Tuesday, January 28, 2014
McDonald's demand forecasting method
Forecasting is crucial in a total quality management (TQM) environment. Accurately forecasting customer demand is a crucial part of providing the high-quality service. Customers perceive a good quality service when they get their product when they demand for it. The cost of failing to maintain an accurate forecast can be financially catastrophic.
When customers walk into a McDonald's to order a meal, they do not expect to wait long to place orders. They expect McDonald's to have the item they want, and they expect to receive their orders within a short period of time. An accurate forecast of customer traffic flow and product demand enables McDonald's to schedule enough servers, to stock enough food, and to schedule food production to provide high-quality service. An inaccurate forecast causes service to break down, resulting in poor quality.
McDonald’s has climbed five places since last year to the No. 3 position in the Gartner Supply Chain Top 25 of 2012. According to the report, this restaurant chain has managed the fine balance between new product growth and the resulting complexity in the supply chain planning and execution.
The McDonald’s supply chain is 100-percent outsourced. The company owns no factories and no distribution centers. McDonald’s has 16 major suppliers. The most important key performance indicator (KPI) is ‘no item may ever be out of stock’. In order to achieve this, the company works in accordance with several supply chain planning principles. The expectations have to be crystal clear at both restaurant level and menu-item level. The forecasting application used by McDonald is JDA Manugistics 7. It has taken steps to continuously evaluate and report its data. Daily point-of-sale (POS) data at item level, the product list, stock levels at the restaurants, and inventory and shipments at the distribution center are used as input for the forecast. In addition, the marketing plan is taken into consideration – e.g. whether the data concerns a standard product or one on promotion – as are the plans of each franchisee, whose own promotional campaign or local adaptations may need to be factored in. The forecast’s output is validated by forecast accuracy measures.
One of the questions that might be of interest to readers is how McDonald is able to forecast its day-to-day demand in order to meet orders of its customers in its 1-minute drive through? What optimization techniques or predictive modeling approach is deployed by McDonalds to minimize wastage and at the same time maintain freshness and good quality of its food?