Worldwide, McDonald’s has amassed thousands of suppliers, providing them withtheir raw materials efficiently and on time. To ensure quality of products and reduce cost between the restaurants and their suppliers, the McDonalds Corporation publishes specific guidelines to ensure that the restaurants receive the best quality materials. McDonald’s ensures consistent products by enforcing strict standards and frequently inspecting its suppliers. Takes advantage of long-term relationships with suppliers to ensure consistent products. The Company has quality centers around the world to ensure that its high standards are consistently met.
The quality assurance process not only involves ongoing product reviews, but also on-site supplier visits.McDonalds assures their product is fresh by choosing suppliers near the restaurants, to minimize transport time.
To maintain these relationships, McDonald's does several things, including supplier counsels, annual business reviews for suppliers, and formal supplier development. The focus concentrates on improvements rather than blame. System player refers to the 3-legged stool.
Suppliers are also expected to work with one another to help strengthen the three-legged stool. "If one of our bakery manufacturers finds a new technology to be more efficient, we expect them to share it with the other bakers in their category on behalf of McDonald's," explains Howard. While many companies wouldn't be comfortable sharing this type of information with their competitors, Howard knows the suppliers to McDonald's are committed to the system-first mentality. According to the company's supplier excellence expectations, this principle means that McDonald's is viewed as a priority customer, and strong communication and processes to assure customer satisfaction are expected of each supplier. This manifests in suppliers welcoming one another into each other's facilities and sharing ideas across the table to strengthen the systems that supply McDonald's. "We're very proud of how our suppliers work together, and we are happy when they flourish in their respective industries," notes Howard.
A marked feature of McDonalds’ supply-chain is that the entire network consists of movement of goods through a cold chain. In effect, the suppliers are also a part of this cold chain and in certain cases, for instance, the lettuce growers, the cold chain begins with the Tier-2 suppliers. 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
McDonald’s uses qualitative forecasting methods by gathering information from customers, employees, and experts, via written surveys and other correspondence. McDonald’s brought in SCA to optimize its supply chain and processing for the large volume of beef it sources daily. Using SCA Planner™ the team optimized sourcing, manufacturing operations, and distribution costs, enabling the company to develop forward-looking supply chain strategies including as related to supplier/product mix and plant allocation and investment. Through its improved analytic capabilities McDonald’s realized significant savings over one to two years, with capacity for continuous annual improvement. Emac Digital Company is E-Procurement website which is jointly owned by McDonalds and Accel-KKR Internet Co.Globally, our approach to offering affordable value to our customers is complemented by a focus on driving operating efficiencies and leveraging our scale, supply chain infrastructure and our suppliers‘ risk management practices to manage costs. The eFS Network's neutral web-based marketplace has helped to streamline information flow between participants as well as promote industry-wide technology standards. Exclusive distributors (3PL). Freight consolidation (via freight forwarders)
The Company and its affiliates and subsidiaries generally do not supply food, paper or related items to any McDonald’s restaurants. The company has a 100 percent outsourced supply chain.“McDonald’s believes that we should outsource everything to a company who are experts in their subject matter,” says Mr. Upadhye earnestly, “and then monitor their performance in a proper fashion so that Key Performance Indicators (KPIs) are not affected at all. McDonald’s also believes in a culture of partnership and transparency with its suppliersUnderlying the suppleness of its supply-chain are three principles to which the company adheres unwaveringly, the principles of trust and collaboration between the brand, the owners or operators, and the suppliers
Food ingredients are supplied by two categories, Tier-I and Tier-2 suppliers. Tier-2 suppliers comprise growers and processors who include importantly, lettuce and potato growers, poultry farms and companies which manufacture coating systems that coat the vegetable and chicken patties. The ingredients are supplied to Tier-I suppliers who process them, for instance, into vegetable and chicken patties — this is done by Vista Processed Foods Pvt. Ltd. — or potato products like French fries, potato wedges and hashbrowns which are expertly churned out by McCain Foods India Pvt. Ltd.
Jessica DrosteYagan, Senior Manager for Sustainable Supply, lead 2007-2009 the supply chainworking group that came up with this global vision.Vision We envision a supply chain that profitably yields high-quality, safe products without supply interruption while leveraging our leadership position to create a net benefit by improving ethical, environmental and economic outcomes. Ethical - We 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 our supply chain. Environmental - We envision influencing the sourcing of our materials and ensuring the design of our products, their manufacture, distribution and use minimize lifecycle impacts on the environment. Economic - We envision delivering affordable food, engaging in equitable trade practices, limiting the spread of agricultural diseases, and positively impacting the communities that our suppliers operate in. Viewing our responsibilities in this type of holistic manner, we consider our priorities for food safety, quality, and costs, as well as our ethical, environmental, and economic responsibilities collectively, as we make purchasing decisions and evaluate supplier performance. Our global progress on beef and coffee sustainability illustrate how we are working to bring this approach to life by addressing different components of sustainability through both global and local efforts. Reducing impacts at the restaurant level. McDonald’s takes its responsibility to the environment seriously. In 1990, we established our Global Environmental Commitment, and since then, we’ve been focused on incremental improvements designed to continuously improve our environmental performance, both in our supply chain and in our restaurants.
McDonald’s want the ingredients and materials that go into our products to be produced in ways that contribute positively to the development of sustainable agricultural and food manufacturing practices. Leaders of McDonald’s Worldwide Supply Chain department created a global governance structure. The Sustainable Supply Steering Committee (SSSC): supply chain department representatives from the corporate center and each area of the world, corporate social responsibility, social accountability, and corporate communications. This group is responsible for guiding McDonald’s work toward its vision for sustainable supply by identifying global priorities and ensuring progress in ways that complement local priorities and efforts. At the restaurant level, we’re focused globally on three main fronts: Energy efficiency – Find further ways to increase energy efficiency in our restaurants to save money and reduce our environmental impact. Sustainable Packaging & Waste Management – Continue exploring ways to reduce environmental impacts of our consumer packaging and waste in our restaurant operations.
Green Restaurant Design – Enhance our current strict building standards to incorporate further opportunities for efficiency and innovation in the design and construction of our restaurants. In 2007 and 2008, McDonald’s was ranked second among food service companies by Climate Counts, designating our company in the organization’s “Starting” category as a better choice for the climate conscious consumer. Approximately 82% of our consumer packaging in our nine largest markets is made from renewable materials. Our first green restaurant opened in Sweden in 2000. In addition to this restaurant, we currently have green restaurants in the U.S., with others under construction in France, Brazil and Canada.
McDonald’s has assembled their Global Advisory Council on Balanced Lifestyles. This council consists of exercise & obesity specialists, environmentalists, and other professionals to ensure that McDonald’s takes appropriate steps in helping its customers achieve optimal health. The company is also utilizing technology to their advantage. The current McDonald’s website lets a user select any combination of menu items, place the items in the online bag, and conduct a nutritional analysis on their selections. The user can break down the analysis even further than a menu item, down to individual condiments, including ketchup, pickles, etc. (“Bag a McMeal”).
Place is not just about the physical location or distribution points for products—it encompasses the management of a range of processes involved in bringing products to the end consumer. Examples
TMSupply Chain ManagementHow does the world’s premier fast food restaurant do it?
TMHighlights• Corporate vision• Supply chain strategy• Supply Partners• Outsourcing• New markets• Menu innovation• Social Media• Sustainability• Fast food vs. nutrition• Marketing• Outlook
TMCorporate vision““Our number one priority continues to besatisfying our customers‘ needs by serving great-tasting, high-quality food in contemporaryrestaurants… We will continue to build customertrust through our commitment to sustainability—including nutrition and well-being, a sustainablesupply chain, environmentalresponsibility, employee experience, and thecommunity.”–McDonald’s Corporation 10K (2012)Donald ThompsonPresident and CEO
TMGlobal supply chain strategy• McDonald’s global supply chain is world-class• Thousands of supply partners globally• purchase food, packaging, equipment and other goods• Handshake agreements—no complicated contracts• Focus on building long-term relationships with suppliers• Strict guidelines ensure stores get the best products• High quality standards and product specifications
TMGlobal supply chain strategy• A quality leadership board (technical, safety and supplychain specialists) provide guidance for all aspects of quality• Enforce compliance, quality centers & spot inspections• Supplier Workplace Accountability• Supplier Code of Conduct• Corporate publishes a list of approvedall suppliers—stores choose local supplierswhenever possible• Product freshness is assured• Minimize transport cost and time
TMSupplier partners• McDonald’s defines six supplierattributes:• Assured supply of product• Low cost and best value• Technical competencies• System player• Shared values• Management excellence
TMSupplier partners• Mutual transparency is asuccess factor—builds trust• Information is openly sharedbetween stores and vendors• Partnership culture• The three-legged stool• Corporate staff• Franchisees• Supplier base
TMSupplier partners• McDonald’s works closely with suppliers to encourage• Innovation; assure best practices; continuous improvement• Scales of economy; SC infrastructure; risk management• Food safety is directly linked totraceability• McDonald’s tracks of the origin of eachproduct, which enables the company tocontrol the links in its supply chain
TMProcurement Warehousing TransportationRetailing offood productCold Chain• McDonalds’ supplychain has an entirecold chainnetwork for themovement ofperishable goods• They also employ hygiene regulations; producthandling standards; emergency andcontingency plans; risk and crisis management
TMSupply chain IT strategy• McDonald’s uses qualitative forecasting, e-FoodserviceNetwork and proprietary ERP to flow information• Emac Digital—Internet procurement site designed forMcDonalds Corporations franchises• Optimizing sourcing; manufacturing operations; anddistribution costs• Dedicated 3PL to keep the product moving
TMOutsourcing• McDonald’s does not supply food, paperor related items to stores• Their business model consists of a 100%outsourced supply chain• Three uncompromised outsourcingprinciples are trust and collaborationbetween:• The brand; the owners or operators; and thesuppliers“McDonald’s believesthat we should outsourceeverything to a companywho are experts in theirsubject matter, and thenmonitor theirperformance in a properfashion so that KeyPerformance Indicators(KPIs) are not affected atall.”—Mr. Upadhye(McD India)
TMTaking on new markets• The company was a fast food frontrunner—with early entry anddominance in global markets• Several obstacles must be overcome to expand internationally• Logistics challenges• Cultural challenges• Regulatory challenges• Supplier challenges• Adhering to strict quality standards• Product consistency
TMMenu innovation• Global fast food players must be flexible• In their offerings and approach to different markets• Subject to strong cultural influences• Religion; heritage; culinary tastes• Also impactedby health andnutritionconcerns; socialpressures
TMSocial media strategy• Does McDonald’ssuccessfullyincorporate socialmedia into their go-to-market strategy?• Does 29 million‘likes’ answer thisquestion?!
TMSocial media strategy• The company uses Facebook tobolster brand recognition• Marketing promotions• Promoting nutrition• Sustainability education• These factors have a majorimpact on product demand• can stress supply chain capacity
TMGlobal sustainability vision“profitability yields high-quality safe productswithout supply interruption while leveragingour leadership position to create an net benefitby improving ethical, environmental, andeconomic outcomes.”—Jessica Droste YaganSenior Manager for Sustainable SupplyEthicalresponsibilityEnvironmentalresponsibilityEconomicresponsibility
TMSustainability• Global governance structure—Sustainable SupplySteering Committee• Comprised of world-wide SCM reps; social responsibility; and corporatecommunications• Energy efficiency –Increase energy efficiency inrestaurants to reduce costs and be more ecofriendly• Sustainable Packaging & Waste Management – Exploreways to reduce impact of our consumer packaging andwaste—82% recycled products used in packaging
TMSustainability• Green Restaurant Design – Enhancecurrent building standards toincorporate further opportunitiesfor efficiency and innovation inthe design• All of McDonald’s fish product is certifiedsustainable by the Marine Stewardship Council
TMMcFatty or McHealthy?• McDonald’s has done an excellentjob transitioning from fast tobalanced food• Their third main competitive baseis nutrition• Recognize that health trend is increasingin popularity• They’ve recently focused extraordinaryefforts to promote new nutritious choices
TMMcFatty or McHealthy?• Global Advisory Council on Balanced Lifestyles• Consists of exercise & obesityspecialists, environmentalists, and other professionals• Leveraging web-based technology to educate health-conscious consumers• McDonald’s website lets a user select any combination ofmenu items, place the items in the online bag, and conduct anutritional analysis on their selections (“Bag a McMeal”)–mcdonalds.com
TMMarketing strategies• Product: The company needs to continue introducing newproducts and closely monitor life-cycles• Some of their iconic products are timeless, i.e. Big Mac• Price: Current product price points are right• Promotion: Pursue a balanced marketing mix covering alltypes of marketing communications• Continued emphasis on Social Media; interactive game withrewards (Monopoly); endorsement (Shrek); sponsorships• Place: Be visible and accessible to the customer base• i.e. The partnership with Chinese gas station chain Sinopec
TMOutlook• McDonald’s may have reached market maturation in itsUS market, but it continues to expand globally• The company has a can-do, will-do culture• They’re innovative and flexible• They’re uncompromising in their strict standards• Ray Kroc’s famous quote still holds true, “None of Us isas Good as All of Us.”• There are so many diverse stakeholders invested, it can’t fail
TMReferences• Earley, et al. (2004) McDonald’s Restaurant• (2012) McDonald’s Corporation 10K• (2010) Inside the McDonald’s Empire. CNBC. http://www.youtube.com/watch?v=MNtludttRh8• http://www.aboutmcdonalds.com/mcd/sustainability/our_focus_areas/sustainable_supply_chain.html• http://www.supplychainbrain.com/content/industry-verticals/food-beverage/single-article-page/article/mcdonalds-attributes-much-of-its-success-to-working-closely-with-suppliers/• Arnseth, L. (2011). Supplying the golden arches.http://www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=21980• http://www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=10959• Cheema, P. (2012) The Big Idea; McDonald’s Unravels its Supply Chain• www.mcdonalds.com• http://www.mcdonalds.co.uk/content/dam/McDonaldsUK/People/Schools-and-students/mcd_marketing.pdf