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Supply Chain Management
Group Project- McDonald's
Lecture Name: DR.ERNESTO DIMACULANGAN
Student's Name: Li Yi Yang (1006D3UBA002)
Zhang Heng (0901D3UBS008)
Li Bo (0706D1UBS003)
Li Jie (1006D4UBA002)
Due Date: 06th, September, 2010
Table of Context
McDonald's Background 4
McDonald's Strategy 5
McDonald's Business Process 6
Customer service management 6
Procurement process 6
Product development and commercialization 7
Manufacturing flow management process 7
Physical distribution 8
Outsourcing/ partnerships 8
Performance measurement 8
Supply Chain 9
McDonald's Supply Chain 9
McDonald's Supply Chain in Indian 12
McDonald's Supply Chain Challenges and its Potential impacts 14
Even stronger focus on freshness and quality 14
On-going product innovations 15
Strong customer demand fluctuations based on promotions 16
Order- and inventory management restaurant – DC – supplier - raw material supplier 18
Bull Whip effect 19
Change Management in a de- centralized structure 20
Methods for Solve Problems 20
Build the quality supervised system 20
Build the detailed R&D process 22
Improve the level of marketing promotion and forecast 23
Build the direct supply system 25
Build the decentralized structure 26
In this report, our team chooses to delve into the success of the global company- McDonald's. McDonald's is one of the most well known brands in the world.
The objective of this report is to understand how supply chain management applied into real business in McDonald's. We will through the problems mainly analysis supply chain in McDonald's and its significance in real life and also will explain the successful reason of McDonald's how to use supply chain in their business. McDonalds are a multinational firm and their subsidiary company throughout all over the world, so McDonald's should have a perfect supply chain.
McDonald's is one of only a handful of brands that command instant recognition in virtually every country in the world. McDonald's is the world's largest chain of fast food restaurants, serving nearly 47 million customers visiting it per day through more than 31,000 restaurants in 119 countries worldwide. McDonald's sells various fast food items and soft drinks including hamburgers, cheeseburgers, chicken products, salads, fries, breakfast items and ice cream desserts. Many McDonald's restaurants have included a playground for children and advertising geared toward to children. Company has expansion of McDonald's into many international markets; the company has become a symbol of globalization and the spread of the American way of life. It also expanded the McDonald's menu in recent decades to include alternative meal options like salads and snack wraps in order to capitalize on growing consumer interest in health and wellness. Each McDonald's restaurants is operated by a franchisee, an affiliate or the corporation itself. The corporation's revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company- operated restaurants.
McDonald's marketing strategy is concerned with the internal resources, external environment and its basic competencies along with its share holders. McDonald's strategy to develop its global workforce is designed to be aligned with and support the execution of its over- arching strategic business goal, which is &quot;to become everyone's favorite place and way to eat&quot;. McDonald's current strategy is to further promote the image of healthy food that can be found at &quot;New or Re- modeled McDonald's.&quot; McDonald's new strategy of presenting its restaurants as the convenient place where healthy food can be found is in line with its recent attempts to create a healthier image for itself. The corporation is planning other menu changes, such as switching to a cinnamon roll and a sausage burrito as its core breakfast offering, while bagels would become an alternative item. Some chain that individuals &quot;confront a future of accelerating McDonaldization.&quot; These changes are part of its strategy to offer a range of choices that support a balanced lifestyle, thus to attract new clients and retain old ones.
McDonald's Business Process
Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper operating an integrated supply chain requires continuous information flows, which in turn assist to achieve the best product flows. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key critical supply business processes in McDonald's will comb following processes:
Customer service management
Customer relationship management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real- time information on promising dates and product availability through interfaces with the McDonald's company's production and distribution operations.
Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, like McDonald's it sourcing should be managed on a global basis. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programmes.
Product development and commercialization
Here, customers and suppliers must be united into the product development process, thus to reduce time to market. The appropriate products must be developed and successfully launched in ever shorter time- schedules to remain competitive.
Manufacturing flow management process
The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just- in- time (JIT) basis in minimum lot sizes. It also changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers.
This concerns movements of a finished products or service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product or service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it will link a marketing channel with its customers. For example, links manufacturers, wholesalers and retailers.
This is not just outsourcing the procurement of materials and components, but it also outsourcing of services that traditionally have been provided in- house. Manage and control partners and suppliers require a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day- to- day liaison with logistics partners being best managed at local level.
Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long- term supply chain perspective in customer relationships can be both correlated with firm performance.
Supply chain is one of the critical factors for the smooth functioning of any business. Supply chains most- often show where different product components are sourced. There are two key components to the fast food industry supply chain. On the one hand, raw materials are essential to the ultimate product. More importantly, though, the value- added component of the supply chain comes primarily from the services provided by quick, convenient, and quality establishments. The value- added from the supplier to producer right through to the retailer and the final customer. The most important aspect of the industry supply chain is that it is driven by the consumer. The consumer has what seems to be an endless amount of fast food chains to choose from every day. The best example is Burger King and McDonald's they all have excellent marketing departments and that is why they are all on the rise in today's market. The main goal of their marketing is to make the consumer drive that extra two blocks past the competitor to eat at their chain.
McDonald's Supply Chain
McDonald's was aware that supply chain management was undoubtedly the most important factor for funning its restaurants successfully. McDonald's supply chain is extensive and complex. It's very efficient, which is why McDonald's are able to consistently offer their customers safe and quality food at an affordable price. But there's more to the equation. McDonald's supply chain contributes positively to the safety, quality, and availability of their final products. They also want their product ingredients to be produced in ways that can contribute positively to the development of sustainable agricultural and food manufacturing practices. McDonald's have a large number of direct suppliers- companies that make or deliver final products for their restaurants- even McDonald's have larger number of indirect suppliers- companies and farms that grow or process the ingredients that are eventually delivered to their direct suppliers. (Figure1.1)
Supplier performance index Import Breath of supply process control equipment No direct control over issues, positive influence by raising questions, bring people to the table and encouraging improvement the McDonald's supply chain. A supply chain driven by point- of- sale date needs a consensus forecast for all stakeholders in the chain- including suppliers, distribution centers and restaurants. Indirect suppliers are primary processing; direct suppliers belong to distribution centers. The distribution centers are the second stage (second echelon, thus making more than one echelon, hence the name, multi- echelon) where safety stock is held. Distribution centers have optimized inventories, and increased product availability and freshness. For example, Quaker, Kraft, Keebler, Carnation, Keystone Foods, J.R.Simplot Co, Coca Cola and Tyson Foods all these suppliers will ship to a distribution centers. These distribution centers include everything from food products to cleaning supplies to replacement parts. Individual stores only make one phone call to re- stock the entire store. When all these suppliers ship to distribution centers and the final step is ship these items to McDonald's restaurants. (Figure 1.2)
McDonald's so successful and their supply chain so efficient is that they then take that technology and share it with the rest of their suppliers so that they can all grow together and create better products.
McDonald's Supply Chain in Indian
McDonald' initiative to set up an efficient supply chain and deploy state-of-art technology changed the entire Indian fast food industry and raised the standards of performance to international levels such McDonald's has worked in the supply chain, their first to open the joint first in McDonalds, brand overseas, which are trying to make, inroads in India's development partners in a manner that will be with companies from the beginning of the success of McDonald's India successfully by providing all the necessary products from domestic to ensure this McDonald's develop local business that can provide the product quality now. McDonald's has a dedicated supply chain in India and the success of McDonalds India was achieved by sourcing all its required products from within the country. McDonald's success in India had been built on four pillars: limited menu, fresh food, fast service and affordable price. Intense competition and demands for a wider menu, drive- through and sit- down meals- encouraged the fast food giant to customize product variety without hampering the efficacy of its supply chain. Today, McDonald's India works with 38 different suppliers based on a long term and several multiple other stand alone restaurants for the needs of many McDonald's distribution centers in India comes in the following order Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004 and the last one in Kolkata (2007) McDonald's entering the first distribution cooperation agreement in food- related service business. Between 1992 and 1996, when McDonald's opened its first outlet in India, it worked frenetically to put the perfect supply chain in place.
McDonald's spent a few years setting up a unique Cold Chain and it was one of the unique concepts of McDonald's supply chain in India, on which it has spent over six years to get systems into place. It trained the local farmers to produce lettuces or potatoes to specifications and worked with a vendor to get the perfect cold chain in place. This system brought about a veritable revolution, immensely benefiting the farmers at one end and enabling customers at retail counters get the highest quality food products, absolutely fresh and at great value. The adoption of clod chain in India could increase the integrity of processed food value chains and reverse post harvest deterioration, which currently sees 40% raw material wastage on an annual basis. McDonald's expands in India, gives the provider the opportunity to expand its business, access to the latest food technology, exposure to advanced agricultural practices and have the ability to grow or export. The Cold Chain is necessary to maintain the integrity of food products and retain their freshness and nutritional value.
McDonald's Supply Chain Challenges and its Potential impacts
Even stronger focus on freshness and quality
To make sure the materials' fresh and quality is the biggest challenge for fast food industry. Especially for McDonald's this famous brand that customers will have higher expectation than others. If you get any mistakes on the freshness and quality that will make customers sensitive to take the doubts and do not want to purchase. It will lead our sales and stocks get one big shock. Hence, we are facing the stress that to ensure our products keep freshness and good quality in sustainable. As the potato contingency above suggests in France, the supply chain is one of the most difficult areas to monitor. McDonald's exerts 80-90 percent of its impact on the world from a social responsibility standpoint through its supply chain that they innovative the sustainable supply chain model and use it in the business.
When McDonald's purchases beef, for example, it doesn't buy it from a cattle rancher. Typically it is purchased from a supplier—one who takes in raw beef and forms it into beef patties. However, some of suppliers for minimize the costs that try to use the frozen storage of beef to do the beef patties. McDonald's always want try to solve this problem, but it isn't so easy. The company doesn't have any direct business dealings with the rancher. It has to exert influence through intermediaries.
On-going product innovations
As we know McDonald's has its R&D department for research the new product menu and provide to the customers. The innovation at McDonald's it is extremely unique, while it may be spurred by one of our suppliers, is always shared information with the other suppliers. However, McDonald's has to polling the risk on reveal supply chain management information by these suppliers. However, it is one part of the makeup of our relationship based on trust and mutual respect. There is a lot of pride that goes with being the creator of any particular innovation. Another part reason is for the fast food innovation is very important it not only needs to match the features of the fast food industry and also should use the special characters and tastes to attractive consumers. However, it needs the long lead time and high costs. It will make McDonalds' sales goes down and take the fluctuation on the profitability. This is one big challenge in the supply chain that is how to minimize the period of the new emerges out of the old.
Strong customer demand fluctuations based on promotions
At the above we can find these three pictures show the promotion's effects on the sales and indirect to reflect the correlation between demand fluctuations with McDonalds' promotion. McDonalds uses the McToys as a sales promotional tool to drive interest and Sales. In their product of Happy Meal among the young children the primary target market of McDonalds gets a sales and demand. Even take the out of stock situation in some periods. The desired marketing effect of offering these toys is to renew interest in the Happy Meal product among young children. The toy serves as a special &quot;surprise&quot; for this market upon consumption of the primary contents – the food. However, after these periods the customers especial for the young children will feel boring about our products. Because of the younger always like the fresh things, hence, sometimes it will lead the McDonalds' demand take a fluctuations. It not only affects McDonalds' sales and also will take the big challenge on the holding costs or loss profits by the out of stock.
Order- and inventory management restaurant – DC – supplier - raw material supplier
McDonald's has one big order and inventory system and supply chain. If want make them in a high efficiency and properly operation, that it needs McDonalds have one correct managerial models and strategies. For example, they need based on the per 100 item sales data to forecast the demand. McDonalds is facing a real stress on the system revolution to make it comes with is very useful farmers at one end and the customer over the counter products sold to the highest quality fresh and value complete. And how to use the laser cooling identity, to make the operation run properly to maintain the freshness and nutritional value of raw materials and processed foods. This involves the purchase of inventory, transportation and food retailers all died under temperature control. And they also should know how to calculate the orders accurate. Hence, is one core challenge in the supply chain management?
Bull Whip effect
Bullwhip is the Key challenge in McDonalds' supply chain. The Bullwhip Effect is a main reason for higher costs and problems in supply chains. It describe how small fluctuations in demand at the client level are augmented as orders pass up the supply chain through distributors, manufacturers, and suppliers. In great variety supply chains, the upstream activities react to forecasts, while somewhere on the downstream part the chain waits for orders to be made. Think about these two former fast food mottos: &quot;We Do it all for you&quot; proposed by McDonalds and &quot;Have it Your Way&quot; by Burger King. McDonald's makes finished hamburgers &quot;to forecast&quot; – McDonalds doesn't know when people would come in for consumption, but they make burgers in anticipation. Burger King prefers to wait until customers actually place (customizable) orders before the burgers are made. This is more frequently known as the &quot;Build-to-Order&quot; (BTO) model, while McDonalds' strategy up to now is called &quot;Build to Stock&quot; (BTS). Hence, how to utilize this model solve the fluctuation is the real challenge of they need to consider.
Change Management in a de- centralized structure
McDonald's supply chain system is so simple system that McDonald's supply chain is based on the three-legged stool concept Company – Franchisees – Suppliers. Hence, sometimes it leads the react on the problems more slowly compare with other fast food competitors. Hence, Jack Greenberg, the former accountant who last year was named chief executive of McDonald's Corp orchestrated a management realignment that broke up some of the company's internal cliques and divided the organization into five more autonomous regions, which theoretically will be able to react more quickly to local market conditions. It not benefit for them to expand their global market and react in one short time. The realignment also led to the company's first layoffs ever, which reduced some of the bloat that had built up during the chain's aggressive domestic expansion. In mid-1990s the American had taken the things like this. Hence, how to realign the structure and solve the problems taken by this decentralized activity are the key points we need to facing in this part.
Methods for Solve Problems
Build the quality supervised system
Quality has always meant ensuring that our customers receive food products that are the result of the best ingredients, strict standards, and proven preparation procedures to guarantee a safe, great tasting product. Currently, McDonald is facing the challenge on sustainable development on the products' freshness and quality. Even they have a well down on this part work; however they still cannot ignore the problems always taken in their working process.
Hence, we think McDonald can make one supervised system (as in most areas around the world), McDonald's restaurants always use the network of independently owned distribution centers that buy products from ‘direct' suppliers – those suppliers who are involved in the final stage of the food supply chain and provide McDonald's restaurants with finished food products like hamburger patties and buns. These direct suppliers buy the raw ingredients they use to produce our food products from a far more dispersed network of suppliers. Hence, we need to make the three-stage supervised system. Firstly, we can build the department to supervise the original materials that came from our indirect suppliers and set up the direct connect style to keep communicate with them. Secondly, we can set up the supervisor in the logistic department to make them give us feedback about our direct suppliers' information and help us to supervise their materials' quality and transportation process. Finally, we can hire the professional supervisor in each of restaurants to check the finish goods and deliver goods, if or not match our standard. McDonalds' inspection program(QIP) to investigate the quality of more than 20 points the difference in the Cold Chain setting of Cold Chain to enable them to reduce the loss of operating Hazard Analysis Critical Control Point (HACCP) is the system to focus on food safety protection in place, suppliers and restaurants rather than check on patients or checking status. Information microorganisms according HACCP, control points and control points important for all McDonald's plant food major department stores in India have been identified; Ltd. has been established for those followed by the audit record and correct the deviation.
Build the detailed R&D process
Consider the McDonald's situation that should pooling the risk with share the innovation information with suppliers and need one long lead time and high costs. Hence, we want advice them to centralized this system and detailed the tasks of process. First of all, McDonald can build some R&D centers in some important regions. Because of McDonald only have three R&D centers (Hong Kong, Indian, American). For minimize the innovative lead time and react immediate about the market demand, I think they should set up two more centers in European and South American. Secondly, I think they should protect their innovative information to reveal to suppliers. Especially that some direct suppliers have the agreement with McDonald on the innovation part. It will help McDonald less opportunity to make our competitors to capture their achievements. At the restaurant level, McDonald can focus in three areas:
Energy conservation – Find further ways to increase energy efficiency in their restaurants in order to save money and reduce our environmental impacts
Sustainable packaging and waste management – Continue exploring ways to reduce the environmental impacts of McDonald's consumer packaging and waste in their restaurant operations
Green building design – Enhance McDonald's strict building standards to incorporate further opportunities for environmental efficiencies and innovation in the design and construction of McDonald's restaurants
If R&D centers need to collect some market information and the materials data, can find the internal employees to take responsible on intelligent information collected. Even though, it looks like the costs will be goes high. However, McDonald will less the opportunity of loss and minimizes the fluctuation lead time to ensure the profitability in one stable level. It is indirect to help McDonald decrease the costs.
Improve the level of marketing promotion and forecast
For avoid the bullwhip effects and the demand fluctuation by the promotional effects. I think McDonald should improve the level of marketing promotion and forecast. They can hire the promotional designer to plan their activities and promotion. They can base on the holiday and commemoration day to setup the activities and also can design different series Mac toys to do the promotion to meet the customers' needs. McDonald also needs to build the technical forecast system and use the reasonable methods to prevent the fluctuation in the sales lead time. McDonald can combine the &quot;build to order&quot; and &quot;build to stock&quot; these to system. Make their forecast more accurate and control the bullwhip effects in one small level. Build to stock is frequently considered as an appropriate solution for high volume products where the demand is either seasonal or easily predicted, or both. This model is more nearly about the McDonalds' current situation, because of McDonalds' demand is highly in usually. And by the long history experience McDonald has the ability to do the accurate forecast; however McDonald has to consider their special service -24hours. In the midnight there is only few people choice to buy as their midnight snack. Hence, if they follow the &quot;build to stock&quot; in the midnight period will lead in excess of demand. It will make our costs get waste and cannot provide the fresh and high quality products for the customers who order in the midnight. Some firms build all their products to order while others build them to stock. Build to Order in an automotive context as a demand driven production approach where a product is scheduled and built in response to a confirmed order received for it from a final customer. The final customer refers to a known individual owner and excludes all orders by the original equipment manufacturer OEM, national sales companies [NSC], dealers or point of sales, bulk orders or other intermediaries in the supply chain. Hence, in the McDonalds' midnight service is most closed to these conditions. Given the widespread proliferation of products, there are a number of manufacturers taking a hybrid approach, where some items are built to stock and others are built to order. Hence, I think build these to models combine in the supply chain system will help get one sustainable demand and minimize unnecessary loss on costs.
Build the direct supply system
In MacDonald, there are many direct suppliers to provide the goods and materials that purchase from the indirect suppliers. It will lead the McDonald's costs goes high and the quality of the materials cannot ensure match the standard level. Hence, McDonald can setup the internal direct suppliers. Such as purchase the land to develop the agriculture on planting and farm. They can make the R&D center to take responsible in this part. Go for this way will make McDonald can have one strong control on their materials' quality and also can decrease the lead time with the high costs in the supply chain process. By another way is it will immediate to react to the fluctuation in the marketing. The McDonald's Agricultural Assurance Programme (MAAP) is the tool use to assess the agricultural production standards employed in growing the farm products used in the menu. MAAP covers our core agricultural products; including beef, chicken, eggs, milk, cheese, potatoes, wheat, lettuce, tomatoes and cucumber. The Flagship Farm project builds on our MAAP approach, by identifying some of the progressive farmers in our supply chain that exemplify good practice in their specific area, and are comfortable sharing those good practices. Use this tool to try and ensure the source more products from farms that work to higher standards. Build this direct supply system will contribute to McDonald to monitor and control the quality, safety and sustainability of the raw materials entering the supply chain.
Build the decentralized structure
By the reason of global integration that McDonalds' market is keeping expand. Build decentralized structure, and the variability of environmental issues across regions, there is no &quot;one size fits all&quot; approach. It will provide the breadth and scope of McDonald's supply chain operations at the same time. Compare with their current business scale, the structure system especial for the supply chain part is more centralize. Hence, it will affect the working efficiency and increase the lead time. Hence, to build the decentralized structure in the supply chain system is necessarily.
Firstly, they can build the supply chain information system to take responsible on collect the any feedbacks and intelligent information that stay in the supply chain. Secondly, build the network control system in different regions. Can immediate react on the problems taken in the supply chain. Thirdly, setup the communication center to ensure each hierarchy of supply chain can keep the communication just in time. Moreover, setup the transportation system and emergency center. If taken any problems on the supply chain allocate can change the original plan immediately. Finally, build the supervised network to make sure the safety and quality of the process and materials.
As far as we are concerned the manager should have a clear business philosophy. Supply chain is one very important part especially for the multinational company. The supply chain will decide what products or services of they can offered and which level of sales they can achieve. McDonalds is the famous brand in the fast food industry. Hence, the customers have the high expectation and demand on this brand. Hence, for the future McDonalds it is better to build the global supply chain network. McDonalds can use the advanced electronic tools such as the internet to make all the restaurants share the supply chain information. For different regions it can setup the department to take responsible to manage the problems taken in the supply chain. Normally, the McDonalds' products will have the fluctuation period from the promotion start to finish. And it also effect by the local market and economic environment. Hence, this department can control the market information at any time and do the logistic job to the point. Another way McDonald can complete the direct suppliers' relation to take the direct controlling on them, less the outsourcing from the external suppliers. It will ensure the materials' quality and also will decrease some costs on transportation and materials' waste. Moreover we think MacDonald can ask the R&D center to research and develop the supply chain, that take care on how to do the right forecast to minimize the fluctuation and how to improve the working effectively? We believe by McDonald's advanced management system they will have the good development on their supply chain in the future.
In this report we are mainly talk about the McDonalds' supply chain system that also includes their management process, strategy and implementation work. From the analysis we find some problems on the supply chain work that McDonald needs to challenge. Hence, we try to provide some ideas to help McDonald to solve the related problems on the supply chain management work. Thus, under analysis supply chain part, we mainly describe how supply chain used with a business, and introduce strategy and process in McDonald's. We also have a graph to explain how McDonald's use supply chain and use the real case to analysis how McDonalds uses supply chain in Indian and the reason of why it get success in Indian. Therefore, the objective of this seminar is to make a profound qualitative and quantitative case analysis within the context of sustainable supply and demand chain management. Finally, we try to base on the analysis we have down at before and support some methods to solve them. And we also provide the recommendation for the supply chain management; we believe by McDonald's advanced management system they will have a sustainable development on the business, especially for the supply chain management.
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