McDonald’s Supply Chain
SUPPLY CHAIN MANAGEMENT FINAL PROJECT
Supply Chain Cycle Of McDonald’s Presented by: Salman Malik Saira Rehman Sumra Nusrat Reema Islam
2093051 2093039 2093031 2093222
Presented to: Sir Sikanded Aziz Date of Presentation: 21th April '11
National college of business administration & economics
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McDonald’s Supply Chain
ACKNOWLEGEMENT
We feel great pleasure in expressing our deep heartiest and sincere gratitude to our respectable project advisor Sir Sikandar Aziz for his encouraging attitude, kind dealing and his keen interest in preparing this report.
Contents
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McDonald’s Supply Chain Food service business sector.........................................................4 McDonald's..................................................................................4 McDonald’s in Pakistan.................................................................5 Supply Chain Management in Pakistan...........................................5 WHY THE PROJECT...............................................................................6
History......................................................................................... 6 Products.............................................................................................7 Types of restaurants............................................................................7 Respect for local culture of Pakistan.....................................................8 International Standards.......................................................................8
Basic concept of Supply Chain cycle view.......................................9
Process views of a supply chain.....................................................................................10
McDonald’s Global Supply Chain..................................................10 Supply Chain Management at McDonalds.....................................11 Big Mac's supply chain success....................................................12 Local Sourcing ..................................................................................13 Objective..........................................................................................14 Platter of Services.............................................................................14 Key Features:.................................................................................................................14
Fresh Rush – Features .......................................................................15 Food Park – Features.........................................................................15 Food Park – Capacity .........................................................................16
The McDonald’s System – the World’s Best QSR experience..........16 Purchasing........................................................................................17 Logistics...........................................................................................17 Logistics Standards...........................................................................18
“One-Stop-Shopping “Lean Logistics Solution..............................19 McDonald’s Supply Chain Challenges and problems......................19 Freshness.........................................................................................19 Innovation.........................................................................................19 Fluctuation in Demand.......................................................................20 Bull Whip effect ................................................................................20 Cannibalization..................................................................................20 Decentralized Structure.....................................................................21
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McDonald’s Supply Chain Conclusions and suggestions.......................................................21 References .................................................................................................21
Food service business sector The business sector which we have selected for our supply chain management project is FOOD SERVICE. The reason for choosing this business sector is up growing and demanding nature of this business as Asian people especially Pakistani people are very fond of food. The increasing number of fast food lovers is noticeable and now people are more knowledgeable about quality food. For this purpose we have selected McDonald’s ‘the global leading food service retailer’.
McDonald's Is the leading global foodservice retailer with more than 30,000 local restaurants serving 52 million people in more than 100 countries each day. More than 70% of McDonald's restaurants worldwide are owned and operated by independent local men and women. Is one of the world's most well-known and valuable brands and holds a leading share in the globally branded quick service restaurant segment of the informal eating-out market in virtually every country in which we do business. Serves the world some of its favorite foods - World Famous French Fries, Big Mac, Quarter Pounder, Chicken Nuggets and Egg McMuffin. Our rich history began with our founder, Ray Kroc. The strong foundation that he built continues today with McDonald's vision and the commitment of our talented executives to keep the shine on McDonald's arches for years to come. To read more about Page | 4
McDonald’s Supply Chain McDonald's history, vision and executives, click on their links in the left menu.
McDonald’s in Pakistan Aiming to be the world's best quick service restaurant experience, McDonald's started its operations in Pakistan in September 1998 and is a leading fast food service retailer for its valued customers. With a strong belief in the phrase when it's green it's growing. McDonald's Pakistan is growing with the focus to provide friendly and quick service experience to our customers. Today millions of Pakistanis place their trust in McDonald’s everyday to provide them with food of a very high standard as well as good service. In the past five years, the response to McDonalds coming to Pakistan has been overwhelming. Today Lakson Group Companies has taken over McDonalds Corporation, USA and a local partner making it a 100% owned and operated Pakistani company. McDonalds located in Pakistan are currently employing about 3,000 Pakistanis and each store is managed by Pakistani managers. They have also contributed in other ways than food service. McDonalds has investment of over Rs. 30 billion in the country and payment of taxes and duties amounting to more than Rs 10 billion Since McDonalds is doing so well in Pakistan they will continue to grow and add more stores in more cities in the future.
Supply Chain Management in Pakistan These strategies determine what is to be made and what is to be purchased. So McDonalds follow these strategies and have a just-in-time inventory system. Which means that the orders are placed as the raw material comes to near finish. McDonalds maintain no inventory levels for perishable goods. The major suppliers of McDonald’s in Pakistan are as follows: •
Dawn Breads for Buns Page | 5
McDonald’s Supply Chain •
Choudhry Dairy Limited for dairy products
•
Walls Ice Cream
•
Coca-Cola Ltd. for drinks
•
Packages for packing
WHY THE PROJECT •
To strengthen our knowledge
•
To develop practical approach
•
To understand real supply chain practices
History The business began in 1940, with a restaurant opened by siblings Dick and Mac McDonald in San Bernardino, California. Their introduction of the "Speedee Service System" in 1948 established the principles of the modern fast-food restaurant. The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion. With the successful expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also made it a frequent topic of
public
debates
about
obesity,
corporate
ethics
and
consumer
responsibility. 199
McDonald's opens in Pushkin Square and Gorky Street, Moscow.
0 199
The first McDonald's at sea opens aboard the Silja Europa, the world's
3 199
largest ferry sailing between Stockholm and Helsinki. Restaurants open in Bahrain, Bulgaria, Egypt, Kuwait, Latvia, Oman,
4
New Caledonia, Trinidad and United Arab Emirates, bringing the total Page | 6
McDonald’s Supply Chain
199
to over 15,000 in 79 countries on 6 continents. McDonald's opens in Pakistan – the 95th country.
6
Products McDonald's predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald's offers salads and vegetarian items, wraps and other localized fare. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos or to make available foods with which the regional market is more familiar.
Types of restaurants Most standalone McDonald's restaurants offer both counter service and drive-through service, with indoor and sometimes outdoor seating. DriveThru, Auto-Mac, Pay and Drive, or McDrive as it is known in many countries, often has separate stations for placing, paying for, and picking up orders, though the latter two steps are frequently combined; it was first introduced in Arizona in 1975, following the lead of other fast-food chains. In some countries "McDrive" locations near highways offer no counter service or seating. In contrast, locations in high-density city neighborhoods often omit drive-through service. There are also a few locations, located mostly in downtown districts that offer Walk-Thru service in place of Drive-Thru. Especially
themed
restaurants
also
exist,
such
as
the
"Solid
Gold
McDonald's," a 1950s rock-and-roll themed restaurant. In Victoria, British Columbia, there is also a McDonald's with a 24 carat (100%) gold chandelier and similar light fixtures. The site of the first McDonald's to be franchised by Ray Kroc is now a museum in Des Plaines, Illinois. The building is a replica of the original, which was the ninth McDonald's restaurant opened.
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McDonald’s Supply Chain To accommodate the current trend for high quality coffee and the popularity of coffee shops in general, McDonald's introduced McCafés. The McCafé concept is a café-style accompaniment to McDonald's restaurants. McCafé is a concept of McDonald's Australia, starting with Melbourne in 1993. Today, most McDonald's in Australia have McCafés located within the existing McDonald's restaurant. In Tasmania there are McCafés in every store, with the rest of the states quickly following suite. After upgrading to the new McCafe look and feel, some Australian stores have noticed up to a 60% increase in sales. As of the end of 2003 there were over 600 McCafés worldwide. Some locations are connected to BP gas stations/convenience stores, while others called McDonald's Express have limited seating and/or menu or may be located in a shopping mall. Other McDonald's are located in Wal-Mart stores. McStop is a location targeted at truckers and travelers which may have services found at truck stops.
Respect for local culture of Pakistan McDonald's Pakistan has developed a special menu with vegetarian selections to suit Pakistan tastes and preferences. McDonald's does not offer any beef or pork items in Pakistan. Only the freshest chicken, fish and vegetable products find their way into our Pakistan restaurants. In addition, we've re-formulated some of our products using spices favored by Pakistanis. Among these are McVeggie™ burger, McAloo Tikki™ burger, Veg. Pizza McPuff™ and Chicken McGrill™ burger. We've also created eggless sandwich sauces for our vegetarian customers. Even our soft serves and McShakes™ are egg-less, offering a larger variety to our vegetarian consumers.
International Standards McDonald's Pakistan's local suppliers provide us with the highest quality, freshest ingredients. Complete adherence to the Pakistan Government
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McDonald’s Supply Chain regulations on food, health and hygiene is ensured, while maintaining our own recognized international standards. Fast, friendly service - the hallmark of McDonald's restaurants the world over is the mantra we abide by. Stringent cleaning standards ensure that all tables, chairs, highchairs and trays are sanitized several times each hour. Such meticulous attention to cleanliness extends beyond the lobby and kitchen to even the pavement and immediate areas outside the restaurant.
Basic concept of Supply Chain cycle view We can think of the supply chain as a series of cycles of communication occuring between each two consecutive stages. The cycles share the same type of communication, since there will always be a buyer and a supplier. The further we go from the customer, the bigger the scale of the transactions.
Supply Chain Management: cycle view The cycle that surely presents uncertainty to the supply chain is the customer cycle, since it contains an external buyer agent(the customer). Page | 9
McDonald’s Supply Chain Other risks are present when the supply chain includes several organizations, and are strictly related with the supplier strategies. Such, for example, in the case of bottleneck products, the risk of not being able to fullfill a demand must be countered by securing supply sources.
Process views of a supply chain The processes in a supply chain are divided into a series of cycles each performed at the interface between two successive stages of a supply chain.
Cycle View of Supply Chain There are five stages in a supply chain (Supplier Manufacturer Distributor Retailer Customer) and four supply chain process cycles (customer order, replenishment, manufacturing, procurement cycle).
Manufactur er
Supplie r
Distribut or
Retailer
Custom er
McDonald’s Global Supply Chain Having a clear safety and quality policy in place and connecting all facets of our Supply Chain partners regardless of •
Country
•
Culture
•
Language
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McDonald’s Supply Chain Transferring this message to all involved parties (Vendors, Transport companies, Marketing Agencies, Supply Chain departments, Restaurants) around the globe requires an extremely effective and complex safety process. Support and involvement of Senior Management in all phases of the Supply Chain is crucial for McDonald.
Supply Chain Management at McDonalds McDonald's is committed to providing quality products while supporting other Pakistan businesses. And so, we spent a few years setting up a unique Supply Chain, even before we opened our first restaurant in Pakistan. A Supply Chain is a network of facilities including - material flow from suppliers and their "upstream" suppliers at all levels, transformation of materials into semi-finished and finished products, and distribution of products to customers and their "downstream" customers at all levels. So, raw material flows as follows: supplier - manufacturer – distributor – retailer – consumer. Information and money flows in the reverse direction. The balance between these 3 flows is what a Supply Chain is all about. When there is a balance in the finished product ordering, the Supply Chain operates at its best. Any major fluctuation in the product ordering pattern causes excess / fluctuating inventories, shortages / stock outs, longer lead times, higher transportation and manufacturing costs, and mistrust between supply chain partners. This is called the Bullwhip Effect. Depending on the situation, the Supply Chain may include major product elements, various suppliers, geographically dispersed activities, and both upstream and downstream activities. It is critical to go beyond one’s immediate suppliers and customers to encompass the entire chain, since hidden value often emerges once the entire chain is visualized. For example, a diesel engine manufacturer may be able to integrate a GPS locator system into its engine control system. Its immediate customer, a heavy truck manufacturer, may see no need for this functionality. However, the
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McDonald’s Supply Chain downstream customer, a trucking company with a large fleet, may be very interested in a locator system. Understanding the value to the downstream customer is part of the supply chain management process. Synchronization delivers significant business benefits to both the customer and the supply chain Enablers One stop shopping concept Central file management Inventory management Restaurant simplification Synchronizing the perishable Supply Chain 1. Demand forecasting •
Promotional + Continuous Supply
•
Restaurant and DC level
2. Supply Planning •
Restaurant and DC level
3. Visibility and Collaboration across the chain
Big Mac's supply chain success The seed of McDonald's success was sown in 1990 - six years before it started its actual operations. Traces its supply chain management played a vital role in its growth. About two decades ago, the QSR wouldn't have meant much to the F&B segment. Today, the acronym has been seamlessly absorbed in the industry lingo. McDonald's, arguably, one of the first brands that left a strong imprint on the Pakistan QSR history, has much to do with this. And its success is credited to its well-established supply management chain. According to managing director and joint venture partner of McDonald's the company invested about Rs 40 crore even before its first restaurant
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McDonald’s Supply Chain commenced operations in October 1996. "We had to ensure that we had the back-end linked up to the farm level for delivery commitment." The company also deployed the latest state-of-the-art food processing technology for having a sound supply chain. The transition towards the latest technology, which has been subsequently noticed in other QSRs as well, changed the Pakistan fast food scenario to match international standards.
Local Sourcing McDonald's has always been committed to sourcing its requirements from local suppliers and farmers. This assurance is rooted in the philosophy of our company's founder, Ray Kroc. He firmly believed in mutual benefits arising from a partnership between McDonald's and the local businesses, thus ensuring that McDonald's commitment to growth was mirrored by that of its partners. In keeping with this belief, we have carefully identified local Pakistani businesses that take pride in satisfying customers by presenting them with the highest quality products. Adherence to Pakistan Government regulations on food, health and hygiene were a top priority. McDonald's Pakistan today purchases more than 96% of its products and supplies from Pakistan suppliers. Even our restaurants are constructed using local architects, contractors, labour and maximum local content in materials. The relationship between McDonald's and its Pakistan suppliers is mutually beneficial. As McDonald's expands in Pakistan, the supplier gets the
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McDonald’s Supply Chain opportunity to expand his business, have access to the latest in food technology, get exposure to advanced agricultural practices and the ability to grow or to export. There are many cases of local suppliers operating out of small towns who have benefited from their association with McDonald's Paksitan. All suppliers adhere to Pakistani government regulations on food, health and hygiene while continuously maintaining McDonald's recognised standards. As the ingredients move from farms to processing plants to the restaurant, McDonald's Quality Inspection Programme (QIP) carries out quality checks at over 20 different points in the Cold Chain system. Setting up of the Cold Chain has also enabled us to cut down on operational wastage
Objective The objective at McDonald is to provide a cost effective solution to customers ensuring product integrity throughout the supply chain.
Platter of Services •
Supply Chain Structuring
•
Inventory Planning & Replenishment Management
•
Warehouse Management
•
Customer Order Fulfillment
•
Logistics – Temperature Controlled
It handles bulk transportation of temperature sensitive products. Key Features: 1. Dedicated to ‘cold chain’ movement 2. The only logistics solution provider with expertise in handling agri – produce 3. Total kilometer run per month is – 7,00,000 km 4. Perishable tonnage handled per month – 7,000 tons Page | 14
McDonald’s Supply Chain 5. Robust quality systems & processes 6. First in the country to use multi temperature vehicles 7. Use of innovative methods to ensure temperature integrity during transit 8. Experienced staff – The BEST in the industry.
Fresh Rush – Features •
Multi temperature products, such as Frozen (below –18ºC) and Chilled (1ºC to 4ºC) can be transported
•
Flexibility of load movement - A minimum of 500 kgs to maximum of 5000 kgs can be transported
•
In transit temperature tracking
•
Fixed schedule of pickup and delivery
•
Well trained and experienced manpower
•
Adherence to strict hygiene standards
•
Consignment can be tracked through GPS system
Food Park – Features •
Spread over 33,000 sq meters
•
Multi Temperature Zones
•
Integrated Facility – Storage and Value Addition capabilities under one roof
•
Ensured / Guaranteed Food Safety
•
Paradigm shift in the way food is handled in the supply chain in India
•
First of its kind in the region
•
Benchmarked against global standards
•
Codex / USDA / PFA compliant
•
Scalable
•
Dedicated storage for specific categories
•
Sanitation / Hygiene standards – Trash handling
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McDonald’s Supply Chain •
Air / Water Quality – Treatment Plant / ETP
•
Ripening Rooms, Crate Wash Facilities, Blast Freezer, Flake Ice Machine
•
Value Added Services – Processing of Vegetables & Fruits, Meat, Sea Food and Poultry
•
Controls – Building Management System (BMS)
•
100 % Power Back Up
Food Park – Capacity •
Capacity to manage over 6000 SKUs
•
Can store 70,000 cases with 1,700 pallet positions and over 4,000 pick faces
•
Processing o
Vegetable & Fruits – 21 tonnes per day
o
Meat – 3 tonnes per day
o
Fish – 3 tonnes per day
•
Blast Freezing – 6 tonnes – per day
•
Ice Machine – 2.4 tonnes per day
The McDonald’s System – the World’s Best QSR experience McDonald is the world Market Leader in the QSR area (Quick Service Restaurant). They have Franchise System which accounts to about 72% of their total franchises. They have about 1.6 million employees in their system. Their Customers Per Day account to 47 million. They have strong focus on Corporate Strategies •
QSC&V: Quality, Service, Cleanliness and Value
•
Ray Kroc: “None of us is as good as all of us”
•
Plan To Win -> Successful business revitalization
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McDonald’s Supply Chain •
Growth by getting better
Purchasing The McDonalds has the motto of “The 3 legged stool”: Corporation – Franchisees – Suppliers. Moreover they have the most exclusive, certified facilities. McDonald also concentrates on the Handshake agreements, Trust with their suppliers. Long term win partnership is developed between all the suppliers and franchises which increase the risk sharing. They deliver Rigorous product and service specifications with strong focus on quality, product specification and environmental audits.
McDonalds
have
decentralized
supplier
structure,
zone
consolidation for multinational suppliers There distributor is wholesaler for Restaurants.
Logistics •
~100 sales items in the restaurant
•
~400 SKUs in the warehouse (Hubs: up to 1,500)
•
~200 restaurants per DC (~180 DCs globally) Page | 17
McDonald’s Supply Chain •
Delivery frequency: ~3/wk, higher in urban areas
•
2-3 stops per route
•
Exclusive distributors (3PL)
•
Freight consolidation (via freight forwarders)
•
Long term partnerships with service providers, risk sharing
•
Strong quality focus (Cold Chain, HACCP, QIP)
Logistics Standards •
DQMP (Distributor Quality Management Process)
•
Operations and Customer Relations (Operations Manual)
•
Quality Control (HACCP / QIP)
•
Cold Chain standards
•
Hygiene regulations
•
Product handling standards
•
Emergency and contingency plans
•
Risk & Crisis management
•
Continuous unannounced internal and 3rd party audits for DCs result in superior quality scores regularly.
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McDonald’s Supply Chain
“One-Stop-Shopping “Lean Logistics Solution
McDonald’s Supply Chain Challenges and problems Freshness McDonalds have even stronger focus on freshness and quality. Because of the nature of the product they are offering the focus on quality is a key factor in the success of their business. So the supply chain plays an important role in their business because without the proper supply chain they can’t deliver the fresh items required in making the items being offered at McDonalds.
Innovation On-going product innovations are also a big challenge for the supply chain of McDonald. The continue innovation of the products at McDonald require them to continuously alter the supply chain and manage it accordingly. With the ongoing introduction of new products like new burgers and items require
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McDonald’s Supply Chain them to continuously update the supply chain which requires supply chain management to be much more extensively used.
Fluctuation in Demand Strong customer demand fluctuations based on promotions make difficult to manage the supply of the items. They have to continuously change the supply of their items as per the seasons. Like in Ramadan they have to totally drop the supply in the day and are much focused on limited items. The high fluctuations make the forecasting difficult and supply chain management to be very active.
Bull Whip effect Because customer demand is rarely perfectly stable, McDonalds must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, McDonalds often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop to reduce inventory. The effect is that variations are amplified as one move upstream in the supply chain (further from the customer).
Cannibalization Cannibalization occurs when a McDonalds discounts a particular product. The tendency of consumers is to buy the discounted product rather than competing products with higher prices. When the promotion event is over and prices return to normal, however, the effect will tend to disappear.
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McDonald’s Supply Chain
Decentralized Structure McDonalds has Change Management in almost every franchise because of de-centralized structure. This again leads the supply of the McDonalds to be altered as per the every franchise which again creates new challenges for the supply chain management.
Conclusions and suggestions Through
effective Supply Chain McDonald’s operates in a famously
competitive market and delivers good value for consumers. •
Not by searching on the commodity market for the lowest cost suppliers. It sources only from dedicated suppliers.
•
Not at the expense of safety or quality. It operates an extremely strict auditing regime.
•
Not by pressurizing suppliers. It believes in a policy of paying for performance and long term sustainability for suppliers.
•
The secret is a Lean and efficient chain via rigorous measurement, the spreading of knowledge and a real sense of teamwork.
References •
www.mcdonalds.com
•
www.mcdonalds.com.pk
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www.answers.com/whatisTQM
•
http://www.docstoc.com/docs/
•
http://www.scribd.com
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