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Company Profile

Discuss about the Global Supply Chain Management for McDonalds.

A supply chain is an integrated system comprising of the employees, stakeholders managing technology to drive the activities (Christopher and Peck, 2004). This assignment will try to evaluate the internal activities as a response to the external factors impacting a firm.

Company profile: The company chosen is McDonalds which is a global fast food restaurant chain. Thus different countries have difference in temperature, climatic conditions, legal and environmental regulations force the firms to adopt measures to bring in efficiency in their global SCM (supply chain management). The scale of operations of GSCM for McDonalds is 36000 restaurants, in 100 countries, serving 70 million customers daily.

How it manages to establish close coordination across the globe (including any offshoring decisions and location-specific advantages)

The supply chain management of a firm, is a process of mapping function that coordinates the flows of materials, information, money from supplier(s) and integrates activities towards the manufacturer (Harvey and Richey, 2001). The major activities are: procurement, warehousing, transportation and retailing.

McDonalds which owns no manufacturing firms, but has a dedicated distributor Martin Bower LLC which uses its 15000 locations in US, handling (250-700) McDonalds restaurants by providing logistics and transportation and warehousing. The activities in McDonalds are credit and cash transfers, suppliers, transportation, warehousing and inventory, order fulfilment process, forecasting, production and sales information share. It has the company, suppliers, and franchisees the three legged stool concept in its business. The procurement strategy is based on the listing of the suppliers and their capabilities, terms of payment, at local area, region in any country (Manuj and Mentzer, 2008a). It assists local farmers in order to select high quality seeds, drip irrigation technology and refrigerated transportation system which is a location advantage that McDonalds has identified in terms of cost and time of delivery.

Mehta (2004) argued that there are three logistical drivers : facilities, transportation and inventory. The national level SCM has been integrated to each retail SBU, and the perishable factor of food forced McDonalds to reduce storage time and wastage using the logistics drivers.  The close coordination factor is important, as each restaurant outlet is a SBU, that has orders processed in POS (point of sale) affecting its internal inventory volume and anticipate the future demand. Weekly replenishment 3-5 times a week depending on strategic location and sales hence create a differential demand from each outlet through the globe. The push and process in McDonalds SCM is evident with suppliers trying to supply local produce at attractive rates (E-procurement) which needs stringent food grade quality metrics (HACCP, QIP) to pass.

Coordination Across the Globe

PO

The pull of the  retail restaurant POS creating a PO (purchase order) against the items sold at the end of the day, is  a pull in the SCM which is basically the customer order of an item from the menu (Minner, 2003).

The local factor of customising the SCM with a global menu is a challenge for McDonalds, and after the ‘Horsemeat scandal’ in Tesco UK, transparency in food based GSCM (global supply chain management) has become very important for the company and the customers. This affects the customers buying decisions from the country where the food ingredient is sourced as GSCM needs standardised process maintaining the quality. The supply chain of the McDonalds is challenged by external factors like sustainability and CSR agenda, global food scandals has adopted a three ‘E’ strategy: ethical responsibility, environmental responsibility and economic responsibility (Narasimhan and Mahapatra, 2004). In order to meet the above criteria, it has strict guideline measures for each of its McDonalds retail outlet so that they receive the fresh supplies of highest quality standards to meet consistency of taste in food production. The supplier agreements are with local focussing on long term relationships and not short term one time buy.

The distance is a factor which in a perishable supply chain requires cold chain support all throughout (end to end) from suppliers (major, minor) (Harrison, 2001). Hence, at global level setting up of the chain, identifying the actors, processes, storage place, distribution strategy maintaining the temperature is all goal directed behaviour. It helps to maintain shelf life and the food freshness and nutritional value that is a prime importance for McDonalds brand image. The close coordination is thus not only maintaining local and global supplier relationships but to impose strict quality checks at the source and delivery, transit storage in order deliver the fresh food ingredients in spite of refrigerated vehicles.

McDonalds has integrated IT systems (IP technology) replacing dial up networking that are allowing the store managers, to connect with the warehouse, and engage in seamless  communication protocols and systems.

ingredients

The use of software allows tracking the various ingredients by volume, doing forecasting, and coordinating with the transport and logistics to get a timed delivery (Sarkis, 2012).

How distinctive R&D investments helped the company to increase its revenues:

R&D is the key differentiating factor for any business, but for the restaurants in the QSR (quick service restaurant) format, this is vital for survival as customers are fatigued with taste monotony and lack of options (Christopher and Holweg, 2011). Differentiation and creating distinctness through products and services has been the key strategy of the companies in order to increase the revenue stream. The firm level knowledge about the external factors of changing customer taste buds, economic downturn, increasing competitive landscape thus forces the firm level strategies to engage into R&D.

The streamlined food SCM has encouraged McDonalds to make it more transparent, visible with standardised approach (Frizell, 2014). This has encouraged the company to launch ‘The Corner’ a McCafe venture which requires a completely different GSCM as tea, coffee dispensed is outsourced from different countries globally. Investing the above product lines also has the innovation in SCM in order to weed out risks, weather (tornado, hurricane), reduce the order to delivery lead time to preserve the food freshness (Supply Chain Council, 2012). This requires the firm to map the entire SCM at national and global level with stakeholders involved, against time stamped for movement of items from one point to another.

innovations

The innovations which have been deployed are in the SCM where the use of software allows the managers to do ‘dynamic transportation routing’ which optimises fuel (energy) spends as per McDonalds CSR strategy. It has made the total approach leaner when the data is compared between the decades (Argote and Ingram, 2000). The first innovation which McDonalds has brought in the restaurant business was the ‘assembly line’ from automobile industry was adopted into the kitchen (Li et al., 2006.) The strategy is to serve fresh, upon receiving an order (pull) which forces the chef to swing into action. This lean approach uses processed mapped activities inside McDonalds kitchen that using WBS is able to deliver one item in an order at 90seconds. It is also innovation in service as during drive-in, the wait time is kept in mind as customer having paid also seeks consistency in quality (taste).

There has been a shift in the operations management from warehouse to do DC (distribution centre) to do demand forecasting, supply planning and inventory management. It allows better management of product(s) flow in the SC network, greater and also supplier exchange with QIP (quality inspection process) accompanying it. Integrating the IT with RFID has allowed to track the consignment visibility, align the centralised procurement, integrate the production in each outlet and replenishment frequency. The DC gets items from different local suppliers (major or minor) and the items are stored in different temperature (-22 to -35C) zones that are despatched to the McDonalds outlets as per PO (purchase order) send through IT system. The perishability factor in mind, the distribution strategy with requisite order by volume aims in zero inventory.

In the whole process of R&D in food research, at global and local level, McDonalds is trying to engage the employees to understand the nation specific developments, customer behaviour and preferences in order to strike the right balance in products offered in menu and the services (Powell, 1992). This was done to reduce the threats of the longer lead times of GSCM. Scanning the environment there has been threats from pizzas, footers while pursuing localisation of the global strategy led McDonalds to native taste adaption that led to McDonaldisation of the rest of the world. It also engaged in active R&D, trying to improve the quality of the native produce, identifying the capability of local suppliers, supporting the local farmers, stabilising the SC networking process in order to create a sustainable long term solution for that nation. This strategy therefore eliminates the disruptive GSCM threats, of procurement and also contributes to socio-economic development of native agri-producers.

Innovation in the Supply Chain

The investment for the franchisee in a new country is an adaptive continuum where feedback of the customers in the food ingredient, taste, form, shape, use of meat variants (beef, pork, chicken) due to different religious orientation has seen McDonalds innovating the global burger into innovative flavours. This strategy has paid off as an investment as wider options and variations in the taste has enticed the customers, McDonalds shedding global image and connecting closer with the customer preferences in food habits.

What are the supply chain risks and associated mitigation strategy

The supply chain risks are defined as the implemented strategies to manage the firm, which are vulnerable to threats and disrupts the SCM continuity element. There can be either everyday or exceptional risks in the SC network at global level which the firm needs to asses in order to achieve the KPIs (key performance) everyday. There are larger risks like social, economic, political in each country that affect the operations. For McDonalds which operate in over 100 countries has asked the franchisees to assess the SC network risk locally. In summer of each year, the risk assessment is done by the employees of McDonalds pertaining to the outlet they operate that is aggregated at national level city wise to form the country level risk parameter towards their operations.

The supply risk analysis done allows to address McDonalds concerns of disruption of operations, sustainability concerns and deploy counter strategies where the efforts are concentrated to keep the SCM continuity (Frizell,  2014). Quantifying the risks and weighted average method helps to do a balanced approach to rate the risk propensity that affects the sustainability sourcing. McDonalds’ has identified that global deforestation has affected their environmental approach and found that climatic changes has affected their suppliers and their productivity. They developed a commodity team, which tracks prices of beef, chicken, coffee, oils (palm and canola) that are most likely affect their costing of an item from the menu. These upstream issues has led to identification of the risks that can potentially harm

McDonalds’ operations and sales indirectly. There are country specific risk meters where the civil war is being rated negative as prevalent in some countries in Africa. In the last century when McDonalds’ was in the globalisation mode, it failed to assess these threats.

The risk mitigation strategy however is different for each of the type of risks identified and listed by the firm. The above circumstances at different countries led McDonalds’ to form sustainable sourcing agenda at local level and global level (Christopher and Holweg, 2011). This has been a serious issue and has led to series of roundtables with inter country representatives. The SC networks were mapped and at each leg the scale and scope of the risk was ascertained with the counter strategies in place. This also led to educating the suppliers about the risk management and sustainability issues in the SCM. It set itself a goal in order to champion the procurement process uninterrupted. The ‘global roundtable on sustainable beef’ has McDonalds’ to position itself as a large beef champion which meets its majority in US, EU, Middles East markets (Frizell, 2014).

Shift in Operations Management

Thus the overall strategy showed that McDonalds’ earlier strategy of longer GSCM was reduced to smaller country specific SC networks capable of accepting the threats and managing them. It has also fragmented its upstream SCM from warehouses into more dynamic model of DC (distribution centres) which allowed to reduce the processing and sort the QIP process and meet the order fulfilment criteria faster. The enabler in this whole system has been IT and IS that has aided to create more visibility and traceability in the entire SC model. The above approach has also affect the offerings in the menu as 4V in the operations is also affecting the supply chain. The volume is high, variety is medium, while the variation in the demand is time scales specific, and higher visibility to meal preparation process is pressurising the SC process as internal functions needs fine tuning and alignment. These are important in-store which try to meet the customer centric service quality principles. The risk of a long wait at the table hence is mitigated by the McDonalds’ employees adhering to the food preparation speed, quality, dependability (consistency in taste quality), flexibility (ability to serve large volume of customers), and maintain the efficiencies of scale of operations (Sarkis, 2012). The risk of running out of food item in a retail outlet has buffer levels in the retail outlet inventory in case the local SC network disrupts. The collaborate SCM and supplier integration has been put into place where they are able to switch to supply McDonalds DC at short notice shows that the power resides with McDonalds’ brand converting the earlier push into a pull effect.

How advanced technology means (e.g., Big Data analytics) help to maintain the competitive advantage.

The phenomenon of bigdata is a fairly new where the data sets in large volumes when analysed is likely to reveal trends and patterns, associations between variables which are insights into the interactions (Chari et al., 2013). This data set can be structured, semi structured or unstructured which has the ability to depict only after it is mined. Though there are challenges of how the data is mined and captured, searched, shared, stored and transferred, the issue of its ability to reveal patterns remains a skill that is limited to the analysts of the data. This data if it reveals risks, indicating the resource failure to do resource prioritization, failure to understand the opportunities, is priceless when viewed as insights towards achieving efficiency (Hashem and Ranc, 2015).

Essentially the modus operandi is to analyse the data which are constantly being generated by the logistics system. The application of big data in McDonalds’ can be the DC (distribution centre) where the procurement function delivers the list of items order by franchisee outlets. The use of radio emitting frequency applied to the magnetic field are already detecting the cargo movement in 3PL (third party logistics firms) in the airports leading to seamless movement of goods. For the McDonalds’ case, the supplier need to install each consignment to be delivered tagged by RFID, which will be captured automatically at the entry points. This will pass through the sensory channels for a QIP, which reduces the procedural hassle of wait time in DC. Thus the use of sensors, actuators, conveyor belts would make the movement of the items faster.

The consequence can be faster throughput of the good movement in accepting and distributing from DC which will see an IT and IS integrated logistics systems for the firm level operations. Existing procedures show that, forklifts with one consignment in the DC can easily be located, with the position of the pallet and even trace the entry and exit of it at any given point of time (Hashem and Ranc, 2015). There is minimal human involvement and chances of error as bar coding in the SKU (stock keeping unit) leads to placing the consignment in the respective routes of transport and logistics. The above movement can be tracked over a period of time for weeks and months, and then analysed to reveal a particular trend. These are likely to be leading to more knowledge and emergence of a pattern thus will lead to actionable strategies to further streamline the operations.

The future of the business is essentially is going to be based on data and IS, therefore is a indication for the SCM in a firm to implement systems, procedures in order to predict the risks in the business future. This is a strategy which the early adopters are using to gain the competitive advantage and lead the competition. The clear understanding with additional set of new data will also define more rational decisions from the firm level operations. The challenge to accept the bigdata insights as a mainstream business element has been found to boost the decisions 5X faster and robust (Chari et al. 2013). The data can be a revealation of the firm level operations and supply chain data which may not be predicted easily until it is analysed after being mined. It is beneficial for the McDonalds’ as its global operations 365X24 across 100 countries and its sustainability agenda will allow to monitor the logistics system (fuel spends)  which contributes to the majority of firm level expenditure. Therefore by understanding the analytics and predicting, the risks the threats are eliminated. It can also allow maximising the efficiency and grabbing opportunities by streamlining the operations taking on the future problems that are unforeseen.

References:

Argote, L. and Ingram, P. (2000). Knowledge Transfer: A Basis for Competitive Advantage in Firms. Organizational Behavior and Human Decision Processes, 82(1), pp.150–169.

Chari, S., Habeck, T., Molloy, I., Park, Y., and Teiken, W. (2013). A bigData platform for analytics on access control policies and logs. Proceedings of the 18th ACM symposium on Access control models and technologies - SACMAT ’13, p.185. Available at: https://www.scopus.com/inward/record.url?eid=2-s2.0-84883085864&partnerID=tZOtx3y1nhttps://dl.acm.org/citation.cfm?doid=2462410.2462433.

Christopher, M. and Holweg, M. (2011). Supply Chain 2.0”: managing supply chains in the era of turbulence. International Journal of Physical Distribution & Logistics Management, 41(1), pp.63–82.

Christopher, M. and Peck, H. (2004). Building the resilient supply chain. International Journal of Logistics Management, 15(2), pp.1–13.

Frizell, S. (2014). McDonald’s Will Serve Up Sustainable Beef, Whatever That Is | TIME.com. [online] TIME.com. Available at: https://business.time.com/2014/01/07/mcdonalds-will-serve-up-sustainable-beef-whatever-that-is/ [Accessed 15 Aug. 2016].

Harrison, T, P. (2001). Global Supply Chain Design. Information Systems Frontiers, 3(4), pp.413–416.

Harvey, M, G. and Richey, R, G. (2001). Global supply chain management. Journal of International Management, 7(2), pp.105–128.

Hashem, H. and Ranc, D. (2015). An integrative modeling of BigData processing. International Journal of Computer Science and Applications, 12(1), pp.1–15.

Li, S., Ragu-Nathan, B., Ragu-Nathan, T, S. and Rao, S, S. (2006). The impact of supply chain management practices on competitive advantage and organizational performance. Omega, 34(2), pp.107–124.

Manuj, I. and Mentzer, J, T. (2008a). Global Supply Chain Risk Management. Journal of Business Logistics, 29, pp.133–155.

Manuj, I. and Mentzer, J, T. (2008b). Global supply chain risk management strategies. International Journal of Physical Distribution & Logistics Management, 38(3), pp.192–223.

Mehta, J. (2004). Supply chain management in a global economy. Total Quality Management and Business Excellence, 15(5-6), pp.841–848.

Minner, S. (2003). Multiple-supplier inventory models in supply chain management: A review. International Journal of Production Economics. pp. 265–279.

Narasimhan, R. and Mahapatra, S. (2004). Decision models in global supply chain management. Industrial Marketing Management, 33(1), pp.21–27.

Powell, T, C. (1992). Organizational alignment as competitive advantage. Strategic Management Journal, 13(2), pp.119–134.

Sarkis, J. (2012). A boundaries and flows perspective of green supply chain management. Supply Chain Management: An International Journal, 17(2), pp.202–216.

Supply Chain Council, (2012). Supply Chain Operations Reference Model. Supply Chain Operations Management, pp.1–976.

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