About McDonald’s Supply Chain Management

Supply chain management is a fundamental component of the majority of businesses and is essential to both business performance and client happiness. Supply chain management, according to Christopher (2016), is the proactive management of supply chain operations with the goal of increasing customer value and generating a long-term competitive advantage. In addition, it manages inventory and keeps track of finished goods from the point at which they are produced until the point at which they are delivered to clients, among other tasks. SCM is crucial to the success of many firms for the aforementioned reasons. The importance of this element is even greater in some industries such as those dealing in consumer good products.
The Gartner Supply Chain Top 25 for 2017 places McDonald’s at the number 2 spot. In fact, McDonald’s has occupied the number 2 slot of the influential rankings of the top supply chains since 2013. Since 2011, the company has been in the Gartner’s top 10 rankings of the best supply chains. These rankings indicate that the company is a consistent supply chain genius, and a study into it may reveal some of the best practices of supply chain management that it uses.

McDonald’s supply chain Design and Strategy

Over the past five decades, McDonald’s has expanded to over 36,000 restaurants in over 100 countries, providing fast food products to approximately 69 mission customers per day. The company’s supply chain is based on the three-legged stool concept; suppliers, company, franchisees. The company’s suppliers and franchisees share product and process successes because they believe that what is good for the system is good for them. The company emphasizes on the principle of quality and standardization of the end products and allows suppliers and franchisees to reach that using their own methods. In this manner, the suppliers and franchisees strive to provide top-quality fast food products in the best way to meet the company’s standards for their benefit and the benefit of the company (Carden, 2017). As such, the company’s supply chain management remains at the top.

McDonald’s collaborative culture with its suppliers and franchisees is responsible for the global reliability and consistency of the company’s product and service delivery. Guided by various regulations supporting standardized processes while enabling individual solutions within each buyer/supplier relationship, the company’s supply chain is focused on excellence in four vital characteristics, namely:

Innovation

Quality

Health and Safety

Cost mitigation

Just like in many companies, the supply chain at McDonald’s is grouped into various classes where various components are processed before the final product is sold to the customers. the classes include:

Inventory Control

In 2004, McDonald’s implemented a central stock management function referred to as the Restaurant Supply Planning Department. This function deals with three different types of stock;



Raw Material

The raw materials are the ingredients that go into the production of the finished products. In the case of McDonald’s, they include beef patties, buns, paper cups and packaging. These raw materials are delivered to the company three to five times every week. The company uses three sections of raw material, which are ambient, chilled, and, frozen. These raw materials are delivered together so that each product can be stored at their suitable temperatures (Carden, 2017).

Work-in-progress

Work-in-progress is the process of making the raw materials into finished products. For instance, in the case of McDonald’s, a Big Mac consists of a sauce, onions, pickles, cheese, lettuce, two beef patties, a bun, and a small amount of seasoning. As such, in the making of a Big Mac, all these raw materials are used. The company waits until an order for a Big Mac is made before the product can be cooked so that it stays hot and fresh when served (Carden, 2017).

Finished Stock

Finished stock is the product that is ready for immediate sale to the customers. At pick hours such as lunch times and evening hours, McDonald’s always has a range of Big Macs and chickens ready for sale to the customers. At the restaurants, the first-in-first-out method is used to handle all stock whether finished product, work-in-progress, or raw material, so that to minimize waste and also to provide fresh food to every customer and at all times (Carden, 2017).

McDonald’s “Three-legged Stool” approach

McDonald’s long-term supply chain success can largely be attributed to the “three-legged stool” approach to supply chain where everyone wins. The company’s three legs are: franchisees, supplier base, and the corporate staff. The company refers to this as its system and believes that all the three legs of the stool need to be strong and in balance to remain a great platform and stay steady to grow the business. The philosophy underlying this concept is, “none of us is as good as all of us.” This philosophy has transformed the fast food industry, as well as established the cooperative template for modern supply chain activities and effective relationships between organizations, their franchisees, and their customers.

The “three-legged stool’ approach is based on the long-term transparent relationships grounded on the company’s belief that everyone in the company’s “system” can and should win. This long-term culture for win-win relationships with all members of the system can be traced back to the company’s inception, its founder, Kroc, established a precedent of loyalty and trust. McDonald’s founder believed that if the restaurant operators and the suppliers were successful, then, he would also be successful.

McDonald’s long-term relationships with its franchisees and suppliers manifests the Vested reasoning of expanding the pie and sharing the pie. According to this mindset, the suppliers that help the company succeed also succeed by building their businesses. In this manner, both suppliers and McDonald’s create value to the customers rather than simply exchanging value.

McDonald’s corporate leadership and its supply chain management have a high level of engagement with its suppliers, keeping each other abreast of new ideas, emerging issues, and market trends. The leaderships of the supplier companies often meet with McDonald’s management to discuss terms of business and how to ensure and efficient and mutually beneficial business relationship (Rowley, 2016). This indicates how the company values its suppliers.

The company also expects the suppliers to work with each other in helping to strengthen the “three-legged stool.” For instance, if one of the suppliers finds a new technology that is more efficient in operations, the company expects them to share it with the other suppliers in their category on behalf of McDonald’s. While it is understood that most companies might not be comfortable in sharing this kind of information, McDonalds has created an environment that encourages and cooperation and assistance between the suppliers, franchisees, and the company’s corporate management (Rowley, 2016).

McDonald’s Best Practices in Supply Chain Management

Focus on Outcomes rather than transactions

McDonald’s strictly avoids transaction-based relationships with its suppliers. Instead, the company insists that the suppliers develop long-term relationships that drive value and achieve the company’s key business outcomes. As such, McDonald’s prefers that all its interactions with the suppliers for win-win long-term relationships aimed at delivering value and achieving the desired outcomes. To ensure that this strategy works, the company creates and environment that encourages the suppliers to develop a deep commitment toward McDonald’s and to constantly deliver value for the company’s system. In the relationship, the suppliers gain confidence in the company’s operation and pattern of business to the extent of being trustworthy and loyal to the company.

The confidence and trust from the suppliers gives McDonald’s the advantage of shifting majority of its resources to supply chain optimization, driving innovation, quality, and investing in future growth initiatives. For this reason, the type relationship that is grounded on trust and the mutual aim of benefiting both parties often result in the success of business operations. As such, focusing on outcomes rather than transactions is a key success factor for McDonald’s supply chain management.

Improved Supplier Performance

A crucial element towards a company’s success is to know its core competencies and the standard of expertise it needs to outsources. At the Inception of McDonald’s, its founder, Kroc, had the vision, but acknowledged that he needed to rely on the suppliers and the restaurant operators to implement it. For the suppliers, Kroc clearly set the standards for the famed QSC&V (Quality, Service, Cleanliness & Value). McDonald’s understood what it needed from the suppliers and set the standards for all the deliveries. This provided a framework within which these suppliers would work towards ensuring that they upheld the level of quality that McDonald’s tolerates. Furthermore, the company trusted that its suppliers would appropriately determine “how” best to meet McDonald’s exacting standards (New, 2015).

McDonald’s has since exhibited this culture of setting standards and agreeing terms of work with its suppliers. The company constantly encourages its suppliers to deliver top quality raw materials and to ensure that the delivery and other services are conducted in accordance with the set regulations and within the best standards. The company trust the suppliers to constantly find ways of doing things better for the system. As such, McDonald’s suppliers are often involved in the innovation to reduce costs, create new products for the menu, or even improve services for the company.

Management with Insight rather than oversight

McDonald’s governance of its supply chain is based on inclusive leadership where the company strives to establish a flexible operational framework that allows its suppliers the freedom and the incentives to do what they can do best to achieve a win-win relationship. With such an insightful system of management, the company invites opinions and suggestions from its suppliers on various aspects such market trends, emerging issues, and even new ideas.

The company’s outsourced supply chain model gives its suppliers crucial privileges that allow them freedom to ensure the achievement of the desired outcomes. Such relationships with the suppliers results in a competitive edge for McDonald’s as it creates an environment to deal with the best suppliers in most conducive situations.

With the management of its supply chain through insight, McDonald’s has established a principle of emphasizing on long-term wealth and competitive advantage by producing innovative and quality products, anticipating and preventing safety issues, and mitigating risks. The outcome of this supply chain strategy is stronger business performance, better brand health, and increased customer value.

Supplier-friendly Pricing Model

McDonald’s pricing encompasses the “three-legged stool” approach. The company, its suppliers, and the franchisees each must secure a profitable, long-term financial perspective. A perspective that keeps McDonald’s first, and in turn, securing stable financial futures for all. In this manner, the company’s pricing model highly considers its suppliers’ financial interests apart from ensuring that the relationship is long-term and profitable.

McDonald’s pricing protocols are highly transparent and exhibit the variables that help all the parties to understand the business with the aim of optimizing across the system. McDonald’s primarily developed these protocols to show trade-offs on the total costs. The company understands that regularly changing its suppliers may save on some costs, however, shifting the suppliers may increase the costs of the finished products based on location and transportation. As such, the aim of the company’s pricing model is to reduce the total cost, and not the price.

With the McDonald’s pricing model, pricing disputes between the company and the suppliers are rare. The company’s commitment towards developing long-term win-win relationships with the suppliers makes the suppliers comfortable and satisfied with their compensation knowing that they will benefit in the long-run. For this reason, it is neither in the suppliers’ nor McDonald’s interest to focus on lowering the prices or swaying with the natural short-term fluctuations in the market.

Aligning the Supplies to the Key goal of the McDonald’s ‘

Food quality and safety is at the top of McDonald’s priorities. The company clearly informs all its suppliers about this aspect and strives to ensure that they work towards delivering top quality products that are healthy and safe for the customers. As such, quality and food safety are top metrics with which McDonald’s measures its suppliers. In 2004, McDonald’s revitalized the company’s core business objectives and created the “Plan to Win” strategy. This strategy helps all the parties in focusing on the key drivers of the company’s businesses. The aim of this strategy was keeping the company’s brand relevant and meeting the evolving needs of McDonald’s customers. Focuses on being better, rather than just growing bigger, at the same time providing a conducive environment for global business operations and allowing local adaptation (Carden, 2017).

Furthermore, in ensuring that the suppliers comply with the company standards and align with its core goals, McDonald’s uses the Supplier Performance Index (SPI) (Stadtler, 2015). This is an in-depth evaluation tool that the company and its suppliers use in assessing their success levels. The SPI covers six categories, which are; predictable competitive pricing, innovation, quality systems, assured supply, system first, and management. The Supplier Performance Index leads to calibration, benchmarking, alignment, and insight.

Opinions on Key Success Factors

On my opinion, McDonald’s key success factor in its supply chain management is its ability to establish positive long-term relationships with its suppliers. I believe that working closely alongside the supply chain partners and trusting them creates an environment for success for all the parties.

Maintaining suppliers is also a key success factor for McDonald’s supply chain management. Many of the company’s supply chain partners have worked with the McDonald’s since it was incepted. The company’s founders looked for partners that had the same long-term vision as McDonald’s. This has developed and grown the atmosphere and culture of trust which has enabled the suppliers and the company to work together towards innovation and keeping costs as low as possible. For instance, McDonald’s largest distributor, Martin-Brower Company LLC, has had a fruitful relationship with the company since 1956 (New, 2015). Maintaining a company’s suppliers builds trust and loyalty, which may create a competitive edge in the market.

Another key success factor in McDonald’s supply chain management is collaboration and communication with its suppliers. The company prioritizes effective communication with its suppliers providing each party with an opportunity to air their views and opinions on various issues affecting business operations. McDonald’s continuously tracks everything, sharing all the data with suppliers and franchisees, including inventories, restaurant stock levels, and point-of-sale data for each item, among other metrics.

Weaknesses and current challenges

Despite McDonald’s evident success in supply chain management, the company has some weaknesses and faces various challenges in its supply chain management. One of the greatest challenges that the company currently faces is negative publicity. There has always been the perception that the raw materials used in making McDonald’s products are unhealthy. This labels McDonald’s suppliers as being inconsiderate of the customer’s health. Many customers believe that most of the raw materials supplied to McDonald’s are unhealthy, loaded with sugar, salt, carbs, and fat. The customers prove these perceptions when they find most items on McDonald’s menu being relatively unhealthy. As such, the company is highly criticized for promoting unhealthy eating habits, causing many of its customers to add weight.

Another major challenge that McDonald’s faces is high employee turnover. Despite maintaining its suppliers to the benefit of the company, McDonald’s has highly failed to retain its employee base. Many employees at the company do not take their job seriously, or only do the job for a short period of time. This significantly affects their performance, therefore, impacting on the company’s supply chain. A high rate of employee turnover means that the suppliers do not get to familiarize and create productive relationships with the employees, as the short periods they are with the company only allows for transaction-based relationships. Constant changing of employees also affects the delivery of the final products to the customers, since some customers prefer being served by the same McDonald employee over a long time.



Improvement Recommendations

McDonald’s supply chain is currently among the best in the global business operations. However, improvements on the aspects of publicity and employee turnover could make it even better. The company should heavily invest in sensitizing its suppliers to integrate healthy and safety mechanism in their production of raw materials. In this regard, McDonald’s should strictly enforce its healthy and quality standards and ensure that all the suppliers comply with these standards.

On the element of employee turnover, McDonald’s should strive towards providing good working environment for all its employees to appreciate their efforts of working with the company. Good working environment and better remuneration for the employees would lower the company’s employee turnover, and in turn, encourage the growth of productive relationships between the suppliers and the employees.

















References

Carden, L. L., Maldonado, T., & Boyd, R. O. (2017). Organizational resilience: A look at McDonald’s in the fast food industry. Organizational Dynamics.

Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

New, S. (2015). McDonald’s and the challenges of a modern supply chain. Harvard Business Review.

Rowley, B., & McMurtrey, M. E. (2016). McDonald's and the Triple Bottom Line: A Case Study of Corporate Sustainability. Journal of Strategic Innovation and Sustainability, 11(1), 33.

Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.