McDonald’s management of supply chains to avoid disruptions
Course: AMSC700 Contemporary Issues in Supply Chain and Logistics Management
Assessment Two: Case Study
Instructor: Imran Ishrat
Student Name: Jaydeep Meharia
Student ID: 99168781
Table of Contents
TOC o “1-3” h z u 1.Research Question PAGEREF _Toc525032669 h 32.Executive Summary PAGEREF _Toc525032670 h 33.Introduction PAGEREF _Toc525032671 h 43.1Industry Background PAGEREF _Toc525032672 h 43.2Organisational Background PAGEREF _Toc525032673 h 44.Operations and Performance PAGEREF _Toc525032674 h 55.Integration Considerations PAGEREF _Toc525032675 h 65.1Internal Integration PAGEREF _Toc525032676 h 65.2External Integration PAGEREF _Toc525032677 h 76.Value Generation PAGEREF _Toc525032678 h 86.1Value Stream Map PAGEREF _Toc525032679 h 97.Conclusion PAGEREF _Toc525032680 h 108.References PAGEREF _Toc525032681 h 119.Appendices PAGEREF _Toc525032682 h 12
Research QuestionMcDonald’s, a fast food service restaurant; was founded by Richard and Maurice McDonald in 1940 in California, USA. McDonald’s is present in more than 100 countries with more than 37.000 outlets. This massive network is not easy to manage, and its entire smooth working is because of its supply chain management. The entire supply chain is outsourced and some of the major features of its supply chain are lean management, multi-layered supply chain and cold chain. Just a few years back, McDonald’s saw a disruption in its supply chain which lead to loss of sales and closure of some outlets. There could be many reasons behind this failure, but a major reason was McDonald’s lack of visibility and alertness led to this disruption which impacted heavily to the fast food giant.
How should McDonald’s manage their supply chains to avoid further disruptions?
Executive SummaryIntroductionIndustry BackgroundFast food industry is booming worldwide and is even bigger than the economic value of most countries with a revenue generation of over $570 billion. Fast food is a mass-produced food made for commercial resale. The global fast food market grew by 4.8% and a volume of 80.3 billion transactions. There are many fast food restaurants globally which comprises of making the fast food industry so large and economically giant, some of the major restaurants are; Burger King with more than 11.000 restaurants in 65 countries, KFC with more than 20.000 restaurants in 123 countries, Subway with more than 43,000 restaurants in 112 countries and many more like Pizza Hut and Taco Bell. The fast food industry has a huge market share of $200 billion, high employment rate with more than 10 million jobs globally, high growth rate and positive growth in future.
Organisational BackgroundMcDonald’s; an American fast food company was founded in 1940 in California by Richard and Maurice McDonald. McDonald’s is a limited menu fast food restaurant and is specialised through its speedy operations. McDonald’s leads the fast food industry with more than 37,000 restaurants in more than 118 countries serving more than 67 million customers every day. McDonald’s suppliers are a part of its three-legged stool. The suppliers of McDonald’s are Tyson food, Fresh express, General Mills, Dean Foods, Coca-Cola and many more. McDonald’s largest distributor is Martin-Brower Company LLC who delivers to more than 15,000 locations in North America. McDonald’s ranks number two for its great supply chain management. For almost a decade, McDonald’s has been focusing on optimizing and maintaining their supply chain to suitable standards and to make their supply chain as much transparent as possible. The transparency of supply chain of McDonald’s earned praise by the British government’s official investigation; Elliott Review.
Operations and PerformanceSuppliers
Suppliers are responsible for providing raw materials to the manufacturers in a supply chain. McDonald’s works with two types of Suppliers; Major suppliers and small suppliers. McDonald’s has two categories in suppliers; tier 1 and tier 2. Tier 1 has 14 suppliers which provides processed products such as vegetables and chicken patties supplied by Vista processed foods Pvt ltd, French fries, wedges and hash browns by McCain foods Ltd and many more. While tier 2 suppliers are the farmers and processors who provide poultry items, lettuce which is a major ingredient of McDonald’s and potatoes, coating systems which are used for coating the chicken and vegetable patties. The flow of materials is from tier 2 suppliers to tier 1 suppliers who process and grow them.
McDonald’s have certain logistics service providers who are efficient and experienced to look after the transport while the organisation can focus on its core operations. An organisation gets in partnership with other companies mainly to look after its warehousing, purchase of materials, material handling and other stages of logistics. Third party logistics refers to using other companies to run its logistics functions. McDonald’s third-party logistics are Keystone distribution which provide distribution services to major parts of America, Asia and Europe.
McDonald’s entire network of supply chain works through movement of goods through cold chain in which suppliers are also involved. An important feature of the cold chain is that the same refrigerated truck can carry products at different temperatures as required. The transportation of McDonald’s is totally outsourced and due to using frozen products, it is mostly done in refrigerated trucks. The products attained from various suppliers are transported in an efficient refrigerated truck which delivers the products at the company’s distribution centres. Multi-temperature and single-temperature designed refrigerated trucks then transport the fast food quickly to the designated restaurants all over the world and provide the Just-in-time delivery, enabling the company to cut the non-value adding costs through eliminating the waste.
Integration ConsiderationsInternal IntegrationExternal IntegrationValue GenerationA value chain can be defined as a set of interrelated activities a company uses to create a competitive advantage. Value stream mapping is a type of flowchart used to depict material and information flow through a production process.
Value stream mapping helps to enhance understanding of the processes, inventory flows and reasons for wastage. It helps to see the reasons behind wastages and cut those non-value adding processes and create value for the organisation.
Value chain has three major stages:
It moves typically from Supplier to Customer. It could be through various warehouses among distributors, dealers and retailers. Challenge here is to ensure that material flows quickly without halting as inventory in various points in the chain. Faster it moves, better it is for the company as it reduces cash cycle. For repairs, exchange, at end of life
material can also flow from Customer to Supplier. Finally, finished goods flow from Customer to their Customer through various agencies. 3PL in the process may be there in the picture. Not to forget here, internal flow within the Customer company.
It reflects the flow of materials as it escalates from raw materials, through every main process phase towards finished goods moving near the customer (King & King, 2015). Material flow need to be recorded throughout the flow at different stages. The amount of stock, material and components stored in the inventory are essentially noted (What Is “Material Flow” Within A Value Stream Map?, 2017).
The sharing of information across various stages in supply chain is highly important. Information acts as a connection between various stages of supply chains which allows the coordination of actions and maximizing profits of entire supply chain. The flow of information is bi-directional and flows both ways in supply chain. There should be continuous interaction between supplier and customer for the supply chain to be successful. In the modern era of supply chain network, all the partners are involved such as distributors, retailers, manufacturers, suppliers and logistic service providers in the flow of information. McDonald’s uses many information systems such as Transaction processing system, Decision support system and Management information system for its smooth flow of information among its supply chain partners. In the figure presented below, the information flows both ways from suppliers to customers and vice a versa.
Value Stream Map