(TIỂU LUẬN) FEASIBILITYANALYSIS mcdonald’s supply chain

LECTURER: KRISTOF VAN HOUDT RMIT UNIVERSITY SGS CAMPUS “BUSINESS IT AND SUPPLY CHAIN G3 – T3” FEASIBILITY ANALYSIS OMGT2267- Business IT and Supply Chain McDonald’s Supply Chain BUSINESS IT AND SUPPLY CHAIN: TEAM Word Count: Members name: NAME PERSONAL TASKS Pham Ngoc Anh s3915391  Dang Tien Dat s3816808  Nguyen Phan The Vinh s3741041  Hoang Tri Dung s3918759  Abstract Table of Contents I.INTRODUCTION II.THE CURREN SUPPLY CHAIN OPERATIONS III.STRENGTHS AND WEAKNESSES OF THE INTERNAL SUPPLY CHAIN 1.Strengths .7 2.Weaknesses IV.POTENTIAL SOLUTIONS 10 V.CONCLUSION 12 REFERENCES .12 APPENDICES 15 I Introduction: McDonald's is an American fast-food chain that began in San Bernardino, California, in 1940 as a restaurant run by Richard and Maurice McDonald They renamed their business a hamburger stands and then transformed it into a franchise, with the Golden Arches emblem first appearing in 1953 at a Phoenix, Arizona site Ray Kroc, a businessman, joined the company as a franchise agent in 1955 and went on to buy the McDonald brothers' franchise McDonald's is one of the largest restaurant chains in the world, serving approximately 69 million people daily in more than 100 countries and 37,855 locations as of 2018 The company is most known for their hamburgers, cheeseburgers, and French fries, but they also provide chicken, breakfast, soft drinks, milkshakes, wraps, and desserts With a mission to provide customers with the greatest possible experience by providing high-quality food (“Good Food”), exceptional service (“Good People”), and a clean and friendly environment (“Good Neighbor”), McDonald's success is largely due to its ability to create a long-term supply chain which is also focused on corporate social responsibility However, as finding in the first report, McDonald's is facing major challenges in inventory management Despite the fact that McDonald's has spent considerably in technology to keep track of inventory, demand forecasting remains an issue for the firm since it involves a substantial degree of human decision-making It is recommended that technology applications, particularly AI technology, be used to improve the current McDonald’s process visibility, create more accurate forecasts, and maximize value-added service to consumers This study's objective is to explore deeply the existing issues in McDonald’s supply chain operation, and then come up with a viable solution that can assist the company to solve its obstacles as well as improve the supply chain's efficiency In addition, this study also provides an overview of the relationship between McDonald's issues and the proposed solution, and analyze the identification of feasible aspects of the solution as well as the mention of a specific plan that will allow McDonald's to put the solution technology into practice II Issues faced by the company Inventory management is critical for every organization, and it is particularly important for the fast-food industry, which deals with products that have a short shelf life The McDonalds's is difficult within inventory management, particularly demand forecasting skill, with global operation in a number of countries and geographic segments Practically, McDonald’s has invested considerably on technology and software in order to keep track of the inventory, demand forecasting to ensure the supply chain working smoothly However, inventory management and demand forecasting are still among the biggest challenges facing by McDonald's 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) Besides that, McDonald’s is mostly facing disruptions related to supply chain which can cause inventory understock and inventory overstock As a result, these will lead to customer dissatisfaction and missed sale opportunities In particular, according to McDonald's Vietnam, currently only two ingredients, comprising tomatoes and lettuce, are purchased from domestic suppliers, 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 Covid-19 pandemic, supply chain activities, especially importing and exporting oversea, are disrupted due to custom procedural difficulty, border closure between countries, and thus leading to the delay of delivery and increasing in transportation cost III In-Depth Analysis of The Proposed Solutions The massive loss – the consequence of poor inventory management Inventory is a critical component of any supply chain operation as it is frequently the largest item in a company's current category assets on the balance sheet (Priniotakis & Argyropoulos 2018) Therefore, any inventory-related issue might result in enormous company losses or even failure In practice, the inventory issues refer to poor performance of inventory management, and eventually cause the inventory overstock or inventory understock (DSB Business Systems 2017) At this point, businesses will be greatly suffered in both situations In the event that the inventory phase experiences an overstock situation, the company will get a budget deficit as a result of the money used to handle and maintain items that will not be used in the near future plan, as well as the rising costs of renting oversized warehouses to accommodate the amount of inventory items (Agu, Ozioma & Nnate 2016) In contrast, when the company witnesses an understock scenario, loss of opportunity sales will occur when the company is unable to promptly fulfill all orders owing to the out-of-stock of products, and thus the consumers will intend to purchase elsewhere Consequently, the company loses their potential customers because people seldom look back after finding other options that can promptly fulfill their requests at a competitive price (Weiss 2018) As mentioned in the report, McDonald’s is difficultly dealing with the main issues related to poor management in the inventory section These issues result in both overstock and understock situations Therefore, it is definitely crucial for the company to implement a viable solution to solve the problems thoroughly, thereby reducing the unnecessary losses in the inventory phase, particularly in the context of Covid-19 pandemic The links between McDonald’s major issue and the proposed solution One of the most potential current technologies that can address McDonald’s existing issues is C3 AI Inventory Optimization In terms of explanation, this technology is the utilization of powerful AI, machine learning, and optimization techniques to assist warehouses in reducing inventory levels of required items, while retaining assurance that they will not run out of stock at the peak time (C3.ai 2020) This is an extremely useful tool in aiding warehouse manager to make accurate decisions on inventory levels, thereby preventing the McDonald’s company from being suffered by pain points in its current inventory phase According to a report, in the US, restaurants squander between and 10% of the ingredients they buy before it reaches the customer by the effect of the inflexibility of chain store management including poor inventory management As a result, these restaurants generate 22 to 33 billion pounds of food waste annually (Natural Resources Defense Council 2017) With the utilization of AI-based optimization, AI C3 can tackle this issue by informing its users the precise data regarding ordering parameter changes such as safety stock or the size of new orders, thereby avoiding the warehouse from overstocking materials and items Consequently, the company can retain the cost of overstocking inventory and discarding expired ingredients Besides, AI C3 technique also allows McDonald’s to have an overview of all types of inventories in real-time via the supply chain digital twin (C3.ai n.d.) Furthermore, the AI C3's auto learning feature is a powerful aid supporting McDonald’s in making better forecasts since it allows the company access to part-level estimations based on the auto observation & aggregation of data about consumption’s fluctuation in a period of time Moreover, the additional function AI-based lead time of AI C3 can release the predictions and customizable warnings for late orders and supplier deliveries, and thus assist the users to achieve On-Time-In-Full objective Besides that, because this technology can bidirectionally integrate with existing ERP and MRP systems used in the McDonald’s supply chain, it creates more conveniences in gathering information from closed-loop action as well as provide feedback (C3.ai n.d.) The proposed solution’s feasibility a Economic Currently, C3 AI company is offering a free demo package of C3 AI Inventory Optimization to new users, and it has not set up the price for this technology yet (C3 AI n.d.) This is a great opportunity for McDonald's to be able to try this approach without expensing for purchasing the technology Meanwhile, there will be a necessary cost for McDonald's to train employees on how to get familiar with the new technology According to Association for Talent Development’s report in 2016, the average cost of training new program for employee is usually about $1252 and the average training hours is 33.5 – nearly equal to working days However, it is not essential to train the entire staff of the McDonald's supply chain, just focus on training managers and IT staff at each pilot warehouse Therefore, the cost of training new technology programs will be drastically reduced, and it will be considered insignificant in comparison to the benefits that this technology brings for business, including a 20-50% decline in inventory levels and holding costs, as well as a 15-30% reduction in shipping costs b Technological McDonald's, as one of the world's largest fast-food chains, has long been recognized for incorporating technology into its supply chain and employing a highly technical management team With these technological advantages, it is safe to say that McDonald's will be able to deploy the test of this new technology into its system c Operational Bringing new technology into the entire supply chain is barely possible in practice because it carries a number of risks Hence, it will be better for McDonald's to test the technology in pilot restaurant & warehouses clusters If tests show that the C3 AI Inventory Optimization successfully integrates with McDonald's systems, then it is time to apply this technology to the entire supply chain d Schedule In terms of schedule, McDonald's needs to find potential clusters of warehouses and restaurants to launch the new technology test It will take about days train managers and IT employees in these chosen points and the trial to evaluate the effectiveness of new technology will take a minimum of months before it can be considered whether apply into the entire system or not This test can be conducted at a convenient schedule for McDonald's, since it can be implemented in pilot clusters while maintaining current technology in the rest of the company's restaurants e Legal & Political The application of this technology is completely consistent with the policies and operations of the McDonald's supply chain Since this technology is mainly related to activities in the company's internal environment, it will be less influenced by external factors such as end-users IV Implementation Planning Currently, McDonald’s is using forecasting tools and bespoke ordering system to review the previous orders and forecast the demand of products for the next delivery (FAQ McDonald’s) Facing the challenges in effectively managing the inventory, this study is suggested McDonald’s to implement C3 AI Inventory Optimization which has shown the potential in improving organization efficiency and increasing the visibility of inventory management During the system changeover, there are four methods are commonly used: phased implementation, pilot implementation, direct cutover, and parallel running (Ly Pham et al 2021) After a careful consideration of the advantages and disadvantages of each method, it is recommended McDonald’s to deploy C3 AI Inventory Optimization technology by pilot implementation method In this method, an organization will gather a subset, called a pilot group, to start using and testing out the new system before applying to the rest of an organization (Ly Pham et al 2021) By having a pilot group testing out the new system, it is easier to detect flaws, address uncertainty, and develop immediate adjustments, thereby helps to minimize full implementation risks when put into practice Although this method has a certain drawback that it consumes a long conversion time since the technology must be welltested by a pilot group first, the slow and steady integration will help the company achieve the goal to develop and implement a long-term, effective, and sustainable system Although pilot implementation is seemed unchallenging to conduct, an organization can easily face the risk of failure due to poor planning and monitoring and lack of dedicated resources, thereby wasting a huge amount of capital and time (James Wyler 2018) On the other hand, establishing a strong, strategic pilot implementation plan helps an organization determine the feasibility of full-scale implementation, minimize costs and times, and effectively validate C3 AI Inventory Optimization’s infrastructure and processes To maximize the success of the pilot implementation, “an organization should develop a detailed pilot approach, identify appropriate participants, plan the pilot environment, and determine how to monitor the pilot” (Welp Magazine 2020) This study suggests McDonald’s establishing an implementation plan of C3 AI Inventory Optimization Technology based on these three approaches: determine pilot requirements and develop a strategic plan Determine Requirements for Pilot Implementation a Goals and Objectives Ability to define realistic goals and objectives are one of the most critical factors determine the success of any projects (Élen et al 2015) The pilot implementation goal is to validate its approach for full application implementation According to McDonald’s, by the end of 2020, there are only 7% McDonald’s branches owned by the company that accounts for approximately 2,660 stores, of which 650 company-owned stores are operated in the U.S (McDonald’s Corporate 2020) It is suggested McDonald’s to randomly pick out 100 company-owned restaurants in the U.S to participate the pilot implementation Scooping the pilot group within the company-owned branches helps the McDonald’s reduce several costs and risks It is time-consuming having to inform the franchisor of the software and get their approval to test out the new program, and the company must spend extra money on paying the training cost for the franchisor Meanwhile, McDonald’s holds all the decision-making over the company-owned branches and also takes full responsibilities on the results of the project It will not affect the franchisee’s operation activities if the project went wrong The C3 team states that it takes approximately 3-6 months for incorporate users to scale and deploy a tested AI Technology and able to give feedback and adjust to drive the maximum value (C3 AI n.d.) The pilot will start immediately after the production trial, in which an organization and the C3 team meet up and discuss on the company’s challenges to build a customized AI application to solve it, that takes 8-12 months (C3 AI) As stated above, C3 AI company offers a free demo package of the software to new users (C3 AI n.d.) Therefore, McDonald’s only has to spend on the new program training cost for employees who are working directly with the new system McDonald’s should prepare an estimated budget of $150,000 for the pilot implementation Altogether, to achieve the goal, the pilot’s objective is planned to involve IT staff, the regional inventory planners, and all staff at 100 selected McDonald’s company-owned restaurants in the U.S, for a minimum period of months and maximum of months, with a budget of $150,000 b Deliverables By the end of the pilot implementation, the pilot group is expected to deliver the adjusted version of C3 AI Inventory Optimization, which is suitable to the company’s practices, has an ability to solve the company’s high-impact problem, and minimizes application errors There is a need for a feedback report on the model-driven architecture and its capabilities, thereby develop a detailed user’s manual to simplify a full-scale adoption c Participant Roles and Responsibilities 10 Indicating specific roles and responsibilities will have a positive impact on employee satisfaction, engagement, thereby directly increase the process visibility, productivity, and the result of the project (Élen et al 2015) The participants of the pilot are divided into three groups that responsible for different tasks and roles The first group is formed of IT staff and regional inventory planners They must be equipped with an advanced knowledge and skill in using C3 AI Technology Their role is to constantly monitor and review the efficiency of the software, detect flaws, and make adjustments to fit to the company’s operation The second one gathers 100 head managers of each restaurant Similar to the first group, the second group needs to be proficient in C3 AI Software to update and exchange data of the restaurants with the first group Finally, the third group includes all staff working in those 100 selected sites, excluding the manager The third group is unnecessary has to have a skill on using the new software, but since they are the one directly using the inventory, they play a significant role in helping the restaurant manager to successfully manage the inventory level Develop A Strategic Plan Based on the “Process model for Success Management” developed by Varajão (2018), this study is able to establish a strategic application pilot implementation plan for McDonald’s Next is presented clearly each step of the planning and its brief activity description (Figure ) Figure : Application Pilot Implementation Plan (Varajão 2018) 11 V Conclusion: McDonald’s, which is one of the biggest companies in fast-food industry, have affirmed their brand position in globally The key reason for their success is because they have built a sustainability supply chain as well as developed a successful social responsibility helping their food is trusted and loved by people of all ages However, based on the analysis of current operation of McDonald’s supply chain, it points out that the company still have two biggest flaws which are related to inventory management skill and demand forecasting skill This is also the most difficult challenge that McDonald’s need to faced off for a long time Moreover, these issues have been got worse in the context that Covid-19 pandemic has lasted for months on the world It is safe to say that the loss and failure to preserve food is always the biggest fear of fast-food businesses However, now it is the great time for McDonald's to look back and fix their inefficient management It is recommended that McDonald's can tackle their issues with the assistance of AI C3 Inventory Optimization This is a helpful tool because it shows to warehouse manager the levels of which is in of stock and out of stock The most important thing we need to is to define the goal and objectives and we also need to change the strategy to be able to survive longer 12 ...OMGT2267- Business IT and Supply Chain McDonald’s Supply Chain BUSINESS IT AND SUPPLY CHAIN: TEAM Word Count: Members name: NAME PERSONAL TASKS Pham Ngoc... Abstract Table of Contents I.INTRODUCTION II.THE CURREN SUPPLY CHAIN OPERATIONS III.STRENGTHS AND WEAKNESSES OF THE INTERNAL SUPPLY CHAIN 1.Strengths .7 2.Weaknesses ... current McDonald’s process visibility, create more accurate forecasts, and maximize value-added service to consumers This study''s objective is to explore deeply the existing issues in McDonald’s supply