address this challenge, this paper recommends that McDonald needs to create a web-based application that will aid the organisation to collect data on customer preferences and information on whether they could be considering visiting the company’s outlets. The second recommendation is that McDonald should reduce the ‘bull whip effect’ by focusing on promotional strategies. Thirdly, a direct supply structure and or three-stage quality supervision structures are recommended as mechanisms of ensuring strict compliance to the McDonald business strategy for freshness and quality.

Works Cited

Fristedt, Marten et al. Supply chain management in practice: Case for McDonald. Department logistics management: Linkkopings University, 2009. Print.

Halldorsson, Arthur et al. “Complementary theories to supply chain management.” Supply Chain Management: An International Journal 12.4(2007): 284-296. Print.

Holweg, Martin, and Frank Pil. “Successful Build-to-Order Strategies start with the Customer.” MIT Sloan Management Review 43.1(2001): 74-83. Print.

Ketchen, George, and Thomas Hult. “Bridging organisation theory and supply chain management: The case of best value supply chains.” Journal of Operations Management 25.2(2006): 573-580. Print.

McDonald (2009). About McDonald’s/McDonald’s History. Web.