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Incoterms Consideration Selection

Describe about the Transpotation and Ditribution Management for Influence of Globalization.

With the increasing influence of globalization and increase in competition in the market, the transport management system has experienced an increasing significance in the organizational activities. Products are transported among diverse locations in different stages in a supply chain system in an organization. As a result, there is an increasing need for prompt and effective transportation system in business organizations.

As a transport manager of Mc Donalds Inc. the leading fast food and quick service restaurant business organization globally, the following report is conducted with the aim to analyse the effectiveness the three crucial aspects of transportation management, namely, Incoterms Consideration Selections, Carrier Selection Criteria, and Carrier Relationship management. McDonald’s is the world’s leading fast food restaurant with annual turnover of $28.11 billion in 2013 (Mcdonalds.com, 2016). It is also the second largest employer with an approximate strength of workforce of 420,000. It is present in 118 countries with total number of 36,525 stores (Mcdonalds.com, 2016). Popular McDonald’s products that are sold everyday globally are BigMac, McNuggets, Fried Potatoes, Egg McMuffins, and Cheeseburger, Ham Burger, etc. McDonalds has strategically changed its products according to local customs and tastes like in Singapore, McDonalds has introduced Delight 500 Lunch/ Dinner which is unique in Singapore only. Although it is not the first in the business model but it is the leading one and that what make MC Donald’s unique.

McDonald’s is dedicated towards its customers in providing fresh and hygienic fast food and this only possible through trust and consistency in its transportation and logistics services. Thus, Transportation System is an incorporating role which organizes and optimizes all logistic services, together with promotion, sales, manufacturing, and funding and information technology (Litman, 2011). As the market leader, McDonald’s has global competitors like, Star Bucks, KFC, Dominos, Subway, etc as well as on local levels also.

With the influence of globalization, business organizations are becoming multinational so there was an urgent need for global trade terms for domestic as well as international trade agreements in accordance to international trade law (Hein, et al. 2009). Incoterms Consideration Selection can be explained as a set of rules and regulations which are preset by International Chamber of Commerce which is associated with international commercial law. International commercial law is a set of authorized policy, principles, agreements, domestic legislation and business behaviour that manage and evaluate the international business operations (Bowersox, et al. 2002). It is basically a safe transaction agreement between globally diverse clients. There are widely thirteen commercial rules that are globally accepted in transfer of price and responsibility among the buyer and seller. They are: Cost and Freight, Delivered at Terminal, Delivered Duty Paid, Ex works, Free Alongside Ship, Free On Board, Cost Insurance and Freight, Delivery at Place, Free Carrier, Carriage Paid and insurance paid to, and Carriage Paid to (Incoterms Guide - Freight Filter, 2016). This was an initiative to make an equilibrium among the different local trade and commerce rules and regulations which could be difficult for a multinational organization to understand in 1939 and last revised in 2010 (Mun, 2002).

Incoterms Selection at McDonalds

McDonald’s is a multinational fast food business organization with existence in 118 countries globally. As fast food restaurants the main concern is food and service quality that is provided to the customers. Now, different country has different trade and commence rules and regulations that McDonald’s need to follow. For instance, in Singapore, McDonald’s is compulsory to obey with many Singapore’s rules and trade laws, covering Food Hygiene Standards, Legislative and regulatory Environment acts and appropriate licenses in Singapore. And management takes suitable steps to make sure that it covers with all applicable legislative rules and regulations. To meet the food safety and hygiene McDonalds receive its food resources from local suppliers on daily basis. McDonald’s supply its raw materials through its own effective transportation system. The transportation supply chain management system of McDonald’s is globally spread and the management has adapted a push and pull based supply chain and point of sale information transfer supervises the supply chain system. It mainly goes through three levels before finally serving the customer. Firstly, the indirectly suppliers, who primarily produces and processes the raw food materials like wheat or raise cattle. The indirectly supply the raw food materials to the direct suppliers or the distribution centres who then organizes and harmonizes the distribution systems in the restaurants. It is in the distribution centres, final food products like meat patties, buns, etc are produces before delivering it to the restaurants. Then according to the demand food materials are supplied to the restaurant on daily basis where trained staff arranges foods according to customer demand and needs. McDonalds follow an inbound logistics for the movement of raw materials and suppliers into storage facilities. The transportation system of McDonalds is entirely outsourced and about 80% of the movement of raw materials are done in refrigerated trucks.

Keeping in mind, the kind of business that McDonalds conduct and its resource transportation through road ways, the management should adopt the EXW, DAT and DDP Incoterms for managing its carrier relationship management.

For cost cutting activity and for bringing effectiveness in the supply chain system, most of the logistics and transportation operations are outsources (Stock, & Lambert, 2001). The management and resource allocation of raw materials is an essential part of transportation system. To have an effective supply chain solution it is important for business organization to choose an effective carrier system. To influence prospect in rising markets, the management of McDonalds are focusing on combining and lining up the transportation management communications, methods and actions to decrease expenditure and develop effectiveness. The transportation management system is an integral part and it wires the on the whole business strategy (Tambo, 2012). The business goal of McDonalds is to meet up consumers requirements at the same time as maintaining minimum pricing strategy and McDonalds facility on lean strategy, i.e. they does not cook until the customer place a order and once a order is placed they assemble the whole process and they serve the customer freshly cooked food within a limited period of time. As stated earlier McDonalds does not have own transportation system and have fully outsourced the transportation system to the third party. This strategy was adopted so that they can take advantage of the efficiency and experienced specialist taking care of the logistics on the other hand McDonalds can concentrate more on other core business operations like customer service, food quality control, hygiene etc.

Carrier Selection Criteria

The management of McDonalds mainly goes for a contract or partnership with other logistics business organizations that are responsible for effective functioning of transportation system like buying of material, material management and many of the other functions of logistics. This process is known as contract logistics. McDonalds has collaborated with Keystone Distribution UK which is responsible for manufacturing, processing and distribution of food resources in McDonald’s restaurants mostly in Asia, Europe and America. The first partnership was formed in 1977 for baking hamburger bun and ever since the collaboration is growing strong. In 2011, Keystone Distribution was awarded the Performance Supplier of the year. They have been supplying every food resources that are required to run a successful McDonalds restaurant. They supply from ketchups, fresh foods, frozen foods, meats, etc to McDonalds restaurants. Other than these McDonalds has to compact with diverse suppliers for their different products as the business objective of McDonalds is to provide fresh and hygienic fast food products according to customer needs in affordable price.

Soft drink producers and brands like Coca-Cola, Tropicana, etc collaborate with McDonalds who form the second tier suppliers, as they supply key materials to Keystone distribution, which is the first tire suppler of McDonalds and is responsible for McDonald’s food resources supplies. For meat food resources, McDonalds has collaborated with Sun Valley, Ecsa and Moy Park who also acts as second tier suppliers. Thus we can say that Keystone Distribution is a key player in transportation and logistics activities and McDonalds is fully dependent on them. This has resulted in McDonald’s complete dependency on its supply partners but on the flip side, McDonalds does not have to invest heavily on transportation and logistics management. The Keystone uses transport systems that are dedicated task force of refrigerated trucks to McDonald’s distribution points. Multi temperate and single temperate logistics trucks then transport the food materials quickly to McDonald’s restaurants as per the demand. A distribution point generally covers a large area, so it is responsible for multiple Mc restaurants at a same time.

The logistic necessity has enhanced to serve consumers with more quick and swift efficient customer service facilities (Belenky, 2013). A good carrier relationship management generates value by means of time and location, so good transportation and logistics management can be understood as the actions that add value in the process of supply chain (Paul, 2011). This can help an organization to increase revenue profit and potential profit control as it significantly saves time and money and facilitates in sales volume. Thus smooth the progress of organizational effectiveness. Carrier relationship management can face some challenges and they are- Transport capacity shortage and unskilled labour force in the transport and logistics systems can delay delivery system at right time and right place (Schönsleben, 2016).

Carrier Relationship management

McDonald’s Carrier Relationship management is based on several factors which are directly related to the organization’s objective. The factors that affect the carrier relationship management in McDonalds are Area Transit time, Reliability of on-time pickup and delivery, Techniquel capability or skills to share information, Equipment availability and capacity, product protection or carrier’s freight damage experience, financial stability of the Carriers and Freight rates. Business organizations like McDonalds programs globally, so they have to maintain a reliable transportation and logistics system globally which can be some cumbersome task to maintain. Also, the rising concerns in terrorism activities can also become hindrance for an effective carrier transportation system. To fight with the above challenges it is important for business organizations to give significant importance towards Carrier relationship management (Christopher, 2016). It is a process of adjusting business performance by improving carrier partners. As a transport manager I understand how our carrier partners web the different organizational operations to serve our customers. Without customers, organizations will fail to provide proper importance to the carrier partner. As the business objective of McDonald’s is to provide fresh and hygienic food products at affordable price, this can only be achieved only when all the organizational activities perform in harmony and transportation being an integral part of the system for delivering fresh food products on daily basis cannot be ignored. As, the McDonalds have fixed suppliers so there is a little chance for the management to bargain the Freight rates, with its suppliers.

As a transport manager of McDonalds the following are the recommendations that I would like to state to bring effectiveness in Carrier Relationship management system in McDonalds and I believe that implementing the following measures in the Carrier Relationship management will improve the supply chain management system of the organization. They are as follows:

Settle contracts value with our carrier partners, as well as enthusiastic lane rates for them.

Discussing and developing more cost cutting measures to implement in the logistic system with our carrier partners (Ballou, 2007).

Continuing long-term, sustainable associations along with the carrier partners to healthier bring into line McDonald’s business objective, customer needs and Keystone’s objective to facilitate maintain to provide the most excellent alternative for supply chain management (Stein, & Sloane, 2003).

As a transport manager we have to proactively function along with carrier partners more willingly than merely assisting them when situation demands or at the time of renewal of contracts or to discuss new freight rates.

We should provide special training and development programs for the employees who are directly related in the transportation process to improve their skills and abilities (Rushton, et al. 2014). This will not only bring effectiveness in the system but also will increase engagement among the participants.

Conclusion:

In the above study, we have discussed about the importance of transportation and logistics systems in the contemporary business organizations and how it has become an integral part of business operations. As a transport manager of Mc Donalds Inc., the above report was conducted with the aim to analyse the effectiveness the three crucial aspects of transportation management, namely, Incoterms Consideration Selections, Carrier Selection Criteria, and Carrier Relationship management. In the report we have discussed about how McDonalds has chosen to outsource its logistic systems to third part for reducing organizational cost on transportation systems and focus on the other organizational operations like customer satisfaction and hygiene in the restaurants. There are mainly two tires of suppliers in McDonald’s, the first tier supplier is Key Distributions who receive direct food materials from second tier suppliers like Sun Valley, Ecsa and Moy Park and process them and distribute according to needs. We have also discussed about how McDonalds has bring effectiveness with its suppliers. But it lacks it control over transportation and logistics systems and solely dependent on Key Distributions. So, in conclusion I have discussed and suggested recommendations about how McDonalds can build-up a strong and long term relationship with its key carrier partners.

Reference:

Ballou, R. H. (2007). Business logistics/supply chain management: planning, organizing, and controlling the supply chain. Pearson Education India.

Belenky, A. S. (2013). Operations research in transportation systems: ideas and schemes of optimization methods for strategic planning and operations management (Vol. 20). Springer Science & Business Media.

Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2002). Supply chain logistics management (Vol. 2). New York, NY: McGraw-Hill.

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

Ganeshan, R., & Harrison, T. P. (1995). An introduction to supply chain management. Department of management sciences and information systems, 303.

Hein, N., Laporte, G., & Roy, J. (2009). Business environment factors, incoterms selection and export performance. Operations and Supply Chain Management, 2(2), 63-78.

Incoterms Guide - Freight Filter, (2016). Incoterms Guide - Freight Filter. [online] Freight Filter. Available at: https://freightfilter.com/incoterms-guide/ [Accessed 10 Nov. 2016].

Litman, T. (2011). Introduction to multi-modal transportation planning. Victoria Transport Policy Institute, 15.

Mcdonalds.com, V. (2016). Our Values and Sustainability Efforts | McDonald's. Mcdonalds.com. Retrieved 3 November 2016, from https://www.mcdonalds.com/us/en-us/about-us/values-in-action.html 

Mcdonalds.com,. (2016). Our History and Timeline | McDonald's. Mcdonalds.com. Retrieved 3 November 2016, from https://www.mcdonalds.com/us/en-us/about-us/our-history.html

Mun, J. (2002). Real options analysis: Tools and techniques for valuing strategic investments and decisions (Vol. 137). John Wiley & Sons.

Paul, A. (2011). Centrality in Strategic Transportation Network Design: An Application to Less-than-truckload Networks. Kölner Wissenschaftsverlag.

Rushton, A., Croucher, P., & Baker, P. (2014). The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Schönsleben, P. (2016). Integral logistics management: Operations and supply chain management within and across companies. CRC Press.

Stein, K. E., & Sloane, R. K. (2003). Using customer needs to drive transportation decisions (Vol. 487). Transportation Research Board.

Stock, J. R., & Lambert, D. M. (2001). Strategic logistics management (Vol. 4). Boston, MA: McGraw-Hill/Irwin.

Tambo, T. (2012). Strategic logistics service provider selection influenced by relationships, cost and market dynamics-a multi-factorial case study. In Proceedings of the 4th International Conference on Information Systems, Logistics and Supply Chain.

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