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Final supply-chain-project on McDonalds

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Supply Chain of McDonalds at Fortress Lahore

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Final supply-chain-project on McDonalds

  1. 1. (Project Report on McDonalds Supply Chain Management) Submitted to: Madam Sahrish Saba Submitted by: MBA 6th Morning Group members: Saira Sharif (MBA-12-15) Sehar Shahid (MBA-12-06) Raba Khalid (MBA-12-11) Bashiran Raffique (MBA-12-14) Ayesha Shamim (MBA-12-16) Saliha Mukhtar (MBA-12-30)
  2. 2. 2
  3. 3. 3 In the name of Allah The creator of every creation The pity the beneficent The merciful the wise The lord of The world The first & last The sender of the Holy prophet Muhammad (PBUH) Where there is no doubt The owner of the Day of Judgment To whom everyone will be Brought back
  4. 4. 4 ACKNOWLEDGEMENT We are really thankful to Madam Sehrish Saba for their invaluable insight into the working of various elements and constituents of this report. Without her guidance the completion of this report would have been incomplete. She has guided as every step to make this project more comprehensive and complete in all respect. She really added great knowledge about the supply chain concepts and their implications in the real world. We are very thankful to her for giving us valuable information. We are also very thankful to all the team members of McDonalds at Fortress Lahore who helped us a lot by giving up to date information.
  5. 5. 5 PREFACE The business sector which we have selected for our supply chain management project is “Fast 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 McDonalds ‘the global leading food service retailer’. This report reviews the supply chain management of McDonalds. We give a brief introduction of the company and tell about the supply chain process and strategies of McDonalds primarily in Pakistan. This report puts light on the specific supply chain process and strategies of McDonalds at Fortress Lahore.
  6. 6. 6 TABLE OF CONTENTS Contents COMPANY’S PROFILE..........................................................................................................................9 McDonalds.........................................................................................................................................9 MCDONALDS HISTORY..............................................................................................................9 The Strategic Direction ...................................................................................................................9 MCDONALDS IN PAKISTAN.....................................................................................................10 MCDONALDS MISSION STATEMENT......................................................................................11 MCDONALDS VISION STATEMENT.........................................................................................11 OUR AMBITION.........................................................................................................................11 GOOD FOOD...........................................................................................................................11 GOOD PEOPLE.......................................................................................................................11 GOOD NEIGHBOR..................................................................................................................11 MCDONALDS BUSINESS MODEL............................................................................................12  Franchise Model................................................................................................................12  Product Consistency...........................................................................................................13  McDonald’s Competitors ...................................................................................................14  McDonald’s Market Share in Pakistan.................................................................................15  Respect for local culture of Pakistan....................................................................................15  International Standards.......................................................................................................15 MCDONALDS SUPPLY CHAIN STRATEGIES...........................................................................17 THREE LOGISTICAL DRIVERS:................................................................................................17  Inventory...........................................................................................................................17  Transportation ...................................................................................................................17  Facilities ...........................................................................................................................18 THREE CROSS-FUNCTIONAL DRIVERS:.................................................................................19  Information .......................................................................................................................19  Sourcing............................................................................................................................19  Pricing ..............................................................................................................................19 MACDONALDS PAKISTAN SUPPLY CHAIN............................................................................20 INTRODUCTION TO MCDONALDS AT FORTRESS LAHORE.....................................................................21
  7. 7. 7 RETAIL OUTLET’S DIRECTORY ..............................................................................................21 Products’ Variety Offered by McDonalds Fortress Lahore...............................................................22 Target Market...............................................................................................................................22 BIG MAC’S SUPPLY CHAIN .................................................................................................................23 PULL/PUSH PROCESS ...............................................................................................................24 SUPPLY CHAIN PROCESS CYCLE:...........................................................................................25 MCDONALDS’ E-PROCUREMENT............................................................................................26 MCDONALDS’ SUPPLIERS........................................................................................................27 MCDONALDS’ INVENTORY MANAGEMENT..........................................................................28  The Inventory Management Problem...................................................................................28  McDonald’s Old System ....................................................................................................28  McDonald’s new system ....................................................................................................28  TYPES OF STOCKS.........................................................................................................29  Using stock .......................................................................................................................30  Stock management:............................................................................................................30  Planning and managing supply:...........................................................................................30 MCDONALDS’ LOGISTICS........................................................................................................31 1. Inbound logistic .................................................................................................................31 2. McDonalds Logistics Operations ........................................................................................32 3. Outbound logistic ..............................................................................................................34 McDonald’s Operations.................................................................................................................34 MCDONALDS TRANSPORTATION...........................................................................................35 MCDONALDS DISTRIBUTION SYSTEM...................................................................................36 CONSUMPTION .........................................................................................................................36 EXPIRY.......................................................................................................................................37 HOME DELIVERY......................................................................................................................37 SOFTWARE................................................................................................................................37 MACDONALD’S QUALITY ASSURANCE................................................................................................38 The Homely Touch of the Highest Quality Standards at McDonald’s ...............................................38  Meat With 100% Purity......................................................................................................38  High Quality Baked Buns...................................................................................................38
  8. 8. 8  Crunchy Farm-Fresh Vegetables.........................................................................................38  No Compromise.................................................................................................................38 SUSTAINABLE SUPPLY CHAIN OF MACDONALDS.................................................................................39 SUSTAINABLE SUPPLY CHAIN VISION ..................................................................................39 MCDONALDS FORCASTING................................................................................................................40 Forecasting at McDonald...............................................................................................................40 Causal factors...............................................................................................................................40 Qualitative Forecasting..................................................................................................................40 Stock control charts.......................................................................................................................41  Entering data .....................................................................................................................41  Buffer stock.......................................................................................................................42  Ordering............................................................................................................................42 MCDONALDS SUPPLY CHAIN CHALLENGES AND PROBLEMS ................................................................42  Freshness..............................................................................................................................42  Innovation.............................................................................................................................42  Fluctuation in Demand...........................................................................................................43  Bull Whip effect....................................................................................................................43  Cannibalization .....................................................................................................................43  Decentralized Structure..........................................................................................................43 RECOMMENDATIONS FOR MCDONALDS............................................................................................43  Market Development .............................................................................................................43  Diversification.......................................................................................................................44  Product Development.............................................................................................................44 CONCLUSION AND SUGGESTIONS......................................................................................................45 REFERENCES.....................................................................................................................................45
  9. 9. 9 COMPANY’S PROFILE McDonalds McDonald's is the world's leading global food service retailer with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald's restaurants worldwide are owned and operated by independent local business men and women. MCDONALDS HISTORY The birth of McDonald's began with Raymond Albert Kroc Ray Kroc was the exclusive distributor of a milk shake maker called the Multimixer. Meanwhile, two brothers, Richard and Maurice McDonald owned and ran a hamburger restaurant in San Bernadino, California, in the 1950s. Ray Kroc heard how well the McDonald brothers were doing using his Multimixers to serve their customers. He met up with them and acquired the franchising right from them to run McDonald's restaurants. A great success story was in the making. In 1955, Ray Kroc founded the McDonald's Corporation and opened the first restaurant in Des Plaines, Illinois. In 1961, he bought out the McDonald brothers And the rest, as they say, is history. McDonald's grew into the largest restaurant organization in the world. Today, there are more than 34,000 McDonald's restaurants serving 69 million customers each day in over 119 countries. Ray Kroc died in 1984 but his legacy is very much alive. His success story continues with McDonald's families of employees, franchisees and suppliers. His commitment, dedication and achievements continue to live on at McDonald's restaurants across the world. The Strategic Direction The strength of the alignment among the Company, its franchisees and suppliers (collectively referred to as the "System") has been key to McDonald's success. By leveraging their System, they are able to identify, implement and scale ideas that meet customers' changing needs and preferences. In addition, the business model enables McDonald's to consistently deliver locally- relevant restaurant experiences to customers and be an integral part of the communities they serve. McDonald's customer-focused Plan to win ("Plan") provides a common framework that aligns their global business and allows for local adaptation. They continue to focus on three global
  10. 10. 10 growth priorities of optimizing their menu, modernizing the customer experience, and broadening accessibility to Brand McDonald's within the framework of their Plan. Their initiatives support these priorities, and are executed with a focus on the Plan's five pillars - People, Products, Place, Price and Promotion - to enhance customers' experience and build shareholder value over the long term. They believe these priorities align with their customers' evolving needs, and - combined with their competitive advantages of convenience, menu variety, geographic diversification and System alignment - will drive long-term sustainable growth. MCDONALDS IN PAKISTAN Aiming to be the world's best quick service restaurant, McDonald's Pakistan opened its doors in September 1998 at Lahore and presently operating in seven major cities with a network of 23 restaurants. McDonald's Pakistan is a part of the Lakson Group of Companies, with a Head Office in Karachi and a regional office at Lahore. Lakson Group also owns, Lakson Tobacco Co. Colgate Pakistan Ltd, Century Insurance Ltd. Express Newspaper, Cyber Net and various others businesses. McDonalds located in Pakistan are currently employing about 1,200 Pakistanis and each store is managed by Pakistani managers. They have also contributed in other ways than food service. McDonalds has investment of over Rs300 crore in the country .Since McDonalds is doing so well in Pakistan they will continue to grow and add more stores in more cities in the future.
  11. 11. 11 MCDONALDS MISSION STATEMENT “McDonald's mission is to be our customers' favorite place and way to eat with inspired people who delight each customer with unmatched quality, service, cleanliness and value every time ... we invite you to be the part of this winning team and give yourself an opportunity to grow with the family of people striving to create smiles on the faces of millions of people everyday MCDONALDS VISION STATEMENT "McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile." OUR AMBITION Our purpose goes beyond what we sell. We’re using our reach to be a positive force. For our customers. Our people. Our communities. Our world. GOOD FOOD We promote choices. Real ingredients. Great taste. Transparency. GOOD PEOPLE We create opportunity. Encourage diversity. Offer training. Facilitate teamwork. Reward achievement. GOOD NEIGHBOR We champion happy, healthy kids. Keep families together through Ronald McDonald House Charities. Commit to reducing our footprint. Using less energy. And recycling more.
  12. 12. 12 MCDONALDS BUSINESSMODEL  Franchise Model Only 15% of the total number of restaurants is owned by the Company. The remaining 85% is operated by franchisees. The company follows a comprehensive framework of training and monitoring of its franchises to ensure that they adhere to the Quality, Service, Cleanliness and Value propositions offered by the company to its customers and quality across geographies. Types of restaurants Most standalone McDonald's restaurants offer both counter service and drive-through service, with indoor and sometimes outdoor seating. Drive-Thru, 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 later 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.
  13. 13. 13 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. 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.  Product Consistency By developing a sophisticated supplier networked operation and distribution system, the company has been able to achieve consistent product taste and quality across geographies. 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.
  14. 14. 14 Act likea retailer and think likea brand McDonald’s focuses not only on delivering sales for the immediate present, but also protecting its long term brand reputation.  McDonald’s Competitors McDonalds is facing national and international competition from other restaurant operators. The management has identified its competitors to be “quick-service eating establishments, casual dining, full-service restaurants, street stalls or kiosks, cafes, 100% home delivery or takeaway providers, specialist coffee shops, self-service cafeterias, and juice or smoothie bars.” Its major competitors are as follows: Subway Kentucky Fried Chicken (KFC) Mr. Burger Burger King
  15. 15. 15  McDonald’s MarketShare in Pakistan  Respectforlocalculture 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 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 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. 25% 30%15% 10% 5% 15% MarketShare McDonalds KFC Subway Mr. Burger Burger King Others
  16. 16. 16 SUPPLY CHAIN MANAGEMENT AT MCDONALDS The seed of McDonald's retailers’ 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 of McDonald's, the company invested about Rs 40 crore even before its first restaurant commenced operations in October 1996. "We had to ensure that we had the back-end linked up to the farm level for delivery commitment." MacDonald’s retailers 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. McDonald’s “System First” philosophy stands the test of time. The unique supply chain model is based on an exceptional set of operating principles that create long-term wealth and competitive advantage for the entire System by mitigating costs, preventing safety issues, and producing quality and innovative products that delight customers in a uniquely McDonald’s way. The result is increased customer value, better brand health, and stronger business performance. While
  17. 17. 17 individual supplier relationships call for individual solutions, the five Vested Outsourcing rules provide a consistent base for operations and a path to success. McDonald’s and its suppliers closely follow the rules to find mutual success under the golden arches. MCDONALDS SUPPLYCHAIN STRATEGIES  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 THREE LOGISTICAL DRIVERS:  Inventory It includes raw materials, work in progress, and finished goods within a supply chain. Venus distributor usually keeps the stock for 1 month and 45 days. There are 2 ware houses 1 in Lahore and 1 in Karachi. They usually keep McDonalds supply in Frozen (-18 to – 22 degree), chilled (0 to 4 degree) and dry rooms as required by the product. At McDonald's, all raw materials, work-in-progress and finished products are handled on a First In, First Out (FIFO) basis. This means raw materials are used in the order they are received. Therefore stock is always fresh because products are sold in the order they are made. If the process First In, Last Out (FILO) was used, then the finished product would be dry and unappealing because the first one prepared is the last one sold.  Transportation It is the process where the inventory is moving from place to place. Refrigerated vans are used here in this case. For McDonalds Pakistan they maintain a good fleet for containers they use 40 ft and 20 ft fleet which they use in transferring containers from port to their ware house. On the
  18. 18. 18 other hand they have a reefer express fleet which they use for transferring McDonalds food ingredients to their retail outlet in order to maintain a good – 22degree temperature while delivering. Venus provides the transfer of all the goods of McDonalds from the port to their ware house and then they are responsible to provide the retail outlet with all the supplies on time.  Facilities They are the actual physical location in the supply chain network where the product is stored, assembled, or fabricated. The two main facilities are production sites and the storage sites. Venus has 2 ware houses, one in Karachi and other in Lahore. From Lahore they distribute the supplies to other different cities near to Lahore. The company generates its own power by way of 2 x 390 KVA generators at each location thus ensuring a constant temperature of –22°c at all times below is the specification of their warehouses.  120,000 sq ft warehouse at Maripur Karachi  60,000 sq ft warehouse at Rawind road Lahore,  12,000 sq ft of world standard Freezer/Cold Storage facilities in Karachi  8,000 sq ft of world standard Freezer/Cold Storage facilities in Lahore. The group head office is in Karachi with a nationwide distribution network that is managed in coordination with our regional offices in Lahore, Hyderabad and Islamabad. The address of Karachi head office is 9/1, K-28, TRANS LYARI HAWKSBAY ROAD. McDonald outlets: McDonald has many outlets in following cities of Pakistan  Islamabad  Rawalpindi  Faisalabad  Sialkot  Karachi  Hyderabad  Lahore
  19. 19. 19 THREE CROSS-FUNCTIONALDRIVERS:  Information It includes data and analysis related to facilities, inventory, transportation, cost, prices and customers in the whole supply chain. Previously they used American software which was used by McDonalds globally and these were provided by McDonalds international to them. Later on they found out that Siza foods need to customize the software because the previous software’s not meeting their demand. So now they have made their customized inventory control software which is not having any specific name for them.  Sourcing It refers to who will perform which activity (production, storage, transportation, and distribution) in a supply chain. International  Palm oil From Malaysia (Cargil palm products)  All kinds of machinery and other equipments from America National  Packaging (Previously the packing was imported from Kuwait and now Siza foods is depending on Pakistan to manufacture the packaging for their food items.  Cream and the milk are provided to McDonalds by nestle, which is used in making coffee, ice creams and other items.  Ketchups, Maya sauce and other sauces (big mac sauce etc) from unilever Pakistan.  Bread and buns rarely from dawn bread. Now they use buns from their own bakery.  For one of their product they have started using chicken patty from K&N and have future plans to rely more on K&N and make all their chicken items with the help of local company K&N.  Even the coffee is provided to them by nestle.  Pricing McDonald's also believes in value to the customer, that is, why prices are value oriented as Amin Mohammad Lakhani put it in his word, nothing sells forever unless it is value for money.
  20. 20. 20 MACDONALDS PAKISTAN SUPPLY CHAIN
  21. 21. 21 INTRODUCTION TO MCDONALDS AT FORTRESS LAHORE McDonald’s franchise at fortress Lahore is the best and quick food supply center in Pakistan. It is a global food retailer. The most interesting thing about McDonald’s fortress is that it does not miss the value and quality of the food. The customers are inspired by the food quality and taste. It provides awesome facilities for both families and individuals to come and dine as like a family. It also has a play land for kids to play. McDonald’s fortress Lahore menu has delicious meal items and its yummy smell is mouthwatering. Its menu includes chicken burgers, bacon Double, salads, desserts, sandwiches etc. Its healthy and delicious deals include share box, chicken plus etc. Customers appreciate its food quality, presentation of food, taste and environment of the restaurant. It is a perfect place to come and enjoy with your family. It offers its customer to celebrate ceremonies and parties with great discount. McDonald’s fortress Lahore menu provides 24 hour free home delivery. One can also reserve a seat through EatOye. So, go and make an order at McDonald’s fortress Lahore and enjoy its yummy food at home without any hassle. It is open from 12am-12pm, 7 days a week. RETAIL OUTLET’S DIRECTORY Address: Opposite Khyber Block, Fotress Stadium, Cantt, Lahore. Phone: (0300) 8476836 – Mobile and (042) 36676680/ 36676674 – Telephone Phone Delivery: 111-BIG-MAC OR 1112-44-622 Food type / Cuisine: Fast Food, Burger Email: contactus@mcdonalds.com.pk Serving Hours: Mon - Sun: 12:00 pm - 01:00 am
  22. 22. 22 Products’Variety Offered by McDonalds FortressLahore  It’s famous and largest selling product it Big Mac. So in order to make analysis of its supply chain management, we select Big Mac’s supply chain. . TargetMarket McDonald’s fortress Lahore wants to attract as many customers as it can. But the main targets of the efforts by McDonald’s are following groups:  Parent visit McDonald’s to give the children a treat.  Children want to visit McDonald’s as it is a fun place to eat.  A business customer visits McDonald’s during the day as service is quick; the food tastes great and can be eaten in the car without affecting a busy work schedule.  Teenagers are attracted by the Saver Menu which is affordable, and the internet access.
  23. 23. 23 BIG MAC’S SUPPLY CHAIN MacDonald’s Big Mac’s 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. Serving food to many customers daily requires consistency, which comes from the ingredients as well as the food preparation process. McDonalds franchise has set strict standards for its suppliers to adhere to. Suppliers bare full responsibility for the quality, consistency, and safety of the product they deliver. McDonalds seeks consistency in texture, taste, freshness, and cut to meet the set standards in producing big mac.
  24. 24. 24 Food safety is a serious responsibility and owner at McDonalds fortress Lahore has ensure that it has procedures to avoid lawsuits. To help with this, suppliers have tractability programs that enable them to track food in the supply chain. The supply chain process of big mac has shown in the following figure: PULL/PUSH PROCESS Pull processes are initiated by a customer order while the push processes are initiated by the anticipation of customer order. McDonalds is using both pull as well as push process, to a certain extent push is created and after that level the pull created by the firm did its task. One important question can be asked to what level that push can be applied. The products will be pushed to the restaurants where the customers automatically demand that Big Mac and hence a pull is created. The following figure is showing the boundary of pull and push; push last till the product reaches the restaurant and pull starts when a customer orders the product.
  25. 25. 25 SUPPLY CHAIN PROCESSCYCLE: The processes of Big Mac in the supply chain are divided into a series of cycles, each performed at the interface between 2 successive stages of supply chain as shown in the following figure: Customers Retailer/ McDonalds restaurants Distributor Suppliers Customer order cycle Replenishment cycle Procurement cycle Various Suppliers supplies the materials Products delivered to Distribution centers Products delivered to restaurant Customer order at restaurant, Push stops, pull starts here
  26. 26. 26 MCDONALDS’E-PROCUREMENT  In the process of procuring a product, McDonald’s franchise restaurant places an order through E-MAC digital website.  The order is sent to the suppliers. Suppliers order is processed and managed by the logistics.  The logistics sends the order of the products to the franchise restaurants. It is the responsibility of the E-MAC and logistics that the products are sent to the restaurant.  All the above, steps are handled and executed by the E-MAC digital.
  27. 27. 27 MCDONALDS’SUPPLIERS Following are the McDonald’s Big Mac suppliers:  Lopez Foods: McDonald’s 100% pure beef patties are produced to the highest quality standards.  Keystone Foods: Innovation and Chicken McNuggets  100 Circle Farms: The potatoes for our World Famous Fries are grown with efficiency, precision and heart.  Jiangsu Dingneng Foods Co. Ltd: Dehydrated onions Following are the McDonald’s suppliers of equipment and other items;  Zhengzhou Kerry Machinery Equipment Co., Ltd.  Guanxing (Shanghai) Import & Export Co., Ltd.  Guanxing (Shanghai) Import & Export Co., Ltd.  Guangzhou Maibao Package Co., Ltd.  Zhengzhou Shuliy Machinery Co., Ltd.  Shantou Eastoys Factory  Shantou Kai Dongfan Plastic Toy Factory  Wenzhou Xiangou Foreign Trade Corporation  Shanghai Tianwan Food & Beverage Equipment Co., Ltd.  Shanghai Xinrui Catering Equipment Co., Ltd.  Wuhan Xinhengyue Industry and Trade Co., Ltd.
  28. 28. 28 MCDONALDS’INVENTORYMANAGEMENT  The Inventory ManagementProblem All businesses face challenges every day. One of the major challenges facing McDonald's is managing inventory. Inventory management involves creating a balance between meeting customers' needs whilst at the same time minimizing waste. Waste is reduced by: 1. Accurate forecasting of demand so that products do not have to be thrown away as often. 2. Accurate Inventory control of the raw materials. Inventory management involves creating a balance between meeting customers' needs whilst at the same time minimizing waste. This is an increasingly tough balancing act. As customer tastes change, McDonald's needs to increase the range of new products it offers, so the challenge of reducing waste becomes even greater.  McDonald’s Old System In the past, stock ordering was the responsibility of individual restaurant managers. They ordered stock using their local knowledge, as well as data on what the store sold the previous day, week and month. For example, if last week's sales figures showed they sold 100 units of coffee and net sales were rising at 10%, they would expect to sell 110 units this week. However, this was a simple method and involved no calculations to take account of factors such as national promotions or school holidays. It took up a lot of the Restaurant Manager's time, leaving them less time to concentrate on delivering quality food, service and cleanliness in the restaurants.  McDonald’s new system In 2004, McDonald's introduced a specialist central stock management function known as the Restaurant Supply Planning Department. This team communicates with restaurant managers on a regular basis to find out local events. The team builds these
  29. 29. 29 factors into the new planning and forecasting system (called Manugistics) to forecast likely demand of finished menu items (e.g. Big Macs).  TYPES OF STOCKS Stock is the physical product a company buys, creates or sells. Every business has three main types of stock: Raw materials The raw materials are the ingredients that will go into producing the finished product. For McDonald's, these will include the buns, beef patties, paper cups, salad ingredients and packaging. These are delivered to the restaurants between 3 and 5 times a week. The raw materials arrive together on one lorry with three sections so that each product can be stored at a suitable temperature. The three sections are:  frozen  Chilled  Ambient which means foods that can be stored at room temperature. This applies to items such as coffee or sugar sachets. Work-in-progress (WIP) Work-in-progress refers to stocks that are in the process of being made into finished product. A Big Mac consists of a bun, two beef patties, lettuce, cheese, pickles, onions, sauce and a small amount of seasoning. The restaurant will only combine these items just before the customer orders them so the Big Macs are hot and fresh when served.
  30. 30. 30 Finished products Finished products are goods that are ready for immediate sale to a customer. At any one time, a restaurant will have a range of products ready for sale. Many of these will include finished products like Filet-o-Fish, Big Macs and side salads.  Using stock At McDonald's, all raw materials, work-in-progress and finished products are handled on a First In, First Out (FIFO) basis. This means raw materials are used in the order they are received. Therefore stock is always fresh because products are sold in the order they are made. If the process First In, Last Out (FILO) was used, then the finished product would be dry and unappealing because the first one prepared is the last one sold.  Stock management: Holding too much stock carries costs, so McDonald's runs a lean stock control to save money. Stock management is the process of making sure there is enough stock at all times to meet customer demands whilst minimizing expensive waste.  Planning and managing supply: Ongoing communication between the central Restaurant Supply Planning team and individual restaurants helps to manage the stock more effectively. A mixture of specialist stock controllers and employees who previously worked in the restaurants makes up the central team. This team of
  31. 31. 31 regional planners’ works with restaurants each communicates on a regular basis with them via email/telephone. Anything that would affect the number of customers visiting their restaurant needs to be logged with the team. This is taken into account in the calculating of the forecasts. Supply Planners work with the new stock control system, Manugistics, to ensure enough raw materials, e.g. beef, tomatoes, lettuce, etc., leave the McDonald's distribution centers. This ensures restaurants can produce the meals required for the level of demand forecasted MCDONALDS’LOGISTICS Logistics is the management of flow of resources between their point of origin and their point of destination so as to meet some requirements. McDonald’s - the largest fast food chain in the world selected Venus Pakistan as its logistic partner after careful and thorough evaluation. They are responsible for the procurement, imports, clearing, warehousing and distribution of all products to all McDonald’s restaurants in Pakistan such as McDonalds at fortress Lahore. McDonalds logistic involves 3 phases:  Inbound logistic  Operations  Outbound logistic 1. Inbound logistic It is the movement of materials from suppliers and vendors in to production processes and storage facilities. Every McDonald’s burger has nine different ingredients, which are sourced, from suppliers across the country before it reaches the consumer. McDonald's has a global package design for there to-go bags and fountain drink cups. All the inputs are imported from different countries like Saudi Arabia, South Africa, UAE and Malaysia; only the buns used in burgers are procured locally from Dawn Bread. Based on the demand forecast by the Restaurant Manager, the First Assistant orders the Venus Distributors on daily basis. Venus Distributors (supplier of McDonalds) is independent to acquire the raw material from wherever it desires but Inbound logistics Operations Outbound logistics
  32. 32. 32 it remains limited only by the strict specifications of materials by McDonald's. Venus Distributors stores all the raw materials, in its own cold stores and delivers only one-day material to the restaurant. Venus group companies providing different facilities to McDonalds like:  Providing McDonalds Pakistan the most comprehensive range of Specialized & Customized Services  Warehousing, Storage/Cold Storage, and Sole Distribution  Services starting right from Pick-up at Sea Port to Delivery at all McDonalds Restaurants in Pakistan – everything is handled with maximum efficiency.  Central Inventory Management of Venus Pakistan dedicated to handling every aspect of McDonalds inventory.  Quality Inspection Process (QIP) Units at Venus Pakistan especially operates to look after 2. McDonalds Logistics Operations With a proven track record of having served the Logistics needs of McDonalds, Venus Pakistan established its dedicated McDonalds Logistics Operations in 1997. It also received the DQMP (Distribution, Quality, and Management Process) Certification from McDonalds USA Audit Team after they visited and inspected our facilities and certified us as such (which makes us the only one to receive any such Certification from McDonalds USA). Main Boulevard Branch has its own cold storage facility, which is used to store the daily-procured raw material, so that the raw materials remain fresh and nutritious up till they are delivered in the form of finished goods (burgers, French fries, ice cream, etc.) to the customers. There are only two products buns and Cokes, which are sent directly to the restaurants. Buns have a limited shelf life, hence they are sent directly to the outlets, while Coca Cola is also sent directly to ensure quick dispatch of its products. The buns are packed in plastic crates to ensure their quality. These crates have to go back to the bakery, that’s when return logistics takes place. Venus Pakistan has full-fledged facilities to pack locally manufactured products in sachets such as sugar, tomato ketchup, toothpicks, etc., and supply these to Institutions (Restaurants, Cafes, Hotels, 5-Star Hotels, Hospitals, etc.), through its own Distribution Network and Logistics support. Being responsible for McDonald’s supply chain, the company had to import lettuce from Europe. The logistics involved in handling the product at the airports late night forced the directors to think of alternate ways to manage this business. The company with the assistance of advisors
  33. 33. 33 from the agricultural university and experts from china set up a pilot farm in Lahore. After experimenting for one year the group decided to setup an agriculture division. Today lettuce is farmed in Lahore on 100 acres during the winters and on 3 parcels of 25 acres each in Abbotabad and man sera. Production/yield is approximately 5000 kg (5 tons) per week. The farm is experimenting with romaine. The farm management has plans to grow exotic vegetables in the future and tap/develop the export market in Dubai. The transportation of McDonald’s has been completely outsourced and since 80 percent is in refrigerated truck movement. The products are transported in a dedicated fleet of refrigerated trucks to the company’s Distribution Centres. Multi-temperature and single temperature trucks then transport the fast food swiftly to the McDonald’s restaurants across the country. Cold Chain logistics A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range. It is used help extend and ensure the shelf life of products such as fresh agricultural produce, processed food. McDonalds’ entire network supply-chain consists of movement of goods through a cold chain. Suppliers are also a part of this cold chain. McDonalds have the largest refrigerated movement of products. An interesting and innovative feature of this cold chain is that the same truck can carry products at different temperatures ranging from:  Frozen products at -18C to -25C,  Chilled products from 1C-4C
  34. 34. 34  Dry products at ambient temperatures Venus Custom Bonded Warehouse/Carrier owned by The Venus Group of Companies and operated by the parent company Venus Pakistan is the ONLY Company in Pakistan that enjoys the exclusive distinction of having its own refrigerated Custom Bonded Warehouse/Carrier License issued by Pakistan Customs. This means that Venus Pakistan is capable of providing frozen storage services to its customers without paying duties to Customs. Customers can simply pay the duties/taxes to Customs only for the quantity required from the Bonded Warehouse operated by Venus Pakistan. McDonald’s expects its distribution partner to meet its standards of ‘cold, clean and on-time delivery. 3. Outbound logistic Outbound logistics is the process related to the storage and movement of products from the end of the production line to the users end. When customers enter the restaurant, they go to the counter, give their order, which they are served within a single minute. Now customers take away the tray in which the order is served, and take their seats themselves, in the big hall with a sitting capacity of 200 persons. McDonald’s Operations The cooking procedure and recipe is documented so that the products become standardized and customers get the similar taste, quantity and quality to whichever restaurant they go. It is the policy of McDonald's to throw away any burger if they remain on heated grill for 15 minutes. All the utensils and equipment used in cooking are washed at the closing of restaurant every night, with anti-microbial fluid. Kitchen, floor, washrooms and all other restaurant areas are cleaned after every half an hour.
  35. 35. 35 MCDONALDS TRANSPORTATION  The distributors receive items from different parts of the country.  The items are stored in rooms with different temperature zones and are finally dispatched to the McDonalds restaurants on the basis of their requirements.  The company has both cold and dry storage facilities with capability to store products up to -22º C as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state.  The specially designed trucks maintained the temperature in the storage chamber throughout the journey.  Matching supplier production with deliveries to meet schedules and restaurant needs.  Centralized distribution centers.  Emphasis on economies of scale – High storage volumes.  QIP (Quality Inspection Program).  HACCP (Hazard Analysis Critical Control Point) – Food safety standards emphasizing prevention of faults rather than detection through inspection.  No Knife in restaurants.
  36. 36. 36 MCDONALDS DISTRIBUTIONSYSTEM McDonald uses three types of Distribution strategy  Franchising  Licensing  Joint venture McDonald’s has a successful franchise business model wherein all restaurants are operated either by the company or by franchisees, including conventional franchisees under franchise arrangements and developmental licensees and foreign affiliated markets under license agreements. The company’s operations are designed to assure consistency and high quality at every restaurant. When granting franchises or licenses, the company is selective and generally does not franchise to passive investors. McDonald’s has franchised about 80% of its restaurants, while the remainder is owned and operated by the company. Each of the company’s franchisees usually has a standard 20-year franchise license. A franchise license is an authorization granted by either a company or a government body to an individual or a group that enables them to perform specific commercial activities. For McDonald’s, the franchise model has led to years of profitability, growth, and risk mitigation. CONSUMPTION It varies from retail outlet to retail outlet, but as a whole we take average of all retail outlets so we can say that 70 percent consumers prefer chicken items and 30 percent go for meat. Consumption in Mcdonalds Pakistan chicken and meat Chicken Meat
  37. 37. 37 EXPIRY  There are 2 types of freezers. One is a freezer room in the basement and is just like a room. The expiry date of the products in this room is 90 days  The freezer which is on the operational floor is having an expiry of some hours. HOME DELIVERY McDonalds also provide home delivery service and delivery phone number is 111244622 .For their home delivery purpose they have approx 12 bikes and riders present at their branch to do the home delivery on time. They use cd70 for their deliveries. When asked for their delivery time, they said that McDonalds globally do not prefer and go for delivery system but in Pakistan they were forced to do this because of the competition given to them by Kfc and Pizza hut. They take approx 30 minutes to deliver in the radius of 8 km but conditions apply from outlet to outlet. They use delivery bags made of material which keeps the temperate of the food item maintained. SOFTWARE McDonalds Pakistan is not using any type of branded software right now. Previously they used American software which was used by McDonalds globally and these were provided by McDonalds international to them. Later on they found out that Siza foods need to customize the software because the previous software’s not meeting their demand. So now they have made their customized inventory control software which is not having any specific name for them. After being ask whether they use ERP or not in McDonalds they replied that currently McDonalds is very small to use an ERP Software.
  38. 38. 38 MACDONALD’S QUALITY ASSURANCE The Homely Touchof the Highest Quality Standards at McDonald’s At McDonald’s it’s always like coming home. We make sure that the warmth of our homely touch reaches your highest expectations. Be it food, service or the ambiance, we keep elevating our quality standards to new levels. McDonald’s has implemented rigorous food safety standards called “from farm to restaurants”. Here food is not just meant for thought. Food means quality by all means. That is why McDonald’s is served to you and your loved ones with all our heart and soul.  MeatWith 100% Purity 100% purity is the reason why all our beef sandwiches taste so delicious. They are made from 100% halal beef cuts with no additives or preservatives. Chicken that we serve is carefully deboned breast meat only, with seasoned batter and a choice of sauce portions, while our Spicy McCrispy Chicken Deluxe uses only muscle cuts. All relevant authorities monitor our high quality standards of 100% halal chicken.  High Quality BakedBuns We source our buns from suppliers who use only high quality wheat. All the buns are subject to strict quality and safety controls all through the production process.  Crunchy Farm-FreshVegetables We select the best of the best vegetables that are continually monitored for freshness, high nutrients and safety, to maintain top quality standards. We use regional/local suppliers to ensure that the freshness and high quality are delivered to you in all our products.  No Compromise At McDonald’s we give high importance to the smallest of the detail, from meat to spices, and everything is standardized. That is because we follow our global set quality standards with no compromise, right from the farm to the restaurant till the time it is served to you.
  39. 39. 39 SUSTAINABLE SUPPLY CHAIN OF MACDONALDS The McDonald’s supply chain is a complex web of direct and indirect suppliers. They manage this complex system by working with direct suppliers who share their values and vision for sustainable supply. They hold them to clear standards for quality, safety, efficiency and sustainability. They expect them to extend those requirements to their suppliers and also partner with them to identify, understand and address industry-wide sustainability challenges and achieve continuous improvement. Overall, McDonald’s and their suppliers are collectively focused on three areas of responsibility: ethics, environment, and economics. Their supply chain focus areas include:  Sustainable Land Management Commitment  Animal Welfare  Supplier Workplace Accountability  Sustainable Fisheries SUSTAINABLE SUPPLY CHAIN VISION They envision a supply chain that profitably yields high-quality, safe products without supply interruption while leveraging their leadership position to create a net benefit by improving ethical, environmental and economic outcomes.  Ethics - They envision purchasing from suppliers that follow practices that ensure the health and safety of their employees and the welfare and humane treatment of animals in their supply chain
  40. 40. 40  Environment - They envision influencing the sourcing of materials and ensuring the design of products, their manufacture, distribution and use to minimize life-cycle impacts on the environment.  Economics - They envision delivering affordable food, engaging in equitable trade practices, limiting the spread of agricultural diseases, and positively impacting the communities where their suppliers operate. They view this vision and their responsibilities holistically. As sourcing decisions are made, they consider their priorities for food safety, quality and costs, as well as ethical, environmental and economic responsibilities. Their global progress on beef and coffee sustainability illustrate MCDONALDS FORCASTING Forecasting atMcDonald A forecast is an estimate of future sales of finished products. Forecasts are calculated using:  store-specific historic product mix data from the last two years  Store-specific and national causal factors. These specify dates for events such as national promotions and school holidays  Information from store managers about factors that might affect demand, e.g. road closures or local events and promotions. Causalfactors Supply Planners working for McDonald's include a range of causal factors in the calculation of the forecasts, so that based on past performance they can predict future demand for each restaurant. For example, Big Mac sales increase during a 'Buy One Get One Free (BOGOF)' promotion. The planners use this data in the forecasts for all stores that took part in that promotion. Analyzing how weather affects demand for particular products, such as McFlurrys and salads, can also be built into the model. The forecasts then become more accurate, decreasing costs and improving customer satisfaction. Qualitative Forecasting Expert Opinion and Market Research McDonald’s uses qualitative forecasting methods to help in predicting the future growth of the organization. Developing a strong customer focus, McDonald’s relies heavily upon gathering information from customers, employees, and other experts in the field to assist in the decision-
  41. 41. 41 making process. Within the qualitative approach, McDonald’s focuses attention on utilizing expert judgment. Expert judgment is important because it provides significant insight into different aspects of the organization. When seeking expert’s opinions, a technique known as Delphi is used to ensure quality opinions are formed. The Delphi technique allows McDonald’s to gather expert’s opinions on predictions of future behavior. Stock controlcharts A stock control chart shows the balance of orders for new stocks against sales. The system is dependent on figures for expected sales. For example, if sales of burgers are going out of the system, then stocks of beef patties need to be coming into the system. Manugistics uses two years' worth of product mix history to produce forecasts for each restaurant. This uses time series analysis. The planner will apply a causal factor (the blue blocks in the example) to the time series for the start and end date of this promotion. Using complex calculations, the graph then produces a forecast - seen below circled red.  Entering data Any system is only as good as the data that is provided. Therefore, McDonald's Restaurant Managers need to ensure that the data they enter into the system is as accurate as possible. For example, each day, Restaurant Managers record opening and closing stocks of key food items. They record all other items weekly. The store computer system identifies any stock count deviations from the last stock count so managers can investigate. For example, the manager may have missed off a box of organic milk whilst counting them earlier on in the shift.
  42. 42. 42  Buffer stock Restaurants hold a small buffer stock. This is an extra quantity of stock held to meet unexpected higher demand. It is also the point at which more goods are ordered the re-order level.  Ordering McDonald's store managers use a simple web-based communication tool called 'WebLog' to view and amend store Order Proposals. Every day WebLog creates a proposed order for the manager to analyze and demand if necessary. Weblog enables managers and central planners to see what quantities have been ordered, what the current stock levels are and exactly how much stock is due to be delivered at a particular time. In the past, managers would have had to check their delivery for any shortages and input every item they had received. The system now automatically generates a delivery note that gives the exact quantities and descriptions of the delivery. All managers need to do is simply click 'confirm' on Weblog. This saves valuable time and makes the process more cost-effective. MCDONALDS 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. McDonald’s Supply Chain those to continuously update the supply chain which requires supply chain management to be much more extensively used.
  43. 43. 43  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.  DecentralizedStructure 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. RECOMMENDATIONS FOR MCDONALDS  MarketDevelopment As we know there is increasing trend in fast food industry and people are more conscious about their health. Similarly McDonald international should open as many branches in other cities of Pakistan like Multan, Gujranwala, Hyderabad, and other cities like these because this step will not only reduce their business risk but also improvement in their profitability. In the said cities
  44. 44. 44 there is a lot of potential for the fresh investment in the fast food industry. So it should develop the market for its products, only in this way it can maintain its competitive advantage over its competitors like KFC and Pizza Hut.  Diversification Currently McDonald is importing Potatoes from abroad, this makes the product cost so high, so it becomes very difficult for it to capture the middle-income people. By diversification we suggest that McDonald should go for backward integration because Pakistan is an agricultural country and it also exports potatoes to other countries of the world. By growing potatoes in Pakistan McDonald’s can maintain the same quality at lower cost of operations. Similarly McDonald’s should go for its own cattle farm in Pakistan so it will reduce its input cost and it will lead to lower market price of its products as compared to its competitors. In this way the sales of McDonald can be increased by at least 50% of current sales volume By doing this backward integration McDonald’s can avoid the problems like Govt. heavy duties on inputs imported from other countries and similarly it can avoid the problems of continuous devaluation and exchange rate.  Product Development McDonald’s, it should introduce all the time new products that make it differentiated and it must sustain it so that no other competitor can copy their products and there should be lesser chances of product imitation. For this it may altogether change the whole product and can bring a new product or sometimes any major modification in the existing products. So we recommend that McDonald should apply the Product Development at all times whenever the need arises.
  45. 45. 45 CONCLUSION AND SUGGESTIONS Together, McDonald’s, its owner/operators, and their suppliers have created a System to be reckoned with—a System that continues to set records after 50 years. Many have credited McDonald’s with transforming the food industry. But ask anyone at McDonald’s and they will tell you they could not do it alone. The trust in the System inspires collaboration that is unparalleled in other supplier relationships that drive process and product innovations on a regular basis. 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  www.slideshare.com  http://www.docstoc.com/docs/  http://www.scribd.com  Case study of managing stock to meet customer need by McDonalds  https://www.google.com.pk/search?q=cold+chain+logistics+of+mcdonalds+in+pakistan

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