SUPPLY CHAIN ANALYSIS mcdonald’s supply chain

LECTURER: KRISTOF VAN HOUDT RMIT UNIVERSITY SGS CAMPUS “BUSINESS IT AND SUPPLY CHAIN G3 – T3” SUPPLY CHAIN ANALYSIS OMGT2267- Business IT and Supply Chain McDonald’s Supply Chain BUSINESS IT AND SUPPLY CHAIN: TEAM Word Count: 2430 Members name: Abstract Well-known as one of the largest fast-food restaurant chains in the world, McDonald's has long been famous for the success of its supply chain McDonald's has certain advantages when combining effective strategies in supply chain operations with the application of technological innovations However, there are still problems exists inside it, the majority of which are due to the inefficiency of human decisions related to the management of the supply chain This report includes an analysis of the McDonald's supply chain, highlighting its strengths and weaknesses At the same time, providing significant opportunities for McDonald’s to enhance its supply chain’s performance Table of Contents I.INTRODUCTION II.THE CURREN SUPPLY CHAIN OPERATIONS III.STRENGTHS AND WEAKNESSES OF THE INTERNAL SUPPLY CHAIN 1.Strengths 2.Weaknesses IV.POTENTIAL SOLUTIONS 10 V.CONCLUSION 12 REFERENCES 12 APPENDICES .15 I Introduction McDonald’s is the world’s leading fast-food chain with a vision to bring out the best experience to customers by serving the highest quality food (“Good Food”) with the superior services (“Good People”) in a clean and welcoming environment (“Good Neighbor”) (McDonald’s n.d.) McDonald's started out with a small drive-through restaurant by Richard and Maurice McDonald in the United States in 1948 However, not until Ray Kroc bought its trademark with $2.7 million in 1961, Ray Kroc has successfully made McDonald's one of the most valuable global brands McDonald’s operates 38,695 restaurants in 118 countries, employing approximately 205,000 people at year-end 2019 (McDonald’s 2019) Before the hit of Covid-19 pandemic, in 2019, McDonald’s reached $21.1 billion in revenues, net income of $6 billion, and $47.5 billion total assets (McDonald’s 2019) Building a sustainable supply chain associated with corporate social responsibility is a key component of McDonald’s success This study is aimed to analyze the current supply chain operation of McDonalds, discuss the strengths and weaknesses in this competitive business environment, thereby finding the solutions to overcome the challenges and improvement opportunities to optimize the efficiency of its supply chain II The current supply chain operations: Over the long periods of operation, McDonald’s logistics and supply chain today are still based on long-term tactics devised by Ray Kroc (Kroc’s approach), one of the pioneers of the fast-food industry (Thomas 2019) This approach is primarily reliant on the simple win-win relationship for all parties involved including three main factors: McDonald’s suppliers, McDonald’s franchisees and McDonald’s employees (McDonald’s n.d.) Figure McDonald’s Supply Chain (Verma & Kiel 2019) McDonald’s has utilized effectively the vertical integration into its supply chain Despite the fact that McDonald's product options vary by country, the company has set up its formal model for the global supply chain Starting from the first point, there are two levels in the supply section Tier suppliers are food producers such as lettuce growers, potato growers, cow breeder, etc whereas Tier suppliers are processors who turn cow into beef and potatoes into French-fries (Pagare, Kumari & Khandelwal 2021) For the operation of McDonald’s in Vietnam market, there are just two items are now acquired from national suppliers comprising tomatoes and lettuce, while beef is imported from Australia, pork and potatoes are imported from the United States (McDonald’s Vietnam n.d.) In next phrase, the produce is subsequently placed in the cold chain, which assists to maintain the freshness and nutritional content of food goods when transferring from suppliers to distribution centers and then deliver to restaurants Depending on product type, it has multiple compartments of temperature zones like chilled product will be maintained at to 4°C, meanwhile frozen product should be kept at -18 to -20°C, and ambient temperature for dry products (Pagare, Kumari & Khandelwal 2021) Figure The cold chain management system In the procurement process, McDonald’s applies electronic procurement (Eprocurement) technologies, dubbed E-MAC digital, to allow all McDonald's franchise restaurants around the world to make orders for whatever they need via the company website After franchises place orders on the platform, the logistics department will process and manage the orders as well as inform this information to suppliers These ordered items will be sent to the franchises by logistics For that, the E-MAC digital plays a role in handling and executing all of the stages (Verma & Kiel 2019) In addition to being speedier and more accessible for franchisees, this technology also optimally lowers the McDonald's expenditures by giving business owners the opportunity to purchase supplies and materials at a cheaper rate Figure McDonald’s E-Procurement (Verma & Kiel 2019) In warehousing and transportation process, distribution center will receive items from multiple suppliers and then store them in various temperature zones before supplying to McDonald's restaurants in accordance with their specifications Particularly, the company offers cold and dry storage facilities that can keep items down to -22°C Furthermore, throughout the transportation process, McDonald’s uses refrigerated vehicles that can take products from room temperature to frozen These specially built trucks keep the temperature of the storage compartment constant during the journey (Appendix 3) (Verma & Kiel 2019) When items are delivered to restaurants, there are inventory techniques that McDonald's franchisees used to control the quantity and quality of these items including Just-In-Time (JIT) for perishable, fresh ingredients This aids the restaurant in lowering expenses, eliminating the need for storage, and improving product quality (PhD Essay 2021) The second technique is re-order point (ROP) used for nonperishable items ROP figures out the point at which a restaurant must place a new order to avoid being out of stock (Bruzda 2020) Afterall, these items will be processed into fast-food and sold to customers right away III Strengths and Weaknesses of the internal supply chain: Strengths: McDonald's has occupied the No.2 spot of the top supply chain in 2016 (Vitasek 2016) This success is based on McDonald's strengths in supply chain strategy as well as the effective use of technologies in the process With McDonald’s approach, suppliers and businesses generate value together, their business strategy boosts development not only for them but also for all parties involved including suppliers and franchisers rather than simply exchanging value Kroc's philosophy is based on "The Three-Legged Stool'' One of the legs is the operator that runs the restaurant, a second is McDonald's employees, and the third is suppliers Each leg is a partner and equally important and they support each other to reach the highest objective This philosophy makes corporations parties very accountable and responsible for their work (Waters 2018) As one of the largest fast-food restaurants in the world with huge demand, McDonald’s has certain advantages in terms of its technology Particularly, McDonald’s uses the SAP technical platform for suppliers, whereas the distribution company uses RAMCO Marshall ERP with Cobra Software resulted in the attainment of effectiveness in the process of managing the supply chain, moreover, to ensure that they have enough stock to meet customer needs and requirements (Sandle 2017; Hilap 2019) Another technique called Re-order point, it helps restaurants to anticipate whenever they are running out the materials to avoid being out of stock, and promptly respond to customer needs By using these applications, the system will announce the distributors whenever a restaurant is running out the materials, so they can provide the materials to the restaurant timely and also make the process highly smooth and effortless Because McDonald’s supply chain system is able to order via the internet, track and distribute products much more easily by giving owner’s franchise restaurants ability to see every process An example of how the internet positively affect McDonald logistics is when restaurants place an order, the technology allows them to see live update of the process throughout the GPS tracking of truck containing their orders to distribution center and from distribution center to their restaurants, so that they can make an estimated time of arrival for their orders (Verma & Kiel 2019) Consequently, materials will always be available in a timely manner, thereby it will cut down the customer's waiting time and reduce the possibility of customers choosing an alternative fast-food restaurant With the application of the cold chain, the company offers storage facilities that can keep items down to -22°C, as well as transportation vehicles that can take products from room temperature to frozen This technology ensures the materials are always fresh, clean and able to meet the needs of customers When the food is prepared quickly and carefully, it has gained the love of customers and that is one of the reasons why they choose fast-food at McDonald’s (Pagare, Kumari & Khandelwal 2021) Weaknesses: Effective and accurate inventory management are crucial for any business, especially for fast food industry which responsible to handle mostly low shelf-life ingredients However, one of the biggest challenges that McDonald’s facing is inventory management Although McDonald’s has invested on latest technology in order to keep track of the inventory, demand forecasting requires a deeply involved of human decision-making Figure McDonald’s Regional Stock Planning Map Poor inventory management is due to the lack of communication and a deep cooperation between central inventory planning manager, stock control specialist, and restaurant manager Demand forecasting is a crucial decision-making process that requires thousands of people working together to make thousands of small decisions Failure to manage the time of arrival, the right amount of ingredients, and the shelf life of each batch of products will lead to inventory overstock and understock Inventory overstock means the restaurants store more supply than its customer’s demand In this case, restaurants fail to consume the fresh ingredients within its expiry date, normally within a week, so the restaurants need to throw away spoiled ingredients, leading to a massive food waste According to the United Nations report, every year, one-third of food produced are wasted or spoiled due to poor handling (Napolitano 2019) Moreover, production wastages directly increase production costs, thus reduce profits (Huang et al 2019) On the other hand, inventory understock means the restaurants not have enough supply to meet its customer’s demand, leading to customer dissatisfaction and missed sale opportunities As one of the most famous food chains in the world, however, McDonald’s is mostly facing disruptions related to supply chain With the hit of COVID-19 pandemic, numerous McDonald’s restaurants are forced to close for a 10 few days due to the limited stock and shortage of critical ingredients One of the reasons behind the insufficient of ingredients is that the inventory heavily relying on a wide variety of suppliers from all around the world (McDonald’s Corporate 2020) In particular, according to McDonald's Vietnam, currently only two ingredients, tomatoes and lettuce, are purchased from Da Lat, and 100% of beef is imported from Australia, while pork and potatoes are imported from the US (McDonald’s Vietnam n.d.) Packaging items such as paper boxes for food and paper cups are being imported from neighboring countries such as China and Malaysia (Le 2015) During the pandemic, supply chain activities, especially importing and exporting oversea, are disrupted due to custom procedural difficulty, thus leading to the delay of delivery and increasing in transportation cost Therefore, many McDonald’s restaurants faced the risk of insufficient raw material and poor-quality inventory due to shipping delay In order to ensure the freshness of food and minimize food waste and production costs, McDonald’s still needs to pay more attention to demand forecasting, be more sensitive and quickly respond to customer’s demand or catastrophe events like COVID-19 McDonald’s needs to standardize a strategy for stock planning: clear standard of inspection in a timely manner, strictly record in and out of storage, ensure integrity of food and its suitable storage method (Liu, Ma & Wu 2021) IV Potential Solutions: In the current situation, with the emergence of COVID-19 pandemic, the risk is not restricted to people fighting the pandemic on the front lines when people work in the service sector, in general, and the fast-food business, in particular, are obliged to go out and work in stable places, they are also at risk (Singh, Dalla & Shrivastava 2021) Besides that, with the ongoing advancement and penetration of robotic technology, it has infiltrated numerous aspects of human life, including the hospitality industry, where robots are used in a variety of sectors (Murphy, Hofacker, & Gretzel, 2017) For that, restaurants have drawn the most robotics research out of all the hospitality and tourism industries (Ivanov et.al 2019) The combination of these data suggests that incorporating robotics into McDonald's supply chain could present a significant opportunity for the company to solve some of the problems it faces in 11 dealing with the COVID-19 pandemic while also improving its performance thanks to the advantages of robots Restaurants, as a segment of the hospitality business, may utilize robots to handle mundane and repetitive jobs, as well as to differentiate themselves from the competition by providing consumers something new and interesting (Berezina, Ciftci & Cobanoglu 2019) Typically, a robot is utilized as a kitchen helper at the rear of the restaurant to perform repetitive tasks such as frying or grilling, placing pizza pies in a hot oven, dispersing and spreading sauce, and rolling and cutting (Statt 2017) Flippy, for example, resembles a large robotic arm When the burgers are ready, this AI-powered robot turns them on the grill and places them on a tray (Appendix 1) Flippy can work with human cooks, who prepare the patties by grilling them and then placing them on buns and assembling the hamburgers after they are done Around 300 burgers may be cooked each day by the robot (Daily Mail 2018) At this point, by reducing human-to-food contact, the burger-flipping robot not only ensures a safer and better work environment for employees and food production, but it also completes monotonous jobs rapidly, improving profit margins Customers in the United States that have used Flippy estimated a 300 percent improvement in profit margins (Tyler 2020) Moreover, some robots are capable of completing the entire meal preparation procedure like Moley robot (Appendix 2) Therefore, chefs might be replaced by robots in the kitchen Robotic kitchens combine several operations into a single system These robots are already being used to cut or chop items and prepare them according to pre-programmed recipes or client demands (Holley 2018) Taking these advantages into account, it is clear that restaurants in the supply chain operation of McDonald’s can minimize preparation or cooking time and mistake rates, boost production, and assure consistency in food quality by using these sorts of robots Through that, it can greatly improve the performance at the end of the supply chain when it enhances the processing from materials to end-fast-foodproducts selling to the end customer 12 V Conclusion: Over the years, McDonald’s has successfully built its own empire as writing its name on Top 10 most valuable brand in the world, the only food industry company among the list (Forbes 2020) To achieve that, McDonald's has set out a sustainable supply chain strategy, “The Three-Legged Stool”, to create effective partnerships with suppliers and the franchisees However, there is still a need of a deeper cooperation and communication between all branches to improve its inventory management It is suggested to use technology application, advance robotics in particular, to enhance process visibility, boost productivity, optimize value-added service provide to the customers The story is not only about how long it took this corporation and whether or not it achieved its goals, but also the sharing of vision, support and cooperation at the highest level with McDonald's 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Figure McDonald’s Supply Chain (Verma & Kiel 2019) McDonald’s has utilized effectively... Business IT and Supply Chain McDonald’s Supply Chain BUSINESS IT AND SUPPLY CHAIN: TEAM Word Count: 2430 Members name: Abstract Well-known as one of the largest fast-food restaurant chains in the